For more than two decades in a row, Adidas, Europe's largest manufacturer of sporting goods, has been acting as a catch-up in the fight against its main competitor, Nike. Whatever the German company does, its chances of matching the American rival, apparently, are zero.

Text by Peter Steinkirchner.
An excellent office will be vacated in the Adidas company one of these days: spacious - a good 30 square meters, bright, with a wide panoramic window from which a beautiful view of the park opens, and a huge flat-screen TV with speakers half the height of a man.
Soon, 57-year-old Erich Stamminger will not need any equipment or a loft at the Adidas headquarters in Franconian Herzogenaurach. He has been working for the benefit of the company since 1983, since 2006 he has held the position of Marketing director. But now he's leaving because Adidas CEO Herbert Heiner has taken a course to rejuvenate top management.
Together with Heiner - not only the CEO, but also a close friend - Erich Stamminger has achieved a lot over the years. Together, they increased the turnover of Europe's largest sports goods manufacturer to almost 15 billion euros and raised the company's market capitalization to 18 billion euros.
However, the departure of the Adidas veteran (just in time for the filing of financial statements on March 5) can hardly be called triumphant. And it's not just that the revenue level has left much to be desired lately. It is on the Stamminger (Mr. Three Stripes) as a marketing director, they are responsible for the defeat in the fight against the main competitor of the concern - the American Nike corporation with headquarters in Oregon.

Economies of scale at the global level
For almost three decades, Erich Stamminger, together with Herbert Heiner, have been doing everything possible to catch up with the undisputed leader in the $150 billion sports goods market or at least impose a struggle on him. However, instead, the competition for leadership positions is now reaching a new level, and, unfortunately for Adidas, Nike is winning again.
A few years ago, the Americans and the Germans together went far apart from other competitors in the sports goods market. At some point, Puma tried to intervene in the battle of the Titans, but now its lag behind the favorites is constantly increasing: after reducing turnover to 3 billion euros, the company secured third place. Meanwhile, the gap between Adidas and Nike is now steadily growing. Apparently, in the foreseeable future, the German concern is unlikely to be able to stay at a level close to the indicators of the world market leader.
From 2008 to 2013, Nike's turnover grew by 7.6 billion euros and amounted to 19.6 billion euros. However, the Adidas figures also increased by 4.2 billion euros, reaching 14.9 billion euros. However, the American corporation thereby consolidated its advantage over its competitor from the Old World.
The lag of Adidas is especially evident in the United States, and this is the world's largest sports goods market with a volume of 75 billion euros, which largely determines Nike's multibillion-dollar advantage. And if in other markets these irreconcilable rivals are almost close, then in North America alone Nike sales reach almost $ 10 billion (Adidas has only $4 billion). Over the past three years, the American company has increased its turnover in this market by as much as 3 billion euros.
At the same time, Nike is actively advancing on the position of the German competitor in its ancestral territory, in Europe. While Adidas sales were falling during the first three quarters of 2013, Americans, on the contrary, were able to increase their turnover, even in the football segment, which has always been a priority of the German company. Tellingly, it was in 2013, when Bayern Munich became the winner of the Champions League, 8.3% of which is owned by Adidas, that Nike "for 10 months in a row, including in December" sells more boots than Adidas through the trade and purchase group of sports stores Sport 2000. This was announced by Andreas Rudolf, a top manager of the purchasing network with its head office in Mainhausen near Frankfurt.
Finally, according to the official forecasts of the company itself, the gap between Adidas and Nike will continue to grow in the coming years. After the not very successful first three quarters of 2013 and a warning about a decline in profits, the CEO of the concern Herbert Heiner, apparently, fears that the revenue level announced for 2015 - 17 billion euros - will not be reached. But Nike CEO Mark Parker, on the contrary, is full of optimism: last fall, he said that in 2017 the company expects to increase its turnover to no less than 27 billion euros.
"Nike is proficient at taking advantage of the economies of scale resulting from the global scale of production," says Klaus Jost, president of the world's largest association of sports retailers Intersport. "So other companies will be able to dethrone her from the top step of the pedestal only if Parker and his team make very serious mistakes." A similar opinion is shared by Michael Gorni, an analyst at Lampe private bank in Dusseldorf: "Nike is using its advantages in the home, American market very correctly and will remain a permanent leader there for many years to come. It takes the pole position and benefits from the maximum economies of scale in the field of development, production, marketing and sales."

