By Ellen Emmerentze Jervell and Sara Germano
Adidas AG notched a big win when it signed a deal in January to
sponsor University of Miami sports. The school had been rival Nike
Inc.'s turf for decades, a perfect place to show that Adidas's new
U.S. chief was breaking its long slump in America.
But many fans of "The U" balked, starting anti-Adidas chatter on
social media. Miami's coaches seemed excited, says Mark King,
Adidas's new North America president. "But at the kid level," he
says of students, "they're like, 'Why would you sign with Adidas?'
"
That's been a recurring question about Adidas in America, and it
speaks to the hurdles facing the world's second-biggest sports
brand as it tries to regain footing in the biggest sports
market.
Mr. King's challenge, simply put: Adidas isn't cool in America,
and cool is what sells sports gear.
At stake are huge U.S. sales--and the hearts of sports fans
globally, who increasingly take their cues from American pop
culture. U.S. sports apparel and footwear wholesale revenues were
$51.6 billion in 2013, 43% of global sales, estimates industry
tracker Sporting Goods Intelligence.
"The U.S. is 40% of the world's sneaker market and 100% of the
world's sneaker culture," says Matt Powell, a
sporting-goods-industry analyst. "To win the world, you need to win
the U.S."
Adidas was dominant in the U.S. sports-shoe market in the 1970s;
its retail market share was about 7% in 2014, according to Sterne
Agee and SportScanInfo. For Mr. King's boss, Adidas Chief Executive
Herbert Hainer, the failure to reverse the German company's U.S.
market-share slide is a big blemish on his 14 largely successful
years running the brand.
Adidas's share price more than quadrupled from 2002 through
2013. In March 2014, the company extended Mr. Hainer's contract to
2017.
Then results soured. Adidas's stock fell 38% to EUR57.6 last
year, recovering to about EUR70 ($76) this week ahead of a
five-year-strategy launch next week. Adidas reported 2014 net
income of EUR490 million, down 38% from 2013, on sales of EUR14.5
billion, up 2%.
An acute problem last year was turmoil in Russia, a big Adidas
market. But a deeper woe is the U.S., where sales have fallen since
2012. Adidas reported 2014 North American sales of EUR2.97 billion,
down 7% from 2013. Nike posted $12.3 billion in fiscal 2014 North
America sales, up 10% from 2013. Some investors are questioning Mr.
Hainer's leadership.
Off-mark in America
The 60-year-old Mr. Hainer, known for his analytical approach,
has lifted Adidas's market share over much of the globe. Much of
his success traces to a centralized strategy of dominating soccer
markets with the brand.
But his approach hasn't fixed a problem that predated his
ascension: Adidas has often been off-mark among American shoppers,
whose sports-gear tastes can shift unpredictably and whose spending
is swayed by sports other than soccer.
U.S.-based Nike long ago outpaced Adidas in American sales and
is gaining in Western Europe, Adidas's home turf. Last year, Adidas
fell to No. 3 in the U.S. behind Under Armour Inc. in retail sales
of sports apparel and footwear, according to Sterne Agee and
SportScanInfo.
"When Herbert took over, America was a problem," says Christophe
Bezu, former head of Adidas Asia Pacific, who left in 2011 after
almost 24 years with the company. "America has always been a
problem, and despite serious efforts nobody has been able to fix
it."
Mr. Hainer declines to be interviewed. In a financial
presentation this month, he said Adidas "underperformed in North
America and we are all disappointed."
Mr. Hainer wants to reboot in the U.S. with Mr. King, an
Adidas-group veteran who took over North American operations last
June. Mr. King, an American, says headquarters in Herzogenaurach,
Germany, has given him more leeway than to predecessors to craft a
U.S.-specific strategy.
America is "a very different mind-set from Germany," Mr. King
says. "That's really the epiphany."
Branding and product creation for most products sold in America
will originate in the U.S. for the first time, Mr. King says. Last
year, he announced plans to hire three Nike shoe designers for a
new Brooklyn, N.Y., studio--Adidas's first American design outpost
outside U.S. headquarters in Portland, Ore.
