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Executive Summary
With the creation of Adidas by two German brothers in 1920, it was the
innovator in the sports equipment industry for marketing strategies and the
creation of new cleats for the superior athlete. For over 40 years, it was the most
popular athletic shoe among Olympic athletes but with the combination of the
market entry of competitor Nike, the death of the Dassler father and son leaving
the company astray, and a myriad of other factors, caused Adidas to fall from its
industry leading position to the bottom. Through a merger and an acquisition with
some corporate restructuring, Adidas has come back to be second in the sports
equipment industry.
Introduction
The sporting goods industry depends on innovation, variety, marketing, and
endorsements of professional athletes. For the most part, each company in the
industry is the same with only slight variations between them. The industry is
very competitive where companies are often acquiring companies and in some
cases, dissecting and selling off to other companies. The case study of Adidas
from its inception in 1920 until 2009, demonstrates the constant acquisition of
companies in the industry.
Corporate Strategy
Before Restructure
Adidas was founded by a German baker Adolph (Adi) Dassler in 1920, his
focus was to make competitive footwear for athletes playing soccer, tennis, and
track and field events.His brother Rudolph Dassler in 1924 joined the sole-
proprietorship;the company was named Gebruder Dassler Schuhfabrik (Dassler
Brothers Shoe Factory) and prided itself in innovation in design and marketing.
They created the first track and field shoe with spikes and studs in the soles for
better competition; redesigned arch supports. These two innovations were one of
700 patents and property rights by Adi Dassler until he passed away in 1978
(Thompson et. al, 2009). Marketing the company by providing free shoes to
Olympic athletes at the games in 1928 Amsterdam led to the next games in Berlin
in 1936 to have most athletes using the innovative spiked cleat included the Usain
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Bolt of the time, Jesse Owens. Eventually after a short hiatus due to World War II,
the brothers split over design differences leading Rudolph to create what is now
Puma.
Adidas kept up with innovations from the screw in spikes and molded rubber
track cleats, and screw-in studs on soccer shoes led the company to be the favorite
brand among Olympic athletes in 1960 with 75% of track and field athletes
competing in the Rome Olympic Games. This trend continued until the early
1970s when 78% of all athletes were wearing Adidas in the Munich Olympics.
Eventually the company expanded its product line in 1963 from shoes to soccer
balls and athletic apparel. When jogging became popular in the United States in
the early 1970s, it became had the most popular jogging shoe in addition to
fashion with teenagers wearing all sorts of apparel with the distinctive logo. It is
ironic though the most popular shoe was for a training activity created by Bill
Bowerman, who co-founded Nike and trained Steve Prefontaine, track and fields’
Michael Jordan of long distance.
Robert Louis-Dreyfus, a French advertising executive who led a takeover of
the controlling interest of Adidas with a group of investors. His attempt at
restructuring the company took the company from having 2% market share in the
U.S. with being ranked eighth in footwear to third by 1994 with a 75% increase in
annual sales from 1993. Louis-Dreyfous signed popular athletes such as Kobe
Bryant, cut costs, improved styling, and new models of products being released
(442). The turnaround led to the eventual merger of a French sports equipment
manufacturer, Salomon SA, for an agreed €1.5 billion in 1997 which led to the
company now surpassing Reebok to place it in the second largest sports
manufacturer. This diversified Adidas by expanding into “ski equipment, gold
clubs, bicycle components, and winter sports apparel” (442). At the time,
Salomon was the number one ski producer; TaylorMade was the second largest
golf equipment manufacturer; and “Mavic was the leading producer of high-
performance bicycle wheels and rims” (442).
The business entities that were acquired were very strong and seemed like a
good investment.However, the price of Adidas stock fell once investors realized
Adidas’ lack of manufacturing experience in sport equipment and the amount
agreed upon by Adidas to pay Salomon SA. Eventually a net loss of $164 million
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for Adidas-Salomon came as a result in the loss of popularity from golf and winter
sports equipment, and the integration of Salomon’s business did not meet
expectations. Poor performance of the stock declined by a third in 1999 from the
high of 1998, led to Louis-Dreyfus stepping down as president and replaced by
Herbert Hainer who was the head of marketing in Europe and Asia in 2001.
After Restructure
Hainer restructured the company once again, able to have the stock price
return to its 1998 high by 2004. Similar to Louis-Dreyfus, he cut costs, introduced
new products in apparel and footwear where he boosted advertising, continued
