A Salomon running store in the center of Shanghai was used as an example of diversification when the Amer Sports group raised its target for organic growth last month. The Finnish group aims to reach sales of €3.5 billion without acquisitions in 2020, with at least mid-single digit annual organic sales growth in constant currencies.
Last year's target called for the same level of sales to be achieved through a combination of organic growth and acquisitions worth about €200 million. This is not to say that Amer Sports has given up the thought of further acquisitions, but they would represent further upside potential.
The Finnish group's financial targets and priorities are unchanged, but the sales target was adjusted as Amer Sports detailed the progress of its strategic development plans at an investor day in Helsinki. Heikki Takala, the group's chief executive, said that its ambition was to grow toward the €4 billion mark in sales in the next five years or more.
Amer Sports is launching a targeted restructuring program intended to free up operating expenses of about €20 million, which will be allocated to the expansion. The company says it will incur costs of €20 million to €25 million for the restructuring measures, which will be recognized in the second half of 2016 and the first half of 2017, and implemented by the end of 2017.
The group told analysts that the acceleration was targeting sales in the range of €1.5 billion for apparel and footwear by 2020, compared with less than €300 million in 2009 and a current annual level in the range of €1 billion. The strategy focuses on the Arc'teryx and Salomon brands, which are both expanding across more consumer segments.
Takala said that some of the upside for the Arc'teryx brand resided in a more balanced seasonal mix, and he saw significant opportunity in a more balanced mix between men and women's products. Leaning on the development teams at Salomon, Arc'teryx is continuing to expand in footwear, recently with the launch of a trail running range.
The chief executive added that, after about two years of trials, the company has found a profitable store format for Arc'teryx and is starting to ramp it up. The focus for this retail push is strongly on the U.S. and Chinese markets. Takala showed an Arc'teryx shop-in-shop in Asia, and earlier this month the company opened a large store in Chicago, the eighth fully-owned store for the Canadian brand in the U.S. market. The company explained on this occasion that it was targeting young mountain consumers who move between urban centers and mountain hubs in a very fluid manner.
The diversification strategy adopted by Salomon has worked out well, since the brand's sales have doubled in eight years to about €827 million in 2015, which was an increase of 8 percent. Salomon has diversified from a geographic standpoint, since France makes up less than 10 percent of its sales and the U.S. became its largest market last year. The brand is targeting sales of €1 billion by 2020.
The increase in recent years has been driven by apparel and footwear, which have raised their share of Salomon's turnover from about 50 percent in 2009 to the current level of about 75 percent.
Some of The Salomon products displayed at the brand's stand in Friedrichshafen adopted the mountain athletics fits and appearances that have been taken up by quite a few other outdoor apparel brands this year to target more urban consumers.
Takala said that the brand was to expand in multiple sports but it would mostly capitalize on its strength in trail running – transporting that it into the city with more urban running products. They could be paired with “solutions” from other brands in the Amer Sports group, such as Suunto watches.
The chief executive added that the diversification should be aided by the brand equity built around Salomon. While the group previously worked with distinct forms of branding and identity for three product groups, the current branding and “Time to Play” pay-off apply to all products, as shown on the brand's website.
Other growth drivers for the entire Finnish group's turnover in footwear and apparel are Mavic and Wilson. Mavic unveiled an expanded range of apparel at Eurobike, with a target to rank among the three leading performance cycling apparel brands in Europe, the Middle East and Africa by 2020.
Another target calls for the group's sales to reach $1.5 billion in the U.S. market by 2020, up from about $700 million in 2009 and the current annualized level of about $1.0 billion. The U.S. growth is to be driven by apparel and footwear, as well as increased sales in some areas of the ball sports market, particularly baseball. Fitness is another category where Amer intends to scale up.
The Chinese market is anticipated to roughly double its contribution to group sales at €200 million in 2020. The same goes for own retail sales, which should thus reach more than €400 million. The group has more than 260 own retail locations and it intends to add more than 25 per year. Amer Sports also runs more than 60 online stores, which it wants to expand with more traffic and conversion. Own retail sales already account for about 20 percent of the group's apparel and footwear sales. These categories should remain in focus but the group intends to pilot its own retailing in other categories, aided by new tools for customization.
The expansion plans also call for sales of connected devices and services to double to more than €600 million. Suunto, the group's brand of sports instruments, and Precor, the fitness equipment brand, are both preparing to launch more digital products and services. The Finnish group is integrating sensors into products for basketball and football, among others. More broadly, it intends to ramp up its Amer Sports Connected Digital Ecosystem.
The unchanged financial targets call for annual growth of earnings before interest and tax (Ebit) ahead of net sales growth, excluding items affecting comparability. The ratio of free cash flow to net profit should reach at least 80 percent and the net debt to Ebitda ratio should not reach more than three times.