What enabled Adidas to be the Market Leader in the past_

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What enabled Adidas to be the Market Leader in the past_ Powered By Docstoc
					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
What enabled adidas to be the
 Market Leader in the past?
                                  Track and Field       Soccer          Results
Analysis – adidas was an                            • 1954 –         • Over 700
                                  • 1925:studs
early entrant into athletic                           screw in         patents
                                    and spikes
shoe industry. They                                   spikes         • Strong
                                  • Arch
developed many of the                               • 1963- Began      reputation
features still present in shoes                       producing        among top
                                  • 1949 –            soccer balls     athletes
                                    rubber          • 1967 –         • 1970 –
                                    cleats            athletic         leading
Strong presence in Olympics                           apparel          brand in
and soccer.                       • 1952 -                             consumer
                                    screw in                           jogging
                                    spikes                             shoes
Created a strong brand based
on high quality, innovative
products that top athletes
choose to use in training and
•Developed strong following
with top track and field athletes.                     Gave shoes to
                                                        athletes in
•Applied this same model years                             1928
later with soccer shoes and                              Olympics
apparel.                                                75% of track
                                                         and field
•Successful because adidas was                            athletes
creating innovative, high quality                      wearing adidas
                                                          in 1960
products.                                                Olympics

     •Product innovation                                                78% of athletes
                                      2 stripe (and
     enabled marketing               later 3 stripe)
                                                                        wearing adidas
     innovation.                                                           at 1972
                                          brand                           Olympics
     •Different than Nike –
     marketing is what set them
     apart from the start.
How did adidas lose the lead to
 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        8 years of management and
leadership                            ownership changes

Outsourcing of manufacturing to       Costly German manufacturing
Asia                                  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

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

                                       Brand Differentiation

                                                                               Controlled Retail

                                                                                                                    Supply Chain Efficiency
Product Innovation

                     • 1 major                                 • Partner                           • POS                                      • New styles
                       product                                   with                                experience                                 quick to
                       innovation                                Sporting                          • Able to                                    market
                       expected                                  events                              educate                                  • Low
                       per year                                • Notable                             customers                                  production
                       from each                                 athletes to                       • Various                                    costs
                       business                                  sponsor                             setups:                                  • Responsive
                       unit                                    • Superior                           • Mono                                      to market
                                                                 Customer                             brand                                     place
                                                                 service                            • outlet
                                                                                                    • ecomm
                                                                                                    • team

                                Back to Basics                                                      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           TBD, but
                                        footwear/apparel for competitive         trending
                                        athletes and stylish comfortable
                                        footwear/apparel for casual lifestyle.   
adidas is most successful when it has a clear definable brand essence.
     A Closer Look at Brand Today
            Sport Performance                    Sport Style
            Innovation                           20% of branded sales 2007
adidas AG    Endorsements                       Small R&D = large profit
             Sponsorships (UEFA and Olympics)    1% decline in sales in 2007
             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 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    Loyal following in women’s general fitness
            Endorsements strengthening
            Sponsorships (NFL, MLB, NHL)
            Rockport casual men’s shoes
 Reebok     ~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
              Sales in overall industry have declined
adidas AG    Product innovation
             Endorsement contracts with PGA Tour pros
             Leader in drivers, fairway woods, hybrids
             Weak in irons, wedges, putters, balls
TaylorMade   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

       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
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

Stock Price (in euros)


                         30                                                          Adidas Stock Price



                                1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

                              •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         Product Line                Product Line
Before               After                       After Divestiture
Athletic Shoes       Athletic Shoes              Athletic Shoes
Athletic Apparel     Athletic Apparel            Athletic Apparel
                     Ski Equipment               Golf Clubs*
                     Golf Clubs
                     Winter Sports
             •Net addition was TaylorMade golf
       TaylorMade-adidas Golf Sales by
               Product Line
    Sales 200                                           Metalwoods
(in millions)                                           Apperal
                                                        Other Hardware
                   2004   2005          2006   2007
 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

         31%                                 MetalWoods
                                             Other Hardware

   9%                                Conclusion: Use adidas’s
                  Apperal            marketing model of track &
                   18%               field/soccer shoes to gain
                                     more sales in footwear &
        SWOT Analysis for Reebok
                Strengths                                  Weaknesses
•Strong in hockey, football and baseball   •Poor reputation for quality and
•Loyal female customer base                innovation
•Past success in marketing                 •Greg Norman golf apparel brand
•Strong stable of professional athlete     •Limited distribution channels

