What enabled Adidas to be the Market Leader in

adidas Case Study By: Ray Moorman Dan McLinden Tom Anderson Kyle McDaniel Jeremy Smiley

Primary Question for adidas Does adidas's corporate strategy, including recent acquisitions and restructuring, stay true to its brand while positioning itself to improve shareholder value and challenge Nike as the leader of the global sporting goods industry?

• • • • •

• •

•

Secondary Questions What enabled adidas to be the market leader in the past? How did adidas lose the lead to Nike? What has the adidas brand represented in the past and what does it represent today? How has adidas' corporate strategy changed over time, specifically before and after the 2005-2006 restructuring? Have adidas' acquisitions helped improve their position against the competition? What role do developing countries have in adidas's future success and how is adidas positioned in those countries? Should adidas be concerned about losing North American market share to Nike? Is there another corporate strategy adidas should be pursuing?

What enabled adidas to be the Market Leader in the past?

Product Innovation Analysis – adidas was an early entrant into athletic shoe industry. They developed many of the features still present in shoes today. Strong presence in Olympics and soccer. Created a strong brand based on high quality, innovative products that top athletes choose to use in training and competition.

Track and Field

• 1925:studs and spikes • Arch support • 1949 – molded rubber cleats • 1952 screw in spikes

Soccer

• 1954 – screw in spikes • 1963- Began producing soccer balls • 1967 – athletic apparel

Results

• Over 700 patents • Strong reputation among top athletes • 1970 – leading brand in consumer jogging shoes

Marketing Innovation •Developed strong following with top track and field athletes.

Gave shoes to German athletes in 1928 Olympics

•Applied this same model years later with soccer shoes and apparel.

75% of track and field athletes wearing adidas in 1960 Olympics

•Successful because adidas was creating innovative, high quality products. •Product innovation enabled marketing innovation. •Different than Nike – marketing is what set them apart from the start.

2 stripe (and later 3 stripe) brand

78% of athletes wearing adidas at 1972 Olympics

How did adidas lose the lead to Nike?

How Did adidas Lose US Market Share to Nike? Nike

adidas

Nike emerging in the 70’s

Innovative leader dies in1978 – quality declines, innovation drags

Aggressive launch new styles – going after youth and fitness craze

Dedicated to competitive athletes

Large endorsement contracts – sign Michael Jordan

Passed on Michael Jordan

Focused, aggressive, dedicated leadership

8 years of management and ownership changes

Outsourcing of manufacturing to Asia

Costly German manufacturing facilities

How has adidas's corporate strategy changed over time, specifically before and after the 2005-2006 restructuring?

adidas’s Evolving Strategy Return to form via restructuring… Loss of focus… Adi’s leadership… Focused on athletic footwear/apparel. Success factors are marketing and product innovation.

Focused on Puma, while Nike underestimated. Tries to catch up via acquisitions which yields product breadth instead of specialization.

Design and Innovation, differentiated image for brands, improved retail and supply chain

Back to Basics

• POS experience • Able to educate customers • Various setups: • Mono brand • outlet • ecomm • team shops

Supply Chain Efficiency

• Partner with Sporting events • Notable athletes to sponsor • Superior Customer service

Controlled Retail

• 1 major product innovation expected per year from each business unit

Brand Differentiation

Product Innovation

adidas’s Current Strategy • New styles quick to market • Low production costs • Responsive to market place

Improved advertising, marketing, manufacturing efficiency

What has the adidas brand represented in the past and what does it represent today?

adidas’s Brand Company

Time Period

Brand

Success?

Dassler Brothers’ Shoe Factory

1920s → 1940s

Innovative athletic shoes for world class athletes

adidas

1950s → 1970s

Athletic apparel and innovative footwear for the world class athlete and recreational jogger.

 

adidas

1980s → mid 1990s

N/A – Lack of quality and innovation. No definable brand essence.

adidas-Solomon

1998 → 2005

N/A – Footwear, apparel, and wide range of sports equipment. No definable brand essence.

adidas AG

2005 → present

Performance enhancing athletic footwear/apparel for competitive athletes and stylish comfortable footwear/apparel for casual lifestyle.

  TBD, but trending



adidas is most successful when it has a clear definable brand essence.

A Closer Look at Brand Today adidas AG

adidas

Sport Performance Innovation  Endorsements  Sponsorships (UEFA and Olympics)  80% of branded sales 2007  10% increase in sales in 2007

Sport Style  20% of branded sales 2007 Small R&D = large profit  1% decline in sales in 2007

adidas Overall Europe – Market leader, low growth NA – Small market share, low growth Emerging – Market leader, high growth

Sport Performance and Europe give the most sales, but Sport Style and emerging markets present the most opportunity.

