Adidas CEO explains how the company pulled off a startling American turnaround, what the future of sportswear is, and why Kanye West is still good for business
- Three years ago, Adidas shifted its entire global strategy to try and capture more of North America, the largest market for sportswear.
- It has since seen explosive growth, with the company capturing more market share in the US from rivals and consistently announcing gains in the 30-40% range.
- The man who led the charge, Adidas' former North American president, Mark King, stepped down earlier this year and was replaced by the second-in-command, Zion Armstrong.
- In an interview with Business Insider, Armstrong and Adidas CEO Kasper Rorsted discussed the company's North American strategy, its biggest opportunities, dealing with potentially tricky partners like Kanye West and Amazon, and the future of the sportswear business.
Four years ago, things weren't looking so good for Adidas in the United States. It had fallen to the third spot in terms of sportswear sales, behind Under Armour and Nike.
A year later, that started to change.
To get Adidas back on top, it re-oriented its business and put North America - the top global market for sportswear - first.
It beefed up its Portland, Oregon, headquarters, hired new designers from some of its rivals, and embraced its identity as a global company. It also collaborated with cultural icons like Kanye West as well as athletes.
The brand integrated itself into the fashion world, leading to popular retro looks like the Stan Smith, and it gained cultural cachet. It got its athleisure groove on with popular models like the running-inspired yet fashionable UltraBoost sneaker.
In keeping with its core identity, it also grew its athletics partnerships with American universities.
The turnaround looks to be working. Sales growth has been steady over the last three years, leading to year-over-year gains in the 30-40% range nearly every quarter. It's now No. 2 in North America.
After this staggering growth, Adidas' turnaround king and the head of its North American business, Mark King, decided to step down a year earlier than initially planned.
Business Insider sat down with CEO Kasper Rorsted and Adidas' new head of North America, Zion Armstrong, to talk about how the company got to where it is - and where it's going next.
The following interview was edited for length and clarity.
A global strategy
Kasper Rorsted: We have a clear strategy and a clear set of tasks for 2020, and what we're trying to do in this country is, along with China and online, really put all our focus in these three markets. The reason is that North America is 40% of the global market. China is 10%. So that means two countries represent 50% and the fastest-growing channel globally is online. So that's where we're putting a lot of focus on.
In North America, you've had three very, very good years over the last few years. We assume this year is also going to be a very good year. We're still in catch-up mode for the US. That's the only country of real relevance in the world where our market share is as low as it is here and that's simply due to the history of where we're coming from that it took a long time for us to really understand what the US is all about.
I believe that in the last three to four years, we have done that increasingly well and that's why we've outgrown the market in the last three to four years and we'll also outgrow the market this year, which means market share gain.
Overall, we are on a good journey. We still have a long way to go. We're investing a lot of resources in North America, whether it's in people, or it's in infrastructure, or it's buildings, or it's sports assets, and we will continue to do so also in the future. That's a bit setting the scene.
Changing of the guard
Business Insider: We have a little bit of a regime change in North America. Can you talk about what that means?
Rorsted: A company should only change its direction because of business, not because of people. Zion and Mark had worked together since 2015. It was planned that Mark would retire in 2019, but he retired in 2018. It was very uneventful in that context because it was what we planned. It happened a year earlier than we originally anticipated, which made no difference. The US has done exceptionally well on the leadership of both Zion and Mark.
I think it's much better for a company to make a generation change when things are going well than when things are not going well, because not going well means you have to have a knee-jerk reaction. Going well makes it - for a lot of people - more difficult because you gotta maintain the going well, but it's a better position to do it in.
Zion Armstrong: I've worked in four continents now for Adidas. Having four years of working alongside Mark, it was a perfect succession in terms of really getting to understand the market, getting to understand the sport, everything with it. For us it was a very seamless succession plan.
As Kasper said, it was one year earlier than what I expected and hoped for. But in terms of the day-to-day, it's been relatively smooth.
