Increased Competition and the Loss of Global Dominance: 1980s and Early 1990s

Adi Dassler died shortly after he introduced his landmark soccer shoe in 1978. He had run the

company and its predecessor for about 60 yea rs and built it into the unmitigated giant of the

world shoe industry . His death marked the end of an era at the company. Indeed, adidas s uffered

a string of defeats in the late 1970s and 1980s that severely diminished its role in the world

sports shoe industry. The company's loss of dominance was not solely attributable to Dassler's

death, ho wever. In fact, the athletic shoe industry became intensely competiti ve following his

death, primarily as a result of aggressive U.S. entr ants. The increased competition actually began

after the 1972 Olympic s in Munich, when a mob of companies decided to hop into the lucrativ e

business. After having the industry mostly to themselves for years, adidas and Puma suddenly

found themselves under attack from shoe man ufacturers worldwide.

Dassler had carefully arranged a management succession before his dea th. Family members

remained in key management positions, but several professional managers were also brought in

to take over key functions including marketing, production, and public relations. Unfortunately ,

the effort failed to keep the company vibrant. adidas retained its lead in the global athletic shoe

market for several years and remaine d dominant in its core European market into the 1990s.

Importantly, t hough, it was soundly thrashed in the North American market by emergi ng athletic

shoe contenders Nike and Reebok. Those companies launched an almost militant marketing

offensive on the North American sports shoe market during the 1980s that caught adidas

completely off guard.

adidas, not used to such fierce competition, effectively ceded domina nce of that important region.

Incredibly, adidas's U.S. sales shrank to a mere $200 million by the end of the decade, while

Nike's gre w to more than $2.4 billion. By that time, Reebok and Nike togeth er claimed more

than 50 percent of the U.S. athletic shoe market, com pared to about 3 percent for adidas. The

adidas brand name had become a fading memory in the minds of many aging baby boomers, and

many yo unger U.S. buyers were virtually unaware of the brand. "This is a bra nd that has taken

about five bullets to the head," said one observer in Business Journal-Portland in February 1993.

adidas managed to maintain its lead in the soccer shoe market and eve n to keep a healthy 26

percent of the European market for its product s. However, the North American market became

the core of the global a thletic shoe industry, and adidas found itself scrambling to maintain

respect worldwide. Moreover, besides increased competition, adidas s uffered during the 1980s

and early 1990s from relatively weak managem ent. To make matters worse, members of the

Dassler family and relativ es that still owned adidas began fighting over control of the company .

Amid increased competition and family squabbling, adidas's bottom l ine began to sag. The

organization lost about $77 million in 1989 before the family sold the entire organization for only

$289 mil lion the following year. The buyer was Frenchman Bernard Tapie, a 47- year-old

entrepreneur and politician.

From the beginning, analysts doubted Tapie's ability to turn the aili ng company around. A

perpetual showman, Tapie purchased the company p artly for the attention he would get from the

French people for secur ing ownership of a renowned German institution. Tapie had already gai

ned notoriety as an entrepreneur and as a parliamentary head of the r uling Socialist Party.

Tapie's promotional skills did little for adid as. The company continued to lag and Tapie himself

became embroiled i n political and business scandals. Tapie stepped aside as chief of th e

company in 1992 and handed the reins to Gilbert Beaux. Tapie also s tarted searching for a buyer

for adidas.

Under new management, adidas looked as though it was beginning to tur n the corner going into

the mid-1990s. Of import was the company's 19 93 purchase of U.S.-based Sports Inc., an

enterprise that had been fo unded by Rob Strasser. Strasser was credited as the marketing genius

that had helped to make Nike into the leading U.S. athletic shoe comp any. Strasser quit Nike in

1987 to form Sports Inc. When adidas bough t out his 50-person marketing venture, it named

Strasser head of the newly formed adidas America subsidiary. Strasser brought with him ano ther

former Nike executive, Peter Moore, with whom he hoped to regain some of adidas's lost glory.

"We'll compete from day one," he said i n the Business Journal-Portland in 1993, "but it won't

happen overnight." Tapie finally found a buyer for adidas in 1993. The compa ny was purchased

by a group of European investors for $371 millio n. Unfortunately, Strasser died late in 1993.

