Case study I.

3
adidas: the No. 2 in the global sportswear market is challenging the
No. 1, Nike

Besides Nike, Adidas AG (www.adidas.com) is one of company was manufacturing equipment across various
the largest companies in the sporting goods industry. sports, including equipment for fringe sports. In 1975,
The company offers its products through three main the company launched one of the world’s most popular
brands: Adidas, Reebok and TaylorMade-Adidas Golf. football boots: the Copa Mundial.
Adidas operates through more than 170 subsidiaries in After the split, Rudolf formed a new firm that he called
Europe, the US and Asia, each focusing on a particular Ruda – from rudolf Dassler, later rebranded Puma.
market or part of the manufacturing process. Puma and Adidas entered into a fierce and bitter rivalry
Adidas is currently based in herzogenaurach, after the split.
Germany, along with Puma, which is a competitor. The In August 2005, Adidas decided to buy British rival
company operates through three business segments, Reebok for US$3.8 billion. This takeover was com-
wholesale, retail and other businesses: pleted in January 2006 and meant that the company
would have business sales closer to those of Nike in
● The wholesale segment comprises all business
North America. The acquisition of Reebok also allowed
activities relating to the distribution of Adidas and
Adidas to compete head-to-head with Nike worldwide
Reebok products to retail customers.
as the number two athletic shoemaker in the world.
● The retail segment comprises all business activities
relating to the sale of Adidas and Reebok products
directly to end consumers through own retail. Adidas
and Reebok branded products include footwear,
apparel and other goods, such as bags and balls.
● The other businesses include TaylorMade-adidas
Golf, Rockport and Reebok-CCM hockey, as well
as other centrally managed brands. Among others,
this part contains Adidas Golf branded products
including golf footwear, apparel and accessories.
To minimize production costs, Adidas outsources a
major part of its production to external suppliers in the
far East (as does its main competitor, Nike). Adidas
outsources over 95 per cent of production to inde-
pendent third-party suppliers, primarily located in Asia.
furthermore, 32 per cent of all suppliers are located in
China. Since the company procures its merchandise Source: Adidas.
from foreign manufacturers, it has little control over the
product quality.
Key data comparison between the
history world’s two main sportswear
competitors
Adidas AG was founded by Adolf Dassler in 1949
following a split between Adolf and his older brother, Over recent decades, worldwide sports suppliers
Rudolf in 1947. The company name is actually a Nike and Adidas have become synonymous with the
formed from ‘Adi’ (a nickname for Adolf) and ‘Das’ sportswear industry. The rivalry between the two key
(from Dassler). It launched its first pair of football players is tougher than ever. In Tables 1 and 2 the
boots with removable studs in 1954. By the 1960s, the key data of the two world players are compared.
 154 part I ThE DECISION WhEThER TO INTERNATIONAlIzE

table 1 Key economic data for Adidas and Nike (€1 = US$1.30)

adidas (2011, million €) Nike (2011, million €)

Revenue 13.292 18.560

Net profit (% of revenue) 667 (5.0%) 1.710 (9.2%)
Employees (end of year) 46.824 44.000
Revenue split (%)
Product type
Apparel 45 35
footwear 45 46
Other 10 19
Total 100 100

Source: based on various data from www.euromonitor.com.

table 2 Comparison between Adidas and Nike in terms of geographical strength

region adidas Nike

retail value, 2011 % % CaGr, retail value, 2011 % % CaGr,
(Million €) 2007–11 (Million €) 2007–11

North America 4,872 23 5.2 10,861 41 5.0

Western Europe 5,433 26 3.6 5,246 20 3.4
Asia Pacific 5,126 24 8.7 5,717 22 12.3
Eastern Europe 2,393 11 21.4 1,215 5 12.5
latin America 2,221 10 7.6 2,021 8 8.0
Middle East and Africa 1,035 5 5.1 744 3 7.7
Australasia 213 1 0.6 159 1 1.0
World total 21,293 100 25,963 100

CAGR, compound annual growth rate.

Source: based on various data from www.euromonitor.com.

