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Adidas is winning in North America, analysts say

German sportswear group Adidas could potentially double its market share in North America to 30% thanks to the product pipeline in its Boost platform and consumers' increasing awareness of the brand, analysts believe.

"As evidenced by recent second quarter results among athletic vendors and retailers, the athletic sector is showing cyclical and structural issues," Cowen analysts John Kernan, Krista Zuber, and David Buckley noted in a recent industry update. "A key driver of recent disruption is the lack of segmentation across channels, both in-store and online, and within wholesale and DTC across multiple brands.

"An increasingly savvy consumer is being bombarded with product that lacks inspiration and is wiser to the promotional game retailers and vendors engage in. Launch dates both in store and online remain confusing. Customer loyalty is largely evaporating in favour of it being all about the product – which Adidas is winning."

Indeed, the analysts believe Adidas could hit 30% US market share within 18 months.

"Our checks indicate that Adidas is still leading the product cycle, which we think should support top-line targets near-term. Adidas Primeknit continues to outperform Nike Flynit at the higher end consumer level, while Boost continues to outperform Vapor Max."

If Adidas is to remain in favour over the longer-term the analysts say management will need to keep a firm hand on tightening inventory, managing supply, particularly through appropriate channels in North America, and keep the creativity and innovation flowing.

"If Adidas management are successful in navigating through the next year, then it will have a firmer footing with which to traverse the next decade from a position of strength. We think CEO Kasper Rorsted and head of global brands, Eric Liedtke, are aware of this as they evolve the business. There were concerns that Adidas distribution centres are backed up since the brand has not dealt with growth like this in its history in the US."

But, faced with a slowdown in the overall athletic market in North America, the analysts believe Nike is increasing spending around demand creation to help its largest region return to sales growth. It was the only region to report a sales decline in the group's first-quarter, slipping 3% to US$3.92bn.

"Nike is several quarters into contracting its inventory levels in North America and it could take close to a full product cycle to be better positioned. Management has been strongly hinting of a great deal of innovation coming down the pipeline this fiscal year, but beyond Air Vapor Max there have been limited new releases thus far. While Adidas has found great success with the demand of its popular Boost franchise, Vapor Max is unlikely to be 'Nike's Boost'."

The analysts also believe that 3D and 4D printing will become more prevalent in 2018 for both Nike and Adidas.

Meanwhile the challenges for Under Armour are pervasive, according to the Cowen analysts, as the company looks to transform from a largely domestic driven apparel business to a global sports and lifestyle brand.

"The recent restructuring announcement notwithstanding, a change in management's mindset and a return to its roots may be necessary in order to get its 'cool' quotient back."

They expect the company will lower its guidance for the fourth quarter.

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