Adidas’ latest quarterly results showed demand remains robust for its iconic three-stripes footwear, even as CEO Bjørn Gulden warned of a volatile and uncertain environment. While the pace of growth might not be quite as hot as the last couple of years, the company is still enjoying considerable “brand heat” as it rebuilds its share of the global sportswear market.
But what really had gone wrong at Europe’s leading sports apparel business and how did Gulden turn things around? Formerly CEO of rival Puma, he has overseen an impressive turnaround in the fortunes of Adidas since taking the helm in January 2023.
Three years before, under management of previous CEO Kasper Rørsted, the collaboration between Adidas and Kanye West, creating the lucrative Yeezy sneaker, was celebrated as “one of the great retail stories of the century” by Forbes. The tie-up was estimated to be generating north of $1bn in annual revenues.
Two years later, Adidas pulled the plug on West after a string of antisemitic outbursts. The loss of a product line responsible for an estimated 40% of profits came at a time when Adidas faced compounding pressure from Covid-19, Russia’s invasion of Ukraine and slowing sales in China, alongside a troubled strategic pivot to a direct-to-consumer business model and an inventory overhang that necessitated heavy discounting. Fighting multiple fires, Adidas struggled to keep pace with the competition, losing market share to established rivals and up-and-coming challengers.
Before 2022 was out, Adidas had announced Rørsted’s departure and the appointment of Gulden, recognized for having reinvigorated Puma and establishing it as the third-largest sportswear manufacturer in the world.
Soon after, I visited Adidas HQ in the Bavarian town of Herzogenaurach. A straight-talking Gulden told me Adidas had lost its way. In the rush to embrace a direct-to-consumer model, the importance of the wholesale market had been forgotten. Retailers, frustrated by a lack of access to Adidas stock, turned attention to other brands.
Gulden’s remedy was simple. Product would once again be king and the business would rebuild retailer relationships. Adidas would also need to offer more local products for local markets. To do so, the creative impulse could no longer just come from Germany; China, India, Japan and the US would have to become design hubs, which would come with a cost.
Gulden was confident that Adidas had two key levers to pull to help it succeed. First, the business already had talent to be successful, but people needed empowering and the removal of the obstacles stopping them from doing their best work. The other lever was a world-famous roster of heritage franchises, which could tap into the global trend for retro, lifestyle trainers.
So far, Gulden’s efforts have exceeded expectations. Pivoting back to classic models has paid off handsomely. Demand for Sambas and Gazelles has been such that new launches have been held back to maintain appeal – even former UK prime minister Rishi Sunak was pictured in a pair of the former.
Relationships with key retailers have been revitalised, with Adidas product taking up more shelf space and customer attention. Crucially, the inventory stockpile has been addressed and now sits at a healthier level. The financial implications were laid bare in an excellent set of 2024 results. While being “very pleased” with progress so far, Gulden tempered enthusiasm by stating “we are not yet where we want to be long term”.
Moving forward, Adidas will have to contend with trade tariffs. Given it has significant operations in countries such as Cambodia and Vietnam, higher import duties are an unwelcome development. The business is confident, however, that the Adidas supply chain has the depth, flexibility and quality to weather the tariff storm, calling it “a challenge, not a crisis”. For now, the company estimates a €200m hit in the second half of 2025 before mitigation efforts. Gulden has raised the possibility of higher prices on new product lines to offset tariffs, preferring to hold prices on existing products “for as long as we can”.
Throughout its history, Adidas has been a brand with excellent long-term growth potential, frequently let down by sub-par execution. But with Gulden and a refreshed management team at the helm, the business is in a far better position than seemed possible two years ago. Can it maintain its current momentum? There’s more work to be done, but to invert a famous Adidas marketing slogan, nothing is impossible.
Des Armstrong is investment manager at Walter Scott and runs the BNY Mellon Long-Term European Equity and BNY Mellon Long-Term Global Equity funds. The views expressed above should not be taken as investment advice.