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This paper has been prepared for educational purposes within an Advanced Seminar in Strategic Management where we attempt to understand Amer Sport's strategy and recommend a strategic course of action.
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A M E R I C A N U N I V E R S I T Y O F B E I R U T
2013
AmerSportsPerformance Products for Sports & Outdoor Activities
Mada Arslan; Nadine Mhanna; Atef Sinno
BUS 349: Advanced Seminar in Strategic Management
Group 2: Mada Arslan, Nadine Mhanna, Atef Sinno 1
Part 1: Introduction
Amer Tobacco was founded in 1950 as a manufacturer and distributor of tobacco. In 1990, the
company shifted its main line of operations to manufacturing sporting goods. In 2005, the
company changed its name to Amer Sports after dropping all sports-unrelated segments.
Headquartered in Finland, Amer Sports manufactures and sells sports equipment, footwear, and
apparel in 33 countries around the world. Its specialty is winter sports equipment and apparel
(skis, bindings, boots, and snowboards). Its brands include Salomon and Atomic for winter
equipment and apparel, Arc’teryx for outdoor apparel, Wilson for teams and individual sports
(tennis, golf etc.), Mavic for cycling, Suunto for diving, and Precor for fitness equipment.
Organic growth for Amer has been slow over the last 5 years (2007-2011) with sales growing at
a mere CAGR of 3.3%. The industry by nature is susceptible to seasonality and climate change.
In 2012 sales for Amer declined due to the winter season coming in later than usual (Interim
report 2012) as a result of global warming and 2012 being the 10th warmest year on record sine
1880. Amer Sports segments its geographical presence into 3 regions: EMEA (Europe and the
middle east that generate 80% of sales), the Americas (16% sales), and Asia Pacific (4% of
sales). This widespread geographical presence exposes Amer Sports to currency fluctuations
leading it to substantially use hedging through various types of derivatives. Amer Sports’ profit
margin in 2011 was 4.83% which is not within industry practice especially that Adidas (the
German sports company and one of 30 major companies of Germany) reported a profit margin
for 2011 of 5.02%. We pull special attention to Amer’s debt where we believe they are having
difficulties in handling debt: from 2009 till 2011 Amer executed a series of transactions to
manage short-term and long-term debt.
The objective of Amer Sports’ value chain is to conduct efficient and timely operations. The
company outsources 65% of its production in order to focus on its core competency which is
R&D. The company’s capability is to market products as part of the sporting experience. This
Group 2: Mada Arslan, Nadine Mhanna, Atef Sinno 2
capability is generated by Amer’s own competency and those of its partners (suppliers,
manufacturers, and retailers).
Amer Sports’ vision is to be the sports industry’s leader by developing authentic brands that
inspire sporting enjoyment and achievement. Amer Sports’ strategy is explicitly stated on its
website and consisted of five strategic cornerstones:
1. Clear portfolio roles and business synergies
2. Faster growth in softgoods
3. Winning with consumers
4. Winning in go-to-market
5. Operational excellence.
An analysis of these targets reveals that while Amer Sports is on track to accomplishing most of
them, there are concerns about the long term sustainability of the company especially amid its
vulnerability to economic and climate change, the intense competition it faces in the areas its
planning to expand in, and its involvement in price wars leading to low profit margins.
Part 2: Data Presentation
As the world plunged into recession in 2008, Amer Sports’ stock took a hit given its sensitivity
to the market with systematic risk measured by its beta of 1.04 (Reuters) declining from an
average of €17.37 in 2007 to an average of €11.58 and €6.45 in 2009. Share price have been
recovering steadily during 2010 and 2011 to averages of €17.37 and €17.37 respectively, and
closing at €11.25 in 2012 (Annual reports and company website). In comparison to Adidas’ stock
and the DAX 30 (the stock index grouping the 30 major German companies including Adidas),
Amer Sports falls short (refer to Appendix 2 for stock highlights). Even comparing Amer Sports’
stock to the OMX Helsinki Cap index (the stock index that lists 129 Finnish companies), it still
falls short (company website). It is worthy to mention that 8 out of the top 10 shareholders of
Amer Sports holding 58.48% of the outstanding share are banks and pension insurance
companies and institutions (company website) since a beta close to 1 with a ROE of 10.96% in
2011 present a logical diversification option (refer to Appendix 1 for financial highlights). In
2011, Amer Sports repurchases €36.7 million of its share to “implement share-based incentive
plans for 2011 and 2012 for the Group’s key personnel” (Annual report 2011).
Group 2: Mada Arslan, Nadine Mhanna, Atef Sinno 3
Amer Sports’ return on equity in 2011 was 10.96% (8.72% in 2010). Using DuPont’s equation to
segment ROE we find that the increase is driven by the increase in both profit margins from
3.96% in 2010 to 4.83% in 2011 and in leverage of the company as indicated by its equity
multiplier of 54.38% in 2011 up from 52.22% in 2010. Asset turnover did not change
significantly. Sales for Amer picked up in 2011 however the cumulative average growth rate
(CAGR) of sales from 2007-2011 is low at 3.3% (half of Adidas’ sales CAGR of 6.69% for the
same period). Looking at this increase in sales in parallel with some asset management ratios, we
raise a concern over the health of this organic growth: inventory turnover in 2011 decreased to
2.96 from 3.3 in 2012 and it is taking 13 days longer to sell them (days sales in inventory
increased from 110.44 to 123.46). This decline is due to increased levels of inventories which is
translated into a €57.5 million charge to operating cash flows. In addition, and in spite of the
sales increase in 2011, accounts receivables turnover declined from 3.76 to 3.63 and the
collection period increased by 3.6 days translating into a €63.8 million charge to operating cash
flows. It is possible that Amer has relaxed its credit policy to increase sales. Despite positive
operating cash flows both in 2010 and 2011, Amer experienced declining cash balances due to
their investing and financing needs. A closer look at Amer’s financing cash flow activities from
2009 to 2011 reveals that Amer issued €151.5 million shares to finance the repayment of a
€225.2 million long-term debt in 2009 while in 2010 Amer withdrew a €180 million long-term
debt to repay both short-term and long-term liabilities totaling €228.7 million; and in 2011 Amer
withdrew a €73.5 million long-term and increased short-term borrowings by €193.4 million to
repay €174.5 million long-term debt and financing the repurchasing of their own stock for €36.7
million and dividend distribution of €36.4 million. This shows that Amer is having difficulties
managing their debt although they can easily cover their interest expenses (Times interest earned
in 2011 was 6.36). It is possible that since Amer’s ROE in 2007 was the lowest amongst the 5
years spanning from 2007 to 2011 caused by the lowest profit margin of 1.12% in 2007 due to a
€47.2 million reorganization of Winter Sports Equipment business area expense; management
sought to increase ROE through capital restructuring.