Missed trend
At the same time, for a long time, no one could have imagined that the Americans would one day begin to pose a real threat to the German company, or even more so leave it far behind.
For many years, the Adidas concern remained the sole ruler of the sporting goods market. Almost from the day of its foundation, the company, created in 1949 by Adolf Dassler, a shoemaker by profession, has become the epitome of sporting and commercial success. In 1954, he came up with boots in which the German football team with the legendary Helmut Rahn at the head won the World Cup. The undisputed leader of the global market was Adidas in 1972, when at the Munich Olympics three quarters of all athletes performed in shoes with branded three stripes. But even then the first stone was laid in the foundation of the foundation of the future defeat of the invulnerable concern. The fact is that back in the early 1960s, Phil Knight, an American middle-distance runner, was annoyed by the fact that the US market was dominated by Adidas with expensive sports shoes. So while studying at the university, Knight, an economist by profession, developed a business plan for the production of more affordable running shoes. He began to embody it by founding the company Blue Ribbon Sports, later renamed Nike.
The Germans, spoiled by success, did not recognize the threat lurking in the rampant fashion for running, fueled, among other things, by Knight himself, and missed this trend. They say that instead of starting to create their own running shoes for the street as soon as possible, the developers in Herzogenaurach made fun of the unassuming Nike Asian-made sneakers from the bottom of their hearts.
First of all, the Germans overlooked that Knight had made a real revolution in the sports goods market: the manufacture of sneakers developed in the USA was carried out in Asia from the very beginning, and the company itself, according to its founder, was supposed to become a real "marketing machine". The money saved on production, Phil Knight, after the release of Nike shares to the market in 1980, invested in spectacular commercials and marketing.
The management of Adidas started up only when the time was lost, especially in the American market. Already in 1980, Nike announced that its annual turnover in the United States amounted to $270 million, for the first time ahead of the former market leader from the Old World. This is how Nike laid the foundations for its current leadership in the global market.

Military approach
And what did Adidas do? In 2006, Herbert Heiner tried to regain his lost positions in the US market by outbidding the American brand Reebok, which then ranked third among manufacturers of sporting goods, for 3.1 billion euros. However, in the end, this led, rather, to the failure of the pursuit race he started: for many years Reebok became a real burden for the concern.
Winter of this year, an ordinary day. Shoe and technology developers are sitting in one of the cafeterias at the Adidas headquarters in Herzogenaurach, snacking on focaccia or sipping a high-caffeine cola.
Next to them, Matt O'Toole, 51, CEO of Reebok, is picking at a pasta salad with a fork. Suddenly he jumps up, lifts up his blue sweater, exposing his pumped-up stomach and showing others a new tattoo on his ribs - the delta badge. From now on, this is the brand's new logo, which Reebok is switching to as part of a global rebranding. "We have completely updated the concept of the brand," says Canadian O'Toole. Apparently, for them and Heiner, this is the last chance, with the help of a subsidiary, to at least push Nike a little in its ancestral territory, the American sports goods market. "The idea was right," Klaus Jost still holds this opinion.
However, from an idea to success is a long way. The billion-dollar deal to acquire Reebok turned into a kind of "protracted construction". The brand was faceless and obsolete, huge stocks of unsold unfashionable sneakers spoiled the margin of the parent concern. According to the analytical publication Sporting Goods Intelligence, from 2005 to 2012 Nike increased its sales of sports shoes in the American market by 75%, to $ 6.3 billion. But the turnover of Adidas for the same period increased by only a third (two times less than that of a competitor). And all that the Germans managed to win back in the American market was compensated by the failures of Reebok, whose turnover decreased by 40%, falling short of $ 600 million.