A Closer Look at Brand Today  Bad reputation (quality, innovation, styling)

adidas AG

Reebok

 Loyal following in women’s general fitness Endorsements strengthening Sponsorships (NFL, MLB, NHL) Rockport casual men’s shoes ~7% decline in sales in 2007 (NA and Europe) Strong growth in Latin America and Asia in 2007

Reebok has baggage from past, but the necessary changes have been made. US is stagnant but other markets show promising growth.

A Closer Look at Brand Today adidas AG

TaylorMade

 Sales in overall industry have declined Product innovation Endorsement contracts with PGA Tour pros Leader in drivers, fairway woods, hybrids Weak in irons, wedges, putters, balls Strong growth in apparel and golf shoes

Performance has been strong overall, but changes in the industry have caused recent declines.

The Importance of Brand Identity adidas is not a manufacturer. 95% of production is outsourced. adidas, at its core, is an R&D and marketing firm.

Brand image is adisas’s most important asset.

Have adidas’s acquisitions helped improve their position against the competition?

Salomon Acquisition: Was it Successful? Product Line Before

Product Line After

Athletic Shoes

Athletic Shoes

Athletic Apparel

Athletic Apparel Ski Equipment

Golf Clubs Bicycle equipment Winter Sports Apparel •Conclusion: Paid 1.5bn to diversify product line. Surpassed Reebok as world’s 2nd largest sporting goods company, however…

adidas’s Stock Price 60

Stock Price (in euros)

50 40 Adidas Stock Price

30 20 10 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Year

•Stock price fell soon after acquisition in 1998, Salomon divested except for Taylor-Made Golf line. adidas overpaid for acquisition.

adidas after Salomon was divested Product Line Before Athletic Shoes

Product Line After Athletic Shoes

Product Line After Divestiture Athletic Shoes

Athletic Apparel

Athletic Apparel

Athletic Apparel

Ski Equipment

Golf Clubs*

Golf Clubs Bicycle equipment Winter Sports Apparel •Net addition was TaylorMade golf

TaylorMade-adidas Golf Sales by Product Line 350 300 250 Sales 200 (in millions) 150

Metalwoods Apperal

Footware

100

Other Hardware

50

0 2004

2005

2006

2007

Year Conclusion: TaylorMade/adidas has been able to keep sales up through athlete endorsements even though USGA rules have limited tech advances & an industry decline in the number of golfers.

2007 TaylorMade/adidas Golf Sales Breakdown

MetalWoods

Other Hardware 31%

MetalWoods 42%

Apperal

Footwear Other Hardware

Footwear 9%

Apperal 18%

Conclusion: Use adidas’s marketing model of track & field/soccer shoes to gain more sales in footwear & apparel.

SWOT Analysis for Reebok Weaknesses

Strengths •Strong in hockey, football and baseball •Loyal female customer base •Past success in marketing •Strong stable of professional athlete endorsements

•Poor reputation for quality and innovation •Greg Norman golf apparel brand •Limited distribution channels

Opportunities • Encouraging sales growth in Latin America and Asia •Economies of scale with adidas supply chain and distribution

Threats • Possibility of cannibalization if sold in same place as adidas products • Still third in market share in its strongest market, North America

Reebok Acquisition •On paper it looks like Reebok’s product portfolio, endorsements and relationships round out adidas and together they can join forces to overtake Nike. •Issue is can management overcome Reebok’s reputation for poor quality and lack of innovation? •Can two companies come together with such different cultures and focus? •adidas – product innovation and commitment to quality •Reebok – marketing focus

adidas

Reebok

Basketball

Hockey

Running

Baseball

Soccer

Football

What role do developing countries have in adidas's future success and how is adidas positioned in those countries?

adidas is a global player •43% of sales from Europe, which is slowest growth market •Encouraging that #1 in developing eastern European market, Russia expected to be most profitable market in Europe by 2010 •2006 acquisition of Reebok not enough to overcome Nike in North America

•Growing number of sales in Asia market, fueled by adidas success in China. •Strong demand and large population

Net Sales by Geographic Region

6% Europe

22%

43%

North America

Asia Latin America 29%

Net Sales in Emerging Markets 2500 2000 1500

Asia

1000

Latin America

500

0 2000 2001 2002 2003 2004 2005 2006 2007

Analysis – strong growth trend in sales in two very attractive emerging markets. Growth may be result of adidas brand strength in soccer, world’s most popular sport.

