Adidas: Fighting Climate Change in the Name of Sports
To take an analogy from soccer, Adidas is doing the talking on the pitch when it comes to combating climate change
Climate change poses a threat to many industries and retail is no exception. Companies, such as Adidas, rely on a global supply chain to procure the raw materials they need to manufacture its products. Of these raw materials, cotton, which according to a McKinsey report accounts for about 30 percent of all textile consumption, may be considerably susceptible to climate change [1]. As temperatures rise and climate patterns fluctuate cotton’s ability to grow may be hindered reducing yields and directly impacting Adidas’ operations in a meaningful way [2]. In addition, climate change could impact other facets of the Adidas business including factories and retail stores due to floods and fires caused by extreme weather.
Consequently, Adidas has been taking meaningful steps to address climate change since 1989. Highlights include being a founding member of the Better Cotton Initiative (BCI) in 2004 and joining the Sustainable Apparel Coalition (SAC) in 2010 [3]. Furthermore, Adidas has continued to demonstrate its commitment to combat climate by publishing a sustainability report on a yearly basis since 2001. In the report’s latest edition Adidas introduces a new company initiative termed “Sport Needs A Space” which sets out the company’s sustainability objectives as far out as 2020 [4, Figure 1].
Figure 1: https://www.adidas-group.com/en/sustainability/managing-sustainability/general-approach/
As seen in Figure 1 above Adidas separates its objectives into two categories: Product and People. It is worth noting that most of its measurable sustainability goals focus on the “Product” category. Within this broad category, one of Adidas’ short-term goals is to move to 100% “Better Cotton” by 2018, having exceeded the 2016 sourcing target goal of 60%. Adidas also committed to its yearly target of reducing Scope 1 and Scope 2 CO2 emissions by 3% [5]. These short-term goals will allow Adidas to reduce its contributions toward climate change while also better positioning the organization to navigate its impacts.
Even though Adidas has laid out several goals for the immediate future there is no doubt that most of its objectives focus on a longer horizon. To tackle climate change, Adidas has set ambitious targets around reduction of water waste both at supplier facilities and with its own employees. One thing enabling Adidas to set such lofty goals was the introduction of DryDye technology in 2012; DryDye is a fabric dyeing process that uses no water, 50% fewer chemicals and 50% less energy than traditional fabric dyeing [6]. Adidas plans to increase the usage of DryDye technology in supplier facilities in order to meet its overall goal of reducing water waste.
Additionally, Adidas is also focusing on reducing waste from all areas of its business from manufacturing sites to retail stores. Adidas has placed particular emphasis on developing innovative manufacturing processes to introduce new products made of recycled materials. This could revolutionize the industry and the cost structure of retail if successfully executed.
Adidas has also directed its waste reduction efforts to its retail operations. In select retail stores Adidas has piloted a take-back program in partnership with I:CO named “Make Every Thread Count” where it takes back used products from customers [7]. These products are then sorted and either sent to a second-hand market or sent back to manufacturing to be recycled and reused for production.
While Adidas efforts for addressing climate change are commendable, I still believe there are key areas where it can make noticeable and measurable improvements. One of such areas is to track and measure its waste reduction efforts by weight. This way Adidas would be able to report the amount of waste it is removing from landfills when using recycled materials to manufacture new products. Another useful metric to consider would be number of apparel units recovered from customers through its “Make Every Thread Count” program. By doing so, Adidas could better track the impact of its program as a percentage of sales in certain strategic regions where it wishes to have the most impact.
It is clear that Adidas is strongly committed to combating climate change and has developed a complete and thorough strategy on how to do it. However, there are still concerns on its ability to deliver a full product line of “recycled products”. Will Adidas be able to successfully scale its new manufacturing processes in order to mass produce this new type of apparel? Furthermore, how will customers react to a recycled product in terms of quality perception? Will they embrace the Adidas brand for its strides in sustainability?
