ADIDAS SHOES

Presented by:- Ashish Gutgutia(19) Abhishek Mehta(4)

Prashant DAR(62) Supreet Khanuja(41)

Soham Ghosh Ray(86)

Introduction

• Started by Adolf ‘Adi’ Dassler• 2nd largest footwear brand with 27% market

share after Nike.• 2005- purchase Reebok• Already great performerin Asian and Latin AmericanMarket.

SUPPLY CHAIN

• Adidas products are manufactured by

suppliers under contract to the adidas Group

• Adidas works with more than 1,120

independent factories

• It manufactures their products in 68 countries

• Retail outlets

Product Lifecycle• Getting a new shoe model on a store shelf

could take 15 to 18 months• Volumes were determined far before shoes

arrived at consumer outlets• Requiring careful forecasting• Shoe had a market life of 3 to 6 months• Not possible to adjust production runs to

meet unexpected levels of consumer demand

• Adidas did not try to match supply of any given shoe model with demand

Law Of Demand

Demand for Adidas

The table and graph below represent the demand for Adidas products

YearDemand(sales in million €)

2003 6,2662004 6,478

2005 6636

2006 10084

2007 10299

2008 10799

Consumer Behavior

• The consumers are mainly the youth

• They prefer comfort and style

• Adidas has close competitors

• Consumers has the choice of buying from

close substitutes

Elasticity of Demand

• There are 3 types of demand elasticity.1.Price elasticity2.Income elasticity3.Cross elasticity

Elasticity of Supply• This is a measure of how much quantity supplied

(QS) reacts to a change in prices. Elasticity of Supply is equal to "percent change of QS" divided by "percent change in price".

• Finally we can say that our product i.e. Adidas is more demand elastic. But in short run elasticity is low and in long run it is more demand elastic.

Cost structure – distributionValue Chain for $100 Pair of ADIDAS Shoes

Material Cost $15.67

Direct Labour Cost $15.35

Administration & Overhead $3.56

Factory Profit Margin $1.90

Shipping, Customs, and Finance Charges $2.88

Warehousing & Distribution $0.76

Royalties $0.38

Net Quality Costs $0.27

Direct Ship Allowance $0.21

Research And Development $0.23

Other Costs of Sale $0.17

Marketing Exp. $4.61

Corporate Overhead $1.75

Interest Expense $0.21

Income Taxes $2.56

Total ADIDAS Cost $50.51

ADIDAS Net Profit $4.00

Gross Wholesale Price $54.51

Retail Costs And Profit $45.49

Material Cost

Direct Labor Cost

Factory Profit Margin

Shipping, Customs, and Finance Charges

Warehousing & Distribu-tion

Net Quality Costs

Research And Devel-opment

Marketing Exp.

Interest Expense

ADIDAS Net Profit

Cost structure - input/raw material markets

• Raw material and labour costs 70% of the cost of sales (approx)

• Almost 80% of the footwear is outsourced while rest is manufactured by Adidas itself

• Prices of raw materials such as rubber, oil etc. are subject to the risk of price changes

• Ordering process and price negotiations usually take place around six months in advance

• Reaction time to manage and plan for sharp increases in input costs

• To reduce cost, lean manufacturing techniques at their partner factories

Athletic Footwear Industry Market Share by Sales Volume

CompaniesNikeAdidasReebokPumaNew BalanceSkechersK-SwissVansAsicsSaucony

Market Share42%27%12%6%5%3%2%1%0.30%0.70%

Market Share

Nike

Adidas

Reebok

Puma

New Balance

Skechers

K-Swiss

Market for Adidas shoes• The foot wear industry is dominated by few large firms where

the majority of the market players have less than 5% market share. The market is dominated by the major players like Nike, Adidas, Reebok and Puma. Now after the Acquisition of Reebok, Adidas has acquired a market share of 39% where the players like Nike has 42% market share and Puma has 6% market share

• Here market for Adidas comes under non-collusive oligopoly in the professional Football industry

• Except to that domain Adidas comes under the monopolistic competitive market

• Adidas has a strong position in the footwear and apparel industry. Integrating to its existing line of business is a key advantage to both companies relative to its competitors

Cont…• There are a large number of buyers relative to the number of firms

in this industry. Therefore, companies like Nike and Adidas must continuously market their product and differentiate their brands against competitors, in order to increase sales and market share.

• Bargaining Power of Suppliers is Low as Adidas have standardized their input procedures pertaining to the materials used, their labor force, supplies, services, and logistics. Suppliers have become dependent on these firms as their means to survival.

• Threats of Substitutes are Low as consumers are not likely to substitute due to the performance specification of the product.

• Rivalry among Existing Competitors is High as Large firms such as Nike and Puma have grown immensely over the last two decades. Their global reach has expanded through all continents.

New entrants• Entry barriers for new companies are high• Large economies of scale needed• Requires high initial capital investments• Requires large marketing and advertising

costs

Pricing and marketing strategies• Employs a premium-price strategy• Marketing expense is the largest operating expenses• Approximately 23% of total other operating

expenses• Makes most of its money by selling at wholesale

rates to large retailers• Recently two most influential events – Reebok

acquisition and FIFA world cup• Rapidly expanding its presence in emerging

markets like Asia and Latin America• High profile sponsorships to heavily boost

worldwide sales• They have focused on “PERSONALIZATION”.

Questions?

Thank You!