Mr. King in December signed a sponsorship with Arizona State
University, a Nike school. He persuaded headquarters to let him
sponsor up to 500 National Football League and Major League
Baseball players over the next few years, up from the few dozen
Adidas sponsors today. "I know we're a soccer brand globally," he
says, "but in the U.S. we have to be about U.S. sport."
Some retailers are skeptical Adidas has changed its stripes.
Christine Noh, who runs Nohble, a New York area chain of
street-wear stores, says she has cut back Adidas allotments. Its
representatives aren't as attentive as rivals to her input on what
shoes will resonate with consumers, she says, and Adidas tends to
flood the market when it has a hit, depressing prices.
"If your upper management is in Germany, and they don't know
Flatbush from Harlem from Virginia," she says, "it's hard to have
that information percolate back up to the top and have that action
executed."
The Adidas spokeswoman says: "We listen to retailers and
consumers every day and make our business decisions based on that
collective insight." She says Adidas has recently reorganized its
sales teams to have dedicated reps for its Adidas and Reebok
brands.
A picture of upper management's U.S. missteps emerges from
interviews with more than 20 current and former Adidas
executives.
Founded by German athlete and shoemaker Adolf Dassler in 1949,
Adidas turned sneakers into mainstream-fashion items. Its
three-striped shoes were everywhere in America in the 1970s.
Industry veteran John Horan, Sporting Goods Intelligence's
publisher, estimates Adidas had the majority U.S. sports-footwear
market share at the time.
Michael Jordan
miss
In 1984, Adidas made a misstep that presaged others. A
University of North Carolina basketball star named Michael Jordan
wanted a sponsorship deal with Adidas when he went professional,
say people familiar with the matter.
Adidas distributors wanted to sign Mr. Jordan, says someone who
was an Adidas distributor then. But executives in Germany decided
shoppers would favor taller players and wanted to sponsor centers,
the person says, adding: "We kept saying, 'no--no one can relate to
those guys. Who can associate with a seven-foot-tall guy?' "
Adidas signed centers of the era, including Kareem
Abdul-Jabbar--it still sells sneakers named for him. Mr. Jordan in
1984 signed with Nike, which built his name into a blockbuster
basketball business. Mr. Jordan and Adidas decline to comment.
Tensions between Adidas's people on the ground in America and in
Herzogenaurach would continue for decades, say company veterans.
"The Americans always asked to be allowed to do what they wanted,"
says Mr. Bezu, the former Adidas executive, while headquarters was
"maybe a bit too dogmatic."
An Adidas spokeswoman says each U.S. leader "had a long and
successful track record."
Adidas got a pop-culture boost in 1986 when hip-hop group
Run-DMC released 'My Adidas,' a song lauding the rap world's
favorite shoes. But the boost diverted Adidas from its sports
markets, hurting business when the trend waned, say former
executives and distributors.
The spokeswoman says Adidas is "first and foremost" a sports
brand but says its fusion of sports and lifestyle is a unique
attribute.
By the 1990s, Nike was gaining as its swoosh adorned a broad
range of stars, from Olympian Carl Lewis to tennis champ Andre
Agassi. It began designing an annual signature shoe for Mr. Jordan,
driving consumers to buy again and again.
When Mr. Hainer ascended in 2001, Adidas's market share was
rising globally but falling in the U.S. He became known as a
disciplined CEO who focused on spreadsheets, several Adidas
executives say.
Erich Joachimsthaler, a business consultant who has worked with
Adidas, says Mr. Hainer's analytical, long-term view has helped
walk "a fine line between stability and responding to the latest
fashion trends." Running almost 54,000 employees in 160 countries,
"you need strategic planning and an approach like Hainer's."
Some former Adidas executives say that analytical style could
sometimes keep German headquarters out of touch with U.S.
consumers.