Head NV is a direct competitor of Amer Sports given Head’s focus on winter sports and tennis
equipment and apparels and on diving equipment. However Head is performing poorly. Its share
price closed in 2012 at €1.16 (€0.71 in 2011), its ROE is a mere 0.19% primarily due to a very
Group 2: Mada Arslan, Nadine Mhanna, Atef Sinno 4
low profit margin of 0.1% caused by very high interest expense: interest expense for Head was
122% of its EBT leading to a 0.82 times interest earned ratio in 2011 while Amer’s interest
expense was 16% of their EBT. EPS for Head in 2011 was nil. In addition, Head’s sales grew
from 2007 to 2011 at a CAGR of -1.57%. Head NV spent 2.57% of their sales on R&D in 2011
allowing them to increase their technologies’ portfolio to 34 covering Skis (5), Binding (7),
Boots (9), and Helmets (13). Amer on the other hand devotes 8% of their personnel (583 people)
and spent 3.41% of their 2011 sales on R&D.
Adidas outperforms both companies and it is one of the major 30 German companies indexed
within the DAX 30. It serves different sport segments with a focus on footwear (47%) and
apparel (43%) that generated 90% of Adidas’ €13.3 billion 2011 sales. The 2,401 retail stores in
2011 sold merchandise worth €2,793 million and with an average store size of 200-250m²
(Annual report 2011), Adidas had generated in 2011 an average of €5,170 per m². Adidas’ ROE
in 2011 increased slightly from 12.29% in 2010 to 12.57% mainly driven by the increase in the
profit margin (5.02% from 4.74%).
The three companies: Amer, Head, and Adidas, have healthy current ratios yet the quick ratio
decreases to less than one for Amer and Adidas which is reflects inventory levels. The Cash ratio
of Amer is very low at 0.11 in 2011 which mirrors our earlier analysis of inventories and
receivables. Adidas also has a low cash ratio of 0.21 in 2011 which is also caused by increased
inventory and receivables, however Adidas improved its collection period by 4 days which was
offset by the increase in days sales in inventory by 5.87 days.
Amer Sports’ core business is its winter and outdoor segment generating 60% of 2011’s sales
(refer to Appendix 5) and quarters 3 and 4 represent the highest sales volumes for Amer (60% in
2011- refer to Appendix 3). the Americas and Asia-Pacific generate 51% of sales (refer to
Appendix 4). In addition, 70% of Amer’s manufacturing is produced in the USA (10%) and Asia
(60%- Annual report 2011). This seasonality and geographic presence expose the company to
currency risks (notably the US dollar) that have been amplified by the ongoing Euro-Zone crisis.
Therefore the company engages in hedging its currency and interest rates smooth its cash flow
stream and meeting its cyclical increase in net working capital. Seasonality for Amer is amplified
Group 2: Mada Arslan, Nadine Mhanna, Atef Sinno 5
by global warming (refer to Part 3: Macro-Environment), sports tournaments do not add to sales
fluctuations: the Winter Olympics that are played once every 4 years (the last one being in
Vancouver, Canada 2010 and the next being in Sochi, Russia 2014) did not affect the company’s
share price in 2010.
Other companies and groups that directly compete with Amer Sports are mostly privately held
such as The North Face company (footwear and apparel)1, Tecnica Group owning Nordica and
Blizzard (skis)2, and K2 Sports owning K2 skis and snowboarding, Line, Full Tilt, Tubss etc.
(skis, footwear and apparel, etc.)3.
Part 3: Macro- and Micro- Environments
Macro-Environment
The World Bank segments the world market into 6 regions: East Asia and Pacific, Europe and
Central Asia, High-income economies ($12,479 or more), Latin America and the Caribbean,
Middle East and North Africa, South Asia, and Sub-Saharan Africa. Appendix 8 highlights some
significant world indicators for each of those 6 regions. Some of these indicators are not
observable in the aggregate region as for example the countries composing Latin America are
heterogeneous in their government and societal structure and lifestyles: Brazil is more open to
foreign direct investment while Cuba is not due to the political sanctions.
Amer Sports operates under the leisure industry. Its core business segment is winter and outdoor
sports and its main target market is limited and caters to individuals with disposable income that
allows them to afford purchasing the required gear for such activities as skiing or snowboarding
or hiking. On average, purchasing a full ski gear from Salomon (one of Amer Sports’ brands)
that includes the skis, the bindings, the boots, the poles, a jacket and a pair of pants would cost
on average $1,983 or €1,5374. GDP per capita is a key indicator. In 2011, it is highest for the
High-Income economies (a group of 70 countries including the USA, Canada, Australia, Finland
1 www.thenorthface.com 2 www.tecnicagroup.com 3 www.k2sports.com 4 As there are a variety of prices we selected a few from www.evo.com and computed an average: price range for Binding $100-500, Skis $400-750, Boots $300-630, Jacket $160-480, Pants $150-360, Poles $25-110. We used an exchange rate of €1.29/$ (Head NV’s annual report 2011).
