In recent times, Adidas has managed to stage an impressive comeback, one that has taken the market by surprise. The year 2022 marked a dismal point for this sportswear giant, as its operational profit plummeted by 66%, with sales revenue in Greater China declining for seven consecutive quarters. However, recent preliminary results for the 2024 fiscal year indicate a significant turnaround.

Overall, Adidas has reported a dual increase in net profits and revenues. The company saw a 19% year-on-year rise in fourth-quarter revenue, reaching €5.965 billion. This sustained positive growth over four consecutive quarters signifies a marked improvement, with total revenue for the year increasing by approximately 11% to €23.683 billion. Moreover, operational profit soared to €1.337 billion, reflecting an increase of nearly four times compared to the previous year. Particularly noteworthy was the performance in Greater China, where revenues have grown for six straight quarters, contrasting sharply with the setbacks faced by brands such as LVMH in the region.

Compared to the lows of 2022, this performance report is a cause for optimism in the market. Since hitting a low phase in November 2022, Adidas's stock has rebounded dramatically, increasing by 189%.

This recovery journey can be attributed to decisive actions taken in 2023, the year that proved to be transformative for Adidas. On January 1, Bjørn Gulden assumed the role of CEO and immediately embarked on a range of reform measures. Internally, organizational restructuring occurred, and there was a firm commitment to localizing strategies, paired with a significant delegation of authority to management teams across major markets. Externally, a renewed focus on the sports market was established, aiming at alleviating inventory issues, adjusting distribution channels, and ramping up brand marketing efforts.

From the observable improvement in both performance and stock pricing, Gulden’s bold strategies seem to have borne fruit. The competitive landscape in the sports apparel market has grown increasingly complex with Adidas's resurgence. But what key decisions did Adidas make to successfully navigate out of the downturn?

When asked about the reasons behind Adidas's financial recovery, Gulden remains quite humble, frequently mentioning luck and timing. However, it is clear from the suite of policies implemented since his appointment that Adidas’s rebound cannot be solely attributed to favorable external conditions; their reform strategies have been precise and effective, characterized by three main areas: inventory reduction, channel restructuring, and enhanced marketing.

To address inventory issues, particularly the backlog connected to the Yeezy line, Adidas undertook a comprehensive overhaul of its supply, production, and sales processes. Recent data indicated that by the end of Q3 2024, Adidas reduced its inventory by 7% year-on-year, down to €4.524 billion. The pressure from the Yeezy line is gradually diminishing, with its share of revenue and profits decreasing as well. Previous reports indicate that Adidas plans to eliminate all Yeezy inventory by the end of 2024.

This move toward inventory reduction is particularly significant when considering that, during the troublesome period stretching from 2020 to 2022—compounded by factors such as the global pandemic and the cessation of collaboration with Kanye West—Adidas faced an inventory peak of €6 billion at the end of 2022. Financial analysts from Credit Suisse had previously warned that Adidas would take over a year to rectify these inventory issues. In summary, Adidas has successfully cleared €1.5 billion worth of inventory in just two years, demonstrating a remarkable turnaround.

While seeking to eliminate excess inventory, Adidas has also employed an array of strategies, including aggressive discounting, such as the 60% off promotions during the Double Eleven shopping festival in 2022 on various e-commerce platforms. However, major price cuts only serve as a temporary fix; the company's gross margins dropped significantly as a result, eroding shareholder confidence in the prior CEO, Kasper Rorsted.

There are multiple factors contributing to the inventory buildup issue in sports apparel brands. Most notably, the extended and somewhat inflexible supply-production-sales chain has hindered timely responses to market fluctuations. This is a common issue among veteran brands that have long adhered to the "production-led" principle.

Upon taking the helm, Gulden made addressing the inventory problem a top priority. Learning from his predecessor's mistakes, he sought to rectify the issue from its root by looking to emerging brands and e-commerce models for inspiration, thereby implementing a flexible supply chain upgrade strategy.

The essence of this strategy can be boiled down to an "end-to-end" model. On the production side, redundant links were removed to ensure market data quickly flows upstream. On the sales side, the supply rhythm was adjusted, encouraging suppliers to lower stock acquisition rates. The logistics segment saw investments in automated distribution centers while simplifying delivery processes. For example, the Suzhou distribution center, which opened in 2023 at an investment of €1 billion, can handle over a million items daily. The ultimate goal of these reforms is to create a market-driven supply production chain that transitions to a "sales-led" approach, enabling swift and flexible adjustments to market changes.

