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27 November 2020 16:32

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For the biggest sportswear brands on the planet, each of whom are taking stock after an immensely challenging 12 months, there has been little choice but to adapt. Not even the world's preeminent sports apparel and footwear companies have been able to outrun the coronavirus pandemic. Of course, the four largest sportswear firms - Nike, Adidas, Puma and Under Armour - are multinational corporations that have long relied on bricks-and-mortar retail, transcontinental supply chains, and a regular flow of elite sport. "In the US, the footwear and apparel businesses have been very challenged," says Matt Powell, a veteran retail analyst and senior sports industry advisor at market research firm NPD. "The athletic side has fared better than the fashion side, but both have been challenged, and it's reflected in the results for these brands here." One recent trend among the biggest sportswear players is an industry-wide shift away from a wholesale model towards direct-to-consumer sales, both through ecommerce and company-owned and operated retail outlets.

Nike, Adidas, Puma, Under Armour: Sizing up the sportswear giants in 2020

Perhaps no company has pursued this shift towards digital sales more aggressively than Nike, the number one sportswear brand on the planet. Nike's direct-to-consumer operations were growing prior to the arrival of new chief executive John Donahoe, the former eBay boss who joined from software company ServiceNow in January, but they have taken on added significance as a result of Covid-19. As part of what the US$143 billion juggernaut has taken to calling Consumer Direct Acceleration (CDA), Nike has implemented a new company-wide digital transformation initiative to create 'a more premium, consistent and seamless consumer experience across its owned and strategic partner ecosystem'. In June, after a torrid fiscal fourth quarter in which it was forced to close roughly 90 per cent of its physical retail outlets, Nike reported a 75 per cent surge in online sales. Ecommerce revenue rose to 30 per cent of its total revenue for the first time and a full three years ahead of schedule, while online sales climbed again by 82 per cent in the three months up to 31st August even as retail outlets reopened, with significant gains seen in North America, China, Europe and the Middle East. Nike has accelerated its digital transformation amid the pandemic in an attempt to deliver 'a more premium, consistent and seamless consumer experience' That surge in ecommerce has helped offset losses in a year in which overall annual sales fell to US$37.4 billion, down five per cent from US$39.1 billion during the 2019 fiscal year. In July, the company announced a senior leadership reshuffle and plans for sweeping job cuts as part of a major restructuring that would cost the firm, which employs some 76,000 people globally, as much as US$250 million. Nike's unique scale, brand strength and its big bet on digital transformation have clearly bred confidence among investors that the company can emerge from the Covid-19 crisis with a truly differentiated, digitally connected experience unmatched within the global marketplace. On the evidence of this year, few would bet against Nike achieving its target of a 50/50 split in wholesale and digital sales within the next three years. These strengths, coupled with our digital acceleration, are unlocking Nike's long-term market potential. With more than 70 per cent of its physical stores closed during the height of the pandemic, revenue for the first half of 2020 fell by 27 per cent to €8.332 billion (US$9.807 billion), while operating losses totalled €333 million (US$391 million). In the three months to September, operating profit was down 12 per cent to €794 million (US$934 million) on the back of sales of €5.96 billion (US$7.01 billion). Despite the drop in overall revenues, however, the world's second-largest sportswear company did see 'exceptional growth' in online sales. Business generated through its own ecommerce channels increased some 93 per cent during Q2 alone, with growth throughout April and May accelerating at a triple-digit rate. In Q3, ecommerce sales jumped 51 per cent, with two-thirds of online revenue in Europe and the United States coming through Adidas' loyalty programme, which now has 150 million members. Broadly speaking, Adidas' performance mirrors that of Nike, but the German brand is facing its own unique set of challenges. According to reports, the company is mulling a cut-price sale of Reebok, the Boston-based brand it bought for US$3.8 billion in 2006, amid mounting losses and growing pressure from shareholders. Private equity firms Permira and Triton are said to be exploring a possible acquisition, with Kasper Rorsted, Adidas' chief executive, accepting his company may be forced to settle for less