didadidasStrategic AnalysisStrategic Analysis

2011 ‐ 2016David BajakMET AD 711

Leadership and StrategyDecember 18, 2010

What business are we in?What business are we in?

l• Currently– Athletic Performance Enhancing Footwear, Apparel & Equipment (80%)

– Athletic Fashion Styled Footwear, Apparel & Equipment (20%) 

• Recommend– Design– MarketingMarketing– Retail Distribution

Competitive Forces Affecting adidasCompetitive Forces Affecting adidas

• Five Forces Model of Competition• Five‐Forces Model of Competition– High Rivalry among Competitors

• Intense rivalry between adidas (21%) & Nike (36%) for market share• Powerful competitive strategies used by market leadersPowerful competitive strategies used by market leaders

– Low Threat of New Entrants• Strong brand preferences and customer loyalty• Market leaders benefit from significant economies of scale

Diffi lt f t t t t bli h di t ib t / t il t k• Difficult for new entrants to establish distributor/retailer networks– High Threat of Substitute Products

• Substitutes are readily available and attractively priced• Low Switching Costsg

– Low Supplier Power• Materials supplied are commodities• Manufacturing is outsourced to low cost producers

Hi h B P– High Buyer Power• Buyers benefit from intense rivalry for market share• Low switching costs for buyers• Buyers have discretion in purchasing products• Buyers are well informed on purchased products due to intense marketing

Our Impact from GlobalizationOur Impact from Globalization

• Heavy competition continues to develop in emerging markets between adidas and Nike g gfor worldwide market leadership

• Production activities are migrating to• Production activities are migrating to countries where costs are lowest

• Growing global consumer demand• Reduced trade barriers and government• Reduced trade barriers and government cooperation for production

Forces Driving Change in IndustryForces Driving Change in IndustryCh i l t i d t th t i i k t• Changes in long term industry growth rates in emerging markets due to high demand

• Increasing globalization as a result of intense rivalry• Aggressive product innovation averaging one major product 

innovation annually in each product category of each brand• Reduced costs and increased efficiency achieved by acquisition of y y q

diversified companies• Consumers demand differentiation in products as well as 

customization• Emerging markets in developing nations undergoing changing 

societal concerns, attitudes, and lifestyles• New internet applications allow consumers ability for customizationNew internet applications allow consumers ability for customization 

in online stores• Successful marketing, technological and product innovation

I t f d i i f i i d t fit bilit• Impact of driving forces increase industry profitability

adidas Strategic Group Mapadidas Strategic Group MapHigh

 

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Low Models HighLo

adidas Key Success Factorsadidas Key Success Factors

• A well‐known and well‐respected brand name• Clever advertisingClever advertising• Strong direct sales capabilities via the internet 

d d il land company‐owned retail outlets, etc• Ability to secure favorable display space on y p y pretailer shelvesE ti i t t h l• Expertise in sports technology

• Innovate or die

adidas SWOT Analysisadidas SWOT Analysis• Strengths• Strengths

– Leveraging strong brand portfolio to establish a robust retail footprint– Record levels of cash from operations and significantly improved financial position amidst a 

weak economic backdropS f d i b h f 2010 FIFA W ld C– Strong performance driven by the success of 2010 FIFA World Cup

– Wide geographical footprint with increasing focus on emerging markets• Weaknesses

– Weak performance in China impacted by excess inventoriesp p y– Dependence on third party manufacturing

• Opportunities– Reorganization aimed at improving efficiency

S hi t– Sponsorship agreements– Reebok’s revival

• Threats– Counterfeit productsp– Global sporting goods industry to expand only moderately– Foreign exchange fluctuations

adidas SWOT Analysisadidas SWOT Analysis• Strengths• Strengths

– adidas is the world's second largest maker of athletic footwear, apparel and equipment by sales with revenues of $15,333.30 million

– adidas group’s leading market position is built on its portfolio of strong brands, which enhances adidas’ market position and boosts its topline:enhances adidas  market position and boosts its topline:

