Adidas is ditching television ads to instead emphasize mobile-based marketing in an effort to reach the so-called Generation Z demographic, CEO Kasper Rorsted told CNBC on Wednesday.
Gen Z — which roughly includes people born between 1995 and 2014 — is the first generation to be unaware of a world without the internet and mobile devices. Their phones are always on, though research shows they still prefer shopping in stores, according to recent studies from IBM for the National Retail Federation and from Euclid Analytics. "It's clear that the younger consumer engages with us predominately over the mobile device," Rorsted told CNBC.
Adidas last week reported revenue growth in nearly all market segments for the fourth quarter and full-year 2016, and increased its sales and earnings guidance into 2020. The German sports brand last year wrested back its number two spot in the space behind market leader Nike, leaving Under Armour behind.
Adidas says it intends to strongly accelerate sales and earnings growth until 2020 as part of its long-term strategic business plan, dubbed “Creating the New.” The company expects currency-neutral sales to increase on average 10% and 12% annually between 2015 and 2020, a boost from its previous guidance for a “high-single-digit rate.” Net income from continuing operations is projected to grow between 20% and 22% on average per year in that period, up from previous guidance of closer to 15% on average.
Adidas's Q4 results are "proof positive that our strategy ‘Creating the New’ is paying off,” Rorsted said in a statement. “Building on our 2016 performance, our momentum continues and we will again achieve strong top- and bottom-line improvements in 2017.”
That includes a commitment to digital sales and marketing. "Digital engagement is key for us; you don't see any TV advertising anymore,” Rorsted told CNBC.
Research backs him up. “[Generation Z doesn’t] think about turning their phone off and it’s always connected to high speed. Mobile is the number one device that they use — they’re connected all the time and it’s mainly on,” Jane Cheung, Global Leader for Consumer Products for the IBM Institute for Business Value and leader of the IBM/NRF Gen Z study, recently told Retail Dive. "They literally have the phone on their fingertips, and that definitely makes them more impatient.”
The athletic apparel company's websites (Adidas and Reebok) are already its largest and most profitable owned points of sale globally, according to a press release, and e-commerce revenues from those two distribution channels are projected to increase to €4 billion by 2020, compared to €1 billion in 2016, well past its initial forecast of a €2 billion by 2020. As part of its “digitalization offensive,” Adidas plans to significantly drive direct sales through these platforms, through digital technologies like 3-D creation, 3-D printing and smart manufacturing methods (e.g., its robot-staffed Speedfactory manufacturing facilities).
Speaking at a press conference last week, Rorsted said Adidas will "over-invest" in the U.S. market, emphasize fast fashion and accelerate its supply chain efforts. Adidas also will divest itself of its CCM hockey brand, emphasizing its namesake label as well as its Reebok business.