adidas-Salomon AG

FOUNDED: 1948

Contact Information:

HEADQUARTERS: 9605 SW Nimbus Ave.
Beaverton, OR 97008
PHONE: (503)972-2300
FAX: (503)797-4935
TOLL FREE: (800)677-6638
URL: http://www.adidas.com

OVERVIEW

adidas' main markets are in athletic footwear and apparel, but the company is developing plans to assimilate its newly acquired sports equipment lines. It is the world leader in soccer accessories and has a strong base in tennis shoes as well. A focus on sports, rather than on fashion, has kept adidas from being subject to shifts in popular styles and tastes. CEO Wynne credits adidas's longevity, rather than trends, for the company's success. Teens make up a substantial portion of the company's customers, and women purchase a significant portion of the men's apparel. One of adidas's goals is to make its products for children "multi-functional" so that they can be used in a variety of sports.

COMPANY FINANCES

Recent years have seen a dramatic turnaround for adidas's financial picture. By the early 1990s adidas's market share had been eclipsed by fierce competition, and the company was losing about $100 million per year. Partly as a result of new, energetic management, adidas has redeemed itself financially and stands ready to overtake Reebok, which has been experiencing difficulties in recent years. adidas has been reclaiming the market share it had lost to such competitors as L.A. Gear and Fila. A substantial increase in sales of apparel has contributed to the company's good fortune. adidas America exceeded __BODY__ billion in North American sales in 1997, of which about 95 percent came from the United States.

ANALYSTS' OPINIONS

The parent company's 1995 initial public offering raised almost $2 billion. The share price has risen steadily ever since, from an opening price of $42.50. In 1997 its increase was 77 percent. For market capitalization and trading volume, adidas rates among the 30 largest publicly traded companies in Germany. The share price now reflects the merger with Salomon.

HISTORY

adidas-Salomon AG traces its beginnings to the workshop of a German cobbler named Adolph ("Adi") Dassler (hence the company's name, a blend of his first and last names). Dassler's rise to become a global business player came from humble origins. He began with an entrepreneurial spirit in a depressed economy, cutting his teeth on the business of crafting homemade slippers made from surplus World War I military bags. In 1920 he branched out to make training shoes, and eventually he diversified his work to include footwear for tennis, running, and soccer. In order to maximize safety and durability, Dassler's designs derived from his own experience as an athlete and also from the advice of contemporary sports professionals. adidas continues to engineer its products in consultation with the very athletes who will be wearing them. To the present day, adidas regards itself as centrally a footwear company.

Persistence and a scientific approach helped Dassler promote his products as offering an unprecedented level of excellence. In his constant research to improve his wares, Dassler eventually began to work with national-team soccer players and Olympic contenders. In fact, the American Jesse Owens boxed in Dassler-made shoes in the 1936 Olympic Games in Berlin and ultimately defeated Dassler's own countryman, Max Schmelling. Says adidas America's director of sports marketing, Robert Erb, of the innovative founder and namesake in Brandweek, "He wasn't a business guru or a marketing genius. He was a guy, a craftsman, who was in love with sports and made decent product." Dassler's first decades in the sporting world involved such products as soccer balls, tennis shoes, handball boots, and running spikes.

In 1948 Dassler formed adidas, while his brother started the rival company Puma. In the same year, Dassler's enterprise introduced the world's first indoor track shoe. The following year saw the inception of the company's familiar three-stripe logo, which grew out of a functional role in adding additional support to the sides of shoes. (The ubiquitous "trefoil" trademark did not appear until 1972.) Come the 1952 Olympic Games in Helsinki, adidas shoes appeared on more competitors' feet than any other German brand, and by 1958 a majority of World Cup soccer players sported them as well. Constant product development yielded new ergonomic features, such as padding to protect the Achilles tendon, and the eventual Torsion™ system, which promotes flexibility with natural movement. In addition to footwear, adidas began to produce sports apparel and accessories, and can be credited with designing both the first track suit and the sports bag. Clothing continues to be a substantial source of the company's revenues. Dassler was named to the American Sporting Goods Hall of Fame in 1978, the year of his death.

