Thursday, 7 August 2014

Adidas looks to outrun Nike with its biggest advertising campaign ever

Adidas is planning its biggest advertising campaign ever next year as it fights back against rival Nike.

Adidas, the world's second-largest sportswear maker, has admitted it needs to invest more in its brands to catch up with market leader Nike, after losing ground in developed markets. Herbert Hainer, the chief executive of the German company, promised the "most ambitious" brand campaign in the company's history for 2015.

"It is with disappointment that after such a great summer of sport, I have to report that our group has not been able to meet the high expectations we laid out," he said. "We take full responsibility to rectify our shortfalls swiftly."

He added: "We need to raise our game. I'm a striker and I want to win. It is obvious that we will have to go back to the training ground."

He said the company would lift its marketing budget from 13% to 14% of sales next year – an increase of up to €200m (£159m).

Adidas on Thursday cut its profit margin outlook for this year after a 13% slide in operating profits to €220m (£174m) in the second quarter. It took a hit from volatile emerging markets currencies, in particular the weaker Russian rouble, coupled with disappointing golf sales. Adidas plans to restructure its golf arm, TaylorMade, whose sales fell 18%, but Hainer refused to give details on job cuts.

The company already lowered its sales and profit estimates last week despite receiving a boost from the World Cup in Brazil, which is expected to lead to record sales of €2bn (£1.6bn) in football products – from replica shirts to footballs. Adidas sold more than 14m of the official World Cup "Brazuca" balls, and over 8m football jerseys. It kitted out nine teams, including champions Germany as well as Argentina and Colombia.

Hainer highlighted a recently-won 10-year contract with Manchester United to be the club's new kit sponsor for a record-breaking minimum guarantee of £750m. It will kick in at the start of the 2015-16 season and ends Nike's 13-year relationship with the club.

While nearly two-thirds of its sales are made through third-party retailers, Adidas has invested in opening more of its own shops because they are more profitable. However, it has scaled back store openings in Russia, where it runs around 1,000 shops. It is its third-biggest market, but the escalating crisis in Ukraine has made Russians more reluctant to shop.

The company's shares tumbled more than 11% after last week's profit warning and traded down 3.5% Thursday afternoon. Adidas now expects to make a profit of €650m (£515m) this year, down sharply from the €820m-€930m (£650m-£737m) previously forecast. Analysts at Citi said they remained sceptical about the outlook for the stock, given the scaled-back investment in Russia, higher marketing costs and adverse currency trends.
http://www.theguardian.com/business/2014/aug/07/adidas-biggest-ad-campaign-fight-nike

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