primary question for adidas does adidas's corporate strategy, including recent acquisitions and...
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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?
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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?
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What enabled Adidas to be the Market Leader in the past?
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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.
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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.
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How did Adidas lose the lead to Nike?
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What has the Adidas brand represented in the past and what
does it represent today?
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How has Adidas's corporate strategy changed over time,
specifically before and after the 2005-2006 restructuring?
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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 Evolving Strategy
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Adidas’ Current Strategy
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Have Adidas' acquisitions helped improve their position against
the competition?
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Salomon Acquisition: Was it Successful?
Product Line Before Product Line After
Athletic Shoes Athletic Shoes
Athletic Apparel Athletic Apparel
Ski Equipment
Golf Clubs
Bicycle equipment
Winter Sports Apparel
• Analysis:Paid 1.5bn to diversify product line. Surpassed Reebok world’s 2nd largest sporting goods company, however…
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0
10
20
30
40
50
60
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Year
Stoc
k Pr
ice
(in e
uros
)
Adidas Stock Price
Adidas’s Stock Price
• Stock price fell soon after acquisition in 1998, Salomon divested except for Taylor-Made Golf line. Adidas overpaid for acquisition.
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Adidas after Salomon was divestedProduct Line Before
Product Line After
Product Line After Divestiture
Athletic Shoes Athletic Shoes Athletic Shoes
Athletic Apparel Athletic Apparel Athletic Apparel
Ski Equipment Golf Clubs*
Golf Clubs
Bicycle equipmentWinter Sports Apparel
• Net addition was TaylorMade golf
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SWOT Analysis for AdidasStrengths
•Brand reputation / recognition•Diverse product portfolio•Culture driven by innovation / R&D•Sponsorships in basketball, soccer, and golf•Supply chain management•Strong international presence
Weaknesses•Wasting resources trying to overtake Nike in the US•Lack of success with Salomon acquisition•Lag behind Nike in marketing•Corporate strategy to overtake Nike has caused Adidas to make poor decisions
Opportunities•Growth rates for footwear and apparel
•Central Asia (13%), •Eastern Europe (20%)•China (15%)
Threats•Nike’s reputation and presence; a leader in marketing and advertising•Sponsorships and endorsements may go wrong (Kobe Bryant)•Controlling subcontractor quality – negative effects can be devastating
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SWOT Analysis for ReebokStrengths
•Strong in hockey, football and baseball•Loyal female customer base•Past success in marketing•Strong stable of professional athlete endorsements
Weaknesses•Poor reputation for quality and innovation•Greg Norman golf apparel brand•Limited distribution channels
Opportunities• Encouraging sales growth in Latin America and Asia•Economies of scale with Adidas supply chain and distribution
Threats• Possibility of cannibalization if sold in same place as Adidas products• Still third in market share in its strongest market, North America
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Reebok Acquistion Adidas Reebok
Football
Baseball
Hockey
Soccer
Running
Basketball
•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
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What role do developing countries have in Adidas's future
success and how is Adidas positioned in those countries?
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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
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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.
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Regional Footwear/Apparel Markets
Region Size Market Growth
Rate
Adidas Sales Adidas Sales Growth
Adidas Position
North America
$42.5 billion 3% $2.9 billion 5% #2 behind Nike
Europe N/A 2% (20% Eastern Europe)
$4.3 billion 8%, mainly in Russia
#1
Asia 3.2 billion people
13% (South and Central) 15% (China)
$2.2 billion 17% #1
Latin America
N/A N/A $657 million 39% #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.
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Should Adidas be concerned about losing North American
market share to Nike?
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Retail Store Strategy2006 2007
Adidas Retail Locations
875 1003
Reebok Retail Locations
283 430
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Adidas AG Geographic Revenue Performance
2004 2005 2006 2007€ 0
€ 500
€ 1,000
€ 1,500
€ 2,000
€ 2,500
€ 3,000
€ 3,500
€ 4,000
€ 4,500
€ 5,000
3.2%
31.5%
5.0%
17.6%
106.4%
-9.4%
27.8%
32.6%11.6%
1229.2%56.4% 31.7%
EuropeNorth AmericaAsiaLatin America
Key Growth Potential:Europe – continue focus on soccer (including endorsements) and build brand loyaltyAsia/Latin America – increase distribution network and brand awareness - All three regions averaging double-digit growth rates
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TaylorMade Advantages
Shift to International Markets
Strength in Metalwoods
Strong Apparel Presence
Revenues from Asia:1999 – 13% of total2007 – 35% of total
Decreasing reliance on U.S. Market:1999 – 69% of total2007 – 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
Over 70 touring pros lift apparel presence.