Moore took over as head of the U.S. subsidiary. adidas expected Moore to lead the company's

turnaround on that continent and to help it eventually attain the kin d of strength adidas

International still exerted in Europe and some o ther parts of the world.

In 1993 the new owners of adidas hired Robert Louis-Dreyfus, a French businessman, to run the

company. Though Louis-Dreyfus was unfamiliar with the athletic shoe business, he had a

reputation for revitalizin g failing companies; in fact, Louis-Dreyfus was credited with saving

London advertising agency Saatchi and Saatchi. After joining adidas, Louis-Dreyfus implemented

severe cost-cutting and reorganization stra tegies and moved production to Asia. He also

increased the marketing budget, from 6 percent of sales to 11 percent, to increase brand visi

bility.

Merged and Emerging in the Mid-2000s

adidas reacted favorably to Louis-Dreyfus's changes, and profits rebo unded, reaching DEM 244.9

million in 1995, up from DEM 117.3 million in 1994. The company went public in 1995, and the

relatively unathlet ic Louis-Dreyfus signaled his commitment to adidas and its athletic r oots by

running in the Boston Marathon. Also that year a new CEO, Ste ve Wynne, joined adidas's U.S.

subsidiary. In 1996 apparel sales rose an impressive 50 percent, and brand visibility was

enhanced by adida s's involvement with the 1996 Olympic Games. The company provided gea r

for about 6,000 competing athletes, representing 33 countries, and the Olympians sporting

adidas's equipment won 220 medals.

In a significant move to strengthen its position in the global sporti ng goods category, adidas

acquired French holding company Sport Devel oppement SCA in late 1997. Sport Developpement

owned 38.87 percent of Salomon's shares and 56.12 percent of the voting rights. After seali ng

the deal with Sport Developpement, adidas acquired the outstanding shares of Salomon in a deal

estimated to be worth $1.4 billion. The purchase, which included U.S.-based Taylor Made,

manufacturer of premium golf clubs, and the French Mavic, maker of cycling equipment,

positioned adidas in the number two position of sporting goods world wide, behind Nike Inc. but

ahead of Reebok International Ltd. Traditi onally known as a manufacturer of ski equipment,

Salomon had begun to branch out in the mid-1990s to shield itself from the declining wint er

sports and ski segments. The company placed a greater emphasis on Taylor Made and Mavic and

also focused on hiking boots, inline skates , and snowboards. Salomon also changed its name to

Salomon Worldwide in mid-1997 to signal its international diversification.

Though industry observers applauded adidas's purchase of Salomon and stated that consolidation

within the sporting goods industry, particu larly between equipment manufacturers and makers of

apparel and shoes , was a growing trend, news of adidas's decision caused the share pri ce to

decline nearly 4 percent. Concerns that adidas's earnings would be adversely affected for several

years by the debt-financed acquisi tion made many investors nervous. Still, many felt the adidas

and Sal omon merger was a positive move. Allan Raphael, president of Raphael, C.R.I. Global LP,

said in the Financial Post, "adidas' goal i s to be the No. 1 sports equipment company in the world

and I think t hey're going to get there. ... The key is that adidas' management has a very

innovative sense of how to recreate a brand."

In 1998 adidas-Salomon turned toward the U.S. market while also focus ing on integrating

Salomon's operations. Though the global sporting g oods market experienced flat growth that

year, adidas managed to achi eve extremely high sales growth. Overall net sales grew 48 percent

in 1998 compared to 1997, and the company achieved record high net sale s in both footwear and

apparel. In the United States, the top market for sporting goods, adidas-Salomon achieved

extraordinary growth rate s. Net sales in the U.S. market alone rose 71 percent over 1997 resul

ts, and the brand's share of the U.S. footwear market reached 12 perc ent, thanks to the increase

in footwear sales of 93 percent. Apparel sales also fared well in the United States, growing 48

percent. Sales in Europe, Asia, and Latin America also rose in 1998.

Despite strong growth rates in 1998, adidas-Salomon was not without d ifficulties. Integration of

Salomon proved to be more time-consuming and challenging than had been anticipated, and the

company's share pr ices fell 24 percent during the year. In addition, though some Asian countries

experienced positive sales growth, overall sales in the Asi an region fell more than 20 percent.

