Adidas Five Forces Analysis

Adidas is among the most popular sports shoes and apparel brands in the world. It is also the dominant brand in some categories of footwear. Adidas is a German brand of footwear and apparel. However, it is also a dominant player in the North American market. The company generates a significant part of its revenue from the United States.

Recognized around the world by its three stripes, Adidas is a leading rival of Nike, the global leader in sports shoes and apparel. North America and Europe are its most significant markets. However, China is also a key market for Adidas products where the company has experienced a decline in sales in 2022.

Adidas invests in product quality, innovation and marketing to maintain demand and product sales. In 2022, the company experienced modest revenue growth mainly because of decline in demand in the Chinese market, geopolitical tensions and some internal strategic issues.

Adidas is operating in an intensely competitive environment where market share depends on several things including brand image and innovation. The company has maintained a leadership position and is investing in modernizing its supply chain and business operations for higher efficiency and superior growth.

In this five forces analysis, we will analyze the competitive position of Adidas and its strength with respect to competitive pressure and other challenges. Porter’s five forces analysis is an analytical tool that is used for evaluating a firm’s competitive strength and to measure its ability to survive and thrive amidst various types of challenges. The analysis is used to drive strategy formulation and decision making inside organizations and has been named after its creator Harvard Professor Michael E Porter.

Bargaining power of suppliers: Moderate

Supply chain management is a very critical part of business operations in the sports shoes and apparel industry. Companies focus heavily on supply chain management in this industry to manage product quality. Most leading footwear brands have outsourced their manufacturing operations to external suppliers. However, it does not imply everything is in the hands of the suppliers. 

Companies work with hundreds of suppliers to secure production but they provide their own specifications according to which suppliers need to manufacture products. Adidas has also adopted quality control measures for its supply chain to manage quality of products. The rest depends on the suppliers and suppliers are still not a very strong force in the sports shoe industry. These suppliers are much smaller firms compared to the leading sports shoes brands like Adidas. 

The threat of forward integration from the supplier firms is low and these companies are not financially as strong as Adidas. Its suppliers are scattered all over the Asia region in several countries. There are more factors that affect the bargaining power of suppliers. Adidas’ large size, its financial strength, brand image and focus on developing superior production technologies help it moderate the bargaining power of suppliers. However, considering the critical role of these suppliers in the value chain of Adidas, they are still an important force. Their bargaining power overall is not high but only moderate.

Bargaining power of buyers: Moderate

The bargaining power of buyers in the footwear industry is moderate. Adidas is a leading sports shoes brand and its consumers include individual buyers as well as its retail partners and wholesalers. 

The retail partners play an important role for Adidas in terms of sales and marketing. They are also the largest buyers of Adidas products which gives them some bargaining power. Individual buyers do not hold any significant bargaining power. 

Their purchases are generally smaller and there are also several factors that moderate the bargaining power of buyers. However, since everything in the Adidas system is directed at the consumer, it does give them a central role and therefore the significance of customers cannot be denied. 

Some factors that moderate the bargaining power of the buyers include product quality, innovation, marketing and the brand image. Adidas has a strong brand image and invests in innovation to bring better products to the market that serve customer needs better.

Marketing and product quality drive demand as well as customer loyalty. Adidas is also using digital channels to serve its customers efficiently. 

Overall, the bargaining power of buyers is moderate.

Threat of substitutes: High

The threat of substitutes for Adidas is high and mainly arises from the products made by rival brands. Since the number of its competitors in the sports shoes and apparel industry, there are several companies making substitute products. 

The threat of substitutes also grows high because the switching costs are low for the brand and other leading brands also make high quality and attractive products. These factors drive the threat of substitutes high. Puma, Nike and other competitors like New Balance and Skechers also offer a diverse range of footwear and apparel. Customers can anytime switch to other brands without incurring any switching costs. Customer loyalty is a bit difficult to obtain in the footwear industry.

 However, there are also some factors that have helped the company moderate the threat from substitute products and brands to some extent. The company invests in product quality and innovation to achieve higher customer satisfaction. It has also brought several loyalty programs and rewards to increase customer loyalty. Adidas also invests heavily in marketing to attract customers and encourage brand switching as well as improve brand awareness.

While these factors moderate the threat of substitutes to some extent, Adidas is dealing in a highly competitive environment where other brands are also investing heavily in building customer loyalty. Overall, the threat of substitutes remains high.

Threat of new entrants: Low

The threat of new entrants for Adidas is low. It is because of the high barriers to entry for new players. The incumbent players are positioned well to discourage new brands from entry in the footwear and apparel industry. There are financial barriers before the new players, which will also need the knowhow and operational infrastructure as well as supply chain to grow fast in a highly competitive business environment. A new business will need to spend a lot on building its market presence faster. Manufacturing, supply chain management, sourcing, and marketing will require a large capital for investment to begin operations.

While financial barriers discourage the new players, they will also need the technology or marketing, manufacturing, sales and customer service. Building a brand and growing into a  globally recognized brand requires achieving customers’ trust and loyalty and these things take time and capital both. 

Some brands may enter at a smaller scale but then they will remain limited to smaller markets and will not pose any significant threat to brands like Adidas. If an existing large fashion brand tries to diversify into the footwear sector, it will also face intense competitive pressure. 

Some other factors that moderate the threat from the new entrants include the brand image of Adidas, its financial strength, marketing, innovation, product quality and customer loyalty. Overall, the threat of new entrants for Adidas remains minimal.

Intensity of competitive rivalry: high

The intensity of competitive rivalry faced by Adidas is high since the company competes with a large number of major players in the footwear and apparel industry. The battle for market share has kept intensifying as brands are investing in innovation and improving their product portfolios to expand their market shares. 

There is a long list of Adidas competitors including several well recognized names like Nike, Puma, Skechers, New Balance, Asics and similar more. These are all market leading brands with significant market shares in various footwear categories. The leading competitor of Adidas is Nike, which has the largest market share and is a market leader in the sneakers category.  There are many local brands also that compete with Adidas in various regional markets.

Overall, the level of competitive pressure in the sports shoes industry is high. To moderate this pressure, Adidas invests in marketing, product quality, innovation, supply chain management and maintaining a strong brand image. It is also investing in sustainable production to attract the customers that favor sustainable products.

Adidas is financially strong and also has a strong brand image. The company invests in everything that can help it grow its competitive edge over the others. However, it is pitted against several dominant brands that are equally aggressive about maintaining their market share. Therefore, the intensity of rivalry faced by Adidas continues to remain high.