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Adidas - Essay
Business Management (N100)
Brunel University London
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DIDAS AND NIKE – WHO WILL WIN THE RACE TO THE TOP?
Founded in 1948 by Adi Dassler, sporting goods giant, Adidas, had always been an innovator in the field. The firm was born as a result of a conflict between the Dassler brothers, Rudi and Adi, who first started producing athletic footwear in the 1920s in Herzogenaurach, Bavaria. Their footwear developed many of the features now found as standard in sports shoes, from spikes and arch supports to marketing innovations, such as giving shoes to athletes free before the 1936 Olympics. Following the split with Rudi (who founded his own firm, Puma) Adi Dassler amassed over 700 patents.
The firm moved into clothing in the 1970s, using its distinctive three-lobed trefoil logo and stripes to brand t-shirts, sweatshirts and other leisure wear, which quickly became a staple for European and US teenagers. However, after years of Olympic success and market growth (almost 80 per cent of the athletes at the Munich Olympics in 1972 wore Adidas shoes), Adidas suddenly had a strong rival in the form of a new entrant to the market, Nike. By 1974, Nike had become the best-selling training shoe in the USA and was challenging Adidas’ dominance in other markets. By 1990, Adidas had fallen to eighth in the US market with only a 2 per cent market share. In 1993, Robert Louis-Dreyfus, a French advertising executive, led a buyout and started to try to turn the fortunes of the firm around.
Louis-Dreyfus achieved a dramatic success for the company in record time. Recognizing the power that being linked to popular sportspeople had, he signed sponsorship deals with the likes of Anna Kournikova and David Beckham. However, the firm had also lost its way in other areas. New styling was introduced across all the product ranges as well as a series of new product launches. By the end of 1994, the firm had moved to third in the world market and had regained some lost ground against arch-rivals Nike. Louis-Dreyfus’ next move was designed to narrow the gap further.
Using his connections, the Adidas CEO brokered the acquisition of French sporting equipment firm Salomon SA in a deal valued at €1 billion in 1998. This allowed the firm to leapfrog Reebok into second place in the industry – but still some way behind Nike. Buying the French firm also brought a number of key sporting brands into the Adidas portfolio and allowed it to move beyond sports shoes and clothing. TaylorMade sold golf equipment, Mavic, high- performance bicycle parts, Bonfire made ski clothing and Cliché skateboard equipment. However, the acquisition soon started to unravel. The equipment element of the sports industry was not part of Adidas core business and the firm’s lack of skills and experience in this area began to tell. The newly acquired brands performed badly leading to a loss of $164 million in 1999 and a reduction in the share price. The increased profits predicted by Louis-Dreyfus of 20– 25 per cent failed to materialize once it was clear that the sectors they had entered, such as golf and winter sports, were in decline. The CEO stepped down in 2000 to be replaced by Herbert Hainer, the group’s head of marketing.
Hainer used the tried and tested methods of more sponsorships, new products and new designs, as well as cutting costs through smarter supply chain management to bring the company back into profit. He also focused on channels to market by increasing the number of company-owned stores, where margins could be much greater and there was more control over how merchandise was stocked and sold. However, it was not until 2003 that the firm’s earnings per share had climbed back to their pre-acquisition level. The share price itself did not recover until a year later. Despite this activity the Salomon businesses continued to perform well below expectation, with the exception of the golf equipment unit, TaylorMade. In 2005 the decision was made to sell the winter sports and bicycle businesses to Amer Sports for €485 million.
Although this might have appeared to be a humiliating climb-down, the CEO now revealed that it was the first step in a bold restructuring project and announced that Adidas now planned to acquire Reebok International (including the Rockport brand) for €3 billion. Hainer hoped this move would finally close the gap with Nike. Many analysts thought otherwise and within six months of the acquisition going through in 2006, Adidas had divested one of the acquired brands, Greg Norman golf apparel. The new business was restructured into three units in 2008,
Reebok, Adidas and TaylorMade-Adidas golf. Each business followed similar strategies with innovation and new product launches at their heart. The company continued to expand its own retail space and sponsor a wide range of athletes and sporting events. In 2015 it owned and operated over 1,700 stores world-wide.
