Company Background Adidas AG is the world¶s wor ld¶s number two sports apparel manufacturer with total t otal sales for 2007 ¼10.3bn and profit growth of 9%. Adidas vision has always been to lead the sporting goods industry with brands built upon a passion for sports and a sporting lifestyle since its inception in 1949 by Adi Dassler. Currently, with brand portfolio such as adidas, Reebok and TaylorMade-adidas golf, adidas tries to uproot Nike¶s Nike¶s domination in the sporting apparel industry. Milestones y
1949
adidas is registered as a company, named after its founder: 'Adi' from Adolf and 'Das' from Dassler
y
1954
The 'Miracle of Bern' Germany battle Hungary with a competitive advantage. They are wearing adidas soccer socc er boots which for the first time feature removable studs
y
60s
Driven by a desire to help all at hletes committed to performance, adidas manufactures equipment for what some consider "fringe sports". Unconventional high jumper Dick Fosbury la unches himself up and over in adidas footwear
y
70s
The "adidas" team wins
Crowning moment: Franz Beckenbauer, the "Kaiser", "Kais er", raising the World Cup in victory salute. Germany had just beaten Holland 2-1 in the 1974 final. y
80s
After Adi Dassler's death, Adi's wife Käthe, his son Horst, and his daughters carry on the business
y
90s
Under the CEO Robert Louis-Dreyfus, adidas is moving from being a manufacturing and sales based company to a marketing company
y
1995
adidas goes public
Flotation of the company on the Frankfurt and Paris Stock Exchange
y
1996
The "three-stripes company" equips 6,000 Olympic athletes from 33 countries. adidas athletes win 220 medals, including 70 gold. Apparel sales increase 50%
y
1997
adidas AG acquires the Salomon Group with the brands Salomon, TaylorMade, Mavic and Bonfire in December 1997. The new company is named adidas-Salomon AG
y
1999
The integration of the new brands is gaining momentum. The new TaylorMade FireSole clubs boost sales. Salomon in-line skates take off with high double-digit growth during the first half of 1999
y
2000
Following personnel changes, the new management initiates an ambitious Growth and Efficiency Program. Major sports events such as the European Soccer Championship EURO 2000 and the Olympic Summer Games, where swimmer Ian T horpe takes three gold medals, contribute to the company¶s success.
y
2005
The Salomon Group (including Salomon, Mavic, Bonfire, Cliché a nd Arc¶Teryx) is being sold to Amer Sports in October 2005. The new adidas Group is focusing even more on its core strength in the athletic footwear and apparel market as well as the growing golf category. The legal name of the company will change to ³adidas AG´ in May/June 2006
y
2006
adidas-Salomon AG acquires Reebok
The closing of the Reebok transaction on January 31, 2006 marks a new chapter in the history of the adidas Group. By combining two of the most respected and well-known brands in the worldwide sporting goods industry, the new Group will benefit from a more competitive worldwide platform, well-defined and complementary brand identities, a wider range of products, and a stronger presence across teams, athletes, events and leagues
This case analysis report will discuss about the execution of corporate strategy to achieve its vision focused on the strategic implementation on making acquisition that
would allow adidas to surpass Nike as the leader of the global sporting goods industry. We also will try to discuss adidas performance and future prospect, and make recommendation based on our analysis. Identification Adidas was the market leader for sports apparel until the death of Adi Dassler in 1978, when it is rapidly losing market share in the United States to industry newcomer Nike. And after the death of Horst Dassler in 1987, Nike was the undisputed leader in the US footwear market, with more than $1bn in annual sales. In 1997, with the command of the new leader Robert Louis-Dreyfus, adidas acquired Salomon SA with a view to close the gap with Nike in market share. Adidas¶s ¼1.5bn acquisition of Salomon SA allowed it to surpass Reebok to become world¶s second largest sporting goods company with 1998 sales of nearly ¼5.1bn. Lousi-Dreyfus expected the Solomon acquisition to boost the company¶s pretax profits by 20-25 percent annually through 2000. However it was never materialized, because apparently there are no good fit between adidas a nd Salomon brand portfolio. The profit was declined and adidas share price was also crumbled. In the end, by 2005 the company divested all of its winter sports brands and Mavic bicycle components business to Amer Sports Corporation. The divestiture of Salomon¶s winter sports and bicycle components business would make TaylorMade Golf the lone business retained from the company¶s 1998 acquisition of Salomon SA. In August 2005, adidas management announced that it would acquire Reebok International Ltd. for ¼3.1bn. The acquisition of Reebok would be the final component of a restructuring initiative that would focus the company¶s business lineup primarily on athletic footwear and apparel and golf equipment. The Reebok acquisition increased the company¶s revenue to ¼10bn in 2006 and allowed sales in North America to more than double between 2005 and 2006. The company¶s post merger strategy would position adidas as a technologically superior shoe designed for serious athletes, while Reebok would be positioned as leisure shoe that would sell at middle price points. Analysis and Evaluation