• adidas• Reebok • TaylorMade• RockportRockport• Ashworth

– adidas’ portion of own retail has grown substantially giving adidas more brand control • adidas operates over 2,200 stores for the adidas and Reebok brands worldwide• adidas own‐retail business includes:

– e‐commerce, – mono‐branded stores run by retail partners, – shop‐in‐shops established with key accounts, – joint ventures with retail partners, – co‐branded stores with sports organizations or other brands

– Large geographical foot print in diverse markets enables adidas to expand its markets to high growth economies

adidas SWOT Analysisadidas SWOT Analysis• Weaknesses• Weaknesses

– China negatively impacted by clearance of high excess inventories following the Beijing 2008 Olympic Games which subdued consumer demand in 2009

– adidas outsources 95% of production to independent third‐party suppliers inadidas outsources 95% of production to independent third party suppliers in Asia, including 32% from China

– Merchandise procured from foreign manufacturers is a weakness because it gives adidas less control over the product quality. 

f h d• Concerns over unsafe Chinese consumer products• The Consumer Product Safety Commission (CPSC) has issued alerts and announced 

voluntary recalls by US companies on numerous products made in China– Vendor and manufacturer failures to achieve and maintain high manufacturing 

standards could result in manufacturing errors resulting in:• product recalls or withdrawals, • delays or interruptions of production, • cost overrunscost overruns 

– Reliance on third party vendors and manufacturers makes adidas prone to top‐line risks from external parties

adidas SWOT Analysisadidas SWOT Analysis• Opportunities• Opportunities

– adidas has sponsorship agreements for major sports events across the globe• Japan Football Association until March 2015 • Australian Olympic Committee until 2016Australian Olympic Committee until 2016• Secured sponsorship rights to the 2014 FIFA World Cup

– Extended its partnership with: • UEFA for the UEFA EURO 2012 

UEFA EURO 2016 f tb ll h i hi• UEFA EURO 2016 football championships• UEFA Champions League

– Signed an 11‐year global merchandising partnership agreement  with the NBA • Makes adidas the official uniform and apparel provider for the NBA, WNBA and the NBA pp p ,

Development League– Official Sportswear Partner to 2012 Olympics in London– Sponsorship of major sports events helps the company strengthen its 

profitability and enhance its brand recall among consumersprofitability and enhance its brand recall among consumers

adidas SWOT Analysisadidas SWOT Analysis

• Threats– Widespread counterfeits deprive revenues for the p pcompany and can dilute the adidas brand image

– The market for sports apparel and footwear hasThe market for sports apparel and footwear has declined in 2009

• Athletic footwear declined 3 2% in 2008 & 1 4% in 2009• Athletic footwear declined 3.2% in 2008 & 1.4% in 2009 • Decline due to 3% decline in men's footwear segment• Active apparel declined by 4%• Active apparel declined by 4%• Sports use apparel decreased by 5.5% in 2009.

adidas Fiscal Situation vs Competitionadidas Fiscal Situation vs. Competition

adidas Fiscal Situation vs Competitionadidas Fiscal Situation vs. Competition

adidas Strength vs Competitionadidas Strength vs. CompetitionWeightWeight

adidas AG NIKE INC PUMA AG K‐SWISS INC TIMBERLAND CO

Relative Market Share 0.2 7 1.4 10 2 3 0.6 1 0.2 2 0.4

Costs Relative to Competitors' 0.1 4 0.4 1 0.1 6 0.6 10 1 9 0.9

Ability to benefit from strategic fits with sister businesses 0.15 10 1.5 8 1.2 3 0.45 1 0.15 3 0.45

Brand image and reputation 0 15 8 1 2 10 1 5 7 1 05 5 0 75 9 1 35Brand image and reputation 0.15 8 1.2 10 1.5 7 1.05 5 0.75 9 1.35

Competitively Valuable Capabilities 0.3 10 3 10 3 4 1.2 3 0.9 6 1.8

Profitability relative to competitors 0.1 6 0.6 10 1 3 0.3 1 0.1 2 0.2y p

Sum of the assigned weights 1.00 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐

