Adidas’s Strategy

What is adidas’s corporate strategy?
•“To lead the sporting goods industry with brands built on a passion for sports and a sporting lifestyle.
•To provide athletes with the best possible equipment to optimize their performance.
•Leveraging opportunities across their brand portfolio

1.Market penetration – gaining market share across all markets in which they compete
2.Market development – expanding into new markets and addressing new consumer segments
•To have a leading market positions in all regions where we compete.
•Leading though innovation and design
•Customizing distribution
1.Mono-branded stores run by retail partners
2.Shop-in-shops that Adidas establish with their key accounts
3.Joint ventures with their retail partners
4.Co-branded stores with sports organizations or other brands
•Creating shareholder value”
Was there a common strategic approach used in managing the company’s lineup of sporting goods businesses prior to its 2005–2006 restructuring? No, Adidas was trying to regain the number one position within the sporting goods industry by investing in many different areas of sporting goods. “Adidas’s 1998 acquisition of Salomon had several businesses that adidas’s management viewed as attractive-its Salomon ski division was the leading producer of ski equipment: TaylorMade Golf was the second-largest seller of golf equipment; and Mavic was the leading producer of high-performance bicycle wheels and rims.” Adidas was not focused on athletic footwear and started selling bike wheels and rims that had nothing in common with their main business of athletes’ footwear. Also the ski division was out of line with their many main business goals and strategies.

Has the corporate strategy changed with restructuring? Yes, Adidas sold the divisions that were not inline with their main strategy or didn’t have noting in common with their main business. “Adidas announced near the end of its second quarter 2005 that it would divest its winter sports brands and Mavic bicycle components before the end of the year.” Adidas started focusing on its main business strategies and divisions that were in common with the strategies. “Adidas’s October 2005 announcement that it would acquire Reebok International Ltd for three point eight billion was the final component of a restructuring initiative that would focus the company’s business lineup primarily on athletic footwear and apparel and golf equipment by 2006.” With the restructuring and acquisition of Reebok the company strategy has changed. The new Adidas will start focusing on their core business strengths in the athletic footwear and apparel business. The combined companies will offer the spectrum of their product mix to gain a greater combined market share. “The brand adidas will continue to have a clear focus on sport performance and will highlight team sports, while brand Reebok will be positioned as a fitness oriented, sports-lifestyle brand with the focus on individual performance. The positioning will also be reflected in the distinct brand communication to reach different consumers.”

What is your evaluation of adidas’s 1998 acquisition of Salomon SA? Adidas should have not acquired Salomon SA since they did not have the knowledge to run the division and it made adidas to diverse. “A Merrill Lynch analyst suggested that the Salomon acquisition might prove troublesome for adidas since other athletic shoe companies had dabbled in the hard goods segment, but they have been unsuccessful to date in making inroads.” By adidas becoming too diverse, they were unable to capitalize on any value chains and unable to cross promote their products. The acquisition did give adidas more market share “Adidas’s 1.5 billion acquisition of Salomon allowed it to surpass Reebok to become the world’s second-largest sporting goods company” This was not a good business decision because adidas already owned Reebok and just because they gain market share showed that the end result would not be profitable (bigger is not always better).

Did the acquisition achieve the Robert Louis-Dreyfus’s objective of putting together the best portfolio of sports brands in the world? NO. Louis-Dreyfus used 100 percent debt financing to create adidas-Salomon thinking that the new business units would boost adidas’s pretax profit by 20-25 percent, however, Louis-Dreyfus’s projections never materialized. In 2000 Louis-Dreyfus resigned since his objective failed.

What does a 9-cell industry attractiveness/business strength matrix displaying adidas-Salomon’s business units look like? A 9-cell industry attractiveness/business strength matrix for the time would have showed that the combination of adidas and Salomon AS would not be a good fit. Adidas brought to the deal a company that had underestimated the competitor (Nike), falling to the eighth position of athletic footwear market within the United States. Their was no competitive advantage for adidas within an maturing industry. Both adidas and Salomon had challenges within their industries that were not fix or address before or during the merger.
Did adidas’s business lineup prior to the divestiture of Salomon and Mavic exhibit good strategic fit? No, at first it looks like a very good fit since both companies are in the sporting goods industry and having well known brand names. Both of them have strong apparel lines and having presence in similar geographical regions. However, it’s obvious that the hard-goods categories of Salomon and Mavic would not create synergies with the apparel and footwear industries of adidas. Skill transfers between the businesses would have been a problem to because each business was so different.
What value-chain match ups existed? Adida’s knowledge in the apparel and footwear industries were a good match up for running TaylorMade, Salomon, etc. footwear and apparel lines.
What opportunities for skills transfer, cost sharing, or brand sharing were evident? Adidas should have gain more bargaining power that should have resulted in cost savings for all the companies. Advertising cost could have been shared since all the companies are in the sporting goods industry. TaylorMade can use adidas’s apparel and footwear manufacturing strengths to its advantage to come up with more apparel and footwear products to increase its market share. Cost reduction learned from adidas could be used at TaylorMade to save money.
What strategic fits will be possible once Reebok International is acquired? Reebok will give adidas’s company the ability to position adidas as a technologically superior shoe designed for athletes and adidas can then focus on the high-end of the markets. Reebok would be positioned as leisure shoes that would sell at middle price points. Adidas can keep endorsement contracts with respected athletes and Reebok’s endorsements would be from more edgy celebrities. This is a great strategic fit since both companies are in the same line of business, but in different segments of the market and so they compliment each other. Another great fits is that Reebok would keep its CEO to lead Reebok after the acquisition so both companies will have the management that knows how to run their part of the business.

