What's going on?
Shares of Adidas (ever wonder how it got the name?) jumped almost 10% on Wednesday after the German sportswear company said its profitability is improving amid growing sales in China, the US – and, especially, online.
What does this mean?
Adidas stumbled for a number of years – but its performance has improved dramatically since its new CEO took over in 2016. It’s benefited partly from an increased focus on fashion over sports, partnering with the likes of Pharrell Williams and Kanye West to reimagine some of its old-school sneakers as 21st-century kicks. Overall sales in China and the US each grew by about 35% last year; considering the US market for sportswear in general remained pretty static, this is huge growth. Overall online sales, meanwhile, grew 57% – which should help boost Adidas’s future profitability…
Why should I care?
The bigger picture: Some brands are thriving in an increasingly ecommerce-driven world.
It’s no secret that retail has been upended by consumers’ shift to online shopping, but the challenge posed by the likes of Amazon is perhaps more acute for middlemen retailers like Foot Locker. As Adidas’s online sales growth shows, customers still want to buy products from established brands; they just want to do it online. The change can actually benefit brands like Adidas because it’s able to sell its products directly to its customers, cutting out the middleman and stuffing more profit in its own gym bag.
For markets: Adidas’ story is becoming about profitability, rather than just growth.
Prior to Wednesday, Adidas shares were actually down 15% over the previous six months as investors grew concerned that it wouldn’t be able to maintain its recent sales growth. But Adidas’s announcement on Wednesday that it expects faster margin growth in the coming years (a.k.a. better profitability), largely because of its increasing online sales, has left investors with that new-shoes feeling.