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In part one of this case study an analysis of the porters five forces will be used to understand the structure and the nature of the industries competitiveness, specifically looking into sportswear brands and their rise to fashionability with in the industry, and whether or not this specific sector has a profitable future claiming more of a stake in our daily wardrobes.

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No matter what anybody says or tells you, everyone has an invested stake in fashion, with the industries growth rising on average 5.5 percent every year and a total worth of $2.4 trillion, fashion is encompassing us. This staggering value would rank the global fashion industries GDP, in the top seven largest economies (The state of fashion 2017, 2017). Within the industry are many different fragments formed of different brands and companies trying to appease the latest trends, pricing demands and styles all serving the customers ever changing ideology of whats ‘cool’ or ‘fashionable’.

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The idea of swapping out the three piece suit for a pair of crisp white nike airforce 1s coupled with a favourite hoodie and a jogging pant for a day out in London, was unimaginable two decades ago. The blend of athletic wear and leisure wear was dismissed by industry analysts, but with a sales growth of over 42pc in 7 years the market in the UK alone is worth £7bn. Sportswear currently accounts for $350 billion of market share in the fashion industry, with several competitors competing for the top spot. These competitors however, fragment from daily discount stores to industry giants such as Nike, Adidas, Puma and Under armour (Statista, 2018).

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Michael Porter wrote that, to understand an industries competition and profitability one must analyse the industries structure in terms of the five forces (Porter M, 2008). Competition amongst the sports wear brands is highly competitive. Competition can be seen in three groups from the discount chains, to medium size brands such as Fila, Puma and Champion all trying to compete with the two major brands Adidas and Nike. Revenue between these two companies has fluctuated since 2006, with Adidas producing a revenue of €10bn and nike producing €13bn. This was at the low point of the respective companies who now produce between €20-€30bn in 2017 with Nike’s revenue just under €9bn more. The further domination of these two companies can be seen when comparing to another one of the larger companies Puma, in the same year Puma produced revenue of just €4bn which is considerably less than its bigger competitors(Global revenue of Adidas, 2018).

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2.0 Competition drives profitabilityNike reliance on the north American market is evident, with over 50pc of its revenue generated from here and most of that coming from shoe sales. In comparison, over 50pc of Adidas net sales came from shoe sales, however Adidas’s main market is Europe seeing them become the leading sportswear brand (Global revenue of Adidas, 2018).

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2.0 Competition drives profitabilityNike reliance on the north American market is evident, with over 50pc of its revenue generated from here and most of that coming from shoe sales. In comparison, over 50pc of Adidas net sales came from shoe sales, however Adidas’s main market is Europe seeing them become the leading sportswear brand (Global revenue of Adidas, 2018).

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Competition has spread to all corners of society, further showing the importance of companies  having a strategy to deliver value to its customers. This simple but powerful tool of analysis allows an understanding of the competitiveness of the business environment, to then allow analysis of the strategies potential profitability. Porters 5 forces are broken down into five different influencing factors these being; threat of new entry, power of suppliers, power of buyers, threat of substitution all culminating to competitive rivalry within the industry (Porter M, 2008). Porters five forces has become a ground breaking technique of industry analysis, however it has not been devoid of criticism. Porters critics have argued that the five forces are missing one more key force, this being complimenters. Complimenters are factors that may be directly or indirectly effecting the business, a prime example of this for a sports brand is when the customer buys a pair of shoes they will then look to buy cleaning or protective products, this showing that the two industries compliment each other (Grundy T, 2006)

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Threat of new entry is high when the entry barriers are low. When looking at sports wear brands the threat of new entry is low. This is due to the large scale of production needed to compete. A high level of investment is needed to bring to light new research and technology. Barriers are made even higher by companies like Adidas and Nike owning their production factories to reduce costs and also to maintain control if a new entrant entered the market   . These large companies also have the power to raise rival costs (RRC), these potential rivals may be inclined to look elsewhere or exit the market all together. This intense strategy entails the larger company raising the costs of a needed resource, such as staff wages or a specific material (Salop, 1983).

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Immediate customers can pose a problem for a business of any size, the power of buyers will directly link to a suppression of profits. A sportswear brand will have many different routes to its customer, from direct channels of sales such as own branded stores and a company website it will then also have third party distributers. The buyer power in this industry is relatively low due to certain conditions, firstly price consistency across all distribution channels, this alleviates the potential of any bargaining power, furthermore the customer has come to expect the pricing from these larger brands which has reduced price sensitivity. Sports wear brands now offer a large range of products at different price points, this has allowed the brands to attract different buyer groups to further reduce the buyer power (Porter M, 2008)

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Cheap labour costs between different continents and an abundance of materials such as cotton, leather and rubber. Lack of differentiation between suppliers offering has lead to suppliers becoming dependent on the brands for survival.

