Impossible is nothing

CASE OVERVIEW

WHO IS ADIDAS?
Adidas AG is a German sports apparel manufacturer and head company of the
Adidas Group which own the Following Brands
Reebok sportswear company
Taylor Made- Adidas golf company (including Ashworth)
Rockport

Besides sports footwear, the company also manufactures other products such as
bags, shirts, watches, eyewear, and other sports- and clothing-related goods.

The company is the largest sportswear manufacturer in Europe and the

second-biggest sportswear manufacturer in the world, with American rival Nike
being the biggest
 HISTORY

Adidas was founded in 1948 by Adolf "Adi" Dassler, following the split of
Gebrder Dassler Schuhfabrik between him and his older brother Rudolf.

They first named the brand "Dassler Shoes"

The brother had a conflict and Rudolf decides to start his own company
named Puma

Registered in 1949, Adidas is currently based in Herzogenaurach, Germany,

along with Puma.
 HISTORY

In the year 2006, Adidas businesses were organized under three units

1. Adidas divided the brand into three main groups with each a separate
focus:

A. Adidas performance or Sport

B. Adidas Originals or Sport style
C. Style essentials - the main group with Y-3

2. Reebok
3. Taylor-made Adidas Golf.
 BRAND LOGO
The company's Brand Portfolio

Sport Style Division or Three Parallel Bars

The authentic foot wear for the fashion group.
Uniquely inspired and linked to Sport

Sport Performance Division or "Three Stripes

This aim to bring great products for athletes

Inspired in Sports and Womens Fitness

Reebok-CCM Hokey and Rockport included in this brand

To focus on consumer that seeks performance-enhancing

golf equipment. Part of this brand is Adidas Gold and
Ashworth
 Company highlights:

1949: The three stripes were applied to the products as registered

trademark of the brand. String Innovations with molded rubber cleats.
1952: Innovation of track shoes with screw-in spike.
1954: Concept expansion of soccer shoes with screw in studs which partially
credited for Germanys World Cup Championship.
1960: Adidas was the clear favorite among athletic
1963: The company began selling soccer balls
1967: The company began producing soccer athletic apparel
1970: Adidas became the leading brand of consumer jogging shoe in
America.
1978: Adidas remained the worldwide leader in athletic foot wear, but the
company was rapidly losing market share in the US. Adi Dassler death.
 Company highlights:

1987: Horst Dassler unexpected death.

1990: Adidas has fallen to be the number eight ranking in the US
andheld only 2% market share.
1993: Controlling of the company was acquired by the group of
investor led by French advertising executive Robert Louis-Dreyfus
were he launched a dramatic turn-around of the company. (Cutting
cost, improving style, launching new models, and creating new
promotional events.)
1994: Adidas increase its annual sales in US by 75% and improve its
market share which made them become the third largest seller of
athletic footwear in US.
1995: Outfitted 6000 athletes in the Olympic Games in Atlanta.
 Company highlights:

1997: Get a celebrity endorser(Kobe Bryant, Anna kournikova and David

Beckham.
1998: Acquisition of French sporting goods and manufacturers and marketer
Salomon SA. The acquisition diversified the company footwear and apparel as
ski equipment golf club, bicycle components and winter sports apparel.
1999: Adidas Solomon management announced that synergies from the
merger would amount to less than one half of initially projected.
2000: Deyfruss step down from Adidas.
2001: Herbert Hainer was tapped as replacement of deyfruss : the company
expanded into company-owned retail stores in Berlin, Tokyo, Amsterdam and
Paris.
2006: The company of acquisition Reebok International
 Company Mission Statement

CORPORATE MISSION STATEMENT

The Adidas Group strives to be the global leader in the sporting goods industry with
sports brands built on a passion for sports and a sporting lifestyle.

