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Q1 2019

Responses from adidas and Nike SA

We asked Nike SA and adidas SA for comments on the issues raised and statements made by independent retailers, angered by the closure of their accounts. NIKE SA issued a statement and adidas SA MD Roddy van Breda granted us an interview to explain the brand’s position

(We sent the same detailed list of questions to Nike and adidas).

There are many misconceptions and exaggerations regarding the adidas distribution policy among retailers commenting about the closure of their accounts, says Roddy van Breda, adidas SA MD. He took the time to address some of the issues raised by retailers quoted in the article on the previous page, and explained that some of the statements were simply not true, for example:

  • adidas has been reducing the number of accounts it is able to service over the last two years, but the number of reductions is nowhere near the 300 accounts mentioned;
  • adidas support a huge number of independents — about 250 sport or lifestyle independents — who play an important role as specialists and distribution partners, says Van Breda.

It is a false perception that big retailers dictate to adidas who it may supply. adidas makes the call based on its own objective criteria.

“Over the last few years we’ve had to re- evaluate our distribution policy given changing market dynamics and trading environments,” says Van Breda. “The challenge for us is: how do we ensure that we are in the right doors where our customers shop and that our customers and retail partners alike are best serviced? If we want to remain competitive, we need to evaluate our distribution from time to time and make sure we are in line with what the market requires.”

“Relationships with retailers — big and small — are absolutely critical for adidas, and we pride ourselves in working with our retail partners.” The industry and retailers are evolving and every day there are new challenges that they have to find solutions for.

Retailers want to differentiate themselves and want to offer something unique, he adds. “Retailers want to stand for something and differentiate themselves either as a sport retailer or a lifestyle store.” In some smaller towns a retailer might sell specialist level products, as well as others, and that retailer will then be classified as a generalist, and will receive more generalist products.

Ranges are significantly bigger than a few years ago, and to this end, a retailer will be more profitable if that retailer specialises in a certain area, he advises. A retailer that sells mainly entry level products will, for example, not be profitable when stocking top end products that none of his customers can afford.

“There is no sense in placing boots in a fashion store, we need to have products that are relevant to the customers who shop in those doors,” explains Van Breda. “We have to be consistent, whether dealing with a major customer or a smaller retailer. You need to decide if you want to be a sport or lifestyle store — customers don’t want you to be everything to everybody.”

Van Breda adds that the decision to close an account — or open a new account — is taken at head-office level, and several objective factors are considered, such as whether an area or town is over-saturated (affecting the profitability of all retailers and placing them in jeopardy), the look and feel of the store, how the brand is displayed in the store, does the store offer something unique for consumers, how was the account handled in the past and who are the customers?

In addition, other factors that may warrant the closure of an account are ongoing poor financial performance; habitual late payment for goods and/or large outstanding debt; stores not being adequately maintained, thereby compromising the adidas brand image; and/or parties breaching material terms of their supply contracts.

Adidas will also consider the cost to serve that customer — for example, does it make financial sense to distribute product to that account in terms of order size and distance?

Before closing an account they aim to follow the right levels of communication with the retail partner, because they pride themselves that they are doing the right thing, says Van Breda.

They will consider the same factors when approached to open a new account — which happens regularly. But, because of the saturation of the market “we will say no more often than yes to protect existing accounts,” he adds.

The practice of appointing wholesalers to service smaller retailers was stopped more than five years ago, because by selling via wholesalers, adidas is unable to control what kind of stores stock their products, thereby threatening the integrity of the brand. The former wholesalers are now teamwear accounts who sell to teams, but not to other retail accounts. “We manage the decisions about who may be an adidas stockist — other- wise stock lands on the shelves of a store we do not want to sell to.”

And the separation is not always initiated by adidas, he reminds: some accounts say they no longer want to stock adidas or want to reduce their orders. “We have to ensure that our brand is hot enough and desirable enough for retailers that they wish to have it on their shelves. It requires a huge cost investment to build a brand on a local and global level to make sure our brand is hot. If the market is over-distributed, it loses some of the value. We must make sure we keep the balance.”

Statement from NIKE SA

Nike is constantly evaluating its distribution needs with a view to enhancing its brand, and delivering the best product presentation and consumer experience at the point of sale.

This includes adapting our distribution strategy to changes in our consumers' purchasing behaviour, the retail landscape and our brand strategy, and may lead to us discontinuing business with select accounts, where necessary.

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