Group 2: Mada Arslan, Nadine Mhanna, Atef Sinno 6
etc.) at $27,645 or €21,430, next is Europe & Central Asia at $12,872 (€9,978) and East Asia &
Pacific at $5,391 (€4,179). Amer Sports focuses on these key regions with a geographical
presence in the Americas (16% of global sales), EMEA (80% of global sales), and Asia Pacific
(4% of global sales).
Those economies with highest GDP per capita have the lowest population growth rates (HIE
0.63%, ECA 0.41%, and EAP 0.65%). As disposable income increases, people re-evaluate the
quality of life they want to have which usually entails spending more time and money on leisure
activities. However, the low population growth rate in these key markets may offset the benefit
from increased disposable income when the population age structure shift from a young
generation to an older one: Japan a key market in Amer’s Asia Pacific geographical
segmentation has 23% of its population aged 65 and above (World Bank).
In this global market, when developed economies develop a social-economic trend, other
countries follow suit as relevant structural factors become available. Online shopping began in
the early 90s in the US, the UK, and Germany and as the internet infrastructure improved and
more businesses offered online platforms for safe online purchases, the societies adopted online
shopping into their daily lives and lifestyle. Amer’s key markets EMEA and the Americas have
been moving increasingly into e-commerce given the convenience and flexibility it offers; yet
some of these markets within these two broad segments have yet to fully develop: Latin America
only has 39% of its population using the internet, the Middle East has 31% and even Europe, the
biggest market (80% sales) has only 60% of its population using the internet. As the society
adopts even further this trend, online sales for Amer Sports will increase; a strategic choice have
been made my Amer’s management to develop the online platform (Annual report 2011) which
will enable the company to reduce its fixed costs (opening their own retail shops) and reduce its
inventory levels that accounted for 19.79% of its total assets in 2011. Other societal lifestyle
trends are eco-tourisms and outdoor activities that contribute to Amer’s organic growth
especially as societies face health issues that require a change in habits to become healthier:
worldwide overweight and obesity5- or as the World Health Organization (WHO) termed it
globesity- more than double since 1980 and it is the fifth leading risk for deaths. Appendix 6
shows that in Amer’s key markets, overweight and obesity are an issue with a slight difference
5 The WHO defines overweight as having a Body Mass Index (BMI) ≥25Kg/m² and obesity as having a BMI ≥30 Kg/m². http://www.who.int/mediacentre/factsheets/fs311/en/
Group 2: Mada Arslan, Nadine Mhanna, Atef Sinno 7
between gender: women in China are predominately within range: only 20-25% of women aged
15+ are overweight while 35-50% of men aged 15+ in China are overweight. A very high
percentage of men and women in North America are obese and a lower percentage face this issue
in Europe.
There are no significant rules and regulations that prevent Amer Sports from penetrating new
markets or grow in existing ones. Governments can actually help the sports industry by raising
awareness for a balanced lifestyle and the importance of sports. However, global warming is
taking its toll on the winter sporting industry with the year 2012 being the 10th warmest year on
record since 1880 according to the National Climatic Data Center6. Appendix 7 shows how
Amer’s key markets are within the warmest regions in the world. The warmer climate is already
affecting the Canadian economy where the ski sector contributes $839 million (€650 million)
yearly (Bruce, 2009). Even the US’s $12.2 billion (€9,457 million) ski and snowmobile industry
is feeling the heat according to the Natural Resources Defense Council (NRDC)7. Some of the
repercussions of global warming according to the National Geographic are receding glaciers,
reduction in sea ice, decreased snowpack, rising sea levels, flooding, drought, severe storms
(hurricane Sandy damaged New York and New Jersey in 2012), loss of biodiversity,
unsustainable development etc. (refer to Appendix 7). Governments must take big proactive
measures to protect the environment: global warming is the 7th most likely scenario for erth’s
demise (Dove, 2012).
Communication infrastructure around the world is developed enough for Amer Sports to reach
its target markets from its production facilities and receive its raw materials required for
production (steel, rubber, oil-based raw material- Annual report 2011). Nevertheless there are
always risks of failed deliveries were it input supplies or output production due to physical
infrastructure hindrances. In 2012, Japan’s tsunami and the catastrophic nuclear outfall adversely
affected Amer’s East Asia sales.
6 http://www.ncdc.noaa.gov/sotc/global/2012/13 7 http://www.nrdc.org/globalwarming/climate-impacts-winter-tourism.asp
Group 2: Mada Arslan, Nadine Mhanna, Atef Sinno 8
Micro-Environment
History
The company was formed in 1950 in Finland as Amer Tobacco to manufacture and distribute
tobacco and acquired the right to sell Philip Morris cigarettes in 1961. In the 1960s and 1970s, it
expanded into an industrial conglomerate with interests in shipping, publishing, textiles, and
plastics. It went public in 1977 on the Helsinki Stock Exchange and was listed on the London
Stock Exchange in 1984. Its growth was made possible through several acquisitions and, in
1984, it acquired Korpivaara, Finland's oldest and largest automobile importer.
In 1986, Amer established a sports division by acquiring a major share in Jack Nicklaus'
MacGregor Golf Company (Hoover’s) and in 1989 it bought Wilson Sporting Goods. It was in
the 1990s that Amer's identity as a major manufacturer of sporting goods began to emerge. In
late 1994, the company acquired Atomic, a maker of winter sports equipment. During that time,
it was divesting its nonsports-related businesses and undertaking a restructuring plan that focused
on introducing innovative sporting products and enhancing operations.
In 1999, it acquired Suunto, a maker of diving instruments and, in the 2000s, it continued
purchasing sporting goods manufactures and integrating brands. It also continued to divest its
other businesses and in 2004 left the tobacco industry, even though it had 75% of Finland's
tobacco market, in order to focus on Sports. The company changed its name to Amer Sports
Corporation in 2005 to reflect its strong sports equipment brand portfolio. In that same year it
bought Salomon from Adidas for €485 million and, in 2011, it acquired Nikita, an Action Sports
company targeting women, to further diversify its portfolio.
Industry
Amer Sports, in its Annual Review, identifies itself as belonging to the Sporting Goods industry.
