Adidas plots to swerve Samba slump By Reuters

Written by Helen Reid

LONDON (Reuters) – As Adidas (OTC:) aims to build on growing demand for its black-and-white Samba three-stripe sneakers and multicolored Gazelle sneakers, it is also taking steps to prevent the shoes from becoming a victim of its own success.

The German sportswear giant has ramped up production of sports shoes, known as “balcony shoes” and inspired by football fans' shoes in the 1970s and 1980s. Sales have since jumped from a few hundred thousand pairs a month at the beginning of last year to millions of pairs a month, according to CEO Björn Gölden, as Adidas now looks to increase its popularity.

The company said that sales of balcony shoes helped fuel its strong performance in the first quarter, without giving detailed figures for Samba, Gazelle and Speziale. The shoes are priced around $90 USD and up, with limited edition collaborations costing up to $350 USD.

Investors and analysts are closely watching for signs that Adidas is becoming overly reliant on shoes, with the abrupt end of its highly profitable Yeezy business still fresh in their memories. Adidas posted a loss last year for the first time in 30 years after parting ways with American rapper and producer Kanye West, ending the trendy sneaker line.

The Adidas Samba has won Footwear News' 2023 “Shoe of the Year” award, the brand's first win since the Yeezy Boost 350 in 2015.

Bernstein analyst Anisha Sherman estimates that the Terrace shoes will generate 1.5 billion euros ($1.61 billion) in sales this year, about 7% of Adidas' total revenue and close to the 1.7 billion euros that Yeezy brought in at its peak.

She expects that sales of balcony shoes will likely reach their peak in all regions this year.

“It is clear and obvious that this trend will not continue forever,” said Thomas Goeckel, portfolio manager at Frankfurt-based asset management firm Union Investment, which owns Adidas shares.

“Ultimately, the consumer decides, and companies want it Nike (NYSE:) or Adidas will have to be agile to jump on these trends.”

When British Prime Minister Rishi Sunak was seen wearing Sambas in a clip posted to Instagram earlier this month, some Britons felt it dealt a blow to the shoe's street cred. Sunak later jokingly apologized to the “Samba community”, but CEO Golden said Sunak's fondness for the shoe had had no impact on sales.

Limited copies

Broader trend cycles could be bruising for big sportswear makers. In 2018, Adidas' sales declined in Europe, its largest market, when simple white Stan Smith shoes began to go out of style. Nike is currently reducing the supply of the classic Air Jordan 1 due to weak demand.

So Adidas is trying to spread its bets. Campus' bulkier, skater-style shoes are becoming more popular and outselling Samba in some markets, Golden said. Adidas also plans to ramp up marketing of its classic Superstar shoe to spur a renewed trend for it next year.

She recently launched a $200 version of the shoe with designer Edison Chen, featuring a wavy sole. Adidas is purging the market of seasonal Superstar colourways, focusing only on classic black and white, to ensure the market is “fresh” for new launches later this year and next, Golden said.

“We will maintain existing franchises and then determine when to activate the Superstar where we and the retailers need it,” Golden said. “We're not going to roll it out globally in huge quantities. We're going to park it and let the consumer decide when they want a Superstar.”

Releasing more expensive, limited-edition versions in collaboration with designers, such as the $350 Y-3 Gazelle with Japanese fashion designer Yohji Yamamoto, is one way to keep the product in style.

“What Adidas and Nike are doing with some of their products is trying to follow the rules of the luxury game — privilege, exclusivity, restricting supply, making everything more desirable so you can get bigger margins and create a halo effect for the brand,” Matt said. Clark, a retail expert at consultancy AlixPartners in London.

For retailer JD (NASDAQ:) Sports, new variations of the Samba shoe in different colors and materials are helping keep shoppers engaged, Regis (NASDAQ:) CEO Schultz said in its latest results. Retailer Foot locker (NYSE:) also cited “strong demand” for Adidas' terrace styles.

“Golden is very aware of the fact that you shouldn't overdo what you're doing to keep the model — to keep the brand and the model hot,” said Stifel analyst Cedric Lecaple.

“If they distributed tens of millions of Samba in the same year, they would probably sell it out, but they would also probably put an end to the Samba dynamic,” he said.

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