Puma Pestel analysis

Puma: An Introduction

Puma is one of the leading brand names in the sports shoes industry.

Apart from sports shoes, Puma also sells sports apparel and is popular across various corners of the world.

Puma is a Germany based brand with its headquarters at Herzogenaurach, Germany.

It was founded in 1948 by Rudolf Dassler, who was the brother of Adidas founder Adi Dassler.

The company has acquired global fame for its stylish and innovative products.

It faced several challenges during 2020 due to the pandemic. However, the company has emerged from its impact and is investing in digital technology and innovation to maintain its growth momentum.

The net revenues of the company were down to 5.23 billion Euros in 2020 compared to 5.5 billion Euros in 2019. However, considering the impact of the pandemic, the decline was insignificant.

Its largest category of products based on net revenue is footwear followed by apparel and accessories. It is a leading rival of industry leaders like Nike and Adidas.

Puma is an international brand operating in various corners of the world from the Americas to Europe, Middle East and Asia Pacific. As an international brand, the company is also subject to several challenges and macroenvironmental forces that impact its business in the international environment. We will discuss these forces in Puma’s pestel analysis and their impact on its international business.

A Pestel Analysis of Puma

Political:

Political forces can have a crucial impact on international businesses. Brands with operations across multiple countries need to consider these factors and their likely impact on their business when forming business strategies for particular markets.

Across the world, the political environment of the various markets can have a direct impact on its economic environment and in turn on the performance of international businesses.

The countries whose economies are more open to foreign direct investment generally allow the foreign companies to perform better. Apart from that, government policies and the political framework also affect the economic environment and in turn the sales.

Moreover, changes in the political environment or geopolitical events can also affect business and supply chain operations.  For example, the current war between Russia and Ukraine provides an opportunity to see how political tensions can affect business operations in various corners of the globe.

While Puma’s net sales from both Russia and Ukraine are generally not above 5% of its entire sales, the company has shut down its operations in Russia. It is how several more businesses have protested against the Russian invasion on Ukraine including the largest technology brand Apple.

Puma had around 100 stores operational in the Russian market decided to close its store operations there in the first week of March 2022. It had already stopped its deliveries to Russia following Russia’s invasion of neighboring country Ukraine.

Overall, political factors can have a huge impact on international business which was also visible in several more scenarios including the trade wars between the US and China. Political tensions can hurt business and on the other hand the right political environment and business friendly government policies can help drive faster growth.

Economic:

Economic factors can also have a strong impact on the business operations and financial performance of international businesses.

Factors like GDP and inflation affect business performance and it is why investors consider these factors vital. The stock market investors consider the annual growth in GDP to be vital since if the economic output declines or remains steady over a definite period, most companies would not be able to grow their profits. Similarly, a 1 to 2% inflation is considered good for the economy.

Generally, the key to the performance of businesses in a market lies in the performance of the economy.  If an economy is performing well and the level of employment is high, it will lead to higher spending by consumers.

However, if an economy is passing through a recession, and the level of employment is low, businesses will experience reduced sales due to lower consumer spending.  A similar scenario was visible during the pandemic in 2020 when a large number of people suddenly lost their employment and there was a recession like situation across various countries.

As a result, people stopped spending on non-essential items including fashion. While a large number of countries including leading economies like the US were able to bring the situation under the control within just a few months, a large number of international businesses lost a lot of revenues in the meantime. Puma also lost sales in 2020 mainly due to the pandemic. However, if the decline in its net sales was not substantial then it can be attributed to the increased use of digital sales and distribution channels across markets worldwide.

Social:

Sociocultural factors are also having an increasingly significant impact on international business in terms of operations and marketing. Improved understanding of sociocultural factors helps businesses and marketers understand their target market better and provide improved offerings and promote their businesses more efficiently.

Worldwide the tastes and preferences of people can vary according to their society and culture. However, there are a large number of brands that are not just global but universal in terms of style and appeal and whose attractiveness does not diminish across society or cultures.

While Nike is leading the sports shoes industry, Puma has also become a leading player with growing popularity across various corners of the globe. Despite that, the company uses various digital and physical channels to engage consumers across various cultures and societies.

The changed demographic composition of the global population is also a vital consideration for international businesses like Puma since most of them are targeting the millennials and the Gen Z mainly. Understanding the preferences and buying behavior of these two consumer segments is important for businesses to create more attractive products and promote them in a way that appeals to these segments.

International businesses worldwide are also focusing heavily on inclusion and diversity since it reflects the diversity of their consumer groups across various societies and cultures.  Puma has also made diversity and inclusion a part of its work culture. While on the one hand, it has a clear impact on its employees’ performance, on the other it also helps the company project a more accountable image.

