Adidas Says "You Don't Watch TV Ads Anymore," and It Plans to Spend Accordingly

The remark from Kasper Rorsted, who took over as Adidas's CEO only last year, looks less like a decision than like the latest forceful endorsement of a much larger trend. For every extra dollar spent on advertising worldwide, 72 cents now goes to digital.

"For us, digital engagement is what matters most; you don't watch TV ads anymore."

Adidas CEO Kasper Rorsted announced the company's shift in how it buys advertising on Wednesday, in an interview with CNBC.

There is nothing new in what Rorsted said, least of all at a moment when the whole advertising business is moving online. A report published late last year by the data firm IHS Markit found that TV took 36% of global ad revenue in 2016 — remember that big sporting events and the US presidential election gave television a lift that year — which still makes it the single most important channel. But within five years, digital advertising, now at 30%, will pass it.

In China, online ad revenue already ran 17% ahead of TV ad revenue in 2016, a gap of about US$15 billion.

So the remark from Kasper Rorsted, who took over as Adidas's CEO only last year, looks less like a decision than like the latest forceful endorsement of that larger trend.

In recent interviews the former CEO of the German consumer-goods group Henkel has sounded combative. Adidas's showing in "the US market is far from satisfactory," he has said, and the company is ready "to fight Under Armour." More to the point, he has been selling the new strategy he has written for the company, and digital is part of it.

A.G. Lafley did much the same thing when he was called back to run Procter & Gamble in 2013: his first public remarks after returning also called for a bigger share of spending to go to digital advertising, moving money out of traditional media and into digital marketing step by step.

Rorsted, too, counts as a man brought in to turn a company around, and you can feel his push to digitize Adidas simply by reading its financial reports, where the word "digital" appears more and more often. In its 2015 report Adidas named the trends shaping its industry — "digital, urban and personal" — and set itself the goal of "increasing the number of users in its digital ecosystem to more than 250 million by the end of 2017."

Adidas Originals' big January campaign, ORIGINAL is never finished, is now in heavy rotation on television, but it started on YouTube, where it has been watched 22.2 million times.

None of the videos built around it ever ran on TV: Snoop Dogg redoing one of his own classics, the veteran skater Mark Gonzales spoofing his skate moves, a fresh remix commissioned from the rapper Desiigner. Big companies have decided that this kind of content is how you talk to people who grew up on the internet.

A person close to Adidas's advertising business told QDaily that the thinning presence of TV advertising is old news by now. At the agency hired by one of the group's brands, there is almost no longer any "traditional agency that sorts out a brand's assets and offers advice"; most of the promotional material arrives finished from global headquarters, and some of the video even comes from online streetwear outlets such as Hypebeast.

Adidas is not the only company in the industry moving its weight online, of course.

Last February, Adrienne Lofton, Under Armour's senior vice president of brand marketing, said that the company now splits its budget roughly half and half between digital and TV. It used to be 30% and 70%.

Nike published its own five-year plan at the end of 2015, with a target of growing digital sales 600%, to US$11 billion.

Procter & Gamble, though, was one of the first big companies to start this shift. By 2012 its spending on traditional media advertising had already fallen 2.4% year on year, while L'Oréal and Unilever raised theirs that year by 27.4% and 5.7%.

Figures from the research firm eMarketer show that 2013 was the first year in which the average consumer spent more time each day on digital media than in front of a television: an estimated 5 hours a day on the web, mobile devices or other digital media, against 4 hours and 31 minutes watching TV.

"Wherever the consumer goes, we follow." By 2015, when Xu Youjie, P&G's vice president of communications and public affairs for Greater China, sat down with QDaily, he used that marketing line seven times. P&G has never disclosed exactly what share of its spending goes to digital channels, but whenever procurement came up, the examples he was happy to discuss were all digital campaigns.

Even now, the view that "TV advertising is still the mainstream" and that "TV is still the most trusted medium" has plenty of backers, and research firms have data to support it. A study Kantar TNS ran in China last June found that although online media has boomed and taken over most of what print and radio used to hold, television still holds users with 70% stickiness as a multimedia resource.

But the survey covered every age group in China, not just the young. And even so, look closely: for every format, online stickiness beats offline, without exception.

The global media agency GroupM calculates that in 2016, for every extra dollar spent on advertising worldwide, 72 cents went to digital and 21 cents to TV. By 2017 it will be 77 cents to digital and 17 cents to TV.

Television's hold on young people keeps slipping, and it will keep slipping.