BI: Was the company just in the right shape? Was it where you had gotten it to at that point, where it was time?
Rorsted: No, I can tell very clearly, Mark had some personal things he needed to deal with and he lives in San Diego. The company is in Portland, and the customers are here, and Mark said, "I can't get business and my private life to work anymore." And I know him very well, I said, "Mark, you're too old for me to ask you, 'Will you please reconsider?'"
We still have a very close relationship to Mark right now. He and I were speaking about a senior hire that we are contemplating in the company, and Mark is interviewing that candidate today, so he's part of the company still. But, of course, Zion is the boss and running the company.
BI: You mentioned that you're playing catch-up. What will it look like when you've caught up?
Rorsted: I don't know whether you ever come to a point where you say you caught up.
Armstrong: I hate coming second.
Rorsted: The point is that the market-share delta to the market leader in the US is ... as I've said before, it is the only country where that delta is so big. What we have done the last three years, what we are doing this year also, is we are consistently growing market share. We have to, over a long period of time, continue to grow market share in the US.
That's how it's going to look, that we have continuous improvement. It's not like, you come to an end point and say, "Now you've done it." I think that's a continuous journey. What we say is for the company: overall we need to grow market share, we need to grow margin. That's a company target, and that's a target for the US also.
BI: So when you look at trying to grow market share, what do you think the biggest opportunities are in the US?
Armstrong: Where we are today in footwear is around 12%. Four years ago we were at four. We have had tremendous growth in footwear. The pleasing piece right now is the portfolio across categories and channels. Three years ago, we were highly dependent on lifestyle distribution. Today we've got growth in sporting goods and specialty, the commercial channel, of course, and our [direct-to-consumer] channels.
[It's a] much more balanced business. Even with that tremendous growth, there's still significant market share opportunities across all those channels and all of the categories. On the apparel side, especially this year, we've started to see some real acceleration driven through sporting goods. We're still No. 3 in apparel, where in footwear we're a clear No. 2.
But we're seeing phenomenal momentum, and our future orders continue to look very, very positive.
It's not a sports-oriented fashion company - it's a fashion-oriented sports company
BI: Is the apparel more fashion-oriented?
Armstrong: Right now it has been driven by training and athletics and [it is] sport-inspired. Again, different channels, different distribution, making sure that we're clearly segmenting the products, that we're seeing fantastic success. At the same time, Originals apparel continues to be on fire. Apparel is very balanced today.
As the brand gets stronger and stronger, then the kids come with it. We're really starting to see some nice growth in young creators as well. That's our internal word for kids apparel.
BI: Kids love comfort and style just as much as adults?
Armstrong: Well, they like looking up to who's wearing it, right? Being on the sporting field, off the sporting field, and what mom and dad are wearing, and how they see mom and dad wearing it. We're seeing some really nice growth in youth apparel as well.
BI: Adidas has such a legacy of being athletic-inspired and athletic, period. Was it difficult going from being more fashion-oriented to selling more of the performance-based product?
Armstrong: I think that's a very US view. Having worked in multiple markets and geographies, it's not the same case. But yes, in our situation, lifestyle got us going in 2015. Today our sport growth is far outpacing our lifestyle base. We've had phenomenal momentum, and the key part of "Creating The New" for us was authenticating ourselves in US sports.
The investment we put in there - be it football, baseball, basketball, hockey, soccer - is really starting to pay dividends. Very happy with our sport progress.
BI: So those are the biggest sports - baseball and hockey?
Armstrong: Not in terms of revenues, but in terms of authenticating the brand in sport.
We have 200 NFL players to date. And they're not normal players. You've got the Aaron Rodgers, you've got the Dak Prescotts, the DeAndre Hopkins, etc., so we're really getting the right players. In baseball, Aaron Judge here with the Yankees. JD Martinez in Boston, you've got Justin Turner with the Dodgers, you've got [Carlos] Correa.