endorsing athletes, and opened company-owned retail stores (443).Hainer then
divested the winter and Mavic brands of the company to Amer Sports Corporation
for €485 million as these divisions were seen as unprofitable, ultimately leaving
TaylorMade Golf the only remaining division from Salomon. After the divestiture,
Hainer received approval from stockholders to change the name of the company to
Adidas AG.
Haine’s focus on restructuring the company revolved around athletic
footwear, apparel and golf equipment. In 2006, Hainer’s final step to completing
his goal of restructuring was complete by leadingAdidas AG to acquire Reebok
International Ltd. for €3.1 billion. Reebok unlike the wide variety of products
Salomon AS had, Reebok focused on athletic footwear and apparel, including the
complete design, marketing, and selling of Rockport footwearand CCM hockey
equipment (443). Adidas had also received Greg Norman golf apparel in the deal
but quickly divested the brand.The acquisition of Reebok nearly doubled Adidas
revenues from 5.8 billion to 10.1 billion in years 2005 and 2006, respectively. It
also managed to open up a whole new market where Adidas was for the serious
athlete, while Reebok offered a product at a mid-level price for the everyday
consumer at leisure (443).
In 2009, the corporate strategy shifted since the business model had become
stabilized focusing on its three core brands, Adidas, Reebok and TaylorMade
(444). The strategy began to focus on several key factors: “extending its
leadership in product innovation, expanding controlled retail space through its
network of company-owned store, creating a differentiated image for the products
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offered by each of its three business segments, and achieving efficiencies in its
global supply chain processes and activities” (444). Adidas alsocontinued its
focus on product design and innovation that made them a contender in the industry
once again under the expectation that each division would develop at least one
new product innovation per year which can be exemplified by the highly
customizable r9 driver released by TaylorMade in 2009.The company did continue
to invest in its continuous brand building activities to keep the company
differentiated from its competitors.
PEST
Political. The only political issue would be issues in Asia regarding the
thriving counterfeit market of athletic shoes and apparel.
Economic.The global recession not only was responsible for
harmingAdidas’s profits, it also effected its competitors as they all operate in
the same regions. It did though cause critics toquestion the long-term
effectiveness of the restructuring strategy from 2005 – 2006 (452).In addition,
the depreciation in the value of exchanged currencies would cause companies
to lose profits.
Social.As Olympic athletes began to receive shoes for free in 1928 by the
Dassler brothers, Nike eventually started taking it to a new level and signing
specific popular athletes to use its brand. Soon athletes would begin to
receive large monetary compensation.
Technology.Innovation between the companies caused a very competitive
relationship. It went to the point Adidas expected at least one new innovation
per year for each of its three divisions.
Five Forces
Industry Competitors. It is extremely high for the competition among
industry rivals. The dominant forces in the industry are Nike and Adidas
who are striving to expand into new and emerging markets while trying to
outdo each other, specifically Adidas trying to overtake Nike, by expanding
product lines, increasing R&D and advertising costs. New Balance and Puma
which account for the smaller forces in the sports equipment industry and
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need to make a presence in the online marketplace since they have rather low
market share in the retail market.
Threat of New Entrants. The threat of new entrants into the market is a low to
moderately low because the lack of barriers for entry. However, with
dominant players like Nike and Adidas, competition would make it difficult
with the necessary capital to invest for a start up, R&D, marketing and
advertising, endorsements of popular and upcoming athletes who do not have
a contract with a company yet, and the ability for production whether
outsourcing or in-house.
Bargaining Power of Suppliers .With selling products that are made from raw
materials that have a high abundance, the threat of suppliers is low.
Bargaining Power of Buyers. It is high to extremely high for buyers because
of the price sensitivity for buyers purchasing bulk orders in the current
economic climate. The buyer switching costs for substitutes are low with an
industry of only a few major companies, leads to a strong bargaining power
for buyers.
Threat of Substitutes. The threat of substitutes is moderate from the consumer
always looking for a reasonable price. With only a few major companies in
the sporting goods industry, it does not necessarily drive price down when the
threat of new entrants is low.
Figure 2. Porter’s Five Forces
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Competitive Strength Analysis

