Reebok 2014 Annual Report Download - page 173

Group Management Report – Financial Review
169
2014
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03.5
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adidas Group
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2014 Annual Report
Risk and Opportunity Report
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Operational Risks
Risks related to product assortment, innovation and design
Innovative and attractive products generate strong sales and, more importantly, create a halo
effect for other products. Fulfilling the highest standards in terms of product quality and safety
is critical to sustainable commercial success and forms an integral part of the product design
and development phase. The speed with which new product technologies and fresh designs are
brought to market is decisive for maintaining competitive advantage. Failure to create innovative
products with cutting-edge design and strong consumer appeal could lead to a slowdown in brand
momentum, lower brand attractiveness and, as a result, sales shortfalls and market share losses.
Insufficient investment in innovation and design capabilities could negatively affect the Group’s
competitive position in the marketplace and negatively impact top-line development. In addition, a
lack of breadth and depth of our product ranges as well as an inappropriate price/value relationship
in our products may negatively affect the Group’s top- and bottom-line performance.
Therefore, we continue to invest in innovation and design processes as well as the recruitment
and retention of creative and innovative talent. In this context, we will open a new design studio in
Brooklyn, New York/USA in 2015. To ensure we identify and quickly adapt to changing consumer
preferences, we utilise extensive primary and secondary research tools and focus on streamlining
research and development processes to speed up the time to market. Stringent product life cycle
management enables us to keep our product offering fresh and cutting-edge.
Logistics risks
As a global company with business operations in numerous countries, the Group requires
well-functioning logistics processes, from the supplier to our distribution centres and subsequently
to the customer. Any interruption of these processes could negatively affect our ability to fulfil
orders and deliver products, leading to higher inventory levels, sales shortfalls, additional costs and
deterioration of customer relationships. Inability to secure transportation or warehousing capacity,
errors by employees as well as malfunctions in IT logistics systems could all disrupt the flow of
goods.
To mitigate these risks, we continuously monitor the global transportation market in order to be
able to quickly adapt to changes in the transportation environment and secure required capacity. We
work closely with multiple logistics service providers to guarantee transportation of our products to
the desired destinations. In addition, we buy insurance coverage against theft or physical damage
during transportation and storage. Furthermore, in case of malfunctioning logistics systems or
warehouse processes, we actively re-prioritise the allocation of products to minimise damage
caused.
see Research and Development, p. 73