adidas’s sales channel strategy stores by 2015) but also extending its mono-brand
franchise operations, especially in China.
Wholesale – sales via third party retail channels – It is also seeking to develop more shop-within-a-
remained the largest part of the company’s business shop operations with its principal wholesaling partners.
in 2011, generating 68 per cent of total revenue. Adidas aims to generate 45 per cent of total sales from
Wholesale was among the more problematic areas these controlled space operations by 2015, compared
of the company’s business over the review period, in with 36 per cent in 2011.
part because third-party retailers in many countries At the same time, it is also looking to improve its
responded to the economic crisis by price-cutting; internet business, which it seeks to grow to €500 million
this, in turn, undercut brand equity for Adidas and by 2015. In 2011, Adidas operated online stores in the
Reebok. US, Asia and Europe, and opened its first online outlet
historically, the company has distributed its products in latin America in 2012 as part of its strategy to add
through third-party retail accounts, principally footwear, 10 new online markets over the year.
sporting goods and department stores. Other sports
brands, including Nike and Puma, have followed this
strategy.
adidas’s social media strategy
however, like its peers, Adidas is seeking to take Adidas has been able to develop exceptionally high levels
greater charge of its brands, pursuing a strategy it of brand awareness for the Adidas and Reebok brands
describes as ‘controlled space’. This includes not only among the consumer base. Sports and non-sports
rolling out more company-owned and -operated stores buyers make repeat purchases of these brands and
(it intends to open at least 550 Adidas and Reebok have characteristically shown a lack of price sensitivity
 CaSe StuDy I.3 ADIDAS 155

Figure 1 Adidas’s sales channels

Source: based on www.adidas.com and other public media.

if the perceived aesthetic or function of a new apparel brands, Nike and Adidas, are sports brands may reflect
product is high enough. this; the theoretical function of the products should cut
however, because for many users there is a great across regional tastes. however, global share for these
deal of interchangeability between sports brands, brands is mostly underpinned by massive marketing
Adidas is looking to strengthen its relationship with expenditure, and consumers of the two brands do not
consumers by increasing its use of social media. This always buy them for exercise.
is an increasingly important strategy among apparel leading manufacturers’ push into emerging markets
companies, especially those targeting the 18–35 year- such as China and Russia has underpinned growth
old demographic. in global share for five of the 10 leading producers.
Adidas primarily uses existing networks; its Adidas however, a significant brand is yet to emerge from
Originals facebook page, for example, added five million these markets, although much of the manufacture is
followers in 2011 to reach 12 million. It has also developed outsourced to them.
mobile phone apps including miCoach football and Producers that have lost share have typically failed
miCoach Running that allow users to upload statistics to adapt to new market conditions; Gap, for example,
to an interactive training site. The company uses these has failed to follow the new, flexible fashion model of a
tools to build product awareness and engage directly rapid turnover of design and extensive clothing ranges,
with consumers, for example offering the opportunity to and as a result has lost ground to peer brands such as
participate in brand design. Inditex’s zara.
Adidas slightly lags behind its principal rival Nike in Nike is the largest apparel single brand in the world,
this strategy, largely because Nike dominates the North with a 2 per cent share of sales in 2011. Adidas’s prin-
American market where consumer use of these media cipal two brands, with which Nike competes on almost
is at its most developed. These are extremely effective
platforms to disseminate new product information,
build brand loyalty and heighten product awareness, Top five in the global apparel market
table 3
especially among young consumers; at the same time by value share
it supports the brand position for Adidas and Reebok
Company % global apparel
in particular as tech-led, early adopting and youthful. share, 2011

1. Nike Inc. (US) 2.2

adidas versus Nike in the global 2. Adidas (Germany) 1.8
apparel market 3. Inditex/zara (Spain) 1.0
4. h&M (Sweden) 1.0
The global market for apparel is comparatively frag-
5. GAP Inc. (US) 0.9
mented, reflecting, in part, strong localized fashion
preferences (Table 3). The fact that the two leading Source: based on various data from www.euromonitor.com.
156 part I ThE DECISION WhEThER TO INTERNATIONAlIzE