Figure 3. Competitive Strength Analysis – Business Units
Adida Reebo TaylorMad
s k e
Importan
ce Scor Scor Ratin Scor
KSF Weight Rating e Rating e g e
New product
lines 0.3 9 2.7 8 2.4 7 2.1
0 0 0
On-going
Branding 0.2 8 1.6 6 1.2 7 1.4
0 0 0
On time
delivery 0.1 9 0.9 9 0.9 9 0.9
0 0 0
Company-
owned stores 0.1 9 0.9 7 0.7 0 0.5
0 0 0
Accesiblity 0.3 9 2.7 9 2.7 9 2.7

Total 1 8.8 7.9 7.6

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Figure 4. Competitive Strength Analysis – Product Lines

Adida Reebo TaylorMad
s k e
Importan
ce Scor Scor Ratin Scor
KSF Weight Rating e Rating e g e
Golf 0.25 0 0 0 0 9 2.25

Hockey 0.25 0 0 9 2.25 0 0

Footwear 0.25 9 2.25 9 2.25 9 2.25

Apparel 0.25 9 2.25 9 2.25 9 2.25

Total 1 4.5 6.75 6.75

Strategic Group Mapping

In order to identify the market position of rivals, a visual tool that can be used
is the strategic group map. The data input about the companies in the industry will
move the companies being analyzed away from equilibrium to their own distinct
quality on the map demonstrating the characteristics of the company through its
weakness, strengths, differences and similarities. The size of the company
indicates the relative control it has in a particular industry or market; while the
proximity will determine its immediate and distant competitors.
The strategic group map below in depicted in Figure 6 shows the four
industry competitors in athletic footwear in the U.S. market between 2006 and
2008. New Balance with its size has the lowest market share of the four. Its
distant proximity shows it not only has the least amount of sales growth in the U.S.
athletic footwear market, but the least amount of product lines available for
customers to choose from. Next is Puma which has slightly more product lines
and a larger market share than New Balance. Puma and New Balance though are
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struggling for a share in the U.S. market from the sheer size of its competitors
Nike and Adidas who control most of the market.
Adidas is overlapping Nike in the upper right quadrant which infers they
have competing product lines that are both doing fairly well depending on the line
being sold. However, Nike still has a larger sales growth which equates to a better
financial performance in the U.S. market. Also, Nike has slightly more product
lines which allow it to have a larger sales growth, not to mention Nike is a U.S.
company which must be factored into the market equation it is doing business in.
Figure 5. Strategic Group Map

Value Chain Analysis

When assessing the how competitive are a company’s price and costs with
that of its industry rivals can be analyzed using the value chain analysis. The
analysis is broken up into two parts, the primary activities and the support
activities. The primary activities are what is mainly responsible in creating value
for customers while support activities “facilitate and enhance the performance of
the primary activities” (83).
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Primary Activities. The efficient supply chain management initiative, World