The struggle for advertising faces
The American market will decide first of all how serious the gap from Nike will be. And here, along with running, basketball, one of the most rated sports, will be the main focus of the fight. Shortly after buying Reebok, Stamminger, who is currently preparing to leave the post of marketing director, signed a new contract with the NBA professional basketball league. According to him, two-meter guys will play in the form of Adidas until 2017 . And at all-star games, when the best players of the NBA's Western and Eastern Conferences join the fight, the three-stripe logo is emblazoned on the chest of even celebrities like LeBron James, who is contractually bound to Nike - he is the official face of its sports shoe line.
However, the basketball project has a serious drawback: it is not often that the corporate logo of Adidas is as noticeable as during all-star matches. After all, unlike football players, NBA players do not have the right to wear a uniform with the sponsor's logo on their chest to regular league matches. Therefore, now the German concern is trying to convince teams to switch from the usual T-shirts to short-sleeve T-shirts. The beginning was laid by the Oakland team Golden State Warriors. The new T-shirts, on the sleeves of which the developers allegedly worked for four years, provide Adidas with more space to place their logos, thanks to which the concern hopes to sell more fan T-shirts. "In a maximum of a year, a third of all teams will play in T-shirts," Stamminger believes.
But the biggest battle in the multibillion-dollar basketball market revolves around shoes. After all, sneakers worn by players in the gym turn into expensive status symbols on the street. In the USA, fans spend $4.5 billion annually on basketball shoes, and Adidas is hopelessly behind Nike in this indicator: the share of Germans in this market segment is only 5.5%. More than 9 out of 10 basketball sneakers sold in the USA are decorated with the logo of the market leader or the Jordan brand, owned by the legendary Michael Jordan, ex-Chicago Bulls player. Personalized sneakers, named after sports superstars and featuring a bright design, are especially popular with fans and collectors. For this, sports concerns annually pay multimillion-dollar royalties to the main characters of their advertising campaigns, and often also a percentage of sales. And here things are not going too well for Adidas either. If Nike provides a total of 284 NBA players with shoes, then only 78 basketball players appear on the lists of the German concern. Nike's annual revenue from sales of superstar LeBron James, a Miami Heat player, is $300 million. The only NBA player in the Adidas asset who can at least to some extent compare with LeBron in these indicators is Derrick Rose from Chicago: the revenue from sales of his named sneakers is $ 40 million a year.
But Adidas is surprisingly unlucky: at the end of November, the 25-year-old player injured his meniscus, and after a long break he will miss another whole season due to a torn cruciate ligament. "This is a big blow for us," sighs Stamminger. At the beginning of the year, the German concern launched a new model of branded sneakers for its injured star D Rose 4.5 worth $ 150. However, experts, including sports goods market expert Matt Powell, predict that they will now sell much worse than expected. A player's injury may also affect future sales of basketball sneakers equipped with the latest development of Adidas - the material for the Boost sole. A year ago, the concern successfully introduced this shock-absorbing technology into the production of its running shoes and currently intends to expand this direction. To do this, the German manufacturer needs a bright advertising face, and just at this moment the star Derrick Rose fails.