Companies are investing more in building a socially responsible image which includes philanthropy and bringing more equality in their workforce. It is because their social image and reputation can have a significant impact on their sales and financial performance.

Apart from investing in various corporate social responsibility programs, Puma has also maintained a strong focus on sustainability to strengthen its social image

Technological:

Technology is among the leading factors that is driving the growth of the industry worldwide. For a large number of international brands across various industries, technology is the leading source of competitive advantage and a major driver of growth and market expansion.

Even in the sports shoes industry, the focus on digital technology has grown. Apart from digital marketing, sales and distribution channels, Puma is also investing in digital technology in other aspects of its business operations including supply chain management to grow its business faster.

In terms of production also, the company focuses on innovation to bring superior products and attract more customers. For example, its proprietary technology platforms including NITRO, HYBRID and XETIC technology platforms are driving its growth.

Puma has also released a Puma football boot based on its MATRYXEVO® technology that offers higher stability, durability and traction.

The company maintains a strong focus on research and development to continuously develop new technologies and bring superior product models to the market. Its R&D activities range from the analysis of scientific studies and customer surveys through the generation of creative ideas to the implementation of innovations in commercial products.

Puma spent €102.6 million on research and development activities in fiscal 2020.

The company has also rolled out a cloud-based purchase order collaboration and payment platform, linking the sales-subsidiaries, PIT and the vendors, which has enabled the digitalization of supply chain bringing higher operational efficiency, reducing complexity and also creating higher transparency in supply chain management.

Since digital is driving a lot of growth industrywide, the company is also focusing on the use of digital channels including its website, apps, social media and other digital channels to drive higher customer engagement and sales. It has released a PUMATRAC app that offers running and training workouts.

Overall, technology is among the leading factors affecting operational efficiency and growth of Puma.

Environmental:

Over the previous several years, the focus of businesses of all sizes including small, medium and large businesses has increased on sustainability and sustainable operations. Sustainability has emerged as a key theme as businesses across the world have grown all the more conscious of their environmental impact.

Puma is also investing heavily in making its business processes more sustainable and reducing its environmental footprint. While the company is making its business processes more and more sustainable, it is simultaneously focusing on other aspects of its business including sourcing where the company can reduce its environmental footprint.

The company has set ambitious targets for itself in terms of sustainability and is continuously headed in the direction of achieving those targets.

Over half of its environmental impact comes from the production of the raw materials that the company uses to make its products. The raw materials that the company uses the most for production include cotton, polyester, and leather.

By 2019, around 80% of the cotton that the company uses originated from sustainable sources. However, the company plans to source 100% of its cotton from sustainable sources by 2025.

Apart rom the sourcing of raw materials from sustainable sources, the company is also planning to be more sustainable in several other areas including packaging.  The company launched its 10 for 25 sustainability targets in 2020 that are going to guide its sustainability actions till 2025.

The company continues to support the UN global compact and its 10 principles for sustainable development. It also launched several sustainable product collections as a part of its new Forever Better platform.

The company has made sustainability and CSR core pillars of its organizational culture and values.

While investing in sustainability can have several benefits including superior operational efficiency and performance, it can also help companies achieve a better social image. There are several businesses like Puma for which their sustainability principles guide their business strategies.

Legal:

One of the most vital areas in terms of international operations for large businesses like Puma is legal compliance. Companies that have operations and supply chain spread across the world in various different countries need to consider compliance throughout all of their markets.

Apart from the various laws in the several markets where the company operates, Puma also complies with the standards of conduct that it has created for itself. There are several areas where the company and its employees are required to remain compliant with the necessary laws and company rules including but not limited to corruption, money laundering, conflicts of interest, antitrust law, fraud and embezzlement. There is an internal compliance management system at Puma, which ensures that violations in these areas are prevented detected and sanctioned.

The focus is not just on being complaint with all necessary laws but also on operating ethically since ethical operations ensure a good social image. One of the most important building blocks of the compliance management system at Puma is its code of ethics defining the guidelines and values that shape Puma’s identity.  The code of ethics also offers guidelines on how employees are expected to act while working for the company.

Legal compliance is of utmost importance for businesses and especially in the case of the international businesses compliance becomes all the more crucial. It is because the international businesses are operating across several markets and the laws differ from market to market. However, the companies do not just maintain a  strong social image by focusing on legal compliance but also save financially. Noncompliance in most cases results in heavy fines by government agencies and so can harm companies financially which shows the criticality of legal factors in the context of the international businesses.