Class Supply Chain, allowed the Adidas’ operation to produce enough products at
a low-cost to distribute to the market on time and in force by the means of
factories in Asia and new inventory methods for its retail operations. Adidas used
heavy marketing and advertising techniques to grow its market share in the United
States after its restructuring to gain back the region it once dominated by being the
innovator in athletic marketing. The development and expansion of its retail and
online operation provided a service to the consumer by being able to try to the
product, shop at convenience and consult with an employee about different lines.
Support Activities. Through technology and product R&D, Adidas AG was
the first to modify and create what is now the modern track and soccer cleat. The
new policy is each of its three units is responsible for at least one new innovation
per year. With Human Resource Management, the company hires and trains
knowledgeable employees to operate its retail locations while contracting to
outside factories in Asia to assemble its product lines which saves on capital.
General Administration of Adidas has changed several times since the founder and
son passed away but each new administration has similar goals, to overtake Nike
and give a new edge to the company through restructuring.

Value, Rarity, Imitability, Organization (VIRO)

Value. The product is not valuable. The brand is valuable but in a market
with apparel and footwear, only a few factors separate Adidas from its
competitors.
Rarity. It is not rare. Adidas ability to manufacture products in Asia for low
production costs, or have athletic wear and apparel can easily be emulated by
an entrant or a seasoned company like Nike.
Imitability. It is easily imitated. The design of its products can easily be
emulated by other companies with little to no cost to the company.
Organization. The firm is organized and able to exploit a resource quickly.
With the efficient supply chain, it enables Adidas to meet the market quickly
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with its products. Also, with its contracted suppliers in a resource rich area,
the access to new resources is easy to come by.
Financial Analysis
Between 2006 and 2008, the four leading sellers of athletic footwear in the
United States were Nike, Adidas, New Balance and Reebok. In that time, Nike’s
market share increased annually from 29.73 % to 34.61%; this was the only
company to have increased market share during the two years. New Balance
decreased from 9.26% to 6.26% while Adidas declined from 10.62% to 5.86%.
Even with the acquisition of Reebok International by Adidas, it declined from
4.68% to 2.66%. Yet, even with a steep declining trend in market share to rival
Nike, the Adidas brand increased in net sales. The increase for Adidas was not
significant as Nike but from 2003to 2005, there was negative growth in the
company because it was still recovering from the Salomon SA merger in 1998. In
2005, an increase can be seen from the divestiture that occurred with its winter
sports brands and its Mavic bicycle brand.
Figure 6. Net Sales (in Millions)
20

18
16

14

12
Nike
10
Adidas
8
New Balance
6 Puma
4

0
2003 2004 2005 2006 2007 2008
Year

Recommendations
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Based on the information of this analysis, Adidas went from fast mover, to a
company with no direction and failing, it took a period of about a decade of
difficult reorganizations, rose up to become a fast follower to sporting goods
equipment king, Nike. The business strategies at first were overzealous with the
merger of Salomon SA but the near-immediate divestiture of its declining
popularity divisions and retaining TaylorMade Golf was a good decision.
The Reebok International acquisition was a positive move and helped
encourage growth to Adidas in a time it needed the boost. It not only removed a
rival from the industry taking away market share, but Reebok added to its product
line. Reebok was the shoe for the everyday consumer at a mid-range price, while
Adidas maintained its identity as a shoe to the “superior athlete” (443). The niche
market it caters to of hockey players with the Reebok line it overtook, CCM has
become the top seller of hockey skates and gear, bringing increased profits (450).
According to Figure 7, after the merger, Adidas was separated from its
closest rivals Puma and New Balance in a category all by itself. But it has stayed
almost stagnant for two years. With the acquisition, Adidas needs to maintain its
innovation strategy with heavy marketing and advertising campaigns for new
products. With the expansion into new, emerging markets, Reebok stands to gain
a substantial footing if it continues with its efficient supply chain management. It
will save time, capital, and with the combination of its new restocking methods,
prevent a low inventory without added more cost to the individual store.
Overall, unless Adidas AG begins to acquire companies within its core focus
and divest unneeded divisions, the business will most likely stay within its price
point with a minor fluctuation due to increased or decreased revenues from a bad
economy or disappointing returns on foreign investment.