Ending inventory pile-up mandates addressing fundamental issues. Furthermore, Adidas has shifted its focus from a one-dimensional Direct-to-Consumer (DTC) model to forging stronger relationships with wholesalers while collaborating with agencies to expedite the opening of physical stores, thereby adopting a two-pronged approach to expand distribution channels rapidly.

In 2021, Adidas unveiled its "Win the Field" strategy, emphasizing the need to boost e-commerce and direct retail sales under the DTC model. The ambitious plan targeted a 50% share of revenue from DTC channels by 2025, intending a twofold increase in direct e-commerce revenue, contributing to over 80% of overall growth.

The rationale behind vigorously implementing the DTC model stemmed from a desire to gain control over all sales channels and engage directly with customers, thus streamlining the direct online-to-offline consumer relationship while establishing a vast membership framework. Although third-party wholesalers had their position significantly diminished, the risk of completely abandoning this model is substantial. The complexities of managing the entire production, sales, and post-sales process implicitly link stockpile issues to this transformation plan.

As evident from the results, attempting this rapid transformation yielded considerable risk. Following Gulden's appointment, he worked diligently to repair ties with wholesalers, stressing that sports apparel remains a predominantly wholesale business, and emphasizing the necessity to halt discussion on DTC while repeatedly asserting a collaborative profit-sharing approach with partners. The Q3 2024 financial report indicated that Adidas's wholesale revenue increased by 13% year-on-year, vastly outpacing the 7% growth of DTC metrics, illustrating that wholesale partners remain indispensable allies for Adidas.

However, Gulden did not entirely give up on the DTC model; instead, he adopted a gentler approach. This included strategic adjustments directed toward offline channels, where resources would be allocated more heavily towards critical markets, especially emerging economies and the Greater China region's tiered markets.

In China, Adidas has granted significant autonomy to the local management team led by Xiaojia Xu over the years. Their key initiatives include shutting down unprofitable flagship stores in first and new tier cities, such as the Adidas flagship center in Shenzhen, while amplifying their store network in third-tier and below cities, largely leveraging distributor support instead of fully committing to a direct retail model.

As of the third quarter last year, Adidas opened approximately 300 new stores in China, and Gulden has indicated that future efforts will emphasize expanding in third and fourth-tier cities. Notably, the Chinese retail expansion agent Sposz was acquired by HLA Group in 2023, facilitating Adidas's penetration into low-tier markets. This indicates Adidas’s recognition that enhancing consumer proximity doesn't rely solely on its own efforts; reliable partners and distributors are equally crucial.

Adidas has made significant adjustments to its store opening strategies over the past few years. In tandem with improved retail access, the company has sought to invigorate its marketing approach, focusing on rejuvenating its somewhat aging brand image.

Both fashion and sports apparel must grapple with the constant threat of falling out of favor, especially following the Yeezy debacle, during which Adidas lacked a standout trending shoe collection, raising concerns about brand aging. However, compared to its true flashy sneaker brand counterparts, Adidas faces a distinctive challenge in being perceived as mainstream and overly typical. It seems nearly impossible for mainstream and trend-centric brands to coexist without evolving their identities to remain appealing.

Acknowledging these realities, Adidas opted for a more economically viable approach: recommitting to brand reinvention focused on youth engagement. Firstly, the company returned its focus to the athletic arena, aiming to reposition itself as a sports brand with trendsetting elements.

The shift back towards athletics undoubtedly signals a return to roots; however, the execution of this strategy exhibits distinct differences compared to previous approaches. Instead of being strictly confined to football, Adidas actively expands its impact across other sports like athletics, tennis, skateboarding, and breakdancing. Additionally, it broadens its sponsorship scope beyond elite events, engaging with more grassroots street events. For instance, leading up to the 2024 Paris Olympics, Adidas sponsored the 2024 China Street Athletics Tour (CAST), alongside a variety of other trail runs and city night marathon events such as the Shanghai Half Marathon and Beijing Marathon.

Besides that, the brand is also vigorously adapting to the internet era's marketing dynamics, especially by collaborating with trendy celebrities to capture the attention of the youth on social media.

In 2022, Adidas officially announced that BLACKPINK member Jennie would take on the role of global ambassador. Initially, the marketing outcomes were moderate, with Jennie's public appearances garnering some attention but failing to resonate widely. Nevertheless, a remarkable twist occurred in 2023, where the Adidas SAMBA line received newfound momentum as Jennie and her fans frequently posted about their styles on platforms, breathing life into the collection of training shoes and jackets particularly appealing to younger female consumers.

The success experienced with the SAMBA series prompted Adidas to continue pursuing this strategy, featuring another up-and-coming star, Song Yiqi, as the ambassador for the Trefoil collection, strategically focusing their marketing across social media platforms like Instagram and Little Red Book.

