Adidas weathers a summer storm
today Jun 25, 2019
Just like every summer, the football world has heated up with transfer rumours, along with their associated controversies, and Adidas is currently at the centre of its own polemic concerning Paul Pogba. The French footballer and Adidas brand ambassador could be leaving Manchester United, which plays in Adidas kit, for Real Madrid, another team that wears Adidas, and the German group is suspected of pulling the strings behind the transfer. As might be expected, the brand's management has made its displeasure about these critiques known, but, in light of more recent events, could now be longing for a time when these accusations were the extent of their problems.
Over the last few days, the sportswear giant has looked on as black clouds have been gathering on the horizon. The first strong wind came from Europe. On June 19 the General Court of the European Union made a ruling with significant consequences for one of the brand's most distinctive trademarks. In 2016, Shoe Branding Europe contacted the European Intellectual Property Office (EUIPO) with a request to annul the trademark granted to Adidas' three-stripe logo. In its verdict, the General Court of the European Union has now ruled that the stripes used by the German brand on its apparel and shoes constitute an "ordinary figurative mark" and that the company did not "prove that that mark has acquired, throughout the territory of the EU, distinctive character following the use which had been made of it." The group can, nonetheless, appeal the decision if it so desires.
The next gust blew in straight from the United States. On June 19, The New York Times published the results of an investigation carried out at Adidas' American subsidiary. According to the newspaper, less than 4.5% of the staff employed at the group's North American headquarters identify as black. That's fewer than 100 people out of 1,700 at the company's HQ in Portland. Furthermore, journalists from The New York Times interviewed former Adidas employees who also commented on the group's lack of diversity.
It's certainly not a good look for a sportswear conglomerate that has seen its revenues more than double in North America over the last three years, especially when its success on the market has been fed by collaborations with black superstars including Kanye West and Pharrell Williams, and should soon be getting a boost from a new deal signed with Beyoncé and her label Ivy Park. Adidas wasted no time in responding to the report.
"We actively evaluate and seek to strengthen our programs and policies to ensure we are recruiting, retaining and advancing a diverse team. Recently, we have expanded our Diversity and Inclusion team in North America to focus on underrepresented communities in our workforce across the talent lifecycle; and we conduct ongoing workplace inclusion education and training for employees across North America. Our North American diversity strategy also includes programs to help bring new employees from diverse backgrounds to positions at the company’s corporate headquarters. While we have made progress in these areas, we recognize there is much more to be done, and we are committed to doing it," announced a company spokesperson.
The stakes are high. Adidas' North American activities employ 18% of its workforce and account for 21% of its sales, which were close to 22 billion euros last year. Above all, it's a region that sets a large number of trends within the group. It's therefore important for the company to maintain the credibility of its brand in North America while it still has strong momentum there.
Just in case the group weren't already contending with enough already, a final chilly squall threw it further off balance at the end of last week. On June 20, Shaquille O'Neal spoke out against Adidas on an entirely different subject. The retired basketball pro and shareholder of Authentic Brands Group, which manages the rights of his label and recently acquired Volcom, spoke to CNBC about Reebok. According to O'Neal, since acquiring Reebok in 2005, Adidas has "diluted [the brand] so much to where it’s almost gone." "If they don’t want it, let me have it. I want to bring them back to basketball and to fitness," he added.
The offer was direct enough but the sums necessary to complete such an operation would no doubt be significant, Adidas having purchased Reebok for $3.8 billion. Furthermore, in 2018, despite a sales decline of 3% in constant currencies, Reebok reported 1.687 billion in revenues, with a concerted effort already being made to improve margins.
In spite of this unfortunate series of events, Adidas' well oiled machine does not appear to have seized up. Indeed, although its stock was down 1.53% after closing on Monday, the group has maintained its strength on the stock market. In the space of a year, the price of its shares has jumped from 187 euros to 268, putting the sportswear giant in a position where it can more than comfortably weather its fair share of summer storms.
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