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Threat of substitution is benign within the sports wear industry, often the consumer will be looking for something directly sold by these companies, for example Adidas focus on comfort and agility in their range of gym shoes, that also sport the slogan ‘the more you give the more you get’ this is in reference to the ultra boost sole that they say ‘recycles energy’. The threat of a customer substituting a product like this is low because they simply cant get those features outside of the industry (Johnson, no date)

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A high number of companies in the sector has meant competition is intense, however they are unable to compete with the financial power of Nike and now Adidas.  This structure of rivalry in the industry has lead to increased market share and profitability for Adidas and Nike, due to the smaller companies fighting over profitability with price differentiation, while Nike and Adidas have a large focus on innovation, leading to a lack of familiarity between the brands, further intensifying the rivalry. Due to a huge emphasis on trends these brands now have a perishable stock (Porter M, 2008)

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On the face of it, creating a new sportswear brand could be an attractive idea. A profitable industry, consumer trends and habits in line with industry ethea, the potential of making a success in this sector could be possible. However this is far from the case. The sportswear industry is dominated by two leading companies and then several other companies fighting for market share, contributing to high entry barriers, intense rivalry and due to trends a large amount of capital is needed to invest in innovation. The intensity of these factors shows just how unattractive this very current and lucrative sector is.

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This part of the case study examines the multi trillion dollar fashion industry from the perspective of one of the industries most important and popular brands Adidas. This sportswear brand has emerged to be one of the leading companies to drive the industry forward, with celebrity collaborations, new manufacturing techniques and cutting edge technology. Adidas for many years has been seen as Nike’s less interesting unattractive sister but has that now begun to change?

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Adidas is one of the leading sports wear brands in the world and is showing the promise of becoming the dominating company in the industry. Founded in the early 1900’s, Adidas has taken the last 118 years or so to offer athletes the best possible sporting equipment on the market as well as evolving into so much more (IG, 2018). At its core the company supplies top athletes with sportswear, such as running shoes, football boots and sports clothing, but as stated before Adidas is really much more than that, because of ever-changing consumer habits Adidas has had to adapt to offering a more versatile range of clothing, offering a single use piece of apparel is no longer acceptable. Coping with this change has seen Adidas team up with some of the most influential fashion designers, music artists, celebrities and sports stars alike to broaden their product lines.

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In 2017 Adidas’s CEO said, “We made great progress toward reaching our goal of becoming the leading sports company in the world”. In 2017 Adidas saw strong financial performance in nearly all of its departments. With a positive growth into double figures in regions like, North America. North America saw a growth of 27% percent on currency neutral sales, while western Europe grew by 12%, this growth rate in Europe shows just how strong Adidas has become, they are already the dominant company in this region but further growth in 2017 has just added to their stake. Currently in the second Quarter (Q2) of 2018 Adidas is showing continued growth with an overall revenue increase of 10% (The Adidas group, 2018).

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Due to this growth, Adidas has put an emphasis on shareholder return, market capitalisation is the value of the company traded on the stock market, current market capitalisation amounts to €34.08bn. Continuing a look into Adidas performance in Q2 of 2018, a 20% rise of net profit saw Adidas achieve €418 million (The Adidas group, 2018).  Alike all businesses Adidas must have the ability to pay off its short-term obligations, currently showing a current ration of 1.35 (current assets/current liabilities), Adidas shows it is in a good position to pay off its short-term obligations (Gurufocus.com, 2018).

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Resources and capabilities are key to long-time survival and competitive advantage. Adidas have many different resources and capabilities they can call upon if needed, from longterm relationships with suppliers to collaborations with some of the most influential people in the world such as Kanye West, Pharell Williams and Kylie Jenner. However, its capabilities are far more important. This is the way the company uses and deploys these resources to their benefit. Capabilities are looked at in two different ways. Firstly, threshold. Threshold capabilities are what is need for a organisation to compete in a given market to achieve parity, once this is achieved distinctive capabilities are need to gain an advantage over competitors, to offer value to its customers with a degree of uniqueness so its can not be imitated.

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4.0 VIRO analysis:                 A VIRO analysis is used to understand a companies resources and capabilities to determine its competitive advantage. 

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4.0 VIRO analysis:                 A VIRO analysis is used to understand a companies resources and capabilities to determine its competitive advantage. 

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Adidas focus on innovation, brand culture and sport to bring overall value to its customer. A customer shopping at Adidas believe in the companies core focuses and Adidas try to create in line with these values. Adidas invests millions in innovation to take advantage of future trends and opportunities. Adidas must sell this at a price to make a profit but also make it attractive for the customer.

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Adidas offer rarity through its product lines and manufacturing techniques. Rare lines of clothing and footwear from influential collaborators offer products different and unique from another brand, such as the Yeezy boost line made famous by Kanye West. Uniqueness is something any brand will strive for to gain advantage in the market, this is usually done by product lines and innovation, however Adidas has come across groundbreaking manufacturing technology, an example of this is to produce shoes out of Ocean plastic waste, producing a shoe completely from recycled material is breaking new ground.

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Collaborations create new content, that can influence competitors however it can never be fully imitated. The cost of imitation is something that stops rivals on a daily basis. Replication can be costly for several reasons firstly for legal reasons with infringement on patent laws, furthermore imitation can be damaging to a brands reputation by lowering customer opinions and perception.

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Adidas has the world at its feet. It has all the resources a capabilities to continue to grow and reach its goal of becoming the dominating sports brand. The brand has the support it needs to achieve these goals, with a core customer base, plenty of influential collaborations and extensive product line with a focus on continuous innovation.

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Gaining the dominating control of the market is Adidas’s number one target, to do this they must continue to operate to their core values and look to the past so they do not loose sight of who they are. However, they must continue to innovate, adapt and push the boundaries further than ever before. Adidas should look to integrate more technology into its shoes bringing the idea of a ‘smart shoes’ to light, they must also look to broaden their markets, to exploit areas with little competition such as Africa, and finally they must continue to build strong relationships with athletes and celebrities in a world where we obsess over whats on trend.

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