$4,000,000,000,000. This is the Health & Wellness industry market size today and it will continue to expand for the next 30+ years. It’s now a mainstream Megatrend greatly influencing consumer buying patterns, spanning across generations and consumer demographics. It is anyone and everyone who wants to be healthy, happy, look good, engaged, productive and active. This Athleisure Megatrend is just one of the tailwinds behind Adidas. As each year passes increasing numbers of consumers across all ages, cultures and income bands are being drawn to athleisure apparel.
This growth can be seen in this chart, where the athletic apparel and footwear category has gained 8% points share, from 23% of the North American apparel & footwear market in 2009 to 31% in 2018.
The big track sits outside of North America; where global penetration is currently much lower at 19% of the market. Sportswear benefits from consumers increasingly seeking to convey their healthy lifestyles, and public policies in key markets, such as the Chinese national programme to develop the domestic sports economy.
….and its only just warming up. The most innovative company in Europe, clocking in at number 10 of all industries combined in the BCG global rankings (up 25 places), is Adidas - a stunning leap. You can begin to see this expansion and success when relative to a weighting of 5% of group sales in 2017, its Ecommerce division grew 36%. This is already at circa 2% (or one entire quarter) of the Adidas group top line growth in 2018.
An example of the strength of its innovation focus can be seen in how it is making it a priority to improve running performance by creating shoes with variable properties across the midsole. It resulted in the launch of Futurecraft 4D together with 3D printing company Carbon (utilising its patented Digital Light Synthesis technology).
Shoes customised for everyone: Adidas has begun to create customised shoes that fit the unique contours of every single customer’s foot. Imagine this customised offer easily ordered by you at a click of a mouse, coupled with on-line shopping and new forms of home delivery. “Lost a shoe of your favourite pair? Easy, just order one right now.”
This new printing process is a lot faster and more effective than the traditional 3D-printing. 10 hours for 3D printing soles vs. 90 minutes with Carbon. Adidas introduced 5,000 pairs of its first 3D-printed shoe it mass-produced (Futurecraft 4D) in January 2018. It released another 100,000 by the end of that year at $300 per pair which didn’t make a dent on the demand.
Adidas will have access to enough printers from Carbon to make over a million pairs in 2019.
A better product: Carbon’s proprietary ‘Technology’, Continuous Liquid Interface Production or CLIP, provides some major advantages over traditional 3D printing methods. Rather than creating parts in discreet layers, CLIP allows for parts to be formed in a continuous process, drastically reducing build time while improving the quality of the printed parts.
Adidas has multiple qualities that points to it being successful in a rapidly changing and highly disruptive retail environment. It is capable of;
creating product with wide ranging appeal,
tapping into new demand in emerging markets such as China,
growing faster than wider apparel and footwear spending in mature developed markets like Western Europe
scaling e-commerce (from zero to €1.5bn of sales in ten years).
This expertise, overlaid on the persistent premium growth of spend on sportswear and related categories, and the shift toward direct-to consumer, mean we expect sales growth at Adidas in excess of global GDP in the years ahead. This should translate into higher margins and returns on invested capital.
Its financials? Having run our ruler over the firm in great detail, Adidas has the required financial attributes and capabilities, and has passed the high hurdle rates of success we require at Insync. Along with its proven management team at the helm, Adidas should fully capitalise on this huge Runway of Growth ahead for this industry.
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