Corporate: Playing Ball

Last year Adidas Group India became the first international sports footwear and apparel brand to get 100 per cent foreign direct investment (FDI) licence for retail and wholesale under the same entity. By Diwali, it will open its own store in Delhi followed by some more across Mumbai and Bengaluru in early-to-mid 2018. Adidas India also crossed Rs 1,000 crore in sales for 2016-17, the first amongst all global sports footwear and apparel manufacturers operating in India, by clocking a healthy double digit growth in an otherwise sluggish market. And all this it achieved in a record time of 30-odd months under the dynamic leadership of Dave Christopher Thomas, an Aussie by birth and a 20-year veteran in Adidas. Managing director of Adidas India for the past two-and-half years, Thomas was sent from Dubai to turn things around in India.

Recently, Adidas shifted into a posh office in Sector 32, Gurugram, on the outskirts of Delhi. “I guess it’s fair to say that the business then (three to four years ago) had been through a pretty turbulent time. It was starting to get back on its feet. But the organisation was not what I’d call, rock solid,” says Thomas as we settle down in a large fifth-floor conference room overlooking the Gurugram skyline.

“We set about building the foundations for a stronger business, a stronger team, and a stronger organisation, which we established in 2015, I believe,” says Thomas, a fan of cricket and rugby. “And then, we really saw the results in 2016. Already, we have seen our best quarter ever. So, we have had five very strong quarters. When I say strong, I mean both profit and net sales growth were strong,” says Thomas with a wide smile. He confesses that in his first year in India, the company had “quite a lot of cleaning up to do”, in order to build the strong foundation it has today. But that’s really behind us now, he adds. “We’re looking forward to great momentum and it’s a pretty positive and exciting time. The new office move has been part of that too. You can possibly feel it around the office, I know I can,” says Thomas exuberantly.

The India business for Adidas today is part of the emerging market headquartered in Dubai. It’s part of this select group of potentially high growth countries since 2014. Also included in the emerging markets is the Middle East and Africa, a total of around 70 odd countries, says Thomas. In the pre-2014 years, the India business was part of Asia and then for some years it reported directly to the headquarters in Germany.

Rebuilding Efforts
Since 2011, Adidas India had three or four managing directors and three or four sales directors until he took charge, says Thomas. “I’m happy that I have been able to give stability to the team that was hungry and passionate about growing the brand Adidas,” he says. But what led to the chaos for Adidas and Reebok that the parent company in Germany had bought over in 2005? “We had a situation because of the past years where the company had run very fast by opening as many stores as possible that were neither positive for the brand nor good for the business. They weren’t located at strategic places and weren’t delivering the right profit to either our franchise partners or us. And there was not much long-term hope for those shops. So, that was one of the first places we started,” says Thomas recounting the ‘clean-up’ operations after taking charge. As a result of large number of stores, mostly on the side of Reebok India, there was a large pile up of inventory “both in trade and in our own warehouse” says Thomas who alongside his team spent a good part of 2015 getting rid of stock, particularly those lying in the warehouse and in trade.

Adidas India decided to get rid of the large inventory. “Some of it was taken out of India and some of it was disposed off here,” says Thomas. “After that we have seen that our newer and more premium products, often more expensive, have done very well,” he adds. According to Thomas, when he took charge of India operations, consumers were willing to pay Rs 10,000 or less for Adidas products. “Now the Ultra Boost is selling at Rs 18,999 and the Yeezy is selling at Rs 24,000. There is a demand for our brand, and there is a demand for certain key items that are limited in quantity. But Ultra Boost is not that limited, it’s gone very mass,” he says. As part of the rebuilding efforts, Adidas India ensured that it worked with partners who understood and respected the Adidas brands. “That meant we lost some partners. We consolidated our stores and our franchise partners. We brought the numbers down quite a lot on the wholesale side as well,” says Thomas, adding that the operations saw stability coming in 2015, and the ramp up and acceleration in 2016.