Four years ago, we didn't have these players. Today we've got a stable across multiple categories that's authenticating the brand on the field. The kids that are playing the sports are looking up to those icons and we see great sell-through. We're much more balanced today versus where we were when we were dependent on lifestyle three or four years ago.
Rorsted: But, I think, the important part, though, is the company. We're a sports company. We're not a fashion company. Two-thirds of our business comes from sport. The past origin and future direction is that the core of our company is being a sports company. That does not mean that we don't create great athleisure wear products.
The moment that we come out and say we will be a "fashion company" - that will simply be problematic with who we are and what we want to be and what the culture of our company is all about. That's one element.
The second element is that the public perception is sometimes different because if a Kanye West makes a statement, that statement creates more attention than when people go out and run on a Saturday in a pair of running shoes.
The public will very often see the biggest authenticator speak. And they are very often related to fashion or pop. But actually, the core of the company is sport. That's where the core of the revenue is coming, that's where the R&D is going in. That's where the investments are going in.
Of course, we want to continue to set and inspire the trend that is athleisure.
BI: Right now, is the culture more receptive or interested in athletics and sports with the athleisure trend? Is it almost like the culture is coming to you, in a way?
Rorsted: I wouldn't say so. I think that we were the first that grabbed the non-sports culture and brought it into sport. I think that we were very early on with Kanye West, we were early on with Stella McCartney, with Pharrell, and getting that balance between lifestyle and fashion and sport. I think we were the early adopters in that. The industry has changed in that direction.
Today, you wear a pair of sneakers. You don't really know the sneakers. Are they running sneakers? Are they non-running sneakers? What are they, you know? It is an artificial separation. Of course, there's maybe five or 10% of our products that are fashion. But I will still say, two-thirds, even our Original products, you can use for running, for training, for whatever. They're used for personal use outside the training ground.
Armstrong: I think that the consumer today, as well, has moved on from years ago when your kid was a soccer player or a football player. They associate themselves with that sport after the game. Today, they want higher performance produced on the field of play. When they come off the field of play, they want to express the individuality.
That's where music/art culture and the sport culture comes in. That's where you're truly seeing on-field and off-field. That's where we're perfectly positioned to capture both. Some other brands don't have that opportunity. When you really look at some of our assets and think of DeAndre Hopkins down in Houston. One of the best wide receivers in the game, he's also in the front row of our Paris fashion show.
Connecting those assets, on-field and off-field, has been a key part of us really disrupting the industry as well.
BI: Is that a hard balance to strike, between style and sport?
Rorsted: No, but it has to be a deliberate decision. You've got to be clear on what you are and how you want to be. We're going to be the best sports company in the world. We never speak about, in our mission statement, anything else than that, so it's a deliberate decision. That also means there are certain categories that we don't go into.
Even our fashion-related product has to have an origin in sport. As long as you are clear on that, you are a sports company. That's what you're trying to be, and that's what you continue to be, then I don't think it's a hard choice.
We can't manufacture a high-heel shoe, as an example. It's a no-go.
But I think it's being authentic to who we are and what we want to be and that's the important part. If you lose your soul as a company, then you lose the employees. If I were to make a statement tomorrow that we've now done a strategy review and we're going to be half sport and half in fashion, a lot of people are going to say, "I don't want to work at this company. I want to be part of the sports generation."
That sports company serves different purposes on-pitch and off-pitch.
Armstrong: And an athlete wants to look great as well. Take this shoe, for example. The Ultra Boost is, without a doubt, the best running shoe in the world, performance-wise.
At the same time, you can wear it with your khakis. I'm getting old. Or the gym. You're striking that beautiful balance.
BI: And yet there are people who buy that and definitely don't run at all.
Armstrong: Absolutely.
Rorsted: That's why we think that the borders are artificial. That doesn't mean that you can't be clear on what you want as a company.
You look at the product and see, we spent a very, very large amount of money investing into sport assets, whether that's individuals or that's club or associations in universities. We wouldn't do that if we're not clear on who we were.
