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

2. 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?

3. 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 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?

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

5. Product Innovation 1925:studs and spikes Arch support
Track and Field
1925:studs and spikes
Arch support
1949 – molded rubber cleats
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
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.

6. Marketing Innovation
Gave shoes to German athletes in 1928 Olympics
2 stripe (and later 3 stripe) brand
75% of track and field athletes wearing adidas in 1960 Olympics
78% of athletes wearing adidas at 1972 Olympics
Developed strong following with top track and field athletes.
Applied this same model years later with soccer shoes and apparel.
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.

7. How did adidas lose the lead to Nike?

8. How Did adidas Lose US Market Share to Nike?
Nike emerging in the 70’s
Aggressive launch new styles – going after youth and fitness craze
Large endorsement contracts – sign Michael Jordan
Focused, aggressive, dedicated leadership
Outsourcing of manufacturing to Asia
adidas
Innovative leader dies in1978 – quality declines, innovation drags
Dedicated to competitive athletes
Passed on Michael Jordan
8 years of management and ownership changes
Costly German manufacturing facilities

9. How has adidas's corporate strategy changed over time, specifically before and after the restructuring?

10. adidas’s Evolving Strategy
Return to form via restructuring…
Adi’s leadership…
Loss of focus…
Design and Innovation, differentiated image for brands, improved retail and supply chain
Focused on Puma, while Nike underestimated. Tries to catch up via acquisitions which yields product breadth instead of specialization.
Focused on athletic footwear/apparel. Success factors are marketing and product innovation.

11. Improved advertising, marketing, manufacturing efficiency
adidas’s Current Strategy
Product Innovation
1 major product innovation expected per year from each business unit
Brand Differentiation
Partner with Sporting events
Notable athletes to sponsor
Superior Customer service
Controlled Retail
POS experience
Able to educate customers
Various setups:
Mono brand
outlet
ecomm
team shops
Supply Chain Efficiency
New styles quick to market
Low production costs
Responsive to market place
Back to Basics
Improved advertising, marketing, manufacturing efficiency

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

13. 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.
1980s → mid 1990s
N/A – Lack of quality and innovation. No definable brand essence. 
adidas-Solomon
→ 2005
N/A – Footwear, apparel, and wide range of sports equipment. No definable brand essence.
adidas AG
→ 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.

14. A Closer Look at Brand Today
Sport Performance
Innovation
Endorsements
Sponsorships (UEFA and Olympics)
80% of branded sales 2007
10% increase in sales in 2007
adidas Overall
Europe – Market leader, low growth
NA – Small market share, low growth
Emerging – Market leader, high growth
Sport Style
20% of branded sales 2007
Small R&D = large profit
1% decline in sales in 2007
adidas AG
adidas
Sport Performance and Europe give the most sales, but Sport Style and emerging markets present the most opportunity.

15. A Closer Look at Brand Today
 Bad reputation (quality, innovation, styling)
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
adidas AG
Reebok
Reebok has baggage from past, but the necessary changes have been made. US is stagnant but other markets show promising growth.

16. A Closer Look at Brand Today
 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
adidas AG
TaylorMade
Performance has been strong overall, but changes in the industry have caused recent declines.

17. 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.

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

19. Salomon Acquisition: Was it Successful?
Product Line Before
Product Line After
Athletic Shoes
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…

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

21. adidas after Salomon was divested
Product Line Before
Product Line After
Product Line After Divestiture
Athletic Shoes
Athletic Apparel
Ski Equipment
Golf Clubs*
Golf Clubs
Bicycle equipment
Winter Sports Apparel
Net addition was TaylorMade golf

22. TaylorMade-adidas Golf Sales by Product Line
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.

23. 2007 TaylorMade/adidas Golf Sales Breakdown
Conclusion: Use adidas’s marketing model of track & field/soccer shoes to gain more sales in footwear & apparel.

24. SWOT Analysis for Reebok
Strengths
Strong in hockey, football and baseball
Loyal female customer base
Past success in marketing
Strong stable of professional athlete endorsements
Weaknesses
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

25. adidas Reebok Reebok Acquisition Football Baseball Hockey Soccer
Running
Basketball
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

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

27. 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

28. Net Sales in Emerging Markets
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.

29. Regional Footwear/Apparel Markets
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%
Latin America
$657 million
39%
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.

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

31. Retail Store Strategy
2006
2007
adidas Retail Locations
875
1003
Reebok Retail Locations
283
430

32. adidas AG Geographic Revenue Performance
*Acquired Reebok
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

33. TaylorMade Advantages
Shift to International Markets
Strength in
Metalwoods
Strong Apparel Presence
Revenues from Asia:
1999 – 13% of total
2007 – 35% of total
Decreasing reliance on U.S. Market:
1999 – 69% of total
2007 – 52% of total
Metalwoods currently hold number one ranking.
Irons hold less than half market share of industry leader
Golf balls have seen limited success
Over 70 touring pros lift apparel presence.
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

34. adidas Global Revenue Sources (2007)
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.

35. Reebok Global Revenue Sources (2004)
Conclusion – Use adidas’s control and production efficiencies to enhance Reebok’s distribution network in U.S. to increase U.S. revenues.

36. Is there another corporate strategy adidas should be pursuing?

37. 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

38. Slides that follow still need to be placed or cut.

39. External Environment: PEST
Category
Issue
Threats/Opportunities
Ranking
(1-5)
Political
Operating multi-nationally – awareness of
cultures, laws, image, environment, regulations
Threat- mistakes can be costly 2
Economic
Current state of economy – customers may be less willing to pay for higher priced items
Threat – high quality means higher prices
Extreme forces in competitor pricing.
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
Technological
Product innovation is a key driver in the industry
Opportunity – core competency for adidas
“Significance” represents value-neutral impact, and may be either positive or negative for Whole Foods.

40. Porter’s 5 Forces Intensity of Competition High Threat of Substitutes
Low
Bargaining Power of Suppliers
Bargaining Power of Buyers
High
Threat of New Entrants

41. Porter’s Five Forces Factor Description Impact
Threat of Substitute Products
adidas’s strength is product innovation and meeting customer expectations
Low
Threat of New Entrants
Strong presence of established brands and distribution channels
Customers already loyal to their brand
Huge resources required of new entrants
Bargaining Power of Buyers
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
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