Today, Adidas India is perhaps closer to the ‘Make in India’ movement by sourcing and manufacturing over 75 per cent of its inventory in over 10 factories within the country. “Local sourcing and manufacturing has enabled us to produce faster as well as produce at favourable duty and tax rates,” says Thomas. Sales via the e-commerce platform is also contributing around 25 per cent to the overall revenue of Adidas India. “We have set about prioritising the importance of e-commerce, but not at the expense of other things. Though clearly, digital and e-commerce are very big opportunities in India and comprise about 23-25 per cent of our business,” says Thomas.

Systems & Processes
But the turnaround of Adidas Group India is also a story of the turnaround of internal and external control, and putting best global practices in auditing, accounting and finances to test, among others. So we turned to the chief financial officer of the group, Ranabir Mitra, who is a veteran in the field. He has worked across HUL, PepsiCo and Reckitt Benckiser among several other large multi-nationals. Mitra joined in June 2013, a year after the fraud and legal issues cropped up in May 2012. How would you describe the transformation of Adidas group, including Reebok India? We asked. “This is an outstanding turnaround story, I must say,” says Mitra. He says a lot of things were put in place and it’s not only about process control. “It’s a 360 degree governance or controlled environment that has been set in place. It ensures that there is no repeat of whatever happened in the past. It has interventions on automation, hotline, anti-bribery and anti-corruption policy implementations, communication to employees, putting in loads of checks and balances on financial systems, and a greater and active understanding on where potentially a fraud can happen,” says Mitra. Today, Adidas and Reebok are a paperless office. “No piece of paper moves from place A to place B, it’s totally on work floor. We have audit trails, and very clear process on who does what,” he adds. The same has been implemented for Reebok India too. “Our leadership team is same for both. Excluding the marketing guys, everyone is same. It is a joint operating model,” says Mitra.

Now Adidas Group India operates out of one large warehouse located in Pataudi, Haryana. Earlier, there used to be eight to ten warehouses scattered all over. “It’s an anti-fraud measure. I have one place, one control, one application in that place. In terms of compliances, it meets the mark. It gives us a tight control on inventory. Another big intervention was outsourcing my buying,” says Mitra who has also backed his decisions by technology. “Today, I have a full audit trail of each and every decision taken internally. Everything is done through the e-platform,” he adds.

Going The E-Com Way
To get a better insight and understanding of how e-commerce is driving the sales for Adidas, we decided to pick the mind of Abhishek Lal, senior e-commerce director, Adidas Group India. Lal explained that the strategy pillars of e-commerce are three fold: partners; own e-commerce; and most importantly, consumers. “We have a database of about 4-million-plus consumers, both from retail and e-commerce. We speak to them in a credible, authentic, and relevant manner, which means knowing more about them. Knowing what their preferences are and their shopping history,” says Lal, adding that the partner e-commerce player is the driver. “We are a premium brand and we land our products in a premium manner on all partner sites. That means we work not with 50, but just with four partners: Flipkart, Myntra, Jabong and Amazon. We make sure the quality of product representation and pricing are in line with the Adidas brand. We work very closely with them on this. In return, we are one of the most profitable brands for the partners as well because Adidas with its brand strength, pricing parity, and consumer’s stickiness, sells a lot of our products at full price,” he adds.

Backed by better systems, processes and higher sales, Adidas India is keen to expand its presence in the country, not just in terms of new stores but by supporting various sports.

Towards A Better Future
Under the stewardship of Thomas, Adidas India has shut more stores in 2015 than it opened. But since the past eight to ten months, the company is on an upswing. In the next three to four years, it is likely to have at least two-dozen large-format stores owned and operated by the company itself. “We have huge large-format stores in places such as Middle East, South Africa and even back home. When we open such stores, the idea is to show our partners how large format stores can work wonders for consumers. And how they can be profitable too,” Thomas adds. But high real estate prices in India can play spoilsport. And Thomas is completely aware of that situation. That is why the company will also see how it can best use the existing store locations to its advantage. Commenting on the margins, Thomas concedes that there is the usual pressure from the headquarters to stay on the path of profitability, but maintaining sales and profits does prove to be a bit trickier at times. “That is where we leverage our local sourcing abilities. Almost 90-95 per cent of our products, manufactured within the country, get consumed too. When consumers see quality stuff, they are more than willing to pay,” says a confident Thomas as we close our chat.