Overall Weighted Competitive‐

8.1 8.8 4.2 3.1 5.1

Focusing on the Way ForwardFocusing on the Way Forward

• Identify sports trends early– Yoga trend in Europe and Americasg p– Endorsements and sponsorship of Cricket in India

adidas Generic Strategyadidas Generic Strategy• Current Broad Differentiation• Current: Broad Differentiation

– Strategic Target• A broad cross‐section of the market

– Basis of Competitive AdvantageBasis of Competitive Advantage• Ability to offer buyers something attractively different from competitors

– Product Line• Many product variations, wide selection• Emphasis on differentiating features

– Production Emphasis• Build in whatever differentiating features buyers are willing to pay for• Strive for product superiorityStrive for product superiority

– Marketing Emphasis• Tout differentiating features

– Keys to Sustaining the Strategy• Stress constant innovation to stay ahead of imitative competitors• Concentrate on a few key differentiating features

• Recommend: Broad Differentiation

Upcoming ChallengesUpcoming Challenges

• Biggest Challenge– Emerging market competition with Nikeg g p– Competing with Nike in a US marketing driven cultureculture

– Ability to acquire emerging market endorcements and sponsorships in an intensely competitiveand sponsorships in an intensely competitive environment

Upcoming OpportunitiesUpcoming OpportunitiesBi t O t it• Biggest Opportunity– Acquisition of companies adding product differentiation to adidas offeringg

– Lululemon (LULU)• Women’s apparel• Y t d• Yoga trend

– Only pure play yoga gear maker• Highest margins in the business

Average cost of shirt $70– Average cost of shirt $70• Operates posh neighborhood storefronts

– Beverly Hills– Passadena– Passadena– NYC– Miami– Honolulu

Recommended ActionsRecommended Actions

R d i did & R b k b d• Recommend restructuring adidas & Reebok brands • Establish adidas brand beyond “Euro‐sport” brand into “USA‐sport” 

& “Euro‐sport” brand&  Euro sport  brand • Move American Football & Baseball under adidas umbrella

– Would give more credibility to the adidas brand in the USA– Reebok brand previously perceived as low quality in USA may still harbor 

negative image among Americans– Establishes adidas brand to better compete with Nike brand offering– Would allow adidas to compete with Nike on more USA playing fields– Could potentially further bridge the gap between Americans and Football 

which would grow American market share in Football • Utilize Reebok brand as a catch all brand for trending sports             

and in emerging market sports such as Cricket in India

Brand RestructuringBrand Restructuring

• adidas– Golf

• Opportunity– Cricket

• Reebok– American 

– BasketballFootball

– YogaFootball– Hockey– Football

– Tennis

Hockey– Baseball

k b d– Running– Training

– Skateboard– Surfingg

adidas Growth in Technologiesadidas Growth in Technologies

did i h di l i d• adidas in the medical industry– Enhanced devices to enable paraplegics

• adidas in motorsports– Seats & steering wheel designed to absorb multi‐directional impact and torque

• adidas in zoology– Enhanced materials protecting race horses from serious injury

• adidas in armed forces– Smart military boots

adidas Growth in Technologiesadidas Growth in Technologiesdid i di i & bi h i t• adidas in medicine & biochemistry– Safe drugs capable of providing athletes with a precautionary 

protection against bodily wear and tear• Protection for quarterbacks against serious concussion• Protection against career ending ACL injuries

• adidas in optics & electronicsadidas in optics & electronics– Sunglasses designed with digital display performance 

monitoring for athletes• Able to save workout data and upload to the cloud• Able to save workout data and upload to the cloud, • Share Workouts and compare your performance with your partner’s performance in real time,

• Motivate yourself by breaking a facebook friend’s stats & set records,Motivate yourself by breaking a facebook friend s stats & set records, • Workout to a celebrity or athlete’s routine• GPS race tracking with real time runner ID, electronic display for distance between runners, lap times, distance to finish., p ,