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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 for Adidas-Salomon came as a result in
the loss of popularity from golf and winter sports equipment, and the integration of Salomons 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.
Haines focus on restructuring the company revolved around athletic footwear, apparel and golf equipment. In 2006,
Hainers 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 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 harmingAdidass 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 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. Porters Five Forces
Importance
Weight
0.3
On-going Branding
0.2
On time delivery
0.1
Company-owned stores
0.1
Accesiblity
0.3
Total
Reebok
Rating
Score
2.7
0
1.6
0
0.9
0
0.9
0
2.7
TaylorMade
Rating
Score
2.4
0
1.2
0
0.9
0
0.7
0
2.7
8
6
9
7
9
8.8
Rating
Score
2.1
0
1.4
0
0.9
0
0.5
0
2.7
7
7
9
0
9
7.9
7.6
Importance
Weight
0.25
Rating
Reebok
Score
Rating
TaylorMade
Score
0
Rating
9
Score
2.25
Hockey
0.25
2.25
Footwear
0.25
2.25
2.25
2.25
Apparel
0.25
2.25
2.25
2.25
Total
4.5
6.75
6.75
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 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, Nikes 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
New Balance
Puma
4
2
0
2003
2004
2005
2006
2007
2008
Year
Recommendations
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 nearimmediate 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.