Adidas could be seeing its rebound temper, as its sales in Europe — which have served as a bellwether for the brand — have declined and as it faces surging competition, especially in North America, according to a note by Wells Fargo analysts led by Tom Nikic emailed to Retail Dive.
Nike's new innovations, including releases like the Vapormax and React, are resonating with consumers and putting pressure on Adidas on the high-performance athletic side, the analysts said. Meanwhile, VF-owned Vans is capturing share in streetwear, according to the note, which downgraded the company's stock to "market perform" from "outperform."
Adidas was able to capture market share in North America as Nike's fortunes fell at home, but that opportunity is fading as Nike has turned things around thanks to its innovation efforts, the Wells Fargo analysts also said.
Adidas was a fixture of the World Cup — the brand provided the ball, the referee uniforms and sponsored the tournament itself (along with outfitting several of the teams) — but the games concluded with a sense that Nike took the crown.
Nike outfitted both teams in the final game as well as the eye-popping Nigeria uniforms that became a hot ticket item in London, according to Chinese broadcaster CGTN, and that served as a neat symbol of Nike's general resurgence.
"[W]e believe the tides have shifted in the athletic sector, which will slow the company's top- and bottom-line growth and limit upside potential to the shares," the Wells Fargo note reads. "One of the most noteworthy developments in the global apparel/footwear industry over the past few years, in our view, has been the ascendancy of Adidas (which began in Europe in mid-2014 and extended to the rest of the world in late-2015), and the corresponding slowdown in the Nike brand….The issue we see going forward, however, is that a reinvigoration of [Nike's] innovation engine is likely to put pressure on Adidas's growth in the near-to-medium term."
Nike's turnaround efforts in several areas of its business are resonating worldwide, but the story in its most recent quarter was a return to growth in North America — the company's home base and its biggest region — for the first time in a year. Fourth quarter revenue in North America grew 3% on a reported and currency-neutral basis, led by new innovation platforms, strong digital growth, continued momentum in sportswear and broad growth across apparel.
Adidas, meanwhile, has departed the most from performance sportswear in favor of streetwear compared to rivals, and that has shown up in its results. Adidas grabbed back the number two spot from Under Armour in 2016, basing much of its comeback on urban aesthetics and streetwear. That helped boost sales in North America all last year, where hometown rivals Nike and Under Armour are struggling, and the company's strategic growth areas — North America, greater China and digital commerce — were the main drivers of its performance and its ongoing momentum, according to a March statement from Adidas CEO Kasper Rorsted.
Notably, Under Armour wasn't a factor in the Wells Fargo note this week. Growth in Under Armour's home market has been negative or virtually non-existent for well over a year, warned GlobalData Retail Managing Director Neil Saunders in May, who said that is difficult to excuse considering the strength of the consumer overall.