Reebok 2010 Annual Report Download - page 177

Group Management Report – Financial Review Risk and Opportunity Report 173
Expanding distribution scope
The sporting goods retail environment is
changing constantly. People increasingly
want to get involved with our brands.
We therefore continue to adapt our
distribution strategy to cater for this
change and have made controlled
space initiatives a strategic priority.
This includes retail space management
with key retail partners as well as the
introduction of new own-retail store
formats. For example in November 2010,
the Reebok Reetone World opened its
doors in Munich. In close cooperation
with major retailers, Reebok offers
alongside the popular toning shoe some
exclusive pieces of the “On the Move”
collection. Customers can also design
and personalise their own Reebok shoes
at the YourReebok station. In addition,
in the run-up to the 2010/11 basketball
season, adidas launched exclusive NBA
shop-in-shops within several hundred
Champs Sports locations throughout the
USA. Through initiatives like these, we
believe we will be able to more effectively
target consumers and involve them
emotionally with our products.
Cost optimisation drives profitability
improvements
Continued optimisation of key business
processes and strict cost control are
vital to achieving high profitability and
return on invested capital. We are
confident that there is still significant
opportunity to further streamline cost
structures throughout our Group. For
example, we believe we will be able to
realise medium-term economies of scale
as we look for possibilities to further
integrate adidas and Reebok functions.
In addition, we continue searching
for ways to increase efficiency in our
supply chain and make it truly demand-
driven. Furthermore, by implementing
end-to-end planning processes and
improving our replenishment capabilities,
we see opportunities to not only better
serve our customers but also to reduce
our operating working capital needs
see Global Operations, p. 106. Another
example in this respect is the reduction
of the number of articles; this reduces
workload in the creation area and
warehouse costs, and allows us to
offer more focused ranges to our retail
partners.
Financial opportunities
Favourable financial market changes
Favourable exchange and interest rate
developments can potentially have a
positive impact on the Group’s financial
results. Our Group Treasury department
closely monitors the financial markets to
identify and exploit opportunities see
Treasury, p. 146.
Management assessment
of overall risks and
opportunities
Overall risk profile unchanged
versus prior year
Management aggregates all risks
reported by different business units and
functions. Based on the compilation
of risks – taking into account the
occurrence likelihood and potential
financial impact and the current business
outlook explained within this report –
adidas Group Management does not
foresee any individual or aggregate risks
which could materially jeopardise the
viability of the Group as a going concern.
This assessment is also supported by
the historical response to our financing
demands see Treasury, p. 146. The adidas
Group therefore has not sought an
official rating by any of the leading rating
agencies.
Management remains confident
that the Group’s earnings power forms
a solid basis for our future business
development and provides the necessary
resource to pursue the opportunities
available to the Group.
Compared to the prior year’s
assessment, the following risks have
increased: hazard risks, risks from rising
input costs, customer risks, personnel
risks, social and environmental risks,
currency risks as well as interest rate
risks. The assessment of the following
risks has decreased: macroeconomic
risks, inventory risks, product design
and development risks, risks from
non-compliance as well as financing and
liquidity risks. Nonetheless, the changes
in individual risks have no substantial
impact on the overall adidas Group
risk profile, which we believe remains
unchanged compared to the prior year.