than €2 billion (US$2.3 billion) to offload a brand it has struggled to rejuvenate over the past 14 years. In March, Adidas is expected to lay out its next five-year strategic plan. "The Adidas business in the US has been challenged for a couple of years now," says Powell. But it's challenging to have two footwear brands that are essentially aimed at the same customer owned by one company and competing with each other. At the same time, we are even better positioned to benefit from the long-term industry growth drivers accelerated by the pandemic such as health and wellbeing, athleisure and digitisation. Over the prior six years, annual sales had nearly doubled and operating profit had grown sevenfold. That upsurge came about primarily due to a shift in focus away from lifestyle and fashion towards sports, a repositioning that has coincided with a move by Kering, the French luxury goods group, to gradually divest its shares in the company. Hampered by widespread store closures, including a Chinese business which the company said 'basically disappeared', Puma saw its net profit for the first quarter fall to €36.2 million (US$39.1 million), a 61.6 per cent year-on-year drop on the same period in 2019. Chief executive Bjorn Gulden has taken steps to reposition Puma as an athletic performance brand By Q3, after securing an additional €900 million (US$1 million) revolving credit facility in May, the German brand had rebounded on the back of improved sales in the Americas and Europe, with categories such as basketball, motorsport, golf and team sports showing the highest growth rates. Quarterly sales rose by 13 per cent to €1.58 billion (US$1.87 billion) and operating profit grew 17 per cent to €190 million (US$223 million), beating analyst projections. All told, direct-to-consumer sales grew by 60.9 per cent during the quarter, contributing to ecommerce growth of 66.5 per cent in the first nine months of the year. Still, even after a strong Q3, chief executive Bjorn Gulden warned that Puma will be unable to provide a decisive forecast for the fiscal year due to lingering uncertainty surrounding the pandemic. In spite of the obvious challenges, Puma has advanced its sports marketing efforts this year. Gulden, a former professional soccer player and one-time boss of Danish jeweller Pandora, has sought to refocus the brand's investment back into sport as part of a long-term strategy to return to its "core values". Retail stores reopened, sports events resumed, consumer confidence improved and our sales increased week by week. I feel this strong performance confirms the strength of both Puma as a brand and the sporting goods industry in general. Bjorn Gulden, Puma chief executive After a rampant period in which the self-professed challenger brand racked up quarter after quarter of 20 per cent-plus growth, Under Armour's recent travails have been well-documented. A costly restructuring culminated with a leadership change last year, when Patrik Frisk became the firm's chief executive, and hundreds more layoffs have since been implemented across its global workforce due to the financial impact of Covid-19. With the virus having taken its toll throughout 2020, including a US$183 million loss for the second quarter, the Baltimore-based brand shelved plans for a flagship store on Fifth Avenue in New York. "The Under armour business here was challenged early," notes Powell, "but as we start to emerge from the pandemic it's apparent that we're going to see a shift into performance wear as fashion again. People are going to be more concerned about living healthy lifestyles and staying fit, and the recent Under Armour results have been much better." For the three-month period ending 30th September, Under Armour's year-on-year sales were flat at US$1.4 billion, although they outstripped analyst estimates. Wholesale revenue in Q3 decreased seven per cent to US$830 million but, like its main rivals, the brand saw direct-to-consumer revenue increase, with quarterly sales climbing 17 per cent to US$540 million on the back of strong growth in ecommerce and rising demand for workout gear. Perhaps the most significant move made by Under Armour this year is its strategic shift away from connected fitness, which accounts for three per cent of its overall revenue. "I really think MyFitnessPal never was a good fit for Under Armour," Powell continues. Under Armour has meanwhile been rethinking its sports marketing strategy. Our third-quarter results reflect considerably better than expected performance due to higher demand and our strong execution, especially in North America. We believe that the critical mass of our transformational challenges is behind us, and we remain sharply focused on operational improvements and financial discipline to accelerate strategies to create sustainable, long-term growth for the Under Armour brand and our shareholders. Patrik Frisk, Under Armour president and chief executive