The economic problems in Russia led to poor sales as well. The golf industry faced a difficult year

i n 1998, and this affected sales of Taylor Made, which declined by 15 percent.

adidas-Salomon concentrated on the positive rather than the negative, and although expecting

flat growth during 1999, the year of its 50th anniversary, the company endeavored to improve

sales and strengthen operations. The company planned to construct a new world headquarters in

Herzogenaurach and thus acquired a 90 percent interest in GEV Gru ndstücksgesellschaft mbH &

Co. KG, a property investment fir m that owned the property adidas selected for the building.

adidas-Sa lomon also extended operations globally in the late 1990s, forming a subsidiary, adidas

Japan K.K., to handle the distribution of adidas p roducts in Japan, as well as ventures in The

Netherlands and Turkey.

In terms of sports, adidas-Salomon had many winners in the late 1990s . adidas was the official

sponsor of the 1998 Soccer World Cup, which had extremely high visibility and coverage, and in

1999 the company sponsored the Women's World Cup, which achieved strong popularity. Th e

company also sponsored the New York Yankees baseball team beginning in late 1997. The

Yankees won the World Series that season, and adid as-Salomon publicized its partnership with

the team through award-win ning advertising campaigns. Among the athletes signed by the

company were cyclist Jan Ullrich, winner of the Tour de France in 1997 and ru nner-up in 1998,

and National Basketball Association player Kobe Brya nt.

adidas made a good effort at integrating the Salomon operations. Face d with increasing

competition from the entry of such designer brands as Tommy Hilfiger and Polo Ralph Lauren into

the sportswear market, t he company began a streamlining effort to boost its own brand positio n.

As part of the streamlining, adidas-Salomon launched a major world wide restructuring in 2000.

Reorganized into three major divisions, i ncluding a new high-performance division named

Forever Sport, adidas- Salomon abandoned its former divisional separation between its footwe ar

and apparel operations. The restructuring also moved to reduce its previous operational

subdivisions targeting individual sports, in an effort to reposition the brand in the general lifestyle

market as we ll.

The move had only mixed results, however, as the Nike brand continued to dominate the global

sporting goods market. At the same time, adid as began to lose ground in the United States,

where Reebok Internatio nal had begun its own aggressive push to gain market share. The hoped

-for synergies with the Salomon operations failed to manifest themsel ves; indeed, during the

2000s, the group's focus on adidas's traditio nal markets left little room for development of the

Salomon line, whi ch saw a loss of market share as a result.

Nonetheless, the company launched several attempts at continued expan sion in the 2000s. The

company relaunched its golf division, combinin g the Taylor Made and adidas Golf operations into

a single Taylor Mad e-adidas Golf segment, then began an effort to reposition itself as a supplier

to the professional and "serious" golf segments. Yet the co mpany's efforts to challenge market

leader Callaway Golf hit an impas se when the company failed to acquire golf ball manufacturer

Top-Flit e, which was picked up by Callaway instead.

In 2002, adidas-Salomon acquired Vancouver-based Arc'Teryx Equipment, a maker of high-end

technical equipment and apparel. The company als o launched an effort to break into the retail

market, launching its f irst adidas Originals retail shops in Berlin and Tokyo in 2001. In 20 02, the

company brought the retail concept to the United States, goin g head-to-head against Nike's

massively successful Niketown retail fo rmat and opening a shop in New York City. The following

year, the com pany streamlined its bicycling division, combining its cycling access ories and

apparel operations under a single division, called Mavic-ad idas Cycling. In another move to

expand its appeal in the general lif estyle sportswear market, the company signed designer Stella

McCartne y to create a new line of women's running, fitness, and swimming fash ions for 2005.

The mid-2000s offered new perspectives to the global sporting goods i ndustry, as new classes of

consumers appeared in the vast Indian and Chinese markets. The rush was on to achieve first-

entry position in t hese markets. The potential for growth appeared all the more promisin g given

that Nike, which for years had built its success on the pheno menal appeal of the Michael Jordan

franchise, had no clear "superstar " backing its line into the mid-2000s. Both adidas-Salomon and

Reebok launched an aggressive effort to sign up the world's next generation of sports superstars,

in an effort to beat Nike at its own game. By 2003, meanwhile, rumors had begun to spread that

adidas and Reebok, n umber two and three, respectively, had begun to discuss a possible me rger.