Companies in this industry manufacture sporting and athletic goods including sports and fitness
equipment.
The sporting goods industry is highly competitive and includes many national, regional, and
global companies. Although Amer Sports does not have a competitor that challenges it across all
of its product categories, the company faces competition from several companies in most of its
categories (Annual Review, 2011). According to Hoover’s and Yahoo! Finance, the major
competitors of Amer Sports are Head N.V, Callaway Golf Company, and Adidas AG. Other
Group 2: Mada Arslan, Nadine Mhanna, Atef Sinno 9
competitors include NIKE, Inc., Quiksilver, Inc., Tecnica S.p.A, Prince Sports, Inc., and
Nautilus, Inc.
The sporting goods industry is concentrated. As a matter of fact, the 50 largest companies
account for about 70 percent of industry revenue (Source: Hoover). Moreover, this industry is
highly fragmented. It includes companies that manufacture a wide variety of products for tennis,
golfing, camping, winter sports, fitness and other sports. Moreover, because there are few
barriers to entry, the industry is characterized by many companies that differ in size and product
specialization. Companies differ in size, ranging from small specialized companies to large
diversified corporations. The common aspect though is that brand loyalty plays an important role
in their success.
Porter’s Five Forces
Threat of Substitutes: High
Different kinds of sports and alternatives
to sports for recreation / entertainment
Rivalry among existing
competition: High
Several strong competitors,
severe price competition,
and high industry
consolidation
Threat of new entrants: Moderate
Low barriers to entry except overcoming
consumers’ loyalty to existing brands.
Bargaining Power of Suppliers:
Low
Major clients buy in large
quantities and have long‐term
relationships so can drive
suppliers’ prices down.
Bargaining Power of Buyers:
High
Both retailers and customers
have several options to
choose from and there exist
low switching costs
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Rivalry among existing competition
The industry is well established and full of a high number of recognized brands. Rivalry is strong
with companies continuously being involved in severe price competition and industry
consolidation (mergers and acquisitions).
Threat of New Entrants
There are low barriers to entry especially for small companies focusing on one or two product
categories. The main obstacle to overcome is changing consumers' current buying habits and
breaking their loyalty to existing brands. Companies seeking to obtain a market share in the
industry need to spend more on research and development and marketing in order to survive and
be successful in the competition for market share and consumer base.
Threat of Substitutes
Sports can be substituted with different activities for recreation and entertainment. For example,
consumers who are trying to decide whether to use their free time to play tennis, watch a movie,
get enrolled in a class, or play video games especially with the rise of exercise video games, such
as Nintendo's Wii Sports, Sony's Move and Microsoft's Kinect. Another form of substitutes lies
in choosing different sports to practice. A consumer can chose to play basketball rather than golf
thus affecting the sales of golf equipment manufacturers.
Bargaining Power of Suppliers
Most suppliers are firms in foreign countries, namely China, Taiwan, Canada, and Mexico. The
bargaining power they have is relatively low due to the fact that manufacturers can chose which
country they want to import from and which company, in addition to the fact that major clients
engage in large quantity long-term purchases.
Bargaining Power of Buyers
Buyers in this industry are both companies and customers. They have relatively high bargaining
power due to the availability of several competitors and the highly fragmented nature of the
industry. Although, the buyer may have more of the bargaining power, the manufacturer has
Group 2: Mada Arslan, Nadine Mhanna, Atef Sinno 11
security in the fact that the retailers has to purchase for a number of years due to existing
contracts between the two parties.
Value Chain
Primary Activities
Secondary Activities
The main strategy behind the value chain of Amer Sports is to conduct reliable, efficient and
timely operations. The primary activities of the value chain include R&D, raw materials,
product manufacturing (sourcing and outsourcing), outbound logistics, marketing and sales and
customer service. On the other hand, secondary activities include quality control, IT and HR.
The sourcing in Asia is headquartered in Hong Kong. On the other hand, other functions such as
Global IT, manufacturing, and distribution and transportation are managed from the European
offices.
Main Secondary activities:
IT: Currently, all business functions are integrated under one IT platform. In 2011, Amer Sports
shifted from several legacy systems to SAP which is the market and technology leader in
business solutions software. The role of information technology is to support the geographical
expansion and to provide channels of communication throughout the supply chain.
R&D Manufacturing (outsourcing and in‐house)
Raw
Materials
Distribution
and
transportation
Marketing
and Sales
Customer
Service
Information Technology
Quality Control
People management
Infrastructure
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Quality control: Injuries caused by defective products can expose the company to serious
lawsuits and liability claims. Due to this critical nature of the products, quality control is a
primary activity of Amer Sports’ value chain.
Products are tested for deficiencies during the whole production process and before being sold to
buyers. Generally, quality test is executed by the company’s control team. As well, Amer Sports
require its third-party suppliers to conduct extensive inspection to make sure that quality
requirements are met. As mentioned above, the Hon Kong office supervises the quality of the
outsourced production.
In case a defective product was recalled, the company analyzes the items and work with the
third-party suppliers to avoid the repetition of the same problems in future.
Primary Activities:
R&D: In order to bring innovative products, Amer Sports conducts continuous market research
and product development. The company seeks to be global and, at the same time, satisfy the
local demands and preferences. As well, AMEAS needs to develop products that appeal to both
professional and amateur athletes.
Raw Materials: Amer Sports purchases the raw materials from many suppliers. The main raw
materials include steel, rubber and oil-based parts. These materials are mainly used to
manufacture the plastic parts, carbon fibers and metal parts of the final products.
Manufacturing and sourcing: The main strategy of sourcing is to locate production in low labor
costs countries that are close to main markets. Amer Sports production value is distributed as
follows: 10% in America, 30% in Europe, Middle East and Africa and 60% in Asia (China
representing 30% of the total). Recently, Amer Sports shifted some of its production to countries
such as Vietnam and Cambodia that are witnessing a growing importance.