every front, held a combined 2011 global share of its ice hockey and golf brands, for example, are less
1.8 per cent, up from 1.3 per cent in 2006, and ranked use in markets such as India and Brazil.
second and 12th.
The competitive environment in sports apparel is the european sportswear market
extremely intense. There is a high risk of substitution for
consumers using these products for exercise, as these Overall the European sportswear market has been
brands offer basically the same products. Developing heavily influenced by the debt crisis in the Eurozone.
differentiation is difficult, although sports brands have The apparent lack of dynamism in western Europe is
begun to develop greater consumer loyalty through less of a problem for Adidas, which in its 2011 annual
massive marketing expenditure, brand control via retail report claimed to have grown sales by 10 per cent in
and social media initiatives. the region from 2010 to 2011. Adidas’s strong brand
The environment is also one in which competitors equity, heavy spend on marketing and its push into
aggressively pursue market share. Adidas’s ability to retail are likely to continue to drive growth in the region,
keep building global share depends on rapidly and despite its ongoing economic difficulties.
repeatedly getting marketing and product decisions Adidas is still the clear market leader in its home
right. The company seeks to build differentiation in market Germany (see Table 4).
other ways, such as carefully selecting its sports
UK
endorsements. Currently, for example, Adidas produces
the strip for football giants Real Madrid, while Nike Surprisingly, Adidas regards the UK as a market with
produces that of chief Spanish rivals fC Barcelona. considerable opportunity; this is despite the fact that
AC Milan and Inter Milan are also equipped by the consumer confidence in 2012 fell to new lows and the
two different brands. country is faced with a double-dip recession. Adidas
was a principal sponsor at the london 2012 Olympics,
for example choosing British designer Stella McCartney
adidas – geographical dimensions to design the uniforms for the British team, designs that
Adidas’s largest regional market remains domestic were well received in the fashion press.
western Europe, which generated 26 per cent of global Premiership football in the UK also continues to be
revenues in 2011. however, Asia Pacific is set to a vital marketing tool for the company. English football is
overtake this going forward, generating 24 per cent among the most in-demand and watched in the global
of value in 2011 compared with 19 per cent in 2006. market, and Adidas uses the league to showcase
Although the company lags behind Nike in the key product development in both the Adidas and Reebok
Chinese market, it is the number one brand in India. brands as well as repeatedly underlining brand aware-
like Nike, Adidas is seeking to extend its retail opera- ness. Again the company is seeking to expand its retail
tions, allowing for improved brand control. operations in what it regards as a crucial market; its
Adidas has identified three ‘attack markets’, geo- importance appears to be as much about its global
graphical regions it is focusing on: North America visibility as actual sales.
(where Reebok is the company’s key brand following
acquisition in 2006), greater China and Russia/CIS Russia
– these markets are anticipated by Adidas to produce Russia (and Ukraine) have consistently generated the
50 per cent of future growth to 2015. The focus is company’s strongest sales over the last five years.
therefore on emerging markets, and leverage of the Part of the company’s success has been its ability
Adidas brand itself is used to grow global sales. The to develop a strong retail division in eastern Europe.
brand generated 74 per cent of revenue in 2011, com- In what it reports as European Emerging Markets,
pared with 67 per cent in 2006. wholesale sales of the Reebok and Adidas brands
Adidas has supported this brand in particular with generated 5 per cent of global values, and retail gener-
some of its highest-profile sports sponsorships, supply- ated 38 per cent.
ing uniforms to football teams including Real Madrid, Again, rising wage levels and relatively low
AC Milan and the World Cup-winning Spanish national unemployment have underpinned demand for sporting
team. At the same time, it has used fashion designers, goods, and the newness of these markets means that
including Stella McCartney and Yohji Yamamoto, to the company has been able to control its offer more
develop a fashion position for the brand. These strategies effectively.
have underpinned global awareness, and made the Russia, in particular, is a core market for the com-
Adidas brand the principal tool for expansion. The fact pany, and in 2011 was its third largest national market
that it is less characterized by specialization also helps; after the US and China.
 CaSe StuDy I.3 ADIDAS 157

table 4 Market share of sportswear brands in the biggest European countries (2011)

Market share of Germany uK France Spain Italy russia poland turkey

sportswear brands

Total market 3,219 3,048 2,692 1,720 2,318 2,899 1,225 1,400
for sportswear
(shoes + clothing)
– retail value
(million €)

% % % % % % % %
Nike 6.5 17.9 8.1 9.7 6.9 11.2 6.6 2.9
Adidas 10.8 14.6 4.7 8.5 1.7 17.4 3.8 2.0
Reebok (Adidas) 1.2 6.8 3.2 0.9 – 4.6 3.7 –
Puma 3.8 3.0 3.6 – 1.0 – 2.6 1.3
Asics 2.5 1.5 – – 0.5 – 1.1 –
Other brands 75.2 56.2 80.4 80.9 89.9 66.8 82.2 93.8
(the mentioned (Esprit, (Umbro/ (h&M, Aigle, (h&M, forum (Original (Demix, (h&M, (Koton,
brands are the Schöffel, Nike, The Quechua/ Sport, foot Marines, Columbia, Timberland, lCW,
most important The North North face, Tribord, locker, zara, Geox, Centrobuv, zara, Mavi,
after the main face, Timberland, latuma, Timberland, lotto, Decathlon, Wolverine, zara,
brands, singled h&M, Jack Berghaus, Geox, etc.) Converse/Nike, Sportmax, Ecco, Sala, etc.) Defacto,
out above) Wolfskin, etc.) Geox, etc.) etc.) finn flare, Colin’s,
etc.) etc.) h&M,
etc.)
Total 100 100 100 100 100 100 100 100

Source: based on various data from www.euromonitor.com.