The future of plastic
BI: What trends do you see in the next five years? What do you see changing?
Rorsted: I think what we're starting to see now is the impact of technology in the way the products are being designed, being manufactured, being brought to market, and being engaged to the consumer.
90% of our communications today with consumers are digitally. It's not TV-related. And how you then, subsequently, transact with the consumer - that will change much more rapidly than in the past. So I think that is one very, very fundamental trend.
Another trend that I think that a lot of companies underestimate is the impact of plastic. We do it through Parley [for the Oceans, a nonprofit environmental organization that Adidas partners with to turn ocean plastic into materials that can be used to manufacture clothes and footwear]. Plastic is one of the biggest problems for the environment worldwide. Every large CEO I speak to, he or she is trying to figure out, what do we do with plastic, how do we lose plastic? How do we start removing plastic?
Last year, we banned the use of plastic in our offices. We sent out an announcement: Please remove all plastic from your offices by the end of the year. We're not going to have any [discussion], just do it.
95% did it. I truly believe that the fight against plastic ... to remove plastic and other materials to be replaced, will be much more profound. Because the world can't afford what's happening.
BI: Are the [plastic-centric products] still discrete collections?
Rorsted: No, what you're seeing now is you're seeing beyond footwear and that's why I said it's very deliberate. Now we've started using it in swimsuits. Now you have it in jerseys. You have outdoor jackets.
You're going to see a complete proliferation in our use of Parley across all product lines. It has to be part of our business, and that's why when I say we're going to do five to six million pairs of shoes this year, we have jackets, we have shorts, we have jerseys.
The more we can do, actually, the better it is for us and the better it is for society because we are integrating them in the business model. I think that's the challenge for a lot of companies. When they look upon it, they look upon it purely from a cost standpoint.
We've been able to integrate so it becomes part of our business. Then, of course, it becomes much more powerful because it is not something you do on the side, it is what you do.
Armstrong: We take it to the next level as well. So at NYCFC we have an initiative to have 50 soccer pitches throughout the city. Some of those pitches, in the future, will be made out of Parley. We're really taking it beyond and making sure that we can educate consumers.
The more we can do this, the more it can really impact us a lot faster.
We've removed plastic in all of our retail stores as well.
BI: Where was it before? Bags and such?
Armstrong: Yeah, so now it's a recycled brand bag when you come in.
BI: This is very forward-looking, right? Do you think that everyone is going to have to do this eventually?
Rorsted: Eventually, regulation will catch up. I think, unless large companies find a solution for the pollution they create, regulation will address it. There's no doubt in my opinion. The problem is getting out of control.
We believe that it's better to address things or challenges proactively. Also from a business standpoint, it's been an extremely good relationship with [Parley]. That is something that resonates very much. If you tell a consumer there are 11 plastic bottles in my shoe, it's a very simple message that everybody can resonate with.
It's better to not be regulated by regulating yourself.
BI: Always better to regulate yourself?
Rorsted: Clean your own backyard.
Armstrong: I think it's reduce and then it's recycle. At the same time, we've recently announced that by 2024, we will have the complete removal of origin plastic in our creation engine.
Automation and shoelaces - a conundrum with no solution yet
BI: How does that go into automation? The automation stuff that we've been seeing early on was all plastic ... like, molded plastic. But you guys don't use [Parley] in your Speedfactories?
Rorsted: No, but our Speedfactories are still very small-volume. So I think you need to go at these in two different dimensions. One was looking upon the use of materials for a product. Speedfactory is how do we actually manufacture a shoe.
One doesn't preclude the other. Right now the Speedfactory shoe, so far, has not been a Parley shoe. We can bring our Parley shoe [to] the Speedfactory. The Speedfactory is a way of fully automating a product, irrespective of raw material. And Parley is a material, so you can bring the Parley into Speedfactory.
