Reebok 2009 Annual Report Download - page 149

GROUP MANAGEMENT REPORT – FINANCIAL REVIEW Risk and Opportunity Report 145
Risks from product counterfeiting
and imitation
As popular consumer brands which rely
on technological and design innovation
as defining characteristics, the Group’s
brands are a frequent target for coun-
terfeiting and imitation. To reduce the
loss of sales and the potential reputa-
tion damage resulting from counterfeit
products sold under our brand names,
the adidas Group makes use of exten-
sive legal protection (generally through
registration) and works closely with law
enforcement authorities, investigators
and outside counsel. Although we have
stepped up measures such as product
security labelling with our authorised
suppliers, continued development of
these measures remains a high priority
for 2010 and beyond.
As in the prior year, over eight mil-
lion counterfeit adidas Group products
were seized worldwide in 2009.
We continue to regard the likelihood
of sustained counterfeiting and imitation
as high in the short and medium term.
However, we believe we have adequate
costs budgeted to support our ongoing
efforts to successfully combat counter-
feiting and imitation. We continue to
assess the potential risk of counterfeit-
ing and imitation to negatively impact our
forecasted financial contribution as low.
Social and environmental risks
We have a continuing responsibility to
our workers, suppliers and the environ-
ment. Malpractice in these areas, in
particular human rights violations and
dubious employment practices, can have
a significant impact on the reputation
and operational efficiency of our Group
and our suppliers. To limit this risk,
we have established workplace stand-
ards to which suppliers must conform
before and during business relationships
with the Group see Sustainability, p. 102.
Internal inspections of supplier factories
verified by extensive independent audits
are conducted regularly. In the event of
non-compliance with these standards, we
develop joint action plans and set dead-
lines for compliance and further improve-
ment. If these deadlines are not met,
business relations are terminated see
Sustainability, p. 102, and www.adidas-Group.
com /sustainability.
In order to minimise the environmen-
tal impact of producing and distribut-
ing our products, in 2009 the adidas
Group continued to proactively engage
in developing more environmentally
sustainable products which included the
first products from our “Better Place”
programme see Sustainability, p. 102. In
2010, we intend to grow the share of
sustainable products by intensifying our
“Better Place” initiatives within all sports
categories of the adidas Sport Perform-
ance division.
As a result, we continue to regard
the risk of social and environmental mal-
practice as likely in only isolated cases
and we believe the potential financial
impact remains low.
Natural risks
The adidas Group is exposed to external
risks such as natural disasters, epidem-
ics, fire and accidents. Further, physi-
cal damage to our own or our suppliers’
premises, production units, warehouses
and stock in transit can lead to property
damage and business interruption. These
risks are mitigated by ample loss pre-
vention measures such as working with
reliable suppliers and logistics providers
who guarantee high safety standards and
disaster recovery plans. In addition to the
considerable insurance coverage we have
secured, the Group has also implemented
contingency plans to minimise potential
negative effects.
Our overall assessment of this
risk is unchanged versus the prior year.
As a result, we believe the likelihood of
natural risks is low and expect only minor
financial loss after insurance compensa-
tion should natural risks materialise.
Strategic and Operational Risks
Risks from loss of brand image
Maintaining and enhancing brand image
and reputation through the creation of
strong brand identities is crucial for
sustaining and driving revenue and profit
growth. It is also an important credential
as we extend our brands into new catego-
ries and geographies. The adidas Group
faces considerable risk if we are unable
to uphold high levels of consumer aware-
ness, affiliation and purchase intent for
our brands. To mitigate this risk, we have
defined clear mission statements, values
and goals for all our brands. These form
the foundation of our product and brand
communication strategies. We also con-
tinually refine our product offering to
meet shifts in consumer demand and to
contemporise our offering to respond
to current trends. Central to all our
brand image initiatives is ensuring clear
and consistent messaging to our tar-
geted consumer audience, in particular
at point-of-sale. Market share gains at
TaylorMade and continued growth in the
adidas Sport Style division give us con-
fidence that image risk for these brands
remains low.