We are dedicated
to consistently delivering outstanding financial results.
We are innovation and design leaders
who seek to help athletes of all skill levels achieve peak performance with every product we bring to
market.
We are consumer focused
and therefore we continuously improve the quality, look, feel
and image of our products and our organisational structures to
match and exceed consumer expectations and to provide them
with the highest value.
We are a global organisation
that is socially and environmentally responsible,
creative and financially rewarding for our employees
and shareholders.
We are committed
to continuously strengthening our brands and products to improve
our competitive position.
Company Slogan
 SWOT ANALYSIS:
Internal Analysis
STRENGHT:
Styles are distinguished from other brand by three
stripes applied to each side of the shoe.
Product strongest category is soccer with market shares
of 50% than Europe.
Product innovation on its features and used.
Asia is Adidas largest market share
The upper and middle price market can be covered.
Reebok and Adidas can share R nD pattents and
innovations.
WEAKNESSES:
Adidas product small sales contribution is the street
wear and lifestyle fashion
Complexity of joining two corporate cultures
Different values among management. (British and
German)
External Analysis
OPPORTUNITIES:
Big company opportunity in North America market
because it was the largest market for athletic apparel.
Market for sports lifestyle apparel and footwear is
growing faster.
Expand fashion marketing through more fashion based
endorsements rather than sports.
Golf equipment selling price in Asia is higher than any
place in the world.
THREATS:
Declining attractiveness of the winter sports industry and
integration problems between the Adidas foot wear and
apparel business.
Nike strong reputation in the footwear and apparel
industry.
Nikes growing market share in sportswear, mainly
footwear
The Golf equipment industry reach the maturity on
product cycle.
 Strategic Implication

Unrelated and Related Diversification Strategy

Acquisition of Salomon SA (Related or Unrelated?)

The acquisition diversified Adidas footwear
and apparel in a broader business like ski equipment golf club, bicycle
components and winter sports apparel.

Acquisition of Reebok International (Related or Unrelated?)

The merger diversified the company footwear
and apparel to become stronger financially
And share same value chain.
 Diversification

Why Adidas acquire Solomon?

1. Loius-Dreyfus see opportunities to expand into industries whose

technologies and products complement Adidas present business.
2. Dreyfuss though Adidas powerful brand name it can transfer to products of
Solomon to increase sales and profits of these businesses
3. He also consider all the risk related in a Single Business Strategy

Acquisition of Salomon SA (Related or Unrelated?)

Concept: New Industry w/ Economies of Scope

The acquisition diversified the company footwear and apparel as ski equipment
golf club, bicycle components and winter sports apparel.
 Diversification

Why Adidas acquire Reebok

1. Herbert Heiner see it can reduce costs by diversifying into closely related
businesses
2. Adidas powerful brand name can be transfer to Reebok to increase sales
and profits of footwear business.
Acquisition of Reebok (Related or Unrelated?)

Concept: Merger with good Strategic Fit

Reebok acquisition will ask question is how well Adidas will manage its new
portfolio and executes new products and marketing plans that allow the
two big brands to complement each other rather than duplicate efforts.
 Test of Resource Fit

Test Resource fit for the two acquisition:

Acquisition of Salomon SA - Not very good Strategic Fit

X Poor Financial Fit Fails because it soaks up financial resources of Adidas AG
X RnD fit - Cant Directly transfer technology advancement of Adidas
X Supply Chain Fit - Different raw Materials needed in some of the products
X Manufacturing Different Assembly line required
Distribution Can use same Distributor for General Sports Shop
Marketing - Can use the same sales Force

Acquisition of Reebok International Very Strategic due to

almost same Value Chain
R&D and Technology Fit Rbk and Adidas product Athletic Wear
Supply Chain Fit Greater bargaining Power by sourcing to same supplier
Manufacturing Fit Expertise in Athletic wear production can be transferred
Distribution Fits Can use same distributor to access csutomer
Marketing Fits Can have reduction is Sales Force
 Strategic Implication

External and internal analysis:

Products are innovated with differentiation to its other
line of business.
Asia is the strongest country in sales
Less focus on improving their street wear and lifestyle
fashion products
Less focus on product specialization
 Value Chain Activities

Supply Chain Technology Sales and Customer

Operations Distribution
Activities And RnD Marketing Service

Value Chain is not Strategically Fit

Supply Chain Technology Sales and Customer

Operations Distribution
Activities Amd RnD Marketing Service

Parent Company Value Chain is Strategically Fit

Supply Chain Technology Sales and Customer

Operations Distribution
Activities And RnD Marketing Service
 QUESTION: 1

What is adidas corporate strategy?

Was there a common strategic approach utilized in managing the
companys lineup of sporting goods businesses prior to its 2005
2006 restructuring?

Has the corporate strategy changed with restructuring?