Regional Footwear/Apparel Markets Region

Size

Market Growth Rate

adidas Sales adidas Sales Growth

adidas Position

North America

$42.5 billion

3%

$2.9 billion

5%

#2 behind Nike

Europe

N/A

2% (20% Eastern Europe)

$4.3 billion

8%, mainly in Russia

#1

Asia

3.2 billion people

13% (South and Central) 15% (China)

$2.2 billion

17%

#1

Latin America

N/A

N/A

$657 million

39%

#2 behind Nike

Analysis – adidas is strong in several developing markets (Eastern Europe, China) but its focus and acquisitions have been geared towards overtaking Nike in the large, but slow growth North America market.

Should adidas be concerned about losing North American market share to Nike?

Retail Store Strategy 2006

2007

adidas Retail Locations

875

1003

Reebok Retail Locations

283

430

adidas AG Geographic Revenue Performance 5000 4000

31.5% 3.2%

3000

5.0%

106.4% -9.4%

*Acquired Reebok

2000

17.6% 27.8%

1000 1229.2%

32.6%

11.6%

Europe North America Asia

Latin America 56.4%

31.7%

0 2004

2005

2006

2007

Key Growth Potential: Europe – continue focus on soccer (including endorsements) and build brand loyalty Asia/Latin America – increase distribution network and brand awareness - All three regions averaging double-digit growth rates

TaylorMade Advantages Shift to International Markets

Strength in Metalwoods

Revenues from Asia: 1999 – 13% of total 2007 – 35% of total

Metalwoods currently hold number one ranking.

Decreasing reliance on U.S. Market: 1999 – 69% of total 2007 – 52% of total

Irons hold less than half market share of industry leader

Strong Apparel Presence Over 70 touring pros lift apparel presence.

Golf balls have seen limited success

Conclusion – TaylorMade should hold U.S. market share in U.S. given the brand’s strengths, however, TM is only 8% of adidas AG global revenues. TM cannot help adidas overtake Nike in U.S. market

TM 8% Reebok 23%

adidas 69%

adidas Global Revenue Sources (2007) 6.4%

Remaining regions = 71.3% of revenues

22.1% 42.8% Europe North America Asia Latin America

Conclusion – The majority of adidas’s revenue streams are outside U.S. market and are growing significantly – let Nike lead U.S. market but dominate Europe and emerging markets.

N.A. market 28.7% of revenues

Reebok Global Revenue Sources (2004) 11.4%

21.4%

12.5% Europe United Kingdom United States Other Countries 54.7%

Conclusion – Use adidas’s control and production efficiencies to enhance Reebok’s distribution network in U.S. to increase U.S. revenues.

U.S. market 54.7% of 2004 revenues

Is there another corporate strategy adidas should be pursuing?

Alt Strategy Options • Use adidas as revenue driver outside of U.S. market – restructure Reebok strategy to capitalize on historic revenue performance in U.S. – Decrease number of adidas retail outlets in U.S. convert to Reebok retail – Increase Reebok U.S. endorsements

• Use adidas global distribution to further increase TaylorMade international revenues

Slides that follow still need to be placed or cut.

External Environment: PEST Category

Issue

Political

Operating multi-nationally – awareness of cultures, laws, image, environment, regulations

Economic

Current state of economy – customers may be less willing to pay for higher priced items Extreme forces in competitor pricing.

Threats/Opportunities

Ranking (1-5)

Threat- mistakes can be costly

2

Threat – high quality means higher prices

2

Opportunity – supply chain efficiencies and multiple distribution channels

4

Social

Keeping up with the wants of the younger generation

Opportunity – Reebok’s strength in this area

4

Technological

Product innovation is a key driver in the industry

Opportunity – core competency for adidas

4

Porter’s 5 Forces Threat of Substitutes Low

Bargaining Power of Suppliers Low

Intensity of Competition High Bargaining Power of Buyers

Threat of New Entrants

High

Low

Porter’s Five Forces Factor

Description

Impact

•adidas’s strength is product innovation and meeting customer expectations

Low

•Strong presence of established brands and distribution channels •Customers already loyal to their brand •Huge resources required of new entrants

Low

•Huge number of buyers means adidas must market products effectively •Must be able to differentiate from the competition •Buyers more conscious of their spending •Buyers have access to more information

High

Bargaining Power of Suppliers

•Multiple sources of materials for shoes and apparel – commodity status •Suppliers are very dependent on adidas and others •Ease in switching suppliers if necessary and can do so globally

Low

Competitive Rivalry

•Recent acquisitions in industry •All competition has global reach – internet and e-commerce •Remaining a leader is expensive – aggressive sales and marketing •Always struggling to get a competitive edge

High

Threat of Substitute Products

Threat of New Entrants

Bargaining Power of Buyers