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Adidas aims to lead revolution in sporting goods manufacturing

PARIS -- Adidas CEO Herbert Hainer will retire at the end of September after leading the German sporting goods maker for 15 years. He spoke with the Nikkei Asian Review recently about the digitization trend that is revolutionizing manufacturing, Adidas's market position, and his plans for handing over the reins at the company.

Q: You have talked a lot about digital technology recently. How has it affected Adidas's business model so far, and how will it in the future?

A: I would say that digital technology has affected us in two ways already. These are e-commerce and social media. In the future, how we communicate with our consumers will definitely heavily influence our business in terms of manufacturing. How we structure the whole process of designing, developing, manufacturing and delivering the product to the consumer; I think these are the areas where digital is influencing our business.

Q: Why have you decided to start a "Speedfactory", where robots manufacture shoes, in Germany?

A: When I started at Adidas 30 years ago, there was still production here in Germany and in France, and then everything moved to Asia. It started in Korea, then it went to Thailand and China, and now to Vietnam and Cambodia. Labor was very cheap in Asia; therefore, all the production went East. This has the advantage of cheap labor but the disadvantage of long delivery times. The whole industry gets faster and faster. Fashion gets faster; the lifecycles of products get shorter; delivery on the same day, etc. -- this is all possible through digitalization today. I think we have to make sure that we get closer to the consumer. If we have a factory in Japan, then we can, more or less within 24 hours, produce and deliver to every place in Japan.

Adidas' Speedfactory automates the shoe-production process. (Photo courtesy of Adidas)

This is point No 1. Point No. 2, with digital we can automate the production process today. We don't need so much labor anymore. The factory in Germany, which is more or less a prototype, is a fully automated factory with less people. I do believe this will revolutionize the whole part of manufacturing in the sporting goods industry.

Q: Some German companies have overcome challenges from Asian peers despite higher labor costs at home.

A: Correct. I mean, when you compare the car companies or the car industry and the shoe industry, then the car industry is 30-40 years advanced compared with us. Why? Because labor in Germany or Japan is expensive, and therefore the car companies had to automate permanently. In our industry, labor was very cheap in Asia, so nobody invested into automating the production process. Now we are doing it, ourselves.

Q: Does it mean your factories in Asia will disappear in the future?

A: No. At the moment, we are producing 300 million pairs. To build up production in Germany, in England, Japan, this takes time -- and we are still growing very fast, so we need more capacity. What I do believe: The capacity in Asia will stay, but all the additional capacity will get individualized.

Q: You don't intend to increase capacity in Asia.

A: No. Imagine, we manufactured 300 million pairs last year. This year, we will grow the footwear business around 15%. This means an additional 45 million pairs. So, we have to build a lot of factories to produce this. We'll still need the factories in the Far East, but the additional factories should come step by step in Europe or America.

Q: Do you think you will open a facility in Africa?

A: Why not? But I do believe, with the automated Speedfactory, there is no need to go to Africa, because normally you go to Africa for cheap labor. Then you are back in the same game. It could be that one day, we will open up a factory in Africa, but it is because there is a lot of consumption there -- not cheap labor.

Q: By 2020, how many Speedfactories will you have?

A: I can't tell you exactly. We'll open the first one now in Germany; [in the second fiscal half of] 2017 we will open one in America. Then, we will see how we will continue.

Q: In Japan also?

A: Japan is definitely a big market for us, the fourth biggest market. We've not decided yet, but this could definitely be the case.

Q: How do you feel about the potential of the Chinese market, and how do you view China as an investor/business partner?

A: I see huge potential in China still. There are so many people there -- you have 1.4 billion people, and at the moment, maybe 5% of the population can afford our products. But every day it becomes bigger and bigger, the market of who can afford our products.

This will happen in the next 10 years in our industry -- because you have to imagine, our products are not expensive. For 80-100 euros, you can buy status, because you wear the newest innovative shoe from Adidas. You can become a hero. I do believe that Chinese investors are coming more and more to the Western world, and not only for the soccer clubs.

Q: Regarding Chinese investors buying European soccer clubs -- Adidas and Nike have strong connections with the big clubs, but the new investors may want to change things. As we saw during the Beijing Olympics, the Chinese government wants to promote Chinese brands globally.

A: Let's take AC Milan, because Chinese investors are interested in it. We have contracts with our clubs, which are long term -- and of course, it doesn't matter who buys them. They have to honor the contract; this is according to European law. Our contract with Milan runs until 2023.