 ANSWER: 1

Adidas-Salomons corporate strategy (1998 2004):

Diversified into a mix of sporting goods businesses, most
of which had branded apparel among the product line.
Less focus on product specialization
Salomon and TaylorMade are clearly related businesses.
Product development, manufacturing and assembly, and
distribution activities for Salomon and TaylorMade
sporting goods equipment were unrelated to the value
chain activities of the athletic footwear and apparel
business.
Also, the value chains for each equipment business
(winter sports, bicycle rims, and golf clubs) were very
dissimilar. This are unrelated diversification outside the
apparel and footwear operations of each business.
 ANSWER: 1

Adidas post-restructuring corporate strategy (Since 2005):

Adidas restructured business lineup has focused the
product line on athletic footwear and apparel and golf
equipment.
The acquisition of Reebok also added hockey equipment
and Rockport footwear, but these businesses make up a
relatively minor part of Reebok Internationals revenues.
The value chains of TaylorMade and CCM hockey
equipment are dissimilar to that of adidas footwear and
apparel businesses, the companys corporate strategy after
2006 is best described as primarily related diversification.
 QUESTION: 2

What is your evaluation of adidas 1998 acquisition of

Salomon SA? Did the acquisition achieve the Robert
Louis-Dreyfus objective of putting together the best
portfolio of sports brands in the world? What does a
9-cell industry attractiveness/business strength
matrix displaying adidas-Salomon s business units
look like?
 ANSWER: 2

The Acquisition of Solomon did not quite prove to be a

profitable move. Adidas didnt uncover the purpose of being
the cash hog for Solomon. Solomon didnt deliver of what
was expected during the acquisition.

To draw a 9-cell industry attractiveness/business strength

matrix for adidas using rigorous methodology, we conduct
industry attractiveness ratings for each of the industries in
which adidas competes.
 9-Cell Industry Attractiveness-
Competitive Strength Matrix

Table 1 Industry Attractiveness Assessment for adidas Businesses

(Scale 1 = very low attractiveness, 5 = average attractiveness, 10 = very strong attractiveness)

Unweighted/Weighted Ratings

Athletic
Footwear & Casual Mens Hockey
Attractiveness Measure Weight Apparel Golf Equipment Footwear Equipment
Market size and growth rate
0.20 7/1.4 4/0.8 4/0.8 2/0.8

Industry profitability 0.25 5/1.25 5/1.25 5/1.25 5/1.25

Intensity of competition
0.15 5/.75 6/0.9 4/0.6 10/1.5

Emerging opportunities and

threats
0.05 6/.3 7/.35 4/.2 4/.2

Resource requirements
0.10 8/0.8 7/0.7 8/0.8 6/0.6

Product innovation 0.20 9/1.8 10/2.0 5/1.0 4/0.8

Social, political, environmental,

factors
0.05 9/.45 9/.45 9/.45 9/.45

Totals 1.00 6.75 6.45 5.1 5.6

 9-Cell Industry Attractiveness-
Competitive Strength Matrix

Table 2 Competitive Position/Business Strength Calculations for

adidas Business Units
(Scale 1 = very weak, 5 = average, 10 = very strong)

Unweighted/weighted Strength Ratings

TaylorMade- CCM/Rbk
Strength Measures Weight adidas Reebok adidas Golf Rockport Hockey

Relative market share 0.20 6/1.2 4/0.8 8/1.6 2/0.4 10/2.0

Marketing and promotion 0.25 8/2.0 6/1.5 10/2.5 2/.5 6/1.5

Product innovation capabilities 0.15 9/1.35 7/1.05 9/1.35 7/1.05 6/.9

Distribution capabilities 0.10 9/0.9 7/0.7 10/1.0 6/.6 6/.6

How well resources are matched

to industry KSFs 0.10 10/1.0 10/1.0 10/1.0 8/0.8 10/1.0

Brand name recognition/image 0.20 8/1.6 6/1.2 10/2.0 7/1.4 10/2.0

Totals 1.00 8.05 6.25 9.45 4.75 8.0
 ANSWER: 2

Upon evaluating on the data, there is a little

disagreement on athletic footwear and apparel. The
golf equipment rank as its most attractive industries.
The data shows that hockey equipment and casual
mens footwear have only a modest level of
attractiveness. Due to small market size and slow
growth with low profitability.
The emerging opportunities are very few.
 ANSWER: 2

Its quite clear from the case that adidas possessed

considerable strength in its core athletic footwear and
apparel business in every market outside North
America
Adidas nor Reebok were serious challengers to Nike in
the United States or other markets in North America.
Adidas was quite strong in Europe, Latin America, and
Asia making it a respectable worldwide runner-up to
Nike.
TaylorMade-adidas Golf had a great deal of business
strength, which was also the case for CCM/Rbk hockey.
Rockport held only a moderate amount of competitive
strength in the casual mens footwear industry.
Figure 1 Sample IndustryAttractiveness/Competitive Strength Matrix of Adidas Businesses
 QUESTION 3:

