Reebok 2007 Annual Report Download - page 110

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ANNUAL REPORT 2007 --- adidas Group GROUP MANAGEMENT REPORT – OUR FINANCIAL YEAR - Risk and Opportunity Report
E
XTERNAL AND INDUSTRY RISK
S
MACROECONOMIC RISKS Growth of the sporting goods indus-
try is infl uenced by consumer confi dence and consumer
spending. Abrupt economic downturns, in particular in regions
where the Group is highly represented, therefore pose a signif-
icant short-term risk to sales development. To mitigate this
risk, the Group strives to balance sales across key global
regions and also between developed and emerging markets.
In addition, a core element of our performance positioning is
the utilization of an extensive global event and partnership
portfolio where demand is more predictable and less sensitive
to macroeconomic infl uence.
In 2008, the Group expects global and, in particular, North
American economic growth to slow.  see Outlook, p. 118 Similarly,
the risk of macroeconomic shocks has increased versus 2007.
However, economic expansion in emerging markets, including
China, Russia and India, is expected to continue. These mar-
kets have overtaken North America and the European Union
as the largest contributors to Group revenue growth. Never-
theless, we now assess the likelihood that adverse macro-
economic events could impact our business as medium. The
materialization of such events could have a medium negative
fi nancial impact on our Group.
CONSUMER DEMAND RISKS Failure to anticipate and respond
to changes in consumer demand is one of the most serious
threats to our industry. Consumer demand changes can be
sudden and unexpected. Because industry product procure-
ment cycles average 12 to 18 months, the Group faces a risk of
short-term revenue loss in cases where it is unable to respond
quickly to such changes. Even more critical, however, is the
risk of continuously overlooking a new consumer trend or
failing to acknowledge its potential magnitude over a sustained
period of time.
To mitigate this risk, continually identifying and responding to
consumer demand shifts as early as possible is a key respon-
sibility of our brands. In this respect, we utilize extensive
primary and secondary research tools as outlined in our risk
and opportunity identifi cation process.
As a leader in our industry, our core brand strategies continue
to be focused on infl uencing rather than reacting to the chang-
ing consumer environment. We invest signifi cant resources
in research and development to innovate and bring fresh new
technologies and designs to market.
 see Research and Development,
p. 072 In addition, we also seek to create consumer demand for
our brands and brand initiatives through extensive marketing,
product and brand communication programs. And, we con-
tinue to focus on supply chain improvements to speed up
concept-to-shelf timelines.  see Global Operations, p. 062 In 2007,
we implemented new consumer segmentation strategies at
both brand adidas and Reebok and combined Group resources
for market research and competitor research. In addition, we
increased and focused our marketing working budget spend
at Reebok, in line with the future positioning of the brand. We
plan further initiatives in this respect in 2008.
Given the broad spectrum of our Group’s product offering,
retailer feedback, visibility provided through our order back-
logs and other early indicators,  see Internal Group Management System,
p. 056 we view the overall risk from consumer demand shifts
as unchanged versus the prior year. Changes in consumer
demand continue to have a medium likelihood of occurrence
and could have a potential medium impact on our Group.
CORPORATE RISKS OVERVIEW
Probability Potential
of fi nancial
occurrence impact
External and Industry Risk
s
Macroeconomic risks medium medium
Consumer demand risks medium medium
Industry consolidation risks medium medium
Political and regulatory risks low medium
Legal risks low medium
Risks from product counterfeiting high low
Social and environmental risks low low
Natural risks low low
S
trate
g
ic and
O
perational Risks
Portfolio integration risks low high
Risks from loss of brand image medium medium
Own-retail risks medium medium
Risks from rising input costs medium medium
Supplier default risks low low
Product quality risks low low
Customer risks medium low
Risk from loss of key partnerships medium low
Product design and development risks low high
Personnel risks low medium
Risks from non-compliance low medium
IT risks low high
Fin
a
n
c
i
a
l Ri
s
k
s
Credit risks low low
Financing and liquidity risks low high
Currency risks low low
Interest rate risks low low