In doing our analysis and evaluation, we employed several tools to help our attempt. In general, Adidas corporate strategy divided into 7 big corporate strategies (source: adidas group corporate website). Reorganization of Group provides to solid platform for growth This strategy includes corporate restructuring and acquisition to increase market share further. The prominent example is the acquisition of Salomon and Reebok. Adidas also tries to integrate its business unit vertically and horizontally with the restructuring. Diverse brand portfolio This strategy mainly deals with multi-branding strategy. This approach allows adidas to tackle opportunities from several perspectives, as both a mass a nd a niche player, providing distinct and relevant products to a wide spectrum of consumers. Investments focused on highest potential markets and channels This strategy speaks about investment prioritization in the most potential markets using the most potential channels. The objective of this strategy is to provide the best medium-to-long term growth and profitability opportunities. Creating a flexible supply chain This strategy focused on creating an effective and efficient supply chain worldwide. Adidas tries to shorten its production time, while also maintaining the product quality and ensuring the product availability. Leading through innovation This strategy shows the adidas spirit as has its foundation from its founder spirit, Adi Dassler, to always innovate to gain edge from its competitor. Develop a team grounded in adidas heritage This strategy focused on the commitment on t eamwork and social collaboration. It includes communication internally, collaboration and also social a nd environmental preservation. These strategies show how will adidas try to achieve its vision. The most notable corporate strategy shown in the case is t he first strategy, Reorganization of Group provides solid platform for growth. It is apparent in the case that a didas tried to take
Nike¶s market share by acquiring several companies. There are 2 possibilities on why adidas focused on this strategy: To gain share quickly To provide foundation in further attack on Nike Because of this, we mainly tr y to analyze whether the acquisition of Salomon and also Reebok is a good decision, and whether these decisions help the company to pursue its vision and achieve sustainability. We will also tr y to formulate several recommendations that adidas can take to pursue its goals further. SWOT Analysis We use SWOT analysis to evaluate the Strengths, Weaknesses, Opportunities, and Threats that certainly affect adidas.
Positive Strengths y y
I n t e r n a l
y
y
y y y
Innovation Leader Core competencies and skills in sport shoes and apparels Focused on differentiation in their product design Controlled retail space (its easier to consolidate) Efficient supply chain Endorsement with sports superstars Good multi-branding strategies
Opportunities y
E x
t e r n a l
y
Big periodical sport events can act as a marketing opportunities The lifestyle of famous sport personality that can act as a role model for their fans
Negative Weaknesses y
y
y
Does not have a leader as good as Adi Dassler Did not have expertise in sport equipment before Bad judgement on Salomon acquisition
Threats y y y y
Nike Other competitors, such as Puma Commodities price increases Socio-politic condition in outsourced country
Financial Performance Analysis We use financial performance analysis to evaluate adidas¶ financial performance over the year. Base on this analysis, we can determine whether the decision to acquire Salomon and Reebok is profitable for the shareholders or not. Trend Analysis 98
99 00 01 02 03 04 05 06 07 100% 106% 115% 121% 129% 124% 116% 131% 199% 203% 100% 102% 112% 119% 126% 117% 104% 117% 190% 184% 100% 111% 119% 122% 133% 132% 132% 151% 212% 230% 100% 110% 123% 125% 138% 137% 132% 149% 218% 238% 100% 116% 105% 114% 115% 118% 140% 170% 212% 228% 100% 111% 89% 101% 111% 127% 159% 208% 236% 269% 100% 112% 88% 102% 112% 127% 152% 181% 210% 240% 100% 110% 110% 110% 119% 119% 157% 157% 200% 238%