Did adidas’s business lineup exhibit good resource fit between 1998 and 2004? No, because the businesses were too different in order to gain any economies of scale from combined production. Management skills and employee skills could not be moved from one company to the other without retraining.

What were the financial characteristics of each of three major segments?
Exhibit 5
Adidas 2004 2003 2002 2001 2000 1999 1998
Net Sales 80% 79% 78% 79% 80% 83% 85%
Gross profit 75% 71% 71% 71% 75% 82% 86%
Operating profit 88% 78% 75% 74% 79% 87% 94%
Salomon 2004 2003 2002 2001 2000 1999 1998
Net Sales 10% 10% 10% 12% 12% 11% 10%
Gross profit 8.47% 9% 10% 12% 12% 10% 9%
Operating profit 2% 7% 9% 13% 12% 6% 1%
TaylorMade 2004 2003 2002 2001 2000 1999 1998
Net Sales 10% 10% 11% 9% 8% 6% 5%
Gross profit 9.74% 10% 12% 11% 4% 7% 6%
Operating profit 10% 14% 16% 13% 9% 6% 5%

Salomon was far behind Adidas and TaylorMade with operating profit declining from 2002. As of 2004 Salomon is getting to the point where it is just able to cover expenses.

Which businesses might have been considered cash hogs and cash cows?
Adidas is the cash cow with 75% gross profit. Solomon is the cash hog with only 9% operating profits then TaylorMade is the second cash hog
How did adidas-Salomon’s performance vary by geographic region? On average from 1998 – 2004
Europe with 51% of adidas’s sales
Asian with 16% of adidas’s sales
Latin American with 3% of adidas’s sales
Based on your analysis of adidas-Salomon businesses, did the 2005 restructuring make sense? Yes
It allowed adidas to focus back on its core business of athletic footwear and apparel. At also allowed adidas to get rid of businesses that it was unable to manage.

Does it appear the acquisition of Reebok International will produce positive results for shareholders?

Yes, since adidas sales has gained more market share in china, overtaking Nike within that business region.
What strategic actions should adidas CEO Herbert Hainer initiate to improve the company’s financial and market performance now that the restructuring is nearing completion?
Grow in other location out side of Europe.
Adidas must increase market share in North America.
Either sell or get the Salomon’s division more profitable.
Focus on getting more business within the basketball area’s were Nike is slam dunking them at the hoops.

Work Cited
http://www.adidas-group.com/en/investor/strategy/default.asp

Crafting and Executing Strategy: The Quest for Competitive Advantage—Concepts and Cases, 15th ed., by Arthur A. Thompson Jr, A. J. Strickland III, and John E. Gamble (New York: McGraw-Hill/Irwin, 2007).

Crafting and Executing Strategy: The Quest for Competitive Advantage—Concepts and Cases, 15th ed., by Arthur A. Thompson Jr, A. J. Strickland III, and John E. Gamble (New York: McGraw-Hill/Irwin, 2007).

Crafting and Executing Strategy: The Quest for Competitive Advantage—Concepts and Cases, 15th ed., by Arthur A. Thompson Jr, A. J. Strickland III, and John E. Gamble (New York: McGraw-Hill/Irwin, 2007).

http://www.businessweek.com/bwdaily/dnflash/aug2005/nf2005088_0844_db008.htm

Crafting and Executing Strategy: The Quest for Competitive Advantage—Concepts and Cases, 15th ed., by Arthur A. Thompson Jr, A. J. Strickland III, and John E. Gamble (New York: Mc
Graw-Hill/Irwin, 2007).

Crafting and Executing Strategy: The Quest for Competitive Advantage—Concepts and Cases, 15th ed., by Arthur A. Thompson Jr, A. J. Strickland III, and John E. Gamble (New York: McGraw-Hill/Irwin, 2007).

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