Searching “training shoes for women” on Little Red Book reveals over 260,000 posts and 320,000 products, showcasing various styling tips from Jennie's wardrobe. According to consulting firm Laced, the SAMBA series achieved a staggering 20-fold year-on-year growth in sales in 2023. Song Yiqi's appearances, such as her participation in the show "Running Man" wearing Trefoil gear, turned into viral sensations that took the social media markets by storm.

From sponsoring street sports events to diving into social media engagements, Adidas's objective remains clear: to penetrate youth culture, build closer ties with consumers, and transform its products into fashionable athletic must-haves. A brand’s image is often defined by its user base, and as this base becomes younger and trendier, the issue of branding age can naturally be mitigated.

Even though Adidas has steadily climbed back in terms of branding and performance, numerous challenges still linger.

To date, the brand remains in search of a game-changing hit to propel profits further, particularly as the U.S. market continues to grapple with recovery. Although the SAMBA line is receiving attention, it pales in comparison to the likes of Yeezy and Nike's Air Force One classics. It's worth noting that, at its zenith, the Yeezy line accounted for a remarkable 7% of Adidas's revenue. Given the competition within the sports apparel market, Adidas faces uncertainty.

According to recent research by Changpu Consulting, the global sports apparel market is projected to have a scale of approximately $1.4 trillion in 2024, anticipating a compound annual growth rate of around 8.3%. As consumer health consciousness continues to rise alongside the popularity of various emerging sports, the market is expected to maintain consistent growth in subsequent years.

However, competition remains fierce: renowned brands like Adidas, Nike, and Puma are up against runway darlings like Lululemon and On, not to mention fast-fashion entities such as ZARA and Uniqlo keeping a close eye on this lucrative sector. A report from QYResearch reveals that the combined market share of the top three global sports apparel brands hovers around 7%, illustrating the ample opportunities for other brands to catch up, leading to a heightened level of competition while establishing robust competitive barriers proves critical.

The core competition points within the sports apparel sector have remained largely unchanged over time, centering on product quality, distribution channels, and marketing strategies. For leading brands to solidify their competitive edge, they must enhance their focus on these dimensions. The reforms undertaken by Adidas in recent years have been concentrated on these factors, while other brands are making their own advancements as well.

In mid-January, Li-Ning formally announced its partnership to replace Anta as the official representative for China's Olympic Team during the Los Angeles Olympic cycle. While details surrounding this partnership remain under wraps, reports suggest an astonishing sponsorship bid of up to 800 million yuan is at play, on top of future investment in channel marketing.

New Balance continues to target mid to high-end markets with a heavy emphasis on running. Since the latter half of 2023, New Balance has embarked on opening several running-themed concept stores and has consistently sponsored prestigious events such as the London Marathon and New York Marathon. Earlier in January, the world’s first NB Grey R store opened its doors in Shanghai's Huaihai Road, boasting an expansive area exceeding 400 square meters, integrating a high-end atmosphere with a primarily silver and wood color palette.

Anta, on the other hand, expresses its dedication to driving growth across both branding and product lines. In its annual summary presentation this January, Chairman Ding Shizhong underscored the importance of consumer-centric demands, center-staging commodities in constructing the operational model while boosting multi-brand cooperative management and retail capabilities. Over the years, Anta has acquired several brands, including FILA and Descente, effectively establishing scalable products across professional, fashionable, and athletic categories.

On the contrary, Adidas's old rival, Nike, is similarly poised for action. The quarterly report for the first quarter of the 2025 fiscal year disclosed that Nike’s income and net profits dropped by 9% and 28%, respectively, pushing the brand to reassess its strategies. Not long after the appointment of new CEO Elliot Hill in October 2022, a series of revitalization plans were announced. These strategies involve regrouping business focus back to sports, diminishing reliance on sneaker lines, inventory reduction, heightened attention towards brand marketing, and more. Notably, swift actions in brand marketing incorporated the recruitment of a new chief marketing officer, the return of Jordan brand tours in China after a six-year hiatus, and collaborations with marathon world champion Eliud Kipchoge for various live events.

These measures resonate closely with Adidas’s recent strategic reforms.

As we look ahead, with leading brands like Adidas, Nike, and Anta undergoing deepened reforms and shift strategies, their competitive interactions are expected to become increasingly frequent. Every entity remains entrenched in finding opportunities to outperform each other. At this stage, no company can claim a guaranteed victory, exemplified by Adidas and Nike's transitions of moats and strengths within just a few short years.