Did adidas business line-up prior to the divestiture of

Salomon and Mavic exhibit good strategic fit? What
value-chain match-ups existed? What opportunities for
skills transfer, cost sharing, or brand sharing were
evident? What strategic fits will be possible once
Reebok International is acquired?
 ANSWER:3

We need to understand what is the strategic fit opportunities between

adidas and Reebok branded athletic footwear and apparel.
Based from the value chain showed earlier, the two brands have
opportunities to share product development activities, contract
manufacturing relationships, and international distribution channels.
Ther are also strategic fit opportunities existing between Rockport and
adidas athletic footwear in product design, production, and distribution.
Strategic fits also exists between aadidas apparel business, Rbk, and
Ashworth.
The image building, sales, and marketing activities of all businesses are very
similar and offered considerable skills transfer benefits across the company.
 ANSWER:3

Few strategic fit opportunities in purchasing, product development, or

manufacturing between Adidas apparel and footwear businesses and its
sports equipment businesses (golf clubs and hockey equipment).
The purchasing, product design, and production activities for hockey
equip-ment and golf equipment are undoubtedly very dissimilar.
Good strategic fit in distribution and sales and marketing between golf
equipment and golf apparel and between hockey equipment, hockey skates,
and hockey apparel.
We agree brand sharing opportunities existed for TaylorMade golf
equipment, Adidas branded golf apparel and footwear, and Ashworth golf
apparel.
Customer service activities of these business groups could respond to
retailer queries concerning equipment or apparel.
 ANSWER:3

Adidas have great difficulty combining customer service activities for

businesses with no common retailers (i.e. mens casual footwear,
hockey equipment retailers, golf equipment retailers, and traditional
sporting goods retailers
Strategic fit between adidas core athletic apparel and footwear
business and the divested Salomon winter sports business have few
potential strategic fits existed.
The greatest opportunities to share costs or transfer skills between the
business units were related to apparel design and manufacturing.
Adidas was likely able to use common contract manufacturers to
produce both athletic apparel and ski apparel.
 QUESTION: 4

Has adidas business line-up exhibited good resource fit

between 1998 and 2007? What have been the financial
characteristics of its major business segments during
that time period? Which businesses might have been
considered cash hogs and cash cows?
 Table 3 Selected Financial Ratios for Adidas,
1998 2005

2005 2004 2003 2002 2001 2000 1999 1998

Gross Profit Margin 48.2% 48.0% 44.9% 43.2% 42.6% 43.3% 43.9% 41.9%

Operating Profit Margin 10.7% 10.0% 7.8% 7.3% 7.8% 7.5% 9.0% 8.2%

Net Profit Margin 6.4% 5.6% 4.1% 3.5% 3.4% 3.1% 4.2% 4.0%

Return on Assets N/A N/A N/A N/A N/A N/A N/A N/A

N/A N/A N/A N/A N/A N/A N/A N/A

Return on Equity
N/A N/A N/A N/A N/A N/A N/A N/A
Debt to Assets
N/A N/A N/A N/A N/A N/A N/A N/A
Current Ratio
N/A N/A N/A N/A N/A N/A N/A N/A
Inventory Turnover

N/A Not available.

Calculated from case Exhibits 1 and 3.
 ANSWER: 4

Table 3 will note that adidas gross margins, operating

profit margins, and net profit margins have all declined
since its restructuring began in 2005.
The companys current ratios for 2006 and 2007 seem to
indicate that Adidas has ample liquidity, but we accounts
receivable and inventories made up 77% and 74.6% of its
current assets in 2006 and 2007, respectively.
The company has also unimpressive inventory turns of 3.5
and 3.3 in 2006 and 2007, respectively.
Table 4
Operating Profit Margins
by Adidas Business Segment,
1998 2005

2005 2004 2003 2002 2001 2000 1999 1998

Adidas 11.8% 10.9% 7.4% 6.7% 7.3% 8.4% 9.7% 9.5%

Reebok -- -- -- -- -- -- -- --

TaylorMade-adidas Golf 7.1% 7.6% 10.5% 10.5% 11.6% 10.0% 9.2% 7.6%

Salomon -- 1.4% 5.3% 5.7% 8.8% 8.7% 5.5% 1.2%

Table 5 Operating Profit as a Percentage of Operating Assets
for Adidas
Business Segments, 1998 2005