Q: Adidas is making an ecosystem by acquiring Runtastic, a mobile fitness apps provider.

A: There are two main reasons why we have bought Runtastic. Firstly, we are definitely buying expertise in the digital world. These guys are really experts. They have built the business from scratch and they know much more about the whole digital world than we do. Secondly, Runtastic has around 18 million users. These are all sports enthusiasts, because Runtastic only offers sports apps. These 18 million sports enthusiasts can buy our products too, so we want to have their addresses.

Q: Do you think these kinds of solutions or service businesses will be a second pillar for Adidas?

A: This will definitely become a business pillar. How big it will be, I don't know yet.

Q: Adidas has already started using 3D printing technology. How do you evaluate this technology? Will it be an opportunity or a threat?

A: It's a huge possibility for us. We have already printed the first 3D soles -- still too expensive, but it will come. There is no doubt. And of course, this is the next step in the Speedfactory, in automated production, because then you don't need human labor anymore -- you can do it with it a printer in your own house. Digital technology will help us to revolutionize production; I'm absolutely convinced. And 3D will help.

Q: So in the future, Adidas will provide software, too?

Adidas' soccer-related sales are expected to hit a record high this year.

A: Exactly. Then every household can be a production facility.

Q: Generally, people regard U.S. companies as innovation leaders. But you are launching a lot of new disruptive projects from Germany.

A: We definitely want to be seen as the most innovative company. This goes with balls, shirts and soccer boots or running shoes, Boost technology, etc. Of course, being the first in creating a Speedfactory, this adds to our reputation for being an innovative company.

A: You are now the leader in the western European market. How will this change in the next 5 to 10 years in advanced countries? How do you differentiate yourself from Nike?

A: I do believe that this two-horse race will continue. Adidas and Nike are getting bigger and bigger, and the gap versus the rest gets bigger. Let's take the example of Asics. Asics' revenue is around 3 billion euros, and we are doing 20 billion euros. If we grow by 10%, we add 2 billion. If Asics grows by 10%, then they add 300 million. You will see that this gap will widen and widen. Nike and we spend much more money on marketing, ambassadors, assets, clubs, etc. Therefore, obviously, we can attract more consumers.

Q: In the last years, you started to divest some brands, like TaylorMade. Do you think Adidas has to focus more on the Adidas brand, or will you acquire brands in the future?

A: I think we should focus on footwear and apparel. This is, of course, mainly Adidas, but this is also Reebok. This is where we have the biggest expertise. 

Q: What if you receive an offer to acquire other brands, including Puma?

A: We always look at the market. I think this is our obligation and duty. But we would never think to buy Puma, because Puma has the same as we have. If we buy something, then it should be an addition to our business.

Q: You will leave Adidas this fall. You've met a lot of athletes in your career. What was the most emotional experience?

A: I had a lot of emotional moments, but one of the most emotional ones was the Olympic Games in Atlanta in 1996, when I met Muhammad Ali. He was sick already at the time, but he still had charisma and personality. This was one of the great moments I had. I had the pleasure of meeting so many great athletes.

Q: What was the most disappointing or challenging thing?

A: The challenge was in 2008, after the Lehman crisis, when the whole world collapsed financially. No one knew how deep it would go, how long it would last. Nobody knew what would happen.

Q: How did you feel about the collapse of FIFA? I assume it was a disappointing thing for you.

A: Yes, to a certain extent. It was disappointing. But also, here, I try to look at it positively. This is a chance to really put reforms in place, to make sure that everything is transparent, and then FIFA will be better.

Q: What do you want the new CEO, Kasper Rorsted, to do for Adidas?

A: I think Kasper is a very good manager. He is a big sports enthusiast and a good athlete. I think he fits very well into our company, from the way he is, the values he has, etc. I think this is really a good hire. I will help him for two months in August and September and will introduce him to the biggest promotion partners, sports partners and so on. We've built a very good team around him. They know the industry inside out.

Q: What do you want to do after you retire?

A: I have a lot of personal interests, and I'm still on the boards of several companies -- Lufthansa, Allianz. I have a few private investments I have to look at, and then I'll have more time for myself.

Q: What if you receive an offer to be CEO at another company?

A: I have done it long enough. Definitely not; I won't work as a CEO anymore. I have been with the best company in the world for 15 years as CEO -- why should I change companies?

Interviewed by Nikkei staff writer Takayuki Kato

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