Both companies denied the rumor, however.

adidas also successfully fought for control of the lucrative footwear sponsorship for the upcoming

Beijing Olympic Games. In this way, the company hoped to position itself as the brand of choice as

Chinese c onsumers adopted the Western fashion craze for branded sportswear fas hions.

In 2005, adidas returned to its history of footwear innovation, launc hing the world's first "smart"

shoe, a running shoe with a microproce ssor built into its heel. The computerized shoe utilized a

sensor to react to surface conditions, measuring shock impact and making minute adjustments to

the heel cushioning. The company hoped the new shoe, which could be adapted to the company's

high-performance basketball a nd soccer shoes, and even to its entire range, would become the

next revolution in sports technology.

In the meantime, the company was forced to acknowledge that the Salom on winter sports

operations no longer fit with its increasing focus o n the core adidas-branded sportswear

operations. Recognizing that it had not given sufficient attention to the development of the

Salomon operations, adidas decided to sell out, and in October 2005 completed the sale of

Salomon, together with the Mavic, Arc'Teryx, and Bonfire brands, to Finland's Amer Sports

Corporation.

By then, adidas and Reebok had gone public with their merger plans, a nnouncing in May 2005

that they had reached an agreement, in which ad idas would acquire Reebok for $3.8 billion. By

October 2005, the two companies appeared to have cleared antitrust reviews, and announc ed

their intention to complete the merger by 2006. The combined compa ny created a true rival to

Nike, with more than $9.5 billion in t otal sales, and two strong, internationally recognized

brands. The me rger also came ahead of the 2006 World Cup, to be held in Germany, wh ich was

expected to provide an extra boost to adidas's revenues. The race for global sportswear

dominance was not quite finished, however. Following the adidas-Reebok merger, many observers

expected Nike to strike back by acquiring longtime adidas arch-rival Puma.

Principal Subsidiaries: adidas America Inc.; adidas-Salomon No rth America Inc.; adidas-

Salomon USA, Inc.; Taylor Made Golf USA; adi das (Canada) Ltd.; Erima Sportbekleidungs GmbH;

Salomon GmbH; GEV Gru ndstücksgesellschaft Herzogenaurach mbH & Co. KG (90%); adidas

Sarragan France S.a.r.l.; adidas Espana SA (Spain); adidas Por tugal Lda; adidas Sport GmbH

(Switzerland); Salomon SA (France); adid as Austria AG; adidas Benelux B.V. (The Netherlands);

adidas Belgium N.V.; adidas Budapest Kft. (Hungary); adidas (U.K.) Ltd.; adidas (Ire land) Ltd.;

adidas Norge A/S (Norway); adidas Sverige AB (Sweden); ad idas Poland Sp.z.o.o.; adidas Ltd.

(Russia); adidas de Mexico S.A. de C.V.; adidas do Brasil Ltda. (Brazil); adidas Latin America S.A.

(Pa nama); adidas Corporation de Venezuela, S.A.; adidas Japan K.K.; adid as Hong Kong Ltd.;

adidas Singapore Pte Ltd.; adidas Asia/Pacific Ltd . (Hong Kong); adidas (Thailand) Co., Ltd.;

adidas Australia Pty Ltd. ; adidas New Zealand Pty Ltd.; adidas (South Africa) Pty Ltd.

Principal Competitors: Nike Inc.; Fila Holding S.p.A.; New Bal ance Corporation; Fortune

Brands Inc.; Brunswick Corp.; PUMA AG; Amer Sports Oyj.

Chronology

Key Dates:

1926: Dassler family builds a factory to make athletic shoes.

1936: American runner Jesse Owens, wearing Dassler shoes, wins a gold medal in the

1936 Olympic Games.

1948: The Dassler brothers part ways, and Adi Dassler starts h is own shoe company.

1949: adidas is registered as a company.

1957: adidas introduces a pioneering soccer shoe.

1978: Adi Dassler dies, and control of his company is handed t o his family.

1990: French entrepreneur Bernard Tapie buys adidas.

1993: adidas acquires Sports Inc., a U.S. company; Tapie sells adidas to a group of

European investors, and Robert Louis-Dreyfus jo ins adidas as CEO.

1995: adidas goes public.

1997: adidas acquires Salomon Worldwide and is renamed adidas- Salomon AG.

2000: The company restructures in an effort to boost its image as a "lifestyle" brand.