New materials
It seems that the further Nike breaks away from the former market leader, the tougher the two concerns collide foreheads. At the same time, potential advertisers are particularly happy to play on the competition of two irreconcilable rivals. So, in November last year, the Adidas concern managed to lure the American rapper, music producer and designer Kanye West. It is planned that his first sneakers, created for the Adidas Originals designer line, will appear on the shelves at the end of the year.
And this is very interesting, considering that West used to create sneakers for Nike and was part of a narrow circle of selected designers who were invited to chat from time to time by the company's CEO Mark Parker. However, at some point West apparently stopped being satisfied with the fee he received for his design ideas, and the designer demanded that Nike pay him a percentage of the sales of the sneakers he created. In response to this, Parker abruptly stopped all cooperation with him and referred West's latest development for Nike - monster-like red sneakers with something like a dragon crest on the heel of the Air Yeezy II Red October - straight to the company's online store at a price of $245 per pair, refusing to further promote the model.
Parker, who has been at the head of the corporation since 2006, is inspired by Nike's commercial successes on almost all continents. And he obviously believes that the company is strong enough to win new buyers from among athletes around the world through its own developments and innovative technologies, and not attract fans of club parties with the help of designer tinsel in the style of West. And if this thesis needed confirmation, then it would be the latest model of Nike - Free running shoes. This is an unusually flexible shoe, suitable for both keen running enthusiasts and professionals. To date, Free is considered the most popular model of running shoes in the world: the number of pairs sold goes to millions. They can be seen more often at schools, at cashiers in a supermarket or at medical staff in a hospital than at stadiums and treadmills. "Free from Nike is a bestseller, of course, in value terms it is the best-selling sports shoes in the world today," states Klaus Jost.
At the same time, these sneakers reflect the latest trend: an increasing role in the business of the titans of the sports market is played by their own research laboratories and development departments. Both competing concerns are well aware that whoever is the first to offer the optimal design of the sole or the lightest material has every chance of gaining an advantage for years to come. So, Nike and Adidas are currently working on creating a material that could revolutionize the industry. Nike's development is called Flyknit, Adidas - Primeknit. The English word knit means "knitted material". It is very likely that in the near future it will be used to designate a new generation of sports shoes. The whole question is who will be the first to enter the market with this technology and hit the jackpot.
The head of Nike, Mark Parker, who is himself a certified designer, enthusiastically talks about Flyknit: this material is extremely plastic and fits perfectly on the foot, practically has no seams. At the same time, less waste is generated in the production process, which makes the technology cheaper and more environmentally friendly. But most importantly, Flyknit makes most of the expensive manual labor unnecessary: special machines weave the upper part of the sneakers and connect it to the sole of the desired type. Due to the high degree of automation, production can be located in any part of the world, including in regions with high wages - Europe and the USA. "We claim a leading position in the field of innovation in the sports goods market," Stamminger retorts. However, it seems that representatives of Adidas are trying to console themselves with such categorical statements. At the moment, the German concern has released only a few models based on Primeknit technology.
In mid-February, Nike opened a new flagship store in Berlin with an area of 2,600 square meters. m next to the famous Gedechtniskirche church. On this occasion, Mark Parker invited nine-time Olympic champion Carl Lewis to run around the Kurfurstendamm in new Flyknit sneakers worth 160 euros per pair. According to the general opinion of the audience, the legendary athlete's run somewhat resembled a triumphal procession.
Basketball
Adidas supplies uniforms for the American professional league of the NBA, but its share in the segment of shoes for basketball players is only 5.5% In the USA, Nike, along with the affiliated brand Jordan, are inaccessible to competitors - their market share is 92%
Athletics
According to reports, the revenue of sports concerns from the sale of running shoes reaches $ 15 billion. In the American market, Nike's share is 52%. Adidas expects to attack Nike with new materials for running shoes, but still acts as a catch-up. The German concern is even inferior to the Japanese brand Asics in the USA: its share in the Nike home market is 11%
Football
For the first time since 1996, Nike is entering the fight in the football segment. The management of the concern recently announced that it has reached a leading position in the world. According to the latest data from the industry, the American company is in second place, after Adidas, with a turnover of $ 1.7 billion, Football is one of the few areas in which Adidas still holds the lead. In the year of the World Cup, the German concern expects to receive record revenue of $ 2 billion

 
QUESTIONS TO THE CASE:

1. What do you think are the reasons for Nike's sustained, long-term success? List them and analyze them.

2. Imagine that you have been appointed head of Adidas. What would you do, what strategy would you choose, what regions, sports, products, distribution and promotion methods would you focus on? What creative steps would you suggest?