The Essay On Market Structure Of Adidas Australia And Apparel Industry In Australia.

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Determinants

Market is defined as a place where goods are bought and sold. However, in Economics, the term Market is used in a wider perspective, here it means the entire area where the sellers and the buyers of the product are spread. Market Structure refers to the organizational as well as other characteristics of the market. It refers to the degree and nature of the competition that exists in the market, which are determined by the nature of the competition that prevails in that particular market. The market structure is determined by a number different factors like the number of buyers and sellers, types of products, nature of products, conditions of entry and exit in and from the market, economies of scale and so on. The report focuses on the market structure of the Adidas Australia. Adidas is a multinational corporation incorporated in Germany. It has it’s headquarter in Herzogenaurach, Bavaria. It designs and manufactures clothing, shoes and accessories.

It is one of the largest sportswear manufacturers in Europe and 2^nd largest in the world. It was registered on 18^th August 1949 by Adolf Dassler. The Report also discusses the market structure of the Apparel and Accessory industry in Australia. It highlights the different type of Competition that can exist in a market. These are discussed in the later part of the report.

The following are the determinants of the market structure-

• Nature and Number of the Sellers- The structure of the market is highly influenced and impacted by the number and the nature of the sellers in the market. It ranges from being in large numbers in the perfect competitive market to only a single seller in the monopolistic market (Sloman, Norris & Garrett, 2013).
• Nature and Number of the Buyers- The structure of the market is also impacted by the number and the nature of the buyers in the market. It ranges from a single buyer (known as monopsony market) to two buyers (known as duopsony market). However, there can be a number of organized buyers of products (known as Oligopsony market).
• Nature of the Product- This can be said to be the most crucial determinant because the nature of the products have a huge impact on the buying and selling powers of the buyer and seller respectively.
• Conditions of Entry and Exit- Profitability play a crucial role in determining the conditions for entry and exit. Higher profitability brings in new sellers whereas lower profitability tends to make the sellers with weak financials exit the market. However, there as other factors also that contribute to the entry and exit from the market. Some of them are- public utility services, taxes, government involvement and so on (Mankiw, 2014).
• Economies of Scale- Organizations that has achieved larger economies of scale tend to have a lot of advantages like selling at lower prices due to low production cost, surviving the adverse conditions in the economy and so on.

The market structure can be classified on the basis of the competition. They may be classified in the following manner-

• Perfect Competition- This type of market has a large number of buyers and sellers wherein homogenous products are bought and sold without any restriction imposed by the government. The consumers here have perfect knowledge of the market conditions (Baumol & Blinder, 2015).
• Monopoly Market- This is a situation wherein there is only a single seller of the product with restrictions and barriers for entry of other sellers in the market. The product bought and sold in this market does not have a close substitute. This means that the cross elasticity of the product is extremely low in the market.
• Duopoly Market- It is a market wherein 2 sellers exist, both are independent and there is no agreement between them. Though they are independent from each other, a change in the price of one seller affects the output of the other seller. However, the sellers price their products without any influence from the other seller (Baumol & Lieberman, 2012).

(Table 1: Quick Reference to Basic Market Structures)

(Source: "Market Structure: Meaning, Characteristics and Forms | Economics", 2017)

• Oligopoly Market- It is a market wherein a few sellers sell their products. The products may be homogenous or differentiated products. Since there are a few sellers in the market, any action of a seller is likely to have an effect on the other sellers.
• Monopolistic Competitive Market- Monopolistic Competition Market is a market where many firms exist and sell differentiated products. This implies that the any action on the part of any seller is not likely to have any impact on the price-output of the other sellers (Taussig, 2013).

In Australia, the apparel and footwear industry have recorded a positive current value growth in the year 2016. The Athleisure trend has been a key driver of the sales across the multiple categories. Adidas has been focusing on Activewear that is continuing to surpass the other areas of the apparel and footwear market, with main focus on launching trendy designs, materials designed for active performances and styles that cater to both athletic and casual activities. Adidas is the 2^nd largest sportswear and accessory manufacturing company in the world. Nike is one of the fiercest competitors of Adidas (Home, 2017). Sales of Adidas are increasing globally at a faster rate while that of its competitors is increasing at a slower rate.

