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 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?

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

5. Product Innovation 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 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? NikeNike 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 2005-2006 restructuring?

10. Adi’s leadership… Loss of focus… 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. Return to form via restructuring… Design and Innovation, differentiated image for brands, improved retail and supply chain adidas’s Evolving Strategy

11. 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 BasicsImproved advertising, marketing, manufacturing effeciency

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

13. adidas’s Brand CompanyTime PeriodBrandSuccess? Dassler Brothers’ Shoe Factory 1920s → 1940sInnovative athletic shoes for world class athletes adidas1950s → 1970sAthletic apparel and innovative footwear for the world class athlete and recreational jogger. adidas1980s → mid 1990sN/A – Lack of quality and innovation. No definable brand essence.  adidas-Solomon1998 → 2005N/A – Footwear, apparel, and wide range of sports equipment. No definable brand essence.  adidas AG2005 → presentPerformance 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. Have adidas’s acquisitions helped improve their position against the competition?

15. Salomon Acquisition: Was it Successful? Product Line BeforeProduct 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 2 nd largest sporting goods company, however…

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

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

18. 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.

19. 2007 TaylorMade/adidas Golf Sales Breakdown Conclusion: Use adidas’s marketing model of track & field/soccer shoes to gain more sales in footwear & apparel.

20. SWOT Analysis for Reebok StrengthsImpactWeaknessesImpact Strong in hockey, football and baseball Poor reputation for quality and innovation Loyal female customer baseGreg Norman golf apparel brand Past success in marketingLimited distribution channels Strong stable of professional athlete endorsements Conclusion: ***Need some analysis to tighten this slide up…

21. SWOT Analysis for Reebok OpportunitiesImpactThreatsImpact Encouraging sales growth in Latin America and Asia Possibility of cannibalization if sold in same place as adidas products Economies of scale with adidas supply chain and distribution Still third in market share in its strongest market, North America Use Reebok and adidas brands to target separate markets – utilize current distribution networks Conclusion: ***Need some analysis to tighten this slide up…

22. Reebok Acquisition adidasReebok FootballBaseballHockeySoccerRunningBasketball 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

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

24. 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

25. 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.

26. Regional Footwear/Apparel Markets RegionSizeMarket Growth Rate adidas Salesadidas Sales Growth adidas Position North America $42.5 billion3%$2.9 billion5%#2 behind Nike EuropeN/A2% (20% Eastern Europe) $4.3 billion8%, mainly in Russia #1 Asia3.2 billion people 13% (South and Central) 15% (China) $2.2 billion17%#1 Latin America N/A $657 million39%#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.

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

28. adidas AG Geographic Revenue Performance 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 *Acquired Reebok

29. TaylorMade Advantages Shift to International Markets Strength in Metalwoods Developing 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 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 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

30. 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.

31. 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.

32. U.S. Retail Store Strategy Opportunity for U.S. brand strategy Reebok’s revenue fell 5.7% during timeframe Opportunity to convert adidas locations to Reebok retail storesand focus growth of adidas internationally. 2007 Reebok – 430 Locationsadidas – 1003 Locations 2006 Reebok – 283 Locationsadidas – 875 Locations

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

34. 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

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36. External Environment: PEST

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

38. Porter’s Five Forces FactorDescriptionImpact 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 Low 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 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