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References
[1] Nathalie Remy, Eveline Speelman, and Steven Swartz, “Style That’s Sustainable – A New Fast Fashion Formula” October 2016, McKinsey & Company, [https://www.mckinsey.com/business-functions/sustainability-and-resource-productivity/our-insights/style-thats-sustainable-a-new-fast-fashion-formula], accessed November 2017.
[2] Laura Routh, “Why climate change is material for the cotton industry” February 2017 GreenBiz [https://www.greenbiz.com/article/why-climate-change-material-cotton-industry], accessed November 2017.
[3] Adidas, “SUSTAINABILITY HISTORY”, https://www.adidas-group.com/en/sustainability/managing-sustainability/sustainability-history/, accessed November 2017
[4] Adidas “2016 Adidas Sustainability Progress Report” [https://www.adidas-group.com/media/filer_public/08/7b/087bf055-d8d1-43e3-8adc-7672f2760d9b/2016_adidas_sustainability_progress_report.pdf], accessed November 2017
[5] Greenhouse Gas Protocol, “Green House Gas Protocol Frequently Asked Questions”, http://www.ghgprotocol.org/sites/default/files/ghgp/standards_supporting/FAQ.pdf, accessed November 2017
[6] Adidas, “INNOVATION”, https://www.adidas-group.com/en/sustainability/products/sustainability-innovation/#/adidas-nodye/reducing-waste-and-emissions-adidas-formotiontm-technology/, accessed November 2017
[7] Adidas, “END-OF-LIFE”, https://www.adidas-group.com/en/sustainability/products/end-of-life/, accessed November 2017
As you point out, it is fascinating to think what the role of the consumer is in driving the sustainability agenda. Would adidas pursue these initiatives if they didn’t think the consumer cared about sustainability? Do they see a strong corporate sustainability strategy as a competitive differentiator? Will consumers be happy to wear shoes made out of recycled ocean plastic (as adidas introduced)? Involving consumers in the recycling process more directly and linking this to the brand may be one way to help overcome any consumer barriers to adoption. For example, rather than taking recycled products just from landfill, adidas could introduce recycling centers in its stores and reward consumers for bringing old items in, making them feel more engaged and bought into the concept.
Your topic is really interesting and using recycled material could impact the sporting goods retail industry in a big way. In my opinion there would be initial hesitation by consumers to accept recycled products. This could possibly be due to the fact that recycling is a “feel good” when done but maybe not when worn (as it’s usually correlated with waste product). But if Adidas is able to market the product in an effective way making the consumers feel that they are part of a bigger objective. This could be done by potentially showing customers the impact their contribution of discarded clothing has towards the environment (each t-shirt you give will reduce carbon emissions by 1unit). If customers are fully on board with the idea, then they may be more willing to buy recycled products resulting in Adidas being able to convert 100% (or as close to it as possible) of their product range to recycled goods.
In addressing customers perceptions of recycled goods and climate change initiatives Adidas could involve customers directly in the problem solving process. Nike has been very successful at this by partnering with partnering with MIT on a crowd-sourcing platform called “Climate CoLab”, encouraging citizens to work with experts and each other to create, analyze, and select detailed proposals for what to do about climate change. By seeking submissions on how apparel companies can design, create, and adopt low-impact textiles, Nike hopes to leverage collective-thinking to influence the industry as a whole. Adidas could leverage a similar approach to mitigate against negative consumer reactions.
Regarding your last question, I believe more consumers will be drawn to Adidas due to its strides in sustainability. 66% of respondents in a Nielsen report stated that they would be willing to pay a price premium for products from companies that had sustainability initiatives (http://www.nielsen.com/us/en/insights/news/2015/sustainable-selections-how-socially-responsible-companies-are-turning-a-profit.html). Therefore, Adidas shoes that use DryDye technology will be differentiated versus the multitude of other athletic sneaker brands in the market. These sustainable products build trust with the consumer and this message aligns well with Adidas’s positioning as a premium brand. I definitely recommend for Adidas to continue investing in the production of sustainable products. This investment will generate additional sales on differentiated products, resulting in a virtuous cycle where Adidas can then invest even more in eco-friendly initiatives.