The Apparel and accessory market in Australia is an Oligopoly Market. There are few sellers like Reebok, Nike, Aquila Shoes, Baxter Boots, and Redback Boots and so on. The products sold in this market are differentiated products. The consumers have varied options due to the presence of different companies offering competitive products. The market in this sector is not attractive for new sellers as the market is filled with established sellers having a fair proportion of market share. Entering this market would take a lot of financial strength and technological advancement, it is only then the new seller would be in a position to make a mark in the market. The prices set by any competitor have a direct impact on the sales of the other sellers in the market. The competitors in the market focus on the long run profits rather than short term profits. Their primary aim is to sustain their market share so that they can capitalize on it in the future. All the companies are fiercely competitive in the non-price competition segment as well. They sponsor a number of teams of various sports. This shows their financial prowess to their competitors.

Forms of the Market Structure

Adidas and Nike are the fiercest competitors of each other. They are involved in a number of law suits, defecting designers and poached superstar endorsements. Adidas has made serious attempts in dethroning its arch rival Nike in the past few years. Their market capitalization over the years has been shown in the following charts-

(Chart 1: Market Capitalization from 2001-2005)

(Source:"Nike vs adidas: Who Owns the Market? | Highsnobiety", 2017)

The above chart depicts the market capitalization of the arch-rivals Adidas and Nike over the year 2001-2005. Adidas’s market capitalization is illustrated with blue lines while Red illustrated by red line. The above chart shows that during the years 2001-2005, adidas and Nike were almost having similar market capitalization.

(Chart 2: Market Capitalization from 2006-2010)

(Source:"Nike vs adidas: Who Owns the Market? | Highsnobiety", 2017)

The above chart depicts the rise in the market capitalization of Nike. It surpassed Adidas by huge margins over the years 2006-2010. During the year 2010, revenues for Nike reached $19 billion while its Market Capitalization reached $63.45 billion (Nike vs adidas: Who Owns the Market? | Highsnobiety, 2017). During this time, revenues for adidas was also increasing, however, the speed of such increase was very slow as compared with that of the speed of increase of Nike.

(Chart 3: Market Capitalization for the years 2011-2015)

(Source:"Nike vs adidas: Who Owns the Market? | Highsnobiety", 2017)

The chart above shows that the revenue of Nike has sky-rocketed while that of Adidas has not been able to compete with Nike. However, in the year 2013 Nike saw a deep plunge in its revenue while the revenue of Adidas saw a steep rise in revenue in that very year.

The following table shows the target for the year 2016 and the current year performance and target for the year 2017 for Adidas Group.

(Table 2: Target of Previous Year, Current Year Performance and Target for the Next Year). (Source: Www.adidas-group.com, 2017)

The following ratios would help us analyze their performance in a better way-

(Table 3: Profitability Ratios. Source:"Cash Flow Statement", 2017)

The Apparel and Accessories Industry in Australia

As can be seen from the table above, the profits of the company has grown because all the profitability ratios have increased from the previous years. The company has been successful in achieving all the targets it had set for the year 2016.

(Table 4: Liquidity Ratios; Source: "Income Statement", 2017)

As can be seen from the table above, the liquidity of funds have reduced from the previous years, this leads to difficulties in managing the funds for short term payments. Due to lack of funds the company has not been able to achieve the target of the capital expenditure for the year 2016.

(Table 5: Financing Ratio; Source:"Statement of Financial Position", 2017)

As can be seen from the table above the company’s financial ratios has reduced in the year 2016. A debt-equity ratio of 2:1 is preferred.

(Table 6: Summary Statement of Financial Position)

(Source: "Statement of Financial Position", 2017)

The above table summarizes the financial position of the company in the years 2015 and 2016.

The Apparel and Accessories Industry in Australia can be said to be a relatively small but competitive and well-serviced market.  Of late, this market in Australia is facing stiff competition in the form of cheaper imports, decreased prices and highly competitive departmental stores. The Australian Retailers are on the hunt for finding new ways for competing in this market. Some of the retailers have differentiated their products by specializing or are offering a particular type of product. Other retailers have chosen to sell only exclusive products that are not offered by any of the other retailers. The boutique culture has always been preferred by the Australians and hence it is currently in a very strong position.

Conclusion:

The market structure plays a big role in determining the plans and objectives for the company. As different market structure has different characteristics, considering them is extremely important as it will have a direct impact on the finances as well as on the functioning of the company. The companies must ensure that they have sufficient expertise in sustaining their market share. This will ensure that the company enjoys sufficient profits and brand value. Adidas Australia is one of the few companies enjoying dominant position in the apparel and accessories market in Australia. Nike and Adidas are the price makers in the market. However, any action taken by any other company has an impact on the sales and output of the competitors in the market. In this type of market, there is immense non-price competition. This implies that the companies in this industry in Australia spend a lot in sponsoring teams in different sports, events and so on.

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