Amer Sports has 12 manufacturing facilities across the globe. The most important ones are
located in Austria, Finland, Canada, France and the United States. About 20% of the final
products are manufactured by own factories and about 15% are partially outsourced mainly by
Eastern EU plants.
Group 2: Mada Arslan, Nadine Mhanna, Atef Sinno 13
Outsourcing: About 65% of total Amer Sports’ production is outsourced. The outsourced
products include all golf and racquet sports products, and most team products, winter sports
equipment, fitness and footwear.
The outsourcing of production is handled by the Hong Kong office. Its main duties include
ensuring that subcontractors are working in accordance with the company’s ethics.
Distribution and Transportation: The company has two main distribution hubs. The Überherrn
hub in Germany supplies the EMEA region, and the Nashville hub in Tennessee supplies the
United States.
Amer Sports has warehouses that are factory-specific and others that are country or region-
specific. Final products are transported from the two distribution hubs to both trade customers
and Amer Sports’ stores. All kinds of transportation (land, sea and air) are carried out by third-
party transportation companies.
Production and distribution are very critical parts of Amer Sports’ value chain. The company
should be alert and able to react quickly to market changes. For example, Amer Sports must
adjust production according to changes in snow conditions. Simultaneously, since sales are
seasonal, AMEAS must deliver the products on time. Any delay in delivery will drop sales by a
huge amount.
Marketing and Sales functions: Amer Sports has two sales channels: Business-to-Business and
Business-to-Customer. Some products are sold directly from the company’s website or own
stores to end users and other are sold to retailers and distributors. Also, Amer Sports provides
warranties in accordance with domestic legislation.
Amer Sports continuously seeks to integrate and synergize its supply chain functions to achieve a
globally-managed supply chain. The goal behind this strategy is to decrease inventory levels and
production costs and improve customer service. The continuous integration process encompasses
several activities such as:
Additional integration of distribution and transportation management,
Expansion of Amer Sports’ Global sourcing operations to benefit from economies of
scale and enhance negotiating power
Group 2: Mada Arslan, Nadine Mhanna, Atef Sinno 14
Bringing together of talent
Core competencies:
The sporting goods industry is consumer-centric and innovation oriented. Therefore, Amer
Sports invests heavily in research and development and market analysis. R&D constitutes the
core competency of Amer sports. The company seeks to continuously develop new and improved
sporting goods given the short life cycle of products. The importance of innovation is clearly
shown in sale. Actually, a significant amount of sales is generated by products that are
introduced to the market in the same year.
In order to serve different business areas, the company has seven R&D sites around the world
working on continuous development of products, operational efficiency and collaboration.
The following table shows R&D expenditures as a percentage of total operating expenditure.
Q3-2012
Year2011
Year2010
Year2009
Year 2008
Year 2007
R&D expenses as a % operating expenses 9.17% 9.22% 8.60% 8.83% 9.47% 9.65%
It is evident that R&D expenses account for a high percentage of Amer Sports’ total expenses.
In the last years, those R&D expenses were allocated as follows: 66% for winter and outdoor
segment, 21% for fitness segment, and 13% for the Ball sports segment.
Amer Sports’ R&D departments collaborate with top athletes, universities and research group for
the development of optimal products. The resulting innovations are safeguarded by the
company’s intellectual property portfolio which includes patent, trade secret, design, and
trademark legislation. Those property rights support the company’s business mainly in US and
Europe.
Additionally, Amer Sports uses the competencies of other company throughout its value chain.
First, the company outsources 65% of its manufacturing process. Outsourcing gives the company
access to skilled expertise and a wide range of raw materials and resources. As well, Amer
Sports depends on other manufacturers to increase productivity and efficiency. As a result,
outsourcing allows the company to focus on its core competency and know-how.
Group 2: Mada Arslan, Nadine Mhanna, Atef Sinno 15
Secondly, the company collaborates with transportation companies to deliver its products
worldwide. Those companies transport the final products to other businesses such as retailers,
sporting chains, mass merchants, gyms, and distributors. Simultaneously, the transportation
companies deliver the products to Amer Sports stores, outlets and ecommerce consumers.
As for the marketing and sales part of the value chain, a substantial percentage of Amer Sports’
sales is generated by retailers and not own stores.
Therefore, the partnership with transportation companies and retailers allows the company to tap
new markets and to expand geographic presence. We can conclude that Amer Sports is using a
combination of its own competency (R&D) and the competencies of third parties (suppliers,
manufacturers, transportation companies, and retailers) to build its own capability. This
combination reduces the business risk of the company and provides additional revenue
generating opportunities. So, the capability of Amer Sports is being able to market its products as
an indispensible part of the sporting experience.
Group 2: Mada Arslan, Nadine Mhanna, Atef Sinno 16
SWOT
Strengths:
• Strong brand trusted by consumers worldwide
• Focus on Innovation through research and development function
• Global presence • Diversified products portfolio related to
three business segments: Fitness, Ball sports, and Winter and Outdoor
• Strong Profitability Indicators in the recent years
• Endorsement partnerships with leagues, teams and many of the top athletes
Weaknesses:
• Product recalls: disrupting brand image and profitability
• Deficiency in Quality control • Highly leveraged company
Opportunities:
• Growth Prospects: ecommerce and web shops
• Strategic acquisitions of other sporting brands to tap new markets
• Expanding core growth brands • Selling unprofitable subsidiaries • Growth prospects in the fitness industry
due to increased health and fitness awareness
• High appeal for the premium sports equipment and clothing market
• Sport promotion by nutrition and functional drinks
• Strong growth in emerging economies accompanied by an increase in retail sales
• Collaboration with athletes and retailers
Threats:
• Maturing markets in developed countries
• Climate change and severe weather conditions
• Stiff competition • Pressures to reduce prices: negative
effects on revenues • Global Economic slowdown (mainly in
Europe and US) and uncertainty about economic recovery
• Foreign Exchange Risk and Derivatives risk due to global operations
• Increase in counterfeit products • Social pressure to be environmental
friendly (higher costs) • Substitutes (e.g. Exercise video games)
Group 2: Mada Arslan, Nadine Mhanna, Atef Sinno 17
Part 4: Strategic Analysis
Amer Sports stated mission is to “provide everyone from first-time participants to professional
athletes with the world’s best sports and fitness equipment, footwear and apparel”
(amersports.com). This mission is both focused since it positions the company in the sports
industry and general since it includes different sports and target segments. In fact, Amer Sports’s
vision is to be the sports industry’s leader. The company seeks to develop authentic brands that
inspire sporting enjoyment and achievement. It is interesting how clear the idea behind Amer
Sports is considering it is a 60 year old company that started as a tobacco manufacturer and has
been only been focusing on sports for 15 years. All its acquisitions, disinvestments,
consolidations, and name changes were tools to accomplish the company’s strategic intent of
being a leader in the sporting goods industry.
