Competitive Intelligence

Sneaker Wars: Nike & Adidas Toe-to-Toe

I found a great article in the Oregonian that captured the level of competitive rivalry going on between Adidas and Beaverton-based Nike:

The hundreds of Adidas-Salomon sales reps meeting to celebrate the company's new Switzerland office grew silent as executive Michael Rupp began venting. For half an hour, Rupp, in charge of the sneaker company's central European business, assailed their complacency. If things don't change, Adidas might become an also-ran, Rupp says he told the gathering.

Shoppers still buy more Adidas gear in Europe than any other brand, but Nike is narrowing the gap, even selling more sneakers. And it's gaining in Germany, Adidas' home country and the world's third largest economy.

"We have to fight for our future," Rupp says he told his crew in June. It's time to launch into "forward-oriented attack mode." The sneaker wars are escalating across Europe.

Beaverton-based Nike, the biggest company with headquarters in Oregon and the state's lone Fortune 500 firm, sees Europe as its next conquest, having defeated Adidas in the United States. Adidas, whose U.S. operations are based in Portland, has heeded the battle cry.

The industry's two biggest titans face enormous pressure to capture Europe. Their shareholders continue to demand profit, sales and stock-price gains. But in recent years, Nike and Adidas have found diminishing returns in a mature U.S. market, the world's largest for athletic shoes and clothing. Nike did more business outside the United States for the first time in its last fiscal year. And after several years of stagnation, Adidas expects its U.S. sales to fall this year.

Here's another excerpt:

Research shows that Nike needs to downplay its status as a big American brand to stem backlash that accelerated with this year's war in Iraq, unpopular in much of Europe. On the other hand, Adidas must attract a generation of consumers who, unlike their parents, weren't raised on a sneaker diet limited to German brands.

Adidas' challenges Through much of the mid-20th century, Adidas owned Europe. Hometown rival Puma -- like Adidas, based in the northern Bavarian village of Herzogenaurach, Germany - was its biggest threat for decades.

Nike changed everything.

At first, Adidas shrugged off Nike's 1968 birth. But then it watched with increasing alarm as Nike grew into a powerhouse that sold about as many sneakers in the United States as Adidas, Reebok and New Balance combined.

Marketing itself as an unconventional American alternative, Nike entered Europe about two decades ago. By 1998, it had elbowed out Adidas as the No. 1 sneaker seller. And since then, Nike has narrowed Adidas' edge in overall sales, which count clothing and equipment. Today, Adidas realizes it's dangerous to rely on tradition, habit and brand loyalty.

Resentment from the U.S.-led war in Iraq and a wave of corporate scandals have begun to undermine American brands abroad, especially well-known ones such as Nike, according to a study released in July by RoperASW. As a result, the firm found, the percentage of Germans who regularly use or own a Nike product dropped to 29 percent this year from 49 percent in 2002. The percentage fell to 38 percent in France, down from 45 percent.

Indeed, Nike's European sales have flagged over its last three fiscal quarters, compared with year-earlier periods, currency exchange-rate fluctuations aside.

Nike officials, however, dispute the Roper findings and deny that anti-U.S. sentiment has cut sales. They point to a 21 percent rise in European orders for delivery by January -- again, without accounting for currency changes.

And, finally:

To secure future growth, the company is revamping its methods. Rupp told his sales force in September to spend more "quality time" with Adidas' 1,000 largest retail clients. The move will cut face time with smaller customers by almost a third, but Rupp says they won't be ignored. By the end of the year, they will be able to place orders faster using automated machines. The changes will result in a few layoffs, Rupp says.

Adidas also has stepped up its "Winning in Europe" campaign, a 2000 initiative to establish Adidas as the clear European leader by 2006. A headline on a recent 20-page campaign newsletter reads: "Watch out competition -- Adidas is back to take the lead in Europe." Stories highlight successes, such as Italy, and problem areas, such as the Nordic nations, where "there is a growing sense of urgency," according to the newsletter. "Sales have been declining since 1998, weakening our position and threatening our clear market leadership."

One new tactic involves reducing the array of Adidas products by 30 percent by 2006. The company believes that fewer models will lead to lower product-management costs, higher profits and more time to refine forecasts. Already this year, Adidas has eliminated walking shoes and reduced its tennis shoe assortment from 19 to 14 models. "It's a full onslaught battle to grow the brand -- any way, shape or form," says Glenn Bennett, Adidas-Salomon's executive board member in charge of global operations.

It seems Adidas gets the competitive threat Nike represents on its home turf; too bad it's too late to save some of its markets abroad and the "full onslaught battle" had to be such a defensive one.

- Arik

p.s. - It seems the year-old unrest between Foot Locker and Nike has finally been put to bed, thanks to an 18-year-old basketball superstar, LeBron James, who secured his endorsement with $90 million bucks. That, and the retro-style trend that Nike will deliver on exclusively for its biggest buyer, in the form of "20 Pack"... your guess is as good as mine.