Adidas had always been strong in Europe but Reebok now expected to gain market share in North America and had plans to overhaul Nike in South page 26America by the end of 2010. In other emerging markets, such as China, Eastern Europe, Russia and India Adidas had outperformed the growth of rivals such as Nike by 2012. However, poor Reebok sales in 2012 year led to profit warnings in 2013, despite the Olympics and Euro 2012. An alleged fraud in India further damaged Reebok’s brand image. Successful use of social media (Adidas Originals on Facebook) and new fashion oriented products from Adidas such as Y-3 and NEO now brought the firm into competition with new rivals such as H&M and Zara. The firm also appeared to have lost touch with US consumers and by 2015 had slipped to third place in that market behind Under Armour. Problems in the Russian market with the reduction in the value of the rouble and an overall decline in sales of golfing apparel and equipment also led to poor results in 2014 with profits down to €961 million from €1 billion in 2013, despite a 2 per cent increase in sales for the group over that period.
In 2015, Hainer launched a five-year turnaround strategy for the firm. ‘Creating the new’ focused on increasing the speed to market for new products to ensure that the firm did not miss changing trends in the fashion element of its business, working more closely with consumers and athletes on product design and customization and focusing its marketing and sponsorships on six global cities – Los Angeles, New York, London, Paris, Shanghai and Tokyo.
Nike was founded by sports coach, Bill Bowerman, and college runner, Phil Knight, in 1964, with the aim of producing better shoes for runners. Originally trading as Blue Ribbon Sports, the firm began by distributing Japanese manufactured running shoes made by Tiger Onitsuka (now Asics). Although their first patent was not secured until 10 years later, the company then had a string of successes, such as the waffle outsole and Nike Air and quickly became the dominant player in the US market for sports footwear.
Much of Nike’s early growth was organic and limited to North American markets. However, by the late 1980s the firm began a series of acquisitions designed to build a portfolio of brands and products similar to some of their European rivals. Nike bought Cole Haan in 1988 and Bauer Hockey in 1994. In 2002 the company branched into surf-wear with the acquisition of Hurley international. Nike’s strategy of buying other firms, in order to grow its market share in footwear and apparel, accelerated after 2000 with the purchase of Converse in 2003, Starter in 2004, and finally, Umbro in 2008. Nike managed its portfolio aggressively and where the prospects for market growth did not look attractive it divested brands: Starter in 2007, Bauer Hockey in 2008, as the ice hockey market in the USA was looking flat, then Umbro in 2012 and most recently Cole Haan in 2013. Although some of the businesses had branched into equipment, footwear and apparel remained at the core of the company’s operations – Nike Golf, which produced balls, bags and other golfing paraphernalia, was the main exception to this.
The company’s most recent developments were still linked to items people wear but had crossed over into technology applications and services. For example, the Fuel Band, launched in 2012, was a wearable technology that recorded people’s movements during the day, allowing them to download the data to a computer or smartphone to help them with their training and fitness regime. It was the sort of product that Apple or Google might have produced and after it showed strong sales was aped by technology companies, such as Korean firm LG.
Nike had always involved athletes in the design of its products due to the close links Bowerman and Knight had with college athletics in the USA. Early prototypes were often produced using whatever was to hand (such as Bill Bowerman’s wife’s waffle iron, which was used to make the first rubber waffle style sole in 1971) and then given to college runners to test. However, as the company grew much of the development work became formalized. By 2016 the firm employed significant numbers of specialists in a wide range of fields, from biomechanics to
Using his connections, the Adidas CEO brokered the acquisition of French sporting equipment firm Salomon SA in a deal valued at €1 billion in 1998. This allowed the firm to leapfrog Reebok into second place in the industry – but still some way behind Nike.
Buying the French firm also brought a number of key sporting brands into the Adidas portfolio and allowed it to move beyond sports shoes and clothing. The newly acquired brands performed badly leading to a loss of $164 million in 1999 and a reduction in the share price
Adidas - Essay
Module: Business Management (N100)
University: Brunel University London