Actually, Amer Sports’ strategy is explicitly stated on its website and consisted of five strategic
cornerstones. The below includes a description and analysis of these cornerstones.
Clear portfolio roles and business synergies
Amer Sports’ target is to develop business units with clear portfolio roles. Each unit has specific
growth and profitability targets with goals to increase the company’s scope and create synergy
(Annual Review 2011). Indeed, Amer Sports has clearly defined business segments and Cash
Generating Units:
The company has been working on consolidating its brands and continuing to expand its product
portfolio in a way to avoid overlap and achieve synergies.
Group 2: Mada Arslan, Nadine Mhanna, Atef Sinno 18
Faster growth in softgoods
Amer Sports has made clear its intent to pursue growth in softgoods like apparel and footwear.
Its Apparel sales increased 29% in 2012 (Q3). The company is actively studying opportunities to
launch further softgoods lines under different Amer Sports brands. This seems to be an
appropriate strategy since it fits Amer Sports’ identity and it helps hedge against fluctuations in
sale for seasonal products such as winter sports. However, this means that the company would
have to deal with more established competitors like Nike and Adidas that have prominent brand
loyalty and heavy marketing expenditure.
Winning with consumers
The company realizes the need to respond to constantly changing consumer needs and build
excellence in consumer-centric product creation. Innovation is thus a key part of its strategy as
The Group has seven R&D and design sites globally and R&D staff constitutes 8% of the total
number of people employed by Amer Sports. Through continuous research and development,
Amer Sports seeks to develop new and better sporting goods that appeal to consumers and its
trade customers. (Amersports.com)
This will be a challenging task for Amer Sport considering that it does not have a database of
customer information as large as its competitors who have been in the industry longer and
operate more retail shops.
Winning in go-to-market
This target includes expanding in geographic areas and increasing of own retail presence as well
as expansion of e-commerce platform. The company is focusing on Russia, China and Latin
America, and these markets now account for 7% of the Group’s net sales, compared to 5% last
year. In addition, in the past year Amer Sports opened 18 new brand stores and the number of its
e-commerce stores reached 23. Although it is healthy to cut dependency on retailers, growing the
number of Amer Sports’ own retail stores requires large investments and more fixed costs for the
maintenance of the stores and employing personnel. This presents increasing risks especially
when there is recession and thus the company must be careful in maintain a well-balanced multi-
channel sales strategy.
Group 2: Mada Arslan, Nadine Mhanna, Atef Sinno 19
Operational excellence
Cost-cutting is a priority for Amer Sports and so are integrations to achieve scale and synergies
and to sustain the growth. In fact, they announced plans to launch a "group-wide" cost-cutting
program which it hopes will save €20 million ($26 million) a year by the end of 2014 (Fox
News). While operational excellence is important in this industry, it should not be a strategic
cornerstone since it does not guarantee long term sustainability. Cost-cutting can only reach a
certain limit and if the company continues to engage in price wars then its profit margins will not
improve even if the costs are going down.
Financial Targets
In addition to these cornerstones, Amer Sports has a long-term financial target of delivering
organic, currency-neutral annual growth of 5% (Annual Review 2011). In 2011, it achieved 11%
growth in net sales and in Q3 2012 it has a 7.6% increase from Q3 2011. However the
company’s CAGR from 2007 to 2011 was 3.3% mainly due to the recession in 2008 and 2009.
Indeed, Amer Sports growth is subject to severe fluctuations resulting mainly from economic
situation and seasonality.
Another financial target is to improve its profitability and have EBIT of at least 10 % of net
sales. Although Amer Sports’ aim is to improve profitability, it has not been able to implement it
during the last years as seen in the low profit margins mentioned above and the EBIT/Net Sales
ratio which peaked in 2011 at only 7.2%. Profitability is crucial in this industry especially in the
winter sports equipments which are supposed to be high-margin low-volume products.
Generating more profits would enable the company to invest in R&D and marketing of its brands
that are both essential in maintaining its position as a leader in the industry.
Part 5: Recommendations
This section offers many recommendations to Amer Sports to help the company maintain a
sustainable competitive advantage. First, Amer Sports should take many measures to improve its
efficiency. The company has currently a high number of raw material suppliers. Having a small
level of suppliers will enable AMEAS to develop partnership agreements with those selected
suppliers. Thus, since Amer Sports will increase its demands per supplier, the suppliers can
provide more customized items. This will enable suppliers to benefit from the economies of scale
Group 2: Mada Arslan, Nadine Mhanna, Atef Sinno 20
and decrease their prices accordingly. However, this step can be tricky since it may increase the
bargaining power of the fewer suppliers. On the other hand, since Amer Sports will be buying in
large quantities, its bargaining power will still be high.
Moreover, the company can outsource a higher percentage of its production. This way, AMEAS
can focus on its core competencies and know-how and delegate the production part to skilled
expertise. This will reduce the cost incurred by the company. As well, the company will be able
to locate manufacturing facilities across continents to serve a higher number of markets. As well,
outsourcing will reduce the business risk. Amer Sports will distribute or give away the risk of the
outsourced functions.