We have two Speedfactories. One in Atlanta, Georgia, and one in Germany. Each of those can manufacture up to 500,000 pairs of shoes annually. Last year, we sold 400 million. So there's still a long way to go there.
BI: Are you taking what you're learned from the Speedfactories and applying it to the rest of the supply chain?
Rorsted: If you go through, there are about 120 to 130 processes in manufacturing a shoe. Then a lot of those processes have already been automated ... in Asia. We're now looking upon it and saying, are the elements, the process elements, of how we manufacture a shoe in a Speedfactory, can we also get that into a large manufacturing plant?
There's one problem that nobody has sorted out yet from an automation standpoint. You know what that is?
BI: I don't.
Rorsted: The shoelace.
BI: Oh, actually lacing the shoes?
Rorsted: That is the single most manual part of the process, and there is no automation for it. If you want to be a billionaire ... you can figure that out.
But it's just interesting. When you look upon it and say, "Here are all the things that we do from laser cutting, from material optimization." For complete automation, it then comes down to a very basic thing and that is just the lacing.
But it is how we actually take and continue to fine-tune the manufacturing. How do we make each process more optimized?
For instance, when we do a shoe, if you take UltraBoost. We know how many stitches that go into a shoe, what's the cost per stitch, depending on the length of the stitch. It's down to that level of automation or sophistication today in the big manufacturing plants.
Armstrong: Speedfactory has also enabled us to really capitalize on key sporting moments. One of the first thing we did when the Capitals won the Stanley Cup. We were ready to go, whether the Vegas Knights won or the Capitals won.
Within seconds of the Capitals winning, we went live on our Adidas app with a shoe, and we sold out instantaneously. Just two, three weeks ago at the US Open with Billie Jean King, again we did a shoe to commemorate her.
So it really enables you to have that ability to react to something that is really meaningful at that point in time.
And scarcity, right? Because the Billie Jean King shoe sold out in seconds. Small, small [number of] pairs, but it does create a buzz, and it keeps you on the top of the market.
We've got a few more things coming down the pipeline and especially something very special for Super Bowl 2019.
Creating demand from scarcity
BI: You guys have been so good at creating demand from scarcity. How do you manage that?
Armstrong: A lot of it is making sure we're putting the right product into the right channel, and really being consumer-obsessed. And really making sure we have the appropriate volumes and then, more importantly, how we bring that to market. It's very easy to scale things much too quickly, and that's when you get into trouble.
At the same time, we have a lot of data analytics. Four years ago there was a [small team]. Today there are multiple people that are looking at trend lines, looking at Google lines. Obviously we pre-release some products and we can see the reaction on social media. Is it good? Is it not so good? So it can flex up and down.
Long-term is making sure you get that strong sell-through and then react quickly with a fast supply chain. So that's the key piece. Here in North America, we haven't always gotten it right, but primarily we've gotten it right, and I'm really proud that our inventory are also some of the cleanest we've ever had.
Rorsted: Sometimes we think, you know, people think it's only because you're large and very well-known like Kanye or Pharrell. But to give you a very different example, which created enormous brand heat, there's a set of shoe designers in our Herzogenaurach [,Germany] headquarters with the idea of creating a shoe where the material that was used was from the seats of the Berlin subway system.
So they went out and got ahold of the seats and created 500 pairs of shoes. [They] integrated a pre-paid annual subway card in the shoe. I don't think anybody signed it off. It was just somebody felt it was a good idea to do. We got approximately $25 million of brand value in that, where somebody had a cool idea where, if you'd asked, if you'd done the consensus, everybody would have said no, it's a stupid idea.
The point, though, is having the freedom and having the courage to do something where you don't ask for it because if you ask, then the majority would say no and do something by creating enormous buzz.
There was no sponsorship associated with it. It's just about having innovation and creativity. That goes back and creates scarcity or creates brand heat because somebody thinks completely out of the box.
Fair to say is that of course not everything we do has that amount of impact, but in order to have the impact, we have to have the courage also to do things that don't work. You have to allow these things to fail, because if you only do the things that are certain, you will never get the buzz and the brand heat.