2001: First adidas Originals retail stores open in Berlin and Tokyo.

2002: The company acquires Arc'Teryx, a high-end equipment and apparel group based

in Vancouver; opens first adidas Originals store in United States.

2003: Cycling division Mavic-adidas Cycling is formed; company fails in attempt to

acquire golf ball manufacturer Top Flite.

2005: The company agrees to sell Salomon to Amer Sports in Fin land; announces

acquisition of Reebok International, to be completed in 2006.

Additional Details

Public Company

Incorporated: 1949

Employees: 14,254

Sales: EUR 6.48 billion (2004)

Stock Exchanges: Frankfurt

Ticker Symbol: ADDDY

NAIC: 315211 Men's and Boys' Cut and Sew Apparel Contractors; 315212 Women's,

Girls', and Infants' Cut and Sew Apparel Contractors; 315299 All Other Cut and Sew

Apparel Manufacturing; 339920 Sporting and Athletic Goods Manufacturing; 316211

Rubber and Plastics Footwear Manufacturing; 316219 Other Footwear Manufacturing

Further Reference

Bates, Tom, "Adidas Names Moore to Replace Strasser," Port land Oregonian, November

10, 1993.

Buckley, Chris, "Let the Competition Begin," New York Times, January 25, 2005, p. C6.

Carofano, Jennifer, and Eric Newman, "Adidas Advances with Reebok Plans," Footwear

News, October 17, 2005, p. 6.

Carofano, Jennifer, "A Perfect Union?" Footwear News, Sept ember 12, 2005, p. 8.

Carrel, Paul, "Adidas Shares Soar on Revamp Plan," Reuters Eng lish News

Service, January 27, 2000.

Carter, Donna, "Mutombo's Shoes Take Off Worldwide," Denver Po st, December 18,

1992, p. C1.

Colodny, Mark M., "Beaux Knows Adidas," Fortune, December 31, 1990, p. 111.

"Dreyfus Launches Adidas into Foot Race with Nike," Financial Post, September 17, 1997,

p. 13.

Fallon, James, "Adidas Sold for $370.48 Million," Footwear News, February 22, 1993, p.

39.

Feitelberg, Rosemary, "Wynne to Exit Adidas," WWD, January 13, 2000, p. 16.

Francis, Mike, "Strasser Headed for Top of Adidas? One of the Fou nders of Sports Inc.

May Become Head of adidas U.S.A.," Portland O regonian, February 3, 1993.

Harnischfeger, Uta, "Flagging Golf Brand Hits Adidas Profits," Financial Times

London, April 13, 1999, p. 28.

Holmes, Stanley, "The Machine of a New Sole," Business Week, March 14, 2005, p. 99.

"How Adidas Ran Faster," Management Today, December 1979, pp. 58-61.

"If the Shoe Fits ...," Business Week Online, August 8, 20 05.

Jung, Helen, "Adidas-Salomon AG Said Monday It Will Sell Its Salo mon Group of Ski and

Equipment Businesses for About $624 Million, " Oregonian, May 3, 2005.

Manning, Jeff, "Adidas Slows Impressive Pace As Flat Sales Expect ed for 1999," Portland

Oregonian, May 21, 1999.

"Adidas, Sports Inc. Join Forces, Strasser Heads U.S. Operation," Business Journal-

Portland, February 8, 1993, p. 1.

Mitchener, Brandon, and Amy Barrett, "Adidas and Salomon Play by New Rules in $1.4

Billion Deal," Wall Street Journal Europe, September 17, 1997, p. 1.

Mulligan, Thomas S., "Adidas to Put U.S. Market in Hands of Ex-Ni ke Whiz," Los Angeles

Times, February 5, 1993, p. D2.

Silverman, Edward R., "Foothold in Sneaker War," New York News day, July 8, 1992, p.

31.

Strasser, J.B., and Laurie Becklund, Swoosh: The Unauthorized Story of Nike and the Men

Who Played There, New York: Harcourt Br ace Jovanovich, 1991.

Wallace, Charles P., "Adidas Back in the Game," Fortune, A ugust 18, 1997, pp. 176+.

Waxman, Sharon, "Tapie: The Flashy Frenchman Behind the Adidas Ac

quisition," Washington Post, July 22, 1990, p. H1

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