Additionally, deliveries and transports need to be further improved. Amer Sports has to raise
delivery speed and decrease manufacturing time in order to improve customer service and react
fast to change in demands. This will allow the company to react fast in case of extra demands
during the season. At the same time, Amer Sports should adjust its supply change model to have
minimum inventory at all times. The cost associated with storage cost of sporting goods is very
high. It is highly recommended that the company uses the just-in-time model to eliminate
inventory and quickly react to market changes.
In addition, Amer Sports needs to improve its quality control process. This will allow the
company to avoid products recalls which could seriously hurt the company’s image and
profitability. For example, in 2009, Mavic recalled its R-Sys front wheels and replaced them
with enhanced items. This was followed by a sales decline of 13% which was partially due to the
recall disruption.
Moreover, Amer Sports should avoid the price war with its competitors through continuous
differentiation of its product. In order to survive the severe competition, the company needs to
distinguish its products by offering a unique value proposition. As well, AMEAS should be able
to effectively market the distinctive value to customers. Also, Amer Sports need to spend more
on marketing its less recognizable brands in order to boost their sales and profitability.
As well, Amer Sports need to build consumer loyalty in order to increase switching costs. The
company can sponsor more teams, athletes, and sports events. This will boost sales up since sport
amateurs look up to their sports idols and purchase the same sport brands of those athletes. As
Group 2: Mada Arslan, Nadine Mhanna, Atef Sinno 21
well, the company should sell complements for its products to avoid being replaced by substitute
products.
Another important strategic recommendation for Amer Sports is to develop a database about its
customers. The company is at a competitive disadvantage at this particular area for many
reasons. First, the company is relatively new to the industry compared to its main rivals.
Secondly, transportation and most of retailing are made by third parties that prevent the company
from collecting information about its customers’ preferences and trends. Information is the most
critical way to develop sustainable advantage since it allows the company to predict changes in
the market and be proactive. One interesting turn of events in the industry is the introduction of
technology to sporting goods. As well, exercise video games are becoming increasingly popular.
Amer Sports should detect those signals and create products that comply with those changes.
Also, Amer sports should further develop its internet sales. E-commerce is growing at a huge
speed around the world and the online shops are becoming more and more popular.
Since the business is highly dependent on weather, Amer sports can enter into weather
derivatives contracts. This will allow them to reduce the risk associated with weather changes.
However, the company needs to be very careful when dealing with derivatives. It is
recommended that they hire skilled consultant to manage the derivatives portfolio.
On top, according to the company’s annual reports, Amer Sports has to better serve the market of
action sports. This is a very dynamic and growing market constituted mainly of young people.
This age group is the most active and, thus, profitable among other market segments.
Another recommendation for Amer Sports is to strengthen its presence in emerging economies.
In 2011, the growth in Russia, Latin America, and China reached approximately 40%. Yet, the
company’s revenues from these areas remain low. Therefore, there is growth potential for Amer
Sports to explore by tapping those developing markets.
One final recommendation is to grow the ball sports and fitness segments since they provide
more steady incomes. Unlike winter sports, those two segments are not dependent on the
weather.
Group 2: Mada Arslan, Nadine Mhanna, Atef Sinno 22
Part 6: Lessons Learned
Companies should avoid product recalls at all cost. The products in the markets reflect the
company’s image in consumers’ heads. In case this image gets disrupted, it will be hard and
costly for companies to restore it. Building a successful brand image takes many years, but
destroying it takes one single mistake.
As well, short-term profits will not lead to sustainable competitive advantages. Companies need
to focus on the long-term goals while being profitable in the short-run. In order to achieve long-
term profitability, companies need to stay innovative. Since the only constant in the market place
is change, companies should anticipate that change and act preemptively. The profit resulted by
innovative products will be generated by first movers. Once the change has occurred, it will be
too late for followers to position themselves in the market and generate profit. Moreover,
companies can develop new products and create demands at the end consumers. This can be
done by extensive marketing that shows consumers that they need this new product. Innovation
can be measured by the number of patents and other intellectual property the company owns.
Therefore, it is very important for companies to invest in R&D in order to stay advanced. Instead
of fighting in red oceans, companies need to open up new blue oceans and benefit from the
substantial profit.
Another lesson learned is that companies need to focus on their core competencies and know-
how. This means that they should outsource other activities that require capital investment,
experience and expertise.
Group 2: Mada Arslan, Nadine Mhanna, Atef Sinno 23
Appendix 1: Financial Highlights
Note: Ratios of Amer Sports and Adidas have been computed based on financial data obtained from their annual reports while those of Head NV have been computed based on financial data extracted from the Compustat database.