Learning from failure
BI: Have any good examples of failures?
Rorsted: It was not all good this year, but I think that's part of doing business. The Prophere, when we launched that shoe, it was a shoe that was probably not shown the right way. It was probably not the right time. But I think that that's business. Business is about managing risk in an appropriate way.
If somebody will say everything we do is correct and it is successful, that means that you're only mainstream. It took a while before the UltraBoost kicked off. It took a while before the Parley kicked off. It took a while before other shoes kicked off. And some of them don't kick off because that's just the consequence of trying to do something different.
The first version of the Parley shoe was unsellable. You couldn't sell it. It was clunky. It was stiff. That you have to accept just as part of it. Because that's part of doing business. Had the the Berlin thing not worked, 500 pairs of shoes, from a cost standpoint, it doesn't matter. But you've got to allow that creativity to take place. That means also pushing and doing things where if you were to ask, I would say no.
I'm not the consumer. If you create a governing structure in a company where your people are governing innovation, but the people governing innovation are not the consumer, then you're actually misleading the company. Very often if I get asked, I say I don't have an opinion, because my opinion would be misleading.
We don't have dominance where I said here's how all the products have to look. That means sometimes we launch products that I don't like, but I'm not the consumer. Or Zion doesn't like. Or sometimes I like them, and they're very unsuccessful.
BI: That sounds like it's not very top-down.
Rorsted: No, but I think there are certain things that are very top-down. How we run our business. How the brand is being positioned. How we want to be strategically positioned. When it comes to a creation standpoint, I don't think it can be top-down. I think it has to be roots-driven, trends-driven, whether it's our creative arm here in Brooklyn or whether it's the shoemaker in Herzogenaurach that makes a subway shoe.
If you kill that, then you kill the creation.
Armstrong: I think we've had results in the last three to four years. We're proud of the progress. We still have a long way to go, but I think we've got a lot more right than we've got wrong. To answer your question specifically ... there's always some shoes that you have hopes for that fail to meet your expectations, but there's always shoes that come out when trends move quickly given the age of our brand.
Trend-following or trend-setting?
BI: It's clear you guys strive to follow trends closely. How hard is that?
Armstrong: Following or set? I think it's a very important point. There are some times that, yes, you need to catch up. At the same time, we're the creative sports brand. This is something we're immensely proud of in the last few years - we picked our lane to be the creative sports brand. That means being the first and foremost out there. That has driven a lot of our success today.
We'd rather be setting trends versus chasing.
BI: Right. But trends are changing so fast now.
Armstrong: Yes.
BI: Does that create an issue?
Rorsted: You also have to realize that not all trends originate in the same place. That's the reason why we have our German headquarters. We have a very large setup in Portland and one in China to hopefully ensure that we cover most of the places in the world where relevant trends come up.
But you will still sometimes miss a trend that you see coming and you just don't know. The clunky tennis shoe. Fila, the Disruptor. It just took a ride, and we went back and looked at one. We actually have the same shoe from the '90s and so we recreated that shoe.
Being global, we don't look upon borders as inhibitors but as enablers. And then also we want to be humble and say that we need to get most trends right, but you're not going to get all of them right. Just live with the fact that you're not going to get all of them right.
BI: This is coming back to what you said before - getting more of them right than more of them wrong.
Armstrong: Absolutely. Then, when you see something happening, the ability to scale quickly is paramount. To your point with that mobile phone and access to who's wearing what and access to purchasing it, that has completely changed the game. Four years ago, to get a hype shoe, you lined up outside of Kith or Packers or wherever it may be.
That's no longer the case. You can reserve on apps, etc. That means we've got to bring unique stories consistently. It doesn't mean you have to change the model.
Influencers aren't the only ones setting trends
BI: Influencers seem to be setting trends. Is that a big part of your marketing, using influencers? Or is that trend petering out?
