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Transcript of ADIDAS GROUP
• The company’s leading market position is built on its portfolio of strong brands like adidas, Reebok and TaylorMade. Leveraging its brand would enable the company to establish a strong retail presence taking advantage of the increase vacancies in the malls, particularly in US.
• In face of an economic downturn, Adidas was driven in particular by a high focus on cash generation in 2009. Although the company suffered from a decrease in its operating income, you could observe that Cash account of the company had increased significantly, giving the company the strength to expand and penetrate the other market world-wide despite the weak economic environment during those period.
• One of the major strength of the company is its wide geographical footprint with increasing focus on emerging markets. With this, it would enable the firm to take advantage of the increase in buying power in Eastern European and Asian countries.
• The goal of this strategy is to have a better understanding of the needs of the customers by being as close as possible to the final consumer.
• Seeking ownership of the company’s independent suppliers, especially in China, or backward integration would enable the company acquire control on these suppliers and to the quality of their products. Over-reliance on third party vendors and manufacturers makes the company prone to top-line risks from external parties.
• The weak performance of the company was due to the excess inventory that had increased their carrying cost. Marketing through the internet would enable the company to increase its sales reducing the excess inventory that the firm had suffered during the previous periods.
• Taking advantage of the changes in the preferences of the customers by conducting trainings, seminars, and team buildings would enable each employee to have a good relationship with one another. The competence and proficiency of the employees would increase in dealing with customers and at the same time, it would create a synergy.
• Taking advantage of the acceptance of high-tech offerings to consumers by having a strong R&D investment, to be able to issue new products with improved efficiency and cutting-edge functionality that can be sold at a high price, can boost the operating income of the firm to be able to recover from the past decline in its revenue.
Adidas Group 2009 Financial Statements
• Adidas AG’S differentiated product lines partnered with the decrease in apparel demand. The company could innovate their existing product lines in order to cope up with the decreased in apparel demand. Innovating their products may create new demands for their target market, as well as creating new product lines.
• Even with the low barrier to entry, Adidas can still maintain its established brand name through advertisements. The company can sell itself to any market and any customer. So that, even if there are other firms that would try to compete, they would still have to eat a lot to outrun Adidas AG.
• Adidas AG can take it strength in technology development in processing the inputs at the lowest possible cost and that’s the main purpose of technology.
• The company can offset its possible gain and loss caused by currency devaluation by expanding its geographic market in different parts of the world. By that, a possible loss in one country can be offset by the gain in another country. It’s like spreading the risk of loss by expanding its portfolio.
The SWOT Matrix is an important matching tool that helps managers develop four types of strategies: SO (strength-opportunities) Strategies, WO (weakness-opportunities) Strategies, ST (strength-threats) Strategies, and WT (weakness and threats) Strategies.
SO Strategies use a firm's internal strength to take advantage of external opportunities.
WO Strategies aim at improving internal weaknesses by taking advantage of external opportunities.
ST Strategies use a firm's strengths to avoid or reduce the impact of external threats.
WT Strategies are defensive tactics directedat reducing internal weakness and avoising external threats.
1. 141% increase in net cash flow of the firm
2. Operates over 2,200 stores for Adidas and Reebok brands worldwide
3. Wide geographical footprint with increasing focus on emerging markets
4. Strong brand portfolio
5. Decrease in the Long-debt of the company from 2,488 to 2,263 in millions of Euro
6. Differentiated product line
7. Focus on performance and technology development
8. Sponsorship on sports and events.
9. Established brand name
10. Customer Loyalty
1. Large amount of long-term debt and goodwill, 2,263 and 1,478 in millions of Euro respectively
2. Weak performance impacted by excess inventory
3. Ability to retain employees
4. Inability to low costs.
5. 53% decline in operating profit from the year 2009.
6. Outsource over 95% of production to independent suppliers
7. Little control over product quality due to outsourcing
1. Unemployment rate has exploded to 8.1% as of February 2009.
2. Disposable income among citizens declined 5% in prior year
3. Industry’s low entry barrier
4. Growing possibility of forward integration of suppliers.
5. Apparel expenditures of customers decrease from 42.7 billion USD to 38.4 billion USD
6. The athletic footwear market declined by 3.2% in 2008 and another 1.4% during 2009
7. Currency Devaluation
8. Higher input costs in the market
9. Industry’s low entry barrier
Based on Jim Harvey's speech structures
1. 36% of total market controlled by US
2. International Expansion
3. US mall vacancy rates rose to 8.2%
4. Increase in buying power in Eastern European and Asian countries
5. Growth of lifestyle centers of which 50% had opened
6. Acceptance of high-tech offerings by consumers
7. Acquisition Synergies by large markets
8. Marketing has moving rapidly through the internet.
9. 32% of all suppliers of the company were located in China
10. Changes in the preference of the customers
1. Leverage strong brand portfolio to establish a strong retail presence. (S4, O3)
2. Taking advantage of the strong cashflow and improving balance sheet of the company for the expansion plans in a weak economic environment. (S1, O2)
3. Effective participation in high growth emerging markets, especially on European and Asian countries, to expand its market. (S3, O4)
4. Customize distribution by expanding the “controlled space”(own retail business, exclusive retailers, joint ventures, co-branded stores with organizations or other brands) of the firm to improve retail relationship with customers. (S2, O10)
1. Innovate existing product lines or create new ones that would fill the loss of apparel demands without sacrificing the quality Adidas is known for. (S6,T5)
2. Strengthen the publicity of the company and reach out to every possible customer through eye-catching advertisements and promotions.(S9, T9)
3. Exploit technology in developing a system of processing input where its benefits would outweigh its high cost. (S7, T8)
4. Expand its geographic markets in different parts of the world to offset the possible gain and loss of currency devaluation. (S3, T7)
1. Seeking ownership of the company’s independent suppliers, especially in China, or backward integration to increase the control over them. (W6, O6)
2. Creating surplus for the excess inventory items through online marketing. (W2, O8)
3. Conducting trainings and seminars, team buildings, to improve employee relationship increasing their ability to understand customer. (W3, O10)
4. Having a strong R&D investment, to be able to issue new products with improved efficiency and cutting-edge functionality that can be sold at a high price which can boost the operating income of the firm. (W5, O6)
1. Engage in research to extend the sources of inputs so as not to depend only to suppliers. Adidas can manufacture its own inputs without compromising the quality and benefits it can derived from its inputs. (W4, T4)
2. Build stronger relationship with few suppliers who are willing to provide the needs of the company at the lowest possible costs. (W4, T4)
3. Promote employee competence through proper training and utilize the labor they can offer to the company. (W3, T1)
4. Adopt an inventory system that would low the cost of ordering and holding inventories. (W2, T4)
• Adidas should engage in research studies so as to find alternatives on how to acquire inputs. By not depending too much on its supplier, Adidas AG can lessen the risk of being acquired by its stronger suppliers if there is any.
• Adidas should build strong ties with few but very loyal and trustworthy suppliers who are willing to provide all the inputs needed by the company for its products. It should narrow its suppliers to few but reliable ones.
• Employees are the most important asset of a company. Adidas should develop a program of developing employee competence. This can include proper trainings, seminars, and others that can improve the quality the employees are able to give to the company.
• The company should adopt an inventory system where it could minimize the cost of holding its inventories. There are many inventory system it could adopt, it can adopt as many as practicable and beneficial to the company. What’s important is that the inventory system it would adopt suits the company best and would be the most beneficial.