Net sales Cost of goods sold Gross profit Operating expenses Income from operations Net income EPS Dividends per share
300%
250% Net sales 200%
Cost of goods sold Gross profit
150%
Operating expenses Income from operations Net income
100%
50%
0% 98
99
00
01
02
03
04
05
06
07
If we analyze the chart, we can see that overall the performance of adidas is increasing form 1998-2007. But the most notable information we can get is that since adidas acquire Salomon, which is happened in 1998, until it was divested, the financial performance does not show a
300%
250% Net sales 200%
Cost of goods sold Gross profit
150%
Operating expenses Income from operations Net income
100%
50%
0% 98
99
00
01
02
03
04
05
06
07
If we analyze the chart, we can see that overall the performance of adidas is increasing form 1998-2007. But the most notable information we can get is that since adidas acquire Salomon, which is happened in 1998, until it was divested, the financial performance does not show a significant increase. But from the time adidas divested Salomon, and finally acquire Reebok in 2006, the financial performance increase significantly. Profitability Ratio Analysis
Gross Profit Margin Return on Sales Net Profit Margin EPS
98 99 00 01 02 03 04 05 06 07 Agg 41.93% 43.93% 43.32% 42.56% 43.22% 44.90% 48.00% 48.18% 44.58% 47.40% 113% 66.48% 65.07% 64.16% 65.22% 64.08% 62.92% 61.84% 61.77% 63.27% 60.82% 91% 4.05% 4.24% 3.12% 3.40% 3.50% 4.15% 5.56% 6.42% 4.79% 5.35% 132% 1.13 1.26 1.00 1.15 1.26 1.43 1.72 2.05 2.37 2.71 240%
300.00%
0.00% 00.00% Gross Profit Margin Return on Sales Net Profit Margin EPS
0.00% 00.00%
0.00% 0.00%
00
0
0
03
0
0
0
0
Gross Profit Margin Return on Sales Net Profit Margin EPS
98 99 00 01 02 03 04 05 06 07 Agg 41.93% 43.93% 43.32% 42.56% 43.22% 44.90% 48.00% 48.18% 44.58% 47.40% 113% 66.48% 65.07% 64.16% 65.22% 64.08% 62.92% 61.84% 61.77% 63.27% 60.82% 91% 4.05% 4.24% 3.12% 3.40% 3.50% 4.15% 5.56% 6.42% 4.79% 5.35% 132% 1.13 1.26 1.00 1.15 1.26 1.43 1.72 2.05 2.37 2.71 240%
300.00%
0.00% 00.00% Gross Profit Margin Return on Sales Net Profit Margin EPS
0.00% 00.00%
0.00% 0.00%
00
0
0
03
0
0
0
0
If we analyze the chart, we can s ee that over the year adidas becomes more profitable. But there is interesting information regarding the Return on Sales that is decreasing. It can be assumed that with the increase in operational scope in 2007 then the operation expense is increasing. But we can also sees it that the management in 1998 able to operate the business more efficient than in 2007.
BCG Matrix Analysis We use BCG Matrix as a tool to help us in evaluating which product or business unit that needs prioritization, which product is growing and need further investment, which product that act as a source of fund, and which product that pose as a cash sink. By using the result of our BCG Matrix, we can analyze whether the decision of acquiring Salomon and Reebok is profitable and justifiable or not. 9-Cell Matrix Analysis We use 9-Cell Matrix to portray the strategic positions of each business in adidas by evaluating the industry attractiveness and business strengths of each business. Recommendations In general, we would recommend adidas to focus not just on the Reorganization of
BCG Matrix Analysis We use BCG Matrix as a tool to help us in evaluating which product or business unit that needs prioritization, which product is growing and need further investment, which product that act as a source of fund, and which product that pose as a cash sink. By using the result of our BCG Matrix, we can analyze whether the decision of acquiring Salomon and Reebok is profitable and justifiable or not. 9-Cell Matrix Analysis We use 9-Cell Matrix to portray the strategic positions of each business in adidas by evaluating the industry attractiveness and business strengths of each business. Recommendations In general, we would recommend adidas to focus not just on the Reorganization of Group to provides solid platform for growth, but encompass all corporate strat egy and implement and execute them. We would recommend several unique recommendations for each strategy. Reorganization of Group to provides solid platform for growth Adidas should consider to moving from a vertically integrated brand structure into a functional multi-brand structure by focusing on restructuring its sales organization into Global Sales function and Global Marketing function. Global Sales can focus on the commercial activities while Global Marketing can focus on the marketing activities. Adidas can also consider to splitting Global Sales function into Wholesale and Retail function to cater different needs from these type of customer. These are done to foster further alignment and strengthen brand management to drive long-term sustainable growth, while at the same time ensuring coordinated and best practice execution Diverse brand portfolio
