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Big bet on digital technology helps Adidas stay fit amid pandemic

The millions of euros that Adidas AG has spent over the last three years on digital technology enabled the company to weather the COVID-19 storm in the first half of 2020, a strategy it now wants to bolster with more investments.

"Digital is and will continue to be our most important commercial and brand driver," said Kasper Rorsted, CEO of Adidas, in an Aug. 6 earnings call with analysts. "We leveraged our entire digital ecosystem in order to nearly double e-commerce sales in the second quarter."

Had it not been for that 93% leap in quarterly e-commerce sales, Adidas would have published far worse results than the wider-than expected loss and 34% decline in sales it reported for the three months ending June 30. Online sales accounted for more than one-third of revenue during the quarter. The German company now expects its digital push to continue.

"At the beginning of 2017, we made it a strategic priority for the company and named our dot-com [channel] the most important store in the world," said Rorsted. "And since then, we have built a strong digital foundation ... [which] allowed us to cope with the spike in the first half and raise our e-commerce target to more than €4 billion" for 2020. That is a 33% jump from the €3 billion in e-commerce sales reported in 2019.

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Adidas' rivals, notably Nike Inc., have jumped on the same opportunity. Nike recently announced plans to further intensify its online business, with expectations that e-commerce sales from its own channels, combined with key retail partners, could account for 50% of overall sales in the foreseeable future. In fiscal 2020, Nike's digital sales reached $5.5 billion, up from $3.8 billion in fiscal 2019. Digital sales in fiscal 2018 were $2.8 billion.

One of the key digital strategies that big shoe companies have embarked on is customization. Nike uses its online customization platform, NIKE BY YOU, to build long-term relationships with consumers and thereby increase sales. Consumers who customize their Nike shoes can pay a premium of 30% to 50% and are more likely to be repeat customers.

Adidas similarly used a combination of apps, video and social media to sell more clothes and shoes via online channels. Its Creators Club program allows users to track their runs and workouts using apps to collect points and get exclusive rewards. These members account for more than 6% of online sales, according to Adidas.

The company's digital transformation goes beyond online sales. It is using digital technology to market products, glean consumer insights to determine shifts in trends and improve its logistical capabilities. For example, at the end of 2019, Adidas began using its "SpeedFactory" concept in Asia, an approach that shortens design and production times in response to customer needs.

"To be clear, digital is more than just e-commerce," Rorsted said. "As part of our digital transformation, we launched our first-ever rapid creation product pack last month. In just under 48 hours, teams created a 3D-rendered product based on the latest consumer research data. ... Launched in July, [the creation pack] performed very well as the tropical [colors] match current consumer tastes, as we had inferred from our data."

In the last two months, as physical showrooms closed, Adidas wanted to continue to engage with its wholesale partners. So it used a "digital showroom tool" that combines three-dimensional video previews and augmented reality to bring its products to life in a virtual setting. Adidas said it had seen a 10-fold increase in the number of wholesale partners using the tool.

"And I think that's where big companies have a huge advantage over the smaller ones," said Rorsted. "We have the capability to invest with more than 200 IT people overnight into our digital space, and accelerate a number of development projects that smaller companies cannot do."

Adidas' shares closed Aug. 6 up 1.9% at €244.30.