adidas America is the result of a 1993 merger of adidas USA with a U.S. sports-marketing firm called Sports, Inc., which had been founded by two former executives from Nike. In an effort to strengthen the ties between operations in the United States and Europe, adidas AG, the parent company, acquired Sports, Inc. after a collaboration on the development of the adidas Equipment product line. The project involved athlete input and focused on the functional aspects of use. The result breathed new life into the adidas name and jump-started a return to the company's past prosperity. One of the founders of Sports, Inc. was Peter Moore, who subsequently became adidas America's Worldwide Creative Director.

STRATEGY

Today, adidas truly is a sporting-goods company in a broad sense. In 1997 the company acquired the French sporting-equipment concern Salomon (and accordingly, a name change for the parent company), thus creating the world's second-largest company of its kind. Prior to 1997 adidas had enjoyed relatively little of the high-tech equipment market, but since then it has entered three new businesses: golf clubs, winter sports equipment, and bicycle parts. The two firms had had almost no overlap in their product scopes, enabling them to spread their total risk over more fields of production. An expanded capital base will allow for expanded research and development. The new, larger adidas-Salomon AG expects a seasonal balance among overall sales as well as an increase in market penetration. It has its sights on doubling its 1997 U.S. market share to 12 percent by the year 2000.

In order to realize its stated mission of being "the best sports brand in the world," adidas is focusing heavily on visibility and brand-name recognition. By capitalizing on its stated brand strategy, "to be associated with any activity that is physical and competitive," the company aims to be identified with champions in a range of athletics. Current tactics include the forging of endorsement alliances at both the individual and team levels in order to promote an image of authenticity. adidas wants to be allied with teams and athletes who are respected for their superiority, rather than merely for their style or flair. For example, in 1997 adidas entered a $90-million sponsorship agreement with the New York Yankees. CEO Wynne explained in Sporting Goods Business, "In the case of the Yankees, we looked at a team that had some of the same characteristics that we do as a brand." The company is confident in the potential of these partnerships to increase exposure, and does not rely on advertising saturation. adidas has made similar deals with the Women's National Basketball Association and with various colleges such as Northwestern University, whose 380 male and female athletes it outfits with uniforms and practice apparel. It is also a sponsor and licensee of World Cup France '98.

INFLUENCES

adidas has several internal factors working in its favor. It has enjoyed improvements in efficiency thanks to its distribution center in Spartanburg, South Carolina. The company uses its own Portland, Oregon, store to try out merchandising initiatives and to study the results. Company representatives monitor feedback from the public. adidas has asked retailers to compile consumer profiles of their female shoppers for market research. The retailers comply by using sales records, exit polls, and questionnaires.

CURRENT TRENDS

From the start, adidas has always involved in-depth research in the design of new footwear. The company continues its methods with cutting-edge technology. Most research takes place at the company's Global Technology Center in Scheinfeld, Germany, which it calls "the ultimate sports manufacturing think tank." A new "Feet You Wear"™ technology was developed at the company's design center in Portland. This shoe concept provides the foot with better support by carefully following its natural shape, thus mimicking the freedom and flexibility of being barefoot. The company is optimistic about applying the concept to the soccer market, which it has long dominated. adidas also has created a high-density foam it calls adiprene™, which absorbs shock at the foot's points of impact, to preserve both the shoe and the foot in it. A "Point of Deflection System"™ uses hollow chambers in the sole to cushion impact. Each of these technologies is calculated to improve athletic performance, and thus, adidas hopes, contribute to the company's business growth.

PRODUCTS

adidas's primary products include shoes and apparel for soccer, running, tennis, basketball, and with the recent merger with Salomon, golf, cycling, and winter-sports equipment. adidas makes shoes for a wide range of sports, but the core of its production lies in the tennis, running, and basketball shoes featuring the Feet You Wear™ technology, designed to work with the foot's natural movement. In 1994 adidas resumed its presence in the women's apparel market, which had been a lagging area for the company in the 1980s. In 1998 adidas will roll out its first performance basketball footwear for women, and it has plans for additional women's softball, volleyball, and soccer products. The breakdown of product types in the United States is approximately 55 percent footwear and 45 percent apparel, but internationally the two are just about equal.