Group 2: Mada Arslan, Nadine Mhanna, Atef Sinno 24
Appendix 2: Stocks Highlights Source: Company website (http://www.amersports.com/investors/stock_information/stock_tools/historical_price_lookup/)
Amer Sports’ beta 1.04; Head NV’s beta is 0.59; Adidas’ beta is 0.92. Source: Reuters (www.reteurs.com)
0
2
4
6
8
10
12
14
1618
16/01/2013
11/04/2012
13/07/2011
07/10/2010
07/01/2010
01/04/2009
30/06/2008
21/09/2007
15/12/2006
14/03/2006
14/06/2005
09/09/2004
03/12/2003
04/03/2003
29/05/2002
17/08/2001
09/11/2000
09/02/2000
10/05/1999
04/08/1998
23/10/1997
Amer Sports
Price
Group 2: Mada Arslan, Nadine Mhanna, Atef Sinno 25
Appendix 3: Seasonality Source: Annual report 2011 Appendix 4: Geographic Distribution 2011 Source: Annual report 2011
0
100
200
300
400
500
600
700
2007 2008 2009 2010 2011 2012
SeasonalityAmer Sports
Q1 Q2 Q3 Q4
49%
39%
12%
Geographical Distribution of SalesAmer Sports
EMEA Americas Asia‐Pacific
Group 2: Mada Arslan, Nadine Mhanna, Atef Sinno 26
Appendix 5: Cash Generating Units
Cash Generating Units (CGUs)
Sales Q3- 2012
€ millions
Sales 2011
€ millions
Sales 2010
€ millions
Sales 2012
%
Sales 2011
%
Sales2010
% Winter Sports Equipment 221.8 448.4 438.4 15% 24% 25% Footwear 253.7 287.7 219.6 18% 15% 13% Apparel 171.6 191.6 156.6 12% 10% 9% Cycling 97.2 120.5 106.4 7% 6% 6% Sports Instruments 74.1 89.4 94.0 5% 5% 5%
Sales of Winter & Outdoor 818.40 1,137.60 1,015.00 57% 60% 58% Individual Sports: Racquet & Golf 257 283 308.5 18% 15% 18% Team Sports 185 228.0 212.1 13% 12% 12%
Sales of Ball Sports 442 511.0 520.6 31% 27% 30% Fitness 185.1 232.2 204.8 13% 12% 12%
Total 1,445.50 1,880.80 1,740.40
0
200
400
600
800
1000
1200
Cash Generating UnitsSales in € millions
Sales Q3‐ 2012€ millions
Sales 2011€ millions
Sales 2010€ millions
Group 2: Mada Arslan, Nadine Mhanna, Atef Sinno 27
Appendix 5: Cash Generating Units (continued)
Source: Interim report September 2012, annual reports 2011 and 2010
0%10%20%30%40%50%60%70%
Cash Generating Units% of Sales
Sales 2012%
Sales 2011%
Sales 2010%
Group 2: Mada Arslan, Nadine Mhanna, Atef Sinno 28
Appendix 6: Globesity
Group 2: Mada Arslan, Nadine Mhanna, Atef Sinno 29
Appendix 6: Globesity (continued) Source: World Health Organization (https://apps.who.int/infobase/)
Group 2: Mada Arslan, Nadine Mhanna, Atef Sinno 30
Appendix 7: Global Warming Source: National Oceanic And Atmospheric Administration http://www.ncdc.noaa.gov/sotc/global/2012/13
Source: National Geographic (http://environment.nationalgeographic.com/environment/global-warming/gw-impacts-interactive/)
Group 2: Mada Arslan, Nadine Mhanna, Atef Sinno 31
Appendix 8: World Indicators (Source: World Bank) latest numbers available from 2005 to 2011
East Asia and Pacific
Europe and Central Asia
High-income economies
Latin America and the Caribbean
Middle East and North
Africa South Asia Sub-Saharan
Africa General Economics
GDP (constant 2000 US$) year 2011 in billions
11,946
11,516
31,377
3,081
1,502
1,296
574 GDP growth (annual %) 3.37% 1.95% 1.54% 4.63% 5.19% 6.42% 4.15%
GDP per capita (constant 2000 US$)
5,391 12,872 27,645 5,176 3,854 782 655 Inflation, consumer prices (annual %) 5.23% 3.90% 3.33% 5.13% 4.39% 10.13% 5.67% Unemployment, total (% of total labor force) 4.72% 9.43% 8.45% 8.00% 9.76% 4.49% n/a
Exports of goods and services (% of GDP) 32.17% 40.98% 27.88% 22.61% 45.49% 22.79% 33.11% Imports of goods and services (% of GDP) 29.58% 39.97% 28.03% 22.92% 38.72% 28.48% 34.70%
Population & Demographics
Total Population in millions
2,216
895
1,135
595
390
1,656
876
Population Growth Rate 0.65% 0.41% 0.63% 1.11% 1.85% 1.44% 2.53% Age Structure:
0-14 20.92% 17.37% 17.26% 27.49% 30.21% 31.12% 42.28% 15-64 70.44% 68.10% 66.90% 65.49% 65.21% 64.02% 54.49% 65+ 8.64% 14.53% 15.84% 7.02% 4.58% 4.86% 3.23% Rural population as % from total 47.33% 29.76% 19.50% 20.90% 37.48% 69.07% 63.53% Urban population as % from total 52.67% 70.24% 80.50% 79.10% 62.52% 30.93% 36.47%
Government- Laws and Regulation
Total tax rate (% of commercial profits) 35.33% 42.31% 37.65% 47.21% 32.26% 40.20% 57.82% Foreign direct investment, net inflows (% of GDP) 2.32% 3.98% 2.63% 2.42% 2.86% 1.36% 2.33%
Communication: IT
Internet users (per 100 people)
38.55
59.65
75.60
39.39
30.72
9.43
12.31
Group 2: Mada Arslan, Nadine Mhanna, Atef Sinno 32
References:
Amer Sports. (2013). Corporate Website. Retrieved January, 2013, from http://www.amersports.com
Bruce, I. (2009). On Thin Ice: Winter Sports and Climate Change. David Suzuki
Foundation. Retrieved from: http://www.davidsuzuki.org/publications/downloads/2009/DSF-OnThinIce-Web.pdf
Company website: www.amersports.com Datamonitor (2011). Amer sports corporation, company profile. 1-11. Retrieved from:
www.datamonitor.com
Datamonitor (2008). Sports equipment in europe, industry profile. 1-24. doi: 0201-0218.
Doomsday: Dove, L. (2012). Top 20 Ways The World Might End. Discovery Channel. Retrieved from: http://dsc.discovery.com/tv-shows/curiosity/topics/20-ways-world-might-end.htm
Finland's amer sports reports more or less flat profits for q3. (2012, Oct 25). Retrieved from: http://www.foxnews.com/world/2012/10/25/finland-amer-sports-reports-more-or-less-flat-profits-in-q3-to-launch-cost/
Hoover's. (2012, September 16). Amer Sports Corporation. Hoover's Company Records - In-Depth Records. Retrieved from LexisNexis Academic database, 10 Jan 2013-01-18.
Priit Pihl, P. P. (2006). An analysis of the sports equipment industry and one of its
leading companies, head, n.v. (Unpublished master's thesis).
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