Markets outside europe – BrIC markets Adidas is the leading apparel company, offer similar
trends and opportunities.
Brazil, Russia, India and China (the so-called BRIC however, there is strongly emerging competition
countries) still hold the greatest potential for sales in the Chinese sportswear market. International brand
growth going forward in the global apparel market; all manufacturers may be less of a threat than emerging
are set to post compound annual growth rates (CAGRs) domestic brands. li Ning Co ltd is a Chinese brand,
of 10 per cent or above between 2011 and 2016. founded by the gold medal-winning Olympic gymnast
however, the scale of the market in China (where Nike of the same name, whose share of the domestic market
is the leading apparel brand) makes it the number one grew from 0.4 to 0.6 per cent over the review period.
target for Adidas and other manufacturers of interna- li Ning products take a lower price position than Nike
tional branded apparel. or Adidas, and are still not as desirable as the interna-
tional brands, but li Ning boosted its advertising spend
China as a proportion of revenues to 16 per cent in 2011,
The debt crisis in the Eurozone (one of Adidas’s largest one-third more than Nike.
export markets) and growing demands from trading The company believes that despite the growth in
partners for China to raise the value of its currency, share of domestic manufacturers, international brand
making Chinese exports more expensive, may cool producers are the key drivers of growth in the Chinese
demand for consumer goods there. however, it is the sportswear market. having lost pace in the market over
scale of the consumer base and its long-term potential the review period, Adidas aims to recover share by
that make it particularly key to Adidas’ strategy. investing heavily in marketing, for example, by boosting
Adidas’s Asia Pacific operations could be improved; its presence in basketball, a sport that it has tradition-
it ranked fifth in China in 2007 compared with second ally paid less attention to.
in 2006. however, it is well set up in India, and the Adidas has also sought to develop a stronger relation-
boom in middle-class consumers in both markets offers ship with recreational athletes in China, an increasingly
plenty of marketing opportunities for the company. important area of the consumer base. It sponsors the
Other emerging markets, notably latin America, where Beijing marathon, and is seeking to develop more
158 part I ThE DECISION WhEThER TO INTERNATIONAlIzE

running sponsorships in smaller cities. The company has united States

also sought to increase visibility via fitness chains, giving
clothing to fitness instructors and buying advertising In 2011 the total apparel market in the US represented
space in locker rooms and over treadmills. The emphasis a value of €525 billion. Nike Inc. is the clear market
is very much on urban consumers, with smaller cities, leader with 4.4 per cent market share. Adidas is num-
whose middle-class consumer bases are less developed, ber four (after GAP Inc. and Wal-Mart Stores Inc.) with
a particular priority. a market share of 2.6 per cent.
however, its key China development strategy Over the last five years Adidas has been able to
appears to be to increase its retail presence, and it increase its market share in the US market by focusing
aims to open 2,500 outlets by 2015, most of which will on the most dynamic parts of its market there, includ-
be located in third- and fourth-tier cities. ing running and training, and increasingly basketball.
historically, the Adidas and Reebok brands have
India lagged behind Nike in the NBA; however, Adidas has
Adidas is the leading apparel company in India with a increased its spending on basketball sponsorship, pro-
1.2 per cent share of value sales based on its Reebok viding uniforms for the teams, as well as tying up stars
and Adidas brands. The Indian apparel market is anti- such as Derrick Rose to sponsorship deals.
cipated to see a CAGR of 5.9 per cent over 2011–16, Distribution strategy has also been crucial to brand
and will show the fourth largest growth of all global growth for the Adidas portfolio; as in other geographies,
markets in absolute terms. Growth over the review it seeks to control its portfolio via a tightened grip on
period has been exponential, with the company gener- retail. Where possible, it has sought to expand retail
ally hitting high double figures. operations into high-quality malls and sporting goods
Reebok is the stronger of the two brands with a stores; e-commerce is also a key part of its regional
share of 0.7 per cent, based on its dominance of the sales. As such, North America has been designated
cricket market; it supplies clothing to the Indian Premier one of its key attack markets for the future, despite a
league, one of the most dynamic sports franchises in CAGR of only 0.7 per cent forecast for the region
the world, as well as equipment, apparel and footwear. between 2011 and 2016.
Cricket is a national obsession, and the marketing
opportunities are enormous. QueStIONS
Most importantly, the company had the market 1. Please compare and evaluate Adidas’s and Nike’s
largely to itself in 2011, as Nike has yet to develop a global competitiveness and global strategies.
visible presence, despite manufacturing in the country
2. What should Adidas do to become No. 1 in the
(and also supplying the uniform for India’s 2011 Cricket
global sportswear industry?
World Cup-winning team).
however, Adidas may be on the point of jeopardizing Sources: based on data from www.adidas.com; www.nike.com; www.
its success in India. At a time when the Indian govern- euromonitor.com; other public data.
ment has indicated it may greatly liberalize foreign
direct investment in the retail market, Adidas announced
plans in May 2012 to close a third of its 1,000 Reebok
stores in India.