Adidas 1998 Annual Report Download - page 16

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14 Management Discussion and Analysis
and Chile were also partly due to the taking over of the former licensee business. adidas
Chile took over the apparel business in the Chilean market while the Brazilian subsidiary
took over the sales of locally produced footwear halfway through the year.
These measures are in line with the objective to achieve better control of the brand
by establishing wholly owned subsidiaries. As a result, the share of total sales contributed
by adidas subsidiaries in Latin America increased to 42%, with the remaining 58% being
generated by licensee business, mainly in Footwear. Reflecting this restructuring process,
gross margin improved by 5.7 percentage points to 39.0%.
Apparel sales increased by 87%, growing at a faster rate than total net sales. As a
consequence, Apparel sales increased from 12% to 18% of total sales. Footwear sales
grew 21% and now account for 75% of total sales.
1999 will be a challenging year for Latin America as the devaluation of the Brazilian
currency at the beginning of the year is expected to affect the whole region.
At the beginning of 1999 a new subsidiary in Colombia took over sales in the Colom-
bian markets formerly serviced by a distributor. Likewise the Central American and Carib-
bean countries will be serviced by the subsidiary in Panama instead of by distributors.
Forward order buying programs for key accounts have now been introduced in all
major markets, substantially limiting the risks on the product purchasing side.
Factory outlets will provide new means of controlling inventory levels and the setting
up of adidas-owned image shops will help to improve the positioning of the brand, while
the installation of shop-in-shop systems at retail will support presentation of adidas prod-
ucts at the point of sale.