Rorsted: It's a combination of all. First, you have to go back to the earlier part of our conversation. We're a sports brand. Part of the influencers is actually the people on the pitch. That's not the influencers you are speaking about, but Messi is a huge influencer when it comes to sport. He will be the influencer when it comes to football. But, of course, you will have more and more social media influencers.
How do you work with those? How do you ensure that they understand what we're trying to do, how do we get them to push our story? Then, also, being at the part where the trend originates, so with Kanye, Pharrell, Stella McCartney. Also where the creators are.
You've got to be an entire supply chain from creation to influencer to on-pitch authenticator.
Armstrong: I think it comes back to the creator position that we set up for. There's not only creators in art and music, there's also creators on sport and field. We've got some phenomenal partners now that when they come off the pitch they're in the front row of the fashion show.
It's getting that balance right. So I believe we have creators in this industry versus the old days where it's just a basketball player or whoever it may be. Now you've got basketball, football, baseball. Plus the lifestyle piece so we've actually grown the pie.
BI: So it's a holistic kind of thing?
Armstrong: Yeah. I mean, 10 years ago a lifestyle influencer wasn't impacting the sports market.
Today you've got 70% sports, 30% lifestyle. The lines have blurred. When you come off the football pitch, the guys want to look cool. So they've got the sport performance product on the pitch and when they're off the pitch, they want to express their individuality. For us, we're perfectly positioned to capture both.
Politics and Kanye West
BI: Are there any liabilities with working closely with people that have huge personalities, like Kanye?
Rorsted: I think when you have a business model like ours, of course there are liabilities, but also opportunities that go hand in hand because if one of our biggest assets, whether it's a creator, or a sports star misbehaves, of course, eventually it could have a negative impact on the perception of the brand.
We will then look upon it and say, "Who do we want to engage with?" Of course, we look upon what they bring to the table, and whether they represent certain views that are not aligned with our values.
At the same time, when you engage with people of very high creativity, they are different in the way they act, the way they behave. That's part of the equation, what they bring to the entire table. That they are so different. If you want the mainstream, you get the mainstream all the way.
If you want the ultimate creativity, then you get that, and you have to live with the fact that sometimes some person will say something that maybe you don't subscribe to, but there might be others that do subscribe to it. I think the latter is important.
We operate in 75 countries. If you start putting the glasses of appropriateness on, is it your appropriateness? Is it mine? Is it the one in China? Who is actually measuring the level of appropriateness that the company is being judged upon?
That's why, when we look upon it, we basically have hardly any political view. We have a very strong view on sustainability. We have a very strong view on fair trade and labor. On violence and stuff like that. That we have a very clear view on. Frankly, we can't have a view on politics.
Because if you're in 75 countries, by default you have 75 different governmental systems.
BI: Because the US culture is so stratified and polarized, would you guys never do something that was an outright political statement?
Rorsted: No, no we wouldn't. But ... we basically made a statement externally 18 months ago about immigration policy in the US. So we will do that, but we do that very seldom because frankly, it's not our role to sit and comment on every political element.
I do make, on an ongoing basis, statements about what we think about. [For example, what] I think, personally, about Brexit, which is a political statement. Or education. Or diversity. So we make statements that are politically related. But we don't sit and make political judgments every single day because, frankly, that's not the business we're in. We're running a business. We will make statements to things that either have an impact on our company or the society we're in if we think it has a grave negative impact.
BI: But younger consumers are looking for their brands to mean something.
Rorsted: There's two things. They're looking on one side for brands to mean something. I'll give you a statement that I read over the weekend. One-quarter of the German population states ... that they almost all the time, or very often only, buy meat from "green cows."
If you ask a consumer [in a] survey they will say that. The real stat is like 3%. If you do a market research study in the US and you call 1,000 people and say, "Is sustainability important for you, does it impact your shopping?" They will say yes. Then they go in the supermarket and they will do something different.