During Mr. Hainer's tenure, Adidas had four U.S. bosses before
Mr. King. In 2005, Adidas's U.S. retail market share had fallen to
about 10% in sports shoes, says industry researcher
SportsOneSource, versus Nike's roughly 35% and Reebok's 8%.
That year, Mr. Hainer agreed to buy Reebok for roughly $3.8
billion. In 2006, he signed a deal, estimated at $400 million, to
supply the National Basketball Association's jerseys--rights
previously belonging to Reebok--through 2017.
Mr. Hainer boasted Adidas was gaining on Nike, telling a German
newspaper that year: "They feel us breathing down their back."
The Reebok deal surprised top staff in America, say former U.S.
executives. "From the moment we started looking at the numbers, we
knew it was a screwed-up business and that we'd paid too much,"
says a former Adidas executive involved in handling the
aftermath.
Efforts to fix Reebok diverted resources from the Adidas brand,
say several former executives.
The Adidas spokeswoman says that "like all deals of this size,
only a small amount of people worked on the preparation," adding
that Reebok "was not at its top when we acquired it, but we
believed and firmly believe in the long-term growth potential of
the brand."
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Having the NBA logo deal didn't stop the long-term market-share
slide. American shoppers tend to choose shoes based on what stars
wear, not on what a team wears. Adidas did sign some stars, such as
Kobe Bryant. But Nike was particularly adept at landing top
current-talent endorsements and had a deep vault of signature shoes
for former stars it could reintroduce. Nike now has more than 90%
of the U.S. basketball-shoe retail market, SportsOneSource
says.
Hainer's five-year plan
In 2010, Mr. Hainer unveiled a five-year plan to make Adidas
"the leading sports brand in the world," projecting sales growth of
more than 45%. One target was "underpenetrated markets such as the
United States."
The plan called for winning U.S. share by converting Reebok--a
sports brand--into a fitness brand. Adidas also set aggressive
targets in American basketball shoes, says Robert "Cape" Capener,
who ran Adidas's U.S. basketball division then. His division hit
its goals in the first few years, but momentum slowed and
executives lost enthusiasm, he says. He says Adidas has "very
strong assets, very strong athletes, very smart people" but needs
"to fix what's happening in the U.S."
The Adidas spokeswoman says it hit North America targets from
2010 through 2012.
Meanwhile, the U.S. market was shifting toward "athleisure," in
which workout clothes became everyday wear. Companies like
Lululemon Athletica Inc. made pricey yoga pants desirable, and
niche sportswear competitors began filling retailers' racks.
And Adidas faced new competition in Skechers USA Inc. , which
has became the No. 4 sports-footwear brand, according to Sterne
Agee and SportScanInfo.
Last year, Patrik Nilsson, then Adidas's North America chief,
invited CEOs from three U.S. sports retailers to Germany to convey
shoppers' tastes, say people familiar with the trip. Among their
messages: Make more product variations, more quickly. Adidas's
product cycle--from drawing board to market--is about 18
months.
Ken Hicks, who retired as Foot Locker Inc.'s CEO in December and
was on the trip, says Adidas managers "were successful and they
took their eye off the ball a bit and didn't keep the next
generation coming."
The Adidas spokeswoman says Mr. Hainer "has a longstanding
personal relationship with all our major retail partners."
Adidas has had notable successes like its ZX Flux and Boost
shoes and in signing young guards like Portland Trail Blazers star
Damian Lillard. Reebok is showing signs of growth.
Adidas this week said it won't renew its NBA contract and will
instead focus on youth basketball, developing new products and
doubling its NBA-player roster.
Mr. King says Adidas is working to shorten product cycles to no
more than six months. This year, it introduced a much-anticipated
sneaker, the Yeezy Boost, designed with rapper Kanye West. The
initial run sold out.
Adidas plans to bring more American flavor to products, Mr. King
says. "We have so many assets that nobody knows about, and if we
could tell those stories in a much better, U.S.-centric way, this
brand in a very short time could definitely change its cool
factor."
Write to Ellen Emmerentze Jervell at ellen.jervell@wsj.com and
Sara Germano at sara.germano@wsj.com
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