History of Adidas Brand, Company's Success and Complications

The company that I will present to you is Adidas. Adidas is a multinational corporation, founded and headquartered in Herzogenaurach, Germany, that designs and manufactures shoes, clothing and accessories.

It is the largest sportswear manufacturer in Europe, and the second largest in the world, after Nike. It is the holding company for the Adidas Group, which consists of the Reebok sportswear company, TaylorMade golf company (including Ashworth), Runtastic, an Austrian fitness technology company and 8.33% of German football club Bayern Munich. Adidas' revenue for 2016 was listed at €19.29 billion.

The company was started by Adolf Dassler in his mother's house. He was joined by his older brother Rudolf in 1924 under the name Dassler Brothers Shoe Factory. Dassler assisted in the development of spiked running shoes for multiple athletic events. To enhance the quality of spiked athletic footwear, he transitioned from a previous model of heavy metal spikes to utilizing canvas and rubber. Dassler persuaded U.S. sprinter Jesse Owens to use his handmade spikes at the 1936 Summer Olympics.

In 1949, following a breakdown in the relationship between the brothers, Adolf created Adidas, and Rudolf established Puma, which became Adidas' business rival. Adidas has branch offices all around the world, but the most specific branch offices are located in Amsterdam, Shanghai, Hong Kong, Portland, Boston and Panama. As of 2019, Adidas was the third largest apparel brand in the world, with a brand value of 16.67 billion U.S. dollars. The company is also one of the most valuable athletic apparel, accessories, and footwear companies in the world. Adidas held a significant share of the U.S. sports apparel market as of 2017. But let’s see more specific about last year’s revenues and profits. According to researchers Adidas has increased its currency-neutral sales approximately 8%. More specific in 2018, Adidas delivered another year of significant top-line growth with currency-neutral revenues increasing by 8%.

This development was driven by a 9% improvement at brand Adidas, reflecting a double-digit sales increase in Sport Inspired as well as a high-single-digit gain in Sport Performance. The latter was driven by double-digit sales growth in the training and running categories. Currency-neutral Reebok brand sales were down 3% versus the prior year, as double-digit sales growth in Classics was offset by a decline in Sport. From a channel perspective, the company’s top line increase was largely driven by double-digit improvements in direct-to-consumer revenues with particularly strong support from e-commerce, where revenues grew 36% to more than € 2 billion in 2018. In euro terms, the company’s revenues grew 3% to € 21.915 billion, reflecting significant negative currency translation effects. Also, Adidas has increased its operating margin from 1.1% to 10.8%. The company’s gross margin increased 1.4 percentage points to 51.8% (2017: 50.4%). This development was due to the positive effects from a better pricing, channel and product mix as well as lower input costs, which more than offset significant negative currency effects.

Other operating expenses were up 5% to € 9.172 billion in 2018 (2017: € 8.766 billion).1 As a percentage of sales, other operating expenses increased 0.5 percentage points to 41.9% from 41.3% in 2017. This increase was mainly driven by higher marketing investments. In 2018, marketing and point-of-sale expenses amounted to € 3.001 billion reflecting growth of 10% compared to the prior year level (2017: € 2.724 billion). This development was largely due to activities related to the 2018 FIFA World Cup as well as over proportionate investments into the company’s brands and the sell-through of its products. As a percentage of sales, marketing and point-of-sale expenses grew 0.9 percentage points to 13.7% (2017: 12.8%). Operating overhead expenses increased 2% to € 6.171 billion (2017: € 6.042 billion), due to further investments into the company’s scalability. As a percentage of sales, operating overhead expenses decreased 0.3 percentage points to 28.2% (2017: 28.5%).

The company’s operating profit grew 14% in 2018 to € 2.368 billion (2017: € 2.070 billion), representing an operating margin increase of 1.1 percentage points to 10.8% (2017: 9.8%). This development was mainly due to the gross margin increase, which more than offset the investment-led increase in other operating expenses. The operating margin increase was also supported by strong profitability improvements at the Reebok brand, which returned to profitability in 2018. This reflects a profit uplift of more than € 150 million for the brand since the launch of its turnaround plan ‘Muscle-Up’ at the end of 2016. There are also other recent revenues and profits that Adidas made in 2018 like that Management proposes dividend increase of 29% to € 3.35 per share and that. Adidas has already made some plans for 2019 and some of this is that they want to increase Currency-neutral sales between 5% and 8%, they want to increase operating margin between 11.3% and 11.5% and last but not least is that they want to increase Net income from continuing operations between 10% and 14%.

According to the statistics, Adidas at the year of 2018 is counting a big number of employees and to be more specific, that number is approximately 57016 in over than 160 countries. That means that Adidas has offered, to the younger generation in particular, jobs. These numbers alone can easily suggest that Adidas Group is quite a complex organization. But they keep things simple, lean and fast. It’s worth mentioning that Adidas at the year of 2016 had 58902 employees, which is the biggest number of employees Adidas ever had at its history!

It is well known that Adidas always had competitiveness with other business, that they are making the same products as Adidas. The two biggest competitors of Adidas are Nike and Puma. Adidas uses differentiated targeting strategy to target young adults, adults as well as children who have passion for fitness & sports. Although it targets customers in the age group of 13-40 years but majority of its customers are of 15-30 years of age who hail from upper middle class or the luxury class of customers. User & benefit based positioning are the strategies Adidas uses to create distinctive image in the mind of the prospective consumer. By emphasizing the value of quality products from a trusted brand Adidas is able to maintain its brand essence.

It is well known that Adidas had experienced a continue fall, due to continuing errors that Adidas CEO’s did. One of them was that Adidas lost major endorsement deals to Nike. In the 1980s, for example, Adidas passed on a potential endorsement deal with Michael Jordan, believing that fans would prefer taller players, according to The Journal. Nike snagged Jordan instead. Thirty years later, the Jordan brand is still generating billions of dollars in revenue for Nike, even though Jordan left the NBA more than 10 years ago. Nike also endorses far more American athletes than Adidas does.

Another major problem which led to Adidas’s downfall was that the company's product turnaround was too slow. The average turnaround from design to store shelves was about 18 months, which prevents the company from capitalizing on emerging trends. Last but not least reason, was that the executives at the company's German headquarters lost touch with American tastes. Christine Noh, the owner of New York street-wear chain Nohble, told that Adidas stopped listening to retailers' opinions on what kinds of styles would sell well in America. 'If your upper management is in Germany, and they don't know Flatbush from Harlem from Virginia, it's hard to have that information percolate back up to the top and have that action executed,' she said. That was the main reasons that led to Adidas’s downfall.

One day that Adidas will never forget is 18 April 2017, the second day of the Annual Boston Marathon. The globally recognized apparel brand sent an email to all marathon participators saying “Congrats, you survived the Boston Marathon”. It was not a clever analogy considering the terrible tragedy that took place in that event just four years before. It took Adidas about three-four hours to issue a public apology on social media directed towards Boston and every single one of its residents. They described their subject line as insensitive and praised the Marathon for being an inspiration to the whole community.

The crisis was managed as best it could have been but the damage was not fully recovered. Their quick response stopped things from escalating to worse. However, there is not much you can do after releasing a tone-deaf message to masses of recipients. Adidas did the right thing by owning up to their mistake and delivering a public apology for it, but that was their only option.