CORPORATE CITIZENSHIP

adidas's corporate mission statement professes a commitment to "social and environmental responsibility for the world in which we live, for the rights of all individuals and for the laws and customs of the countries in which we operate." The company sponsors an annual basketball camp, which allows promising high-school players to demonstrate their skills to college coaches. But the company is careful not to exude a political agenda. "We believe in celebrating sports. We don't try to relay social issues or lifestyle issues," explained Wynne in WWD. "We have our roots [in sports], and we plan to stay there. We know what we are, consumers know what we are, and we don't try to be anything else."

GLOBAL PRESENCE

adidas-Salomon, the parent company, has a major global presence. Its world market share for sporting goods has risen to 6 percent, as 1997s net sales (aside from Salomon) were up a whopping 42 percent. European sales grew by about 31 percent to contribute most heavily to the year's success. The Pacific Rim also represents several strong markets for adidas products, despite the recent currency crisis. International sports alliances include an agreement to provide footwear and practicewear to the eight teams of the Canadian Football League (CFL), and similar support for the NFL's Europe League. Other international involvement, though on American soil, will include sponsorship of the 1999 Women's World Cup Soccer tournament and the 1999 Women's Global Challenge sports invitational.

EMPLOYMENT

adidas America had approximately 400 employees in 1998, up from 120 in recent years. At the end of 1997, adidas-Salomon AG employed approximately 8,000. The work atmosphere at the Oregon headquarters is described as open, cooperative, and a departure from the more traditional corporate setting. The management style encourages communication among people of all levels.

SOURCES OF INFORMATION

Bibliography

"adidas." Hoover's Online, April 1998. Available at http://www. hoover's.com.

"adidas America, an Overview." adidas America. Beaverton, OR: n.d.

adidas Annual Report 1997. Herzogenaurach, Germany: adidas AG, 1997.

"Adidas Details International Plans with the NFL; First Sponsor to Support NFL/CFL Alliance." BW SportsWire, 16 April 1998.

adidas Home Page. April 1998. Available at http://www.adidas.com.

"adidas 1997." Business Wire, 6 March 1998.

"Adidas Turns Purple." WWD, 8 May 1997.

Bhonslay, Marianne. "Stars & Stripes." Sporting Goods Business, 23 January 1998.

Brand Mission/Vision. Herzogenaurach, Germany: adidas AG, n.d.

Feitelberg, Rosemary. "Adidas Trains for the Long Run." WWD, 22 January 1998.

Lefton, Terry. "Robert Erb: Director of Sports Marketing, Adidas America (The Next Generation)." Brandweek, 3 November 1997.

Levine, Joshua. "Adidas Flies Again." Forbes, 25 March 1996.

Lowry, Tom, "Sports Shoemaker Goes for Rebound." USA Today, 21 October 1996.

Lustigman, Alyssa. "Interview with Adidas America CEO Rob Strasser (The SGB Interview)." Sporting Goods Business, September 1993.

Million Dollar Directory, Series 1998. Bethlehem, PA: Dun & Bradstreet, 1998.

Pesky, Greg. "Earning Its Stripes." Sporting Goods Business, September 1995.

Tedeschi, Mark. "The SGB Interview." Sporting Goods Business, 2 June 1997.

Wallace, Charles P. "Adidas: Back in the Game, the Venerable German Shoemaker Has Pulled Its Financial Socks Up. Now It's Scoring Some Points in the U.S. Market." Fortune, 18 August 1997.

For an annual report:

telephone: (800)677-6638

For additional industry research:

Investigate companies by their Standard Industrial Classification Codes, also known as SICs. adidas' primary SICs are:

3021 Rubber and Plastics Footwear

3949 Sporting and Athletic Goods, NEC

5136 Men's/Boy's Clothing

5137 Women/Children's Clothing

5139 Footwear