Mar 26, 2015
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Adidas to shift some production from Asia in robot revolution

Mar 26, 2015

Adidas announced plans to revolutionise the way it manufactures goods to speed up production and allow shoppers to customise more shoes and clothes, to help it accelerate sales and profit growth over the next five years.

The German sportswear firm, which has been losing ground for years to fast-growing rival Nike, said it was testing automated production units that would allow it to shift manufacturing from Asia closer to consumers and even into stores, where shoppers will be able to personalise their goods.

"We will bring production back to Europe. We will bring production back to where the main markets are," said Chief Executive Herbert Hainer, adding the current six weeks it took to ship from Asia to Europe was too long.

Manufacturing closer to home could allow it to react more quickly to swiftly changing consumer trends as it seeks to mount a bigger challenge to U.S. market leader Nike.

Adidas said it would extend across the group supply chain innovations pioneered by its NEO teen fashion brand which already gets new products into store in 45 days, compared with an industry standard of 12-18 months. Such innovations include putting its own product developers into factories.

The company, which also plans to open hundreds of new stores, said it expects sales to grow by almost half to above 22 billion euros ($24 billion) by 2020 and net income to rise around 15 percent per year on average - up from the 7-10 percent increase it expects in 2015.

Nike, which last week reported quarterly profit that beat analyst estimates, has been taking market share from Adidas, even in its core markets of western Europe, and is targeting revenue of $36 billion by fiscal 2017 from $28 billion last year.

Adidas did not set a new margin goal after it was forced to abandon a 2015 target for a 11 percent operating margin. The measure fell to just 6.6 percent last year, compared with the 13 percent recorded by Nike.

Investors gave the plans a lukewarm reception. Adidas shares, which have risen 20 percent so far this year in part due to high expectations for the strategy presentation, were down 1.9 percent at 1026 GMT, underperforming a 1.5 percent weaker German blue-chip index.

"Their main problem is weak profitability and we are hearing very little about that," said Ingo Speich, fund manager for Union Investment which has a 1.3 percent stake in Adidas.


Adidas, founded by German shoe maker Adi Dassler in 1949, laid out its new strategy in its innovation centre, where it demonstrated machines which allow shoppers to print their own names and logos onto its popular "Superstar" sneakers, tapping into a broader trend for personalised products.

It said it was working with German companies and the government on innovations in robotics and machines which can make sneakers rather than having them sewn by hand, which could allow it to move production away from production hubs in China, Cambodia, Laos and Vietnam.

"Our 2020 vision is to have fully automated and scalable manufacturing wherever we want and wherever the consumer desires it," said Claire Midwood, who runs the NEO brand.

Hainer - who faced calls to step down last year after he was forced to abandon the company's previous five-year targets - admitted the strategy lasts beyond his contract, which runs until 2017, but said it was a team effort.

The company said last month the board had launched a formal search to replace Hainer, in the job since 2001, although the CEO has said that did not mean his departure was imminent.

"The strategy will only be credible under new management as Hainer could not deliver on what he promised," Speich said.

Global brand chief Eric Liedtke, seen as the strongest internal candidate to succeed Hainer, was the first to speak after the CEO at Thursday's event, laying out the new strategy in far more detail than Hainer.

Liedtke, a former American football player, said the company's priorities included reversing falling sales in North America, retaining its global leadership in soccer, doubling sales in running and doing more to appeal to female consumers.

The firm, which until a decade ago only sold its products wholesale, plans to open another 500-600 stores so its own retail accounts for above 60 percent of sales, from about half in 2014, with e-commerce revenues to more than quadruple to above 2 billion euros by 2020.

It expects its cash flow to grow at a faster rate than operating profit in the next five years, allowing it to raise its corridor for future dividend payments to 30-50 percent of net income from a previous 20-40 percent.

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