Adidas 1999 Annual Report Download - page 21

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17
Management Discussion and Analysis
Improvement in gross margin
and operating contribution
The gross margin in Europe improved by 0.8 percentage
points to 42.1%. This was primarily due to favorable
exchange rates for the US Dollar and successful,
stepped-
up inventory clearance activities. At the same
time, cost-
cutting measures led to a reduction in operat-
ing expenses, causing the operating contribution to
improve.
This meant that, for Europe, 1999 was the
most success
ful year ever.
Control over the brand
further strengthened
In the context of increasing Europeanization, adidas’
objective is to achieve best possible control over the
brand. To this end, wholly-owned sales organizations or
joint ventures have been established in recent years in
markets formerly serviced by licensees. This policy was
further underlined with the founding of a joint venture
in Turkey. In 2000, a joint venture in Finland with the
former distributor in Finland will commence operational
activities. This partner has a majority shareholding in
one of the biggest retailer customers of the adidas brand
in Finland.
Increase in sales anticipated for 2 000
Based on the 1999 year-end order situation, which showed
a year-over-year improvement of 8%, one-digit sales growth
in Europe is expected for the year 2000. Order figures
are showing a positive trend in most key countries, led
by Spain and France with growth of over 30%.
The year 2000 is also highlighted by major sports
events which are expected to have a positive impact on
sales figures. The European Soccer Championship, for
example, will provide a strong platform for underlining
adidas’ leadership position in this sport, with new prod-
ucts, a balanced product line and, of course, corre-
sponding support through marketing activities.
Tough retail environment impeded
growth in North America
In 1999, adidas was confronted with a difficult retail
environment in North America. Over the last few years,
sports retailers expanded floor space much faster than
demand would appear to have justified. Accordingly,
some companies have experienced severe financial
problems in the meantime, which has led to two of
them going out of business, while others have reduced
the number of shops drastically.
For sporting goods companies, contracting distribution
channels create short-term difficulties as retailers need
to sell off their excess inventories and tend to order less
new product – a situation that has led to decreasing
sales figures already. But, for the medium term, the
current consolidation will lead to a much healthier retail
environment and, most likely, spur renewed growth for
sporting goods companies.
FOOTWEAR NET SALES
(by categories, in %)
Training 13
Soccer 10
Running 40
Basketball 12
Tennis 9
Others 16
n
n
n
n
n
n
Change
year-over-
1999 year
Net sales DM 2.8 bn –1%
Gross margin 38.6% +0.1 PP
Orders* –9%
NORTH AMERICA
* at end of year