2005 2004 2003 2002 2001 2000 1999 1998

Adidas 27.4% 27.0% 16.8% 15.0% 18.0% 17.1% 21.7% 23.8%

Reebok -- -- -- -- -- -- -- --

TaylorMade-adidas Golf 7.2% 7.8% 17.1% 17.1% 19.9% 20.1% 19.2% 20.2%

Salomon -- 1.8% 6.7% 6.7% 9.3% 10.8% 6.0% 1.0%

 ANSWER: 4

In this adidas athletic footwear & apparel and TaylorMade Golf are the
financial strength of the portfolio.
From Table 4. The operating profit margins of both business units during
1998 - 2004 exceeded that of the Salomon business unit in each year
except 2000 and 2001.
In addition, the operating profits as a percentage of operating assets for
the adidas unit and TaylorMade unit were much better than that of
Salomon in all years between 1998 and 2004. Y
The exception of Salomons performance in 2004, Reeboks operating
profit margins are no more attractive than those recorded by Salomon.
The financial ratios shown in Table 5 provide further evidence that
neither Salomon nor Reebok are strong resource contributors to adidas.
Reeboks poor performance is largely responsible for the companys
overall decline in profit margins since 2005.
Cash Cow and Cash Hog 1998
Cash Cow and Cash Hog 2005
Table 6 Estimated Cash Flow For Adidas Business Units,
1998 - 2005

Adidas 2005 2004 2003 2002 2001 2000 1999 1998

Operating Profit 693 564 365 343 352 391 431 412

+ Amortization and depreciation 69 56 56 63 57 52 45 48

- Capital expenditures 138 85 63 84 113 93 105 102

Estimated Cash Flow 624 535 358 322 296 350 371 358
Reebok

Operating Profit -- -- -- -- -- -- -- --

+ Amortization and depreciation -- -- -- -- -- -- -- --

- Capital expenditures -- -- -- -- -- -- -- --

Estimated Cash Flow -- -- -- -- -- -- -- --

TaylorMade-adidas Golf

Operating Profit 50 48 67 74 63 44 30 20

+ Amortization and depreciation 13 11 9 7 6 4 4 2

- Capital expenditures 17 9 12 49 16 12 10 16

Estimated Cash Flow 46 50 64 32 53 36 24 6

 QUESTION: 5

Based on your analysis of adidas-Salomon

businesses, did the 2005 restructuring make
sense? Does it appear the acquisition of
Reebok International will produce positive
results for shareholders? 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?
 ANSWER: 5

The divestiture of the Salomon winter sports and Mavic bicycle components
businesses was a good decision. The two businesses offered little strategic fit
beyond what was possible in apparel and was a drag on earnings.
There are also on the ability of the Reebok International acquisition to
improve the companys poor performance in the North American marketplace
for athletic footwear.
Reebok branded footwear gave the company a combined market share of
approximately 21% in North America, there was little evidence that the
acquisition helped adidas close the competitive gap with Nike.
The Reebok acquisition was intended to address the companys weakness in
the mens basketball category of the North American athletic footwear market
but Reebok was no stronger in the basketball category than adidas.
Reeboks strength in footwear markets focused on beginning runners and
womens casual shoes contributed to its low profit margins because of the
likely strong price competition in those segments.
 ANSWER: 5

We also recommend to allow Adidas and Reebok to

match Nikes 36% market share in North America.
Position Adidas as a technology leader and Reebok at
lower price. This will likely increased sales in
international markets because they increase in market
segment of Mid-To0High price segment.
Support growth in international markets, by expansion
of company-owned retail stores in Latin America,
Eastern Europe, and Asia.
 ANSWER: 5

Adidas towork diligently to capture expected cost-

sharing benefits between Adidas and Reebok
operations of 105 million.
Integration efforts should also apply to Rockport,
CCM/Rbk Hockey, and Ashworth business units.
The must find ways to Blend the two companies
distinctly different cultures and leadership styles
(German and English)
 ANSWER: 5

The company must also give TaylorMade Golf adequate

investments to maintain technological leadership in the golf
equipment industry.
Innovation is a strength of the business and must remain a
central element of its strategic approach to competition.
The company must also move to capture strategic fit
opportunities existing between adidas Golf apparel and
Ashworth apparel operations.
Adidas management continue its exit from the golf ball
segment of the golf equipment industry with the divestiture of
golf balls segment.