So of course, consumers react. But there is something that reacts in the moment and emotionally, there is something that impacts their real behavior. We think that they actually react positively to us having creators that have very different points of view which are controversial.
We think consumers react very positively when you do something that's good for society like Parley.
Armstrong: Our internal culture is so important as well.
This is not about hitting the quota. These are about bringing talents along that have been with the company for a long time, taking us to the next level.
In terms of making sure that our internal population reflects our consumer, our talent-acquisition team is going into schools that are traditionally black schools and putting jobs on the table. Just recently we got a very cool initiative that we've gone out to these areas, to retail stores, to our distribution centers, providing people opportunities that they never would have thought they had, an opportunity to work at headquarters.
We're going to do that time after time after time, to make sure when you walk into Portland or New York, our internal employees reflect the consumer. Inclusivity around Gen Z is super important so it's a big internal focus, let alone the political statements.
BI: How are you targeting Gen Z and older groups, like millennials?
Armstrong: I think pay equity is super important. We're very proud of what we've achieved internally over the last two years, that we've closed the gap to less than 2% pay equity, male, female.
We supported Sheryl Sandberg and "Lean In." [We were] one of the only companies in North America to promote that.
So there are multiple internal initiatives that we've been doing so that Gen Z really feels our environment is safe and inclusive. Every three months now we do what we call a people-pop survey. The question was: how do we get better?
Just really making sure, to Kasper's point, that we also listen to our employees.
Adidas' partnership with Amazon isn't always easy
BI: Amazon is a big partner for you guys. What is the advantage you see in Amazon, and how does it relate to your overall e-commerce strategy?
Rorsted: E-commerce strategy is all about us connecting directly to the consumer. That's the most important part. That's why we say Adidas.com is the most important store in the world. That's directly engaged with the consumer, either through our store or through the app we launched recently, which we rolled out in 25 countries worldwide.
Then, of course, engage with our consumers through some of our online partners, Amazon being one of them. Amazon is a US-only relationship. We don't have a direct relationship in any other markets than the US, and we're looking at whether we should expand it or not. The most important part for us, in any relationship we have with a business partner, is how the brand is being positioned.
We positioned the brand the right way so that it doesn't become a value-driven purchasing experience. Of course, that is a challenge to our relationship with Amazon, because Amazon is driven by two parameters, which are efficiency and price. It's important for us, long-term, to find the right balance between us and Amazon, so that the brand is positioned appropriately.
The difference between Amazon and a normal sporting goods retailer [is] ... if we have an Ultra Boost shoe that we sell for $180 and a wholesaler sells it for $130 in Duluth, nobody cares. If that shoe is in Amazon's setup, they will then say, now the US price is $130.
Then, basically, you just dropped brand value. We're working intensely with Amazon to ensure that we have a good partnership, which we have today, but that we don't jeopardize the brand based on the drives for the lowest cost.
BI: What about data sharing? Does that factor into it at all?
Rorsted: It does, but Amazon does less data sharing than some of our other partners, particularly some of the European partners and Chinese partners like Alibaba. [They have] a different business model. For us, getting access to the data is fundamental, not only in the context of being able to engage directly with the consumer from a commercial standpoint, but it's getting the appropriate feedback for the creation of the next generation of products.
That is, I would say, probably the biggest difference between Amazon and some of our other online partners: their willingness to share data on a very, very detailed level. That, of course, we're working on. It's a battle we have with Amazon.
BI: Does it scare you that they might launch their own UltraBoost knockoff with sales data from you?
Rorsted: No, I think this is competition, and competition is about: we create the right products that are cool, that are innovative. We have the right materials, the right manufacturing. That competition is not the concern we have.
It is a concern that we actually protect the brand that we have. Whether Amazon would want to come up with a shoe, I think eventually that will come or it is coming. That's not the concern of ours. [The concern] is that we don't tarnish the brand, and that we don't make price ... the most important parameter in how the product is being sold.
The moment you do that, you don't have a brand anymore.