Conclusion – TaylorMade should hold U.S. market share in U.S. given the brand’s strenghts, however, TM is only 8% of Adidas AG global revenues. TM cannot help Adidas overtake Nike in U.S. market
Adidas69%
Reebok23%
TM8%
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Adidas Global Revenue Sources (2007)
42.8%
22.1%
6.4%
EuropeNorth AmericaAsiaLatin America
N.A. market 28.7% of revenues
Remaining regions = 71.3% of revenues
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.
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Reebok Global Revenue Sources (2004)
21.4%
12.5%
54.7%
11.4%
EuropeUnited KingdomUnited StatesOther Countries
U.S. market 54.7% of 2004 revenuesConclusion – Use Adidas’s
control and production efficiencies to enhance Reebok’s distribution network in U.S. to increase U.S. revenues.
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Is there another corporate strategy Adidas should be
pursuing?
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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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Slides that follow still need to be placed or cut.
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External Environment: PEST
Category Issue Threats/Opportunities Ranking (1-5)
PoliticalOperating multi-nationally – awareness of cultures, laws, image, environment, regulations
Threat- mistakes can be costly
2
EconomicCurrent state of economy – customers may be less willing to pay for higher priced items
Threat – high quality means higher prices
2
Extreme forces in competitor pricing.
Opportunity – supply chain efficiencies and multiple distribution
channels
4
SocialKeeping up with the wants of the younger generation
Opportunity – Reebok’s strength in
this area4
Technological
Product innovation is a key driver in the industry
Opportunity – core competency for
adidas4
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Porter’s 5 Forces
Threat of Substitutes
Low Bargaining Power of Suppliers
Low
Bargaining Power of BuyersHigh
Threat of New Entrants
Low
Intensity of Competition
High
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Porter’s Five Forces
Factor Description Impact
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
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How has Adidas evolved since it was founded?
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Timeline of Adidas• Fouded 1920 by Adi Dassler – wanted to design shoes for athletes in
soccer, T&F, & tennis.• The Dassler brothers (Rudi & Adi) made their first major innovation in
athletic shoes, integrating studs & spikes in track & field shoes.
• Innovators in Marketing – gave away shoes to German athletes competing in Olympic games. By 1936 most athletes would compete only in Dassler shoes.
• Bitter family feud, company dissolved. Rudi established Puma. With his departure Adi renamed company Adidas & registered the trademark 3rd strip to Adidas shoes.
• Adi expanded spikes concept in track shoes to soccer shoes. Partial credit was given to the soccer shoes for Germany’s World Cup Championship that year.
1920-1925
1928-1936
1948-1949
1954
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Timeline of Adidas• Adidas is the clear favorite among athletes – 75% of T&F
athletes wear them in Olympics. ’63 started producing soccer balls, ’67 athletic apparel
• Adidas became leader in consumer jogging shoes in the US. T-shirts and apparel bearing the 3 stripes became popular among teens.
• Adi Dassler dies, Adidas remains worldwide leader in athletic footwear but they are losing market share fast to Nike in US. Market share loss continues through the 80’s and mid 90’s.
• Through cost cutting, new model launches, and endorsement contracts with popular athletes Adidas increased sales by 75% over prior year in US. Becoming 3rd largest athletic footware company in US – trailing only Nike and Reebok.
1960-1967
1970’s
1978
1994
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Timeline of Adidas• Acquisition of Salomon SA – diversified beyond shoes &
apperal to ski, golf, bicycle, & winter sports.
• Stock price takes a hit possibly due to Salomon acquisition. Adidas mgt divested all of Salomon’s winter sports & bicycle equipment.
• Acquistion of Reebok, included Rockport footware, Greg Norman apparel, & CCM hockey equipment.
1998
1998-2005
2006