Supply chain issues hinder growth at Adidas

Dive Brief:

Sales growth for Adidas will be stunted by "supply chain shortages" in 2019, according to the company's annual report, issued Wednesday.
Shortages, attributable to Asian suppliers, will be felt mostly in North America and in the first half of 2019. The company expects 3-4% growth in the first half of the year followed, by a rebound in supply, leading to higher growth in the second half.
"The volume grew quicker than anticipated and we didn’t respond quickly enough to that demand signal," CEO Kasper Rorsted said at a news conference where Adidas presented its 2018 results, Reuters reported.

Dive Insight:

Adidas is somewhat known for its technologically advanced manufacturing. The retailer has embraced automation and personalization in recent years, leading to two automated "speedfactories" in Ansbach, Germany and Atlanta.

Ironically, Adidas's more technically difficult personalization and speed platforms are not named as part of the supply slowdown. In fact, these facilities represent a tiny fraction of the company's overall production. On the whole, Adidas outsources nearly 100% of manufacturing — 71% to Asia, which is reportedly the source of the shortages.

Adidas experienced double-digit sales growth in North America, Greater China and e-commerce in 2018. Margins were also boosted slightly.

The company touts a diversified manufacturing network, employing facilities and manufacturing groups in China, Vietnam and Cambodia. But it has also been working to unify its operations after running the company "like 20 small companies" for years, as CFO Harm Olmeyer described on the Adidas' earnings call in November. The company is in the midst of a company-wide ERP rollout and standardizing processes with Asian suppliers.

Executives still project 2019 will be a year of growth for Adidas, but slightly less than what could have been. The case offers a cautionary tale. While Adidas largely avoided or mitigated the supply risk from Brexit and the trade war between the U.S. and China, simple demand growth can be just as challenging.