Nielsen found that by the fourth quarter of last year, Americans aged 18 to 24 were watching 16.78 hours of TV a week, 7.79 hours less than in the same quarter five years earlier. Even for something as big as the Olympics, viewers increasingly prefer video sites with no ads. NBC's online audience for last year's Rio opening ceremony passed 2 billion minutes, more than the previous five opening ceremonies combined.

Retail, sportswear brands included, is the industry keenest on online advertising. In the US, retailers account for a fifth of all online ad revenue. Partly that is because e-commerce already makes up nearly half of American retail sales, so that is where the ad money naturally goes. Partly it is because retailers find it works better: a survey last year showed that at least three-quarters of them believe online advertising pays back more.

This is why you have heard so much news of this kind over the past few years: P&G cut 40% of its ad agencies; Nike pulled its social media work entirely in-house, explaining that doing so helps it understand consumers and talk to them better, and that digital marketing better reflects its business strategy. For Nike, removing the agency as middleman means facing consumers directly and getting their feedback and web data unpolished.

For brands, digital platforms mean being closer to the customer and closer to the moment of purchase. The old routine at big companies was TV ads first, online ads second. Now every sale begins by building word of mouth on the internet, and every online campaign ends up pointing at an e-commerce platform.

That is also what lies behind Rorsted's "for us, digital engagement is what matters most." As we argued in our series on digital transformation at the end of last year, Adidas in 2016 may have been the company in the sportswear industry that gained most from digital marketing, hitting a high it had not reached in years in both sales and brand visibility.

Celebrities with huge online followings have become the newest weapon in an industry that used to lean on athletes. Kanye West, the Black musician with 26.4 million followers on Twitter, is not only an endorser and a designer but also the man who sets the trend; with his reach on Instagram, Snapchat and other platforms, he has become the first channel through which Adidas puts its brand and its products in front of young consumers.

The brand's long list of celebrities also includes Kanye's wife Kim Kardashian (95.1 million Instagram followers) and the rappers Pharrell Williams and Snoop Dogg; in China, Eason Chan, Kris Wu, Eddie Peng and Angelababy, among others — people whose influence online exceeds that of any athlete.

Put another way, big companies are trying to see today's consumers through the eyes of internet celebrities.

Speaking to investors on Tuesday, Adidas's global brands chief Eric Liedtke set out how the company means to attract female customers. The women it is going after, in his words, "don't follow Real Madrid" and "don't follow the James Hardens of the world" — a reference to the NBA star who endorses Adidas — but "follow the opinion leaders in their own small circles, and those are exactly the people we want to reach on YouTube, Instagram and social media." Bloomberg reported that he also mentioned a team of 25 influencers the company has assembled for routine promotional work, among them the retired tennis world number one Ana Ivanovic.

Inside Adidas itself, a round of star-making has begun too.

Three months ago Paul Gaudio, who has spent nearly 10 years at Adidas and is now its global creative director, gave an interview to BuzzFeed. The news aggregator most popular with young Americans wrote him up at nearly 5,000 words — worth noting, given that BuzzFeed's best-known format is the list, no paragraph longer than 20 words.

In that piece, BuzzFeed laid out Adidas's recent fortunes and its history, Gaudio's résumé, and how he came to understand young people and, on the strength of that understanding, miraculously rescued the company. He offered no shortage of industry insights that sounded profound, and they were duly chopped into pieces and reprinted on streetwear sites such as Highsnobiety.

In a way, sportswear brands are copying fashion houses, sending an eloquent creative director out to broadcast influence and personality to the press. It is just that this very old routine has moved online.

All this shifting of weight has to end in higher online sales, of course — the kind of revenue targets Rorsted and a crowd of other CEOs set like slogans.

In the CNBC interview, Rorsted repeated the e-commerce goal Adidas wants to reach by 2020: sales up from US$1.06 billion in 2016 to US$4.25 billion. Like Nike's, it is a very large number.

The past two years have brought plenty of experiments in mobile commerce from sportswear brands: Nike's shopping app SNKRS, and the new version of Nike+ that later added shopping; Adidas built Confirmed, an app made for grabbing limited sneakers, and last November a limited run of football boots could only be bought through an app called Glitch.

Before any of that, though, Adidas — like every traditional retail giant — faces the same question: how to rebuild its own voice in this new internet setting and introduce itself to a generation of customers who don't watch television, don't walk through supermarkets, and spend more than half of every 24 hours online.

Graphics: Feng Xiuxia