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Adidas bets on sweatpants as Zoom yoga booms

The company feels that people will continue to prioritise comfort in 2021, be it at home, or in the gym

People walk past a store of German sports equipment maker Adidas on March 10, 2021 in Munich, southern Germany. - German sportswear group Adidas said on March 10, 2021 the pandemic sent its earnings plunging 78 percent in 2020 but it is expecting strong profit growth in the next four years. (Photo by CHRISTOF STACHE / AFP) (AFP)

A year ago, Kasper Rorsted, chief executive officer of Adidas AG, likened the pandemic’s effect on its business to a soccer match: There would be a lengthy halftime break, but then things would kick off once more.

On Wednesday the sportswear company confirmed that the game has resumed. It reported a return to growth in the final three months of 2020, and even set ambitious sales and profit targets through to 2025 — a show of confidence that we’ll need more gear for home Peloton workouts and Zoom yoga, as well as things to wear out at gyms and sporting events.

Adidas’s new strategic blueprint, dubbed “Own the Game", assumes that last year’s surge in health, fitness and well-being spending will continue apace — and that the company can capture it. It’s certainly not impossible. Investors are already giving the company the benefit of the doubt, with shares rising as much as 8.6% on Wednesday. But there are no guarantees.

 People won’t stop exercising as soon as they can go back to bars and restaurants. But it’s hard to imagine another big rush to set up home gyms and stock up on hoodies. Indeed, on Tuesday, Dick’s Sporting Goods Inc., which sells sports equipment, clothing and footwear, signaled that after a roaring pandemic year, sales growth could stall in 2021.

Adidas is also expecting that after a year stuck inside, people will continue to prioritize comfort over chic. In reality, they might be more likely to ditch the sweatpants. As I have argued, fashion often rebels against prevailing circumstances. Despite the current trend toward casual attire, a post-pandemic economy could bring more attention to dressing up and formal styles. Urban Outfitters Inc. said recently that it was seeing more interest in dresses and other get-ups.

This means that Adidas will have to work hard to meet its targets. Right now, it’s focusing on the right levers. It’s investing 1 billion euros ($1.2 billion) in e-commerce, with the goal of doubling digital sales to between 8 billion and 9 billion euros by 2025. It’s emphasizing sustainability, aiming to make nine out of 10 Adidas products environmentally friendly within the same time frame. And it’s ramping up womenswear and making a big push into clothes that look good outside of the gym  — a smart move considering “active” fashion will account for 50% of sporting goods industry growth through 2025.

But on top of pandemic-related consumer shifts, the company will have to manage one other big issue: selling Reebok, its retro “Dad” sneaker brand, which could bring in proceeds of 1.5 billion to 2 billion euros. This may prove tricky. Reebok has struggled in recent years, failing to harness the trendy 90s-era look as effectively as rivals Fila and Kering SA’s Balenciaga and dragging down Adidas’s profits.

There are ways to get around this. For example, the company could try to sell the brand to a trade buyer. Or it could retain a minority stake in the business, making the deal more affordable and perhaps more attractive to private equity. Such a structure would also allow Adidas to benefit from any revival. It says interest in Reebok has been tremendous so far.

It’s easy to see why Adidas wants to rid itself of the brand and turbocharge sales and profits. On a forward price to earnings ratio, the company trades at a discount to its main competitors Nike Inc. and Puma SE.

Narrowing the gap would deliver significant shareholder value, and demonstrate that CEO Rorsted can indeed own the game.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    15.03.2021 | 10:00 AM IST

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