Global coronavirus pandemic causes closure of over 70% of Adidas’ stores at high point
“The past quarter brought unprecedented challenges for Adidas business as large parts of the world were in lockdown.
The company addressed the challenges and went after opportunities, due to which its e-com business nearly doubled in Q2.
“We are now seeing the light at the end of the tunnel as the normalization in the physical business continues, with the vast majority of our stores being operational again,” said ,” said adidas CEO Kasper Rorsted.
Adidas recorded a material revenue decline in its physical distribution channels during the second quarter of 2020 as the global coronavirus pandemic caused a very large number of store closures
as well as a pronounced traffic reduction within the parts of the store fleet that were reopened.
At the same time, the company experienced exceptional growth in online sales, which accounted for more than one-third of its total business, through its own as well as partners’ e-commerce platforms.
Sales through the company’s own e-commerce channel increased 93% during the quarter. In total, second quarter revenues decreased 34% in currency-neutral terms.
While sales at brand adidas declined 33% in the second quarter, Reebok revenues were down 42%, reflecting the brand’s higher exposure to the U.S. market.
In euro terms, revenues decreased 35% to € 3.579 billion (2019: € 5.509 billion).
Starting in May, adidas began to execute its store reopening plan also outside of Asia-Pacific in accordance with the decisions taken by local authorities,
resulting in 83% of stores being operational at the end of June, albeit partly with reduced hours. While store traffic remains below prior year levels,
the company registered an increase in conversion rates, as consumers that visit stores tend to have a clearer buying intent.
During the lockdowns, Adidas doubled down on e-commerce as the only fully operational channel through targeted consumer marketing, exclusive product launches and prioritized supply chain management.
This strong focus was reflected in global e-commerce sales growth accelerating to a triple-digit rate in both April and May and remaining at an exceptional level even as stores reopened.
While sales in Greater China were flat for the second quarter, reflecting double-digit growth in May and June, currency-neutral sales in Asia-Pacific were down 16% in the second quarter.
The coronavirus pandemic weighed on the second quarter sales developments most severely in Latin America (-64%) and Emerging Markets (-60%),
but also had a significant negative impact in Europe (-40%), North America ( 38%) and Russia/CIS (-34%).Gross margin declines despite favorable channel and market mix
The company’s gross margin decreased 2.4 percentage points to 51.0% (2019: 53.5%) in the second quarter.
While a more favorable channel and market mix as well as lower sourcing costs had a positive effect on gross margin,
a less favorable pricing mix due to increased promotional activity as well as negative currency fluctuations weighed on the development in the quarter.
In addition, an increase in inventory allowances had a negative impact on the gross profit development in a high double-digit-million euro amount.
In the first half of 2020, revenues decreased 26% on a currency-neutral basis and 27% in euro terms to € 8.332 billion (2019: € 11.392 billion).