             Opportunities                                    Threats
• Encouraging sales growth in Latin        • Possibility of cannibalization if sold in
America and Asia                           same place as adidas products
•Economies of scale with adidas supply     • Still third in market share in its
chain and distribution                     strongest market, North America
Acquisition                         adidas       Reebok
•On paper it looks like Reebok’s
product portfolio, endorsements
and relationships round out
adidas and together they can join
forces to overtake Nike.
                                    Basketball   Hockey

•Issue is can management
overcome Reebok’s reputation        Running      Baseball
for poor quality and lack of
                                     Soccer      Football
•Can two companies come
together with such different
cultures and focus?
      •adidas – product
      innovation and commitment
      to quality
      •Reebok – marketing focus
    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          Net Sales by Geographic Region
    •Encouraging that #1 in
    developing eastern                  6%
    European market, Russia
    expected to be most                                Europe
    profitable market in                      43%
                                                       North America
    Europe by 2010
•2006 acquisition of Reebok                            Latin America
not enough to overcome Nike           29%
in North America

•Growing number of sales in
Asia market, fueled by adidas
success in China.
     •Strong demand and
     large population
       Net Sales in Emerging Markets
                                                                Latin America
        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       adidas Sales adidas Sales    adidas
                               Growth                      Growth       Position
   North     $42.5 billion       3%         $2.9 billion      5%        #2 behind
  America                                                                  Nike
  Europe         N/A          2% (20%       $4.3 billion   8%, mainly      #1
                              Eastern                       in Russia
   Asia       3.2 billion    13% (South     $2.2 billion      17%          #1
               people        and Central)
                             15% (China)
   Latin         N/A             N/A        $657 million      39%       #2 behind
  America                                                                  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            875            1003
Reebok Retail            283            430
                  adidas AG Geographic
                  Revenue Performance
€ 5,000
€ 4,000                                    31.5%
€ 3,000                       3.2%                            Europe
                  *Acquired Reebok                            North America
€ 2,000                                              11.6%    Asia
                         17.6%            32.6%
                              27.8%                           Latin America
€ 1,000
                              1229.2%     56.4%      31.7%
           2004           2005          2006       2007

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

    Shift to International         Strength in
                                                          Strong Apparel Presence
           Markets                 Metalwoods
  Revenues from Asia:        Metalwoods currently         Over 70 touring pros
  1999 – 13% of total        hold number one              lift apparel presence.
  2007 – 35% of total        ranking.

  Decreasing reliance        Irons hold less than
  on U.S. Market:            half market share of
  1999 – 69% of total        industry leader
  2007 – 52% of total
                             Golf balls have seen              TM
                             limited success                   8%

Conclusion – TaylorMade should hold U.S.
market share in U.S. given the brand’s
strengths, however, TM is only 8% of adidas                                        adidas
AG global revenues. TM cannot help adidas                                           69%
overtake Nike in U.S. market
     adidas Global Revenue Sources (2007)
                                             Remaining regions =
                                              71.3% of revenues
                                                        North America
                                                        Latin America

Conclusion – The majority of              N.A. market 28.7% of
adidas’s revenue streams are                    revenues
outside U.S. market and are
growing significantly – let Nike
lead U.S. market but dominate
Europe and emerging markets.
    Reebok Global Revenue Sources (2004)


                                                    United Kingdom
                                                    United States
                                                    Other Countries


                                       U.S. market 54.7% of
Conclusion – Use adidas’s                 2004 revenues
control and production
efficiencies to enhance Reebok’s
distribution network in U.S. to
increase U.S. revenues.
Is there another corporate
 strategy adidas should be
           Alt Strategy Options
• Use adidas as revenue driver outside of U.S.
  market – restructure Reebok strategy to
  capitalize on historic revenue performance in
  – 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                           Threats/Opportunities

                Operating multi-nationally – awareness of             Threat- mistakes can be
Political                                                                                           2
                cultures, laws, image, environment, regulations                costly

                Current state of economy – customers may be less        Threat – high quality
Economic                                                                                            2
                willing to pay for higher priced items                  means higher prices

                                                                     Opportunity – supply chain
                Extreme forces in competitor pricing.                 efficiencies and multiple     4
                                                                        distribution channels

                Keeping up with the wants of the younger              Opportunity – Reebok’s
Social                                                                                              4
                generation                                             strength in this area

                                                                         Opportunity – core
Technological   Product innovation is a key driver in the industry                                  4
                                                                       competency for adidas
      Porter’s 5 Forces

                         Bargaining Power of
Threat of Substitutes

                 Intensity of

Bargaining Power of         Threat of New
      Buyers                   Entrants
        High                    Low
                              Porter’s Five Forces
          Factor                                            Description                             Impact

                                •adidas’s strength is product innovation and meeting customer
Threat of Substitute Products                                                                        Low

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

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

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

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

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