Second to None?
- Written by Jacob C. Palmer
- Published in Professional Services
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How Adidas aims to beat Under Armour and catch up with Nike.
Photos by Jason Kaplan
On a cold, rainy day in December, hundreds of Adidas employees slogged through the company’s North Portland headquarters and into a gym turned gathering space for an employee meeting before the annual holiday party.
The excitement was palpable. After years of playing second fiddle to Nike and, more recently, being overtaken by upstart Under Armour, Adidas had upbeat news to share. The brand’s stock price was at its highest since 2006 ($99.21 as of late February), and a renewed focus on the North American market imparted a sense of purpose to an international brand that ranked third place domestically.
Mark King, president of Adidas Group North America, set the tone, presiding over the meeting like a victorious high school basketball coach on an off day. He poked fun at his managers — referring to one as a “lumbersexual” for appearing outdoorsy while never actually braving the elements — and deadpanned a feeling the “love” moment following a speech from a staffer who praised a new hire that he recruited after a chance encounter at a New Seasons Market store.
Then, after some plaudits and platitudes, King and a few other executives delivered the good tidings. First, the company would be expanding its Portland footprint with the purchase of 25,000 square feet of space adjacent to the Adidas campus. Back orders and sales were up, and growth was continuing into the fourth quarter after nine straight months of gains.
General manager Zion Armstrong, a New Zealand native and former track athlete, captured the sentiment in the room when he leaned in and quietly addressed a noisy competitor: “Under Armour, fuck you.”
Earlier, in an office filled with sports memorabilia, including a helmet of his beloved Green Bay Packers, King, 56, outlines the company’s strategy in more diplomatic terms. Adidas, he says, has embarked on a complete overhaul aimed at streamlining workflow, upgrading designs and zeroing in more aggressively on younger consumers. The U.S. market is the lodestar. After years of focusing on international sales, the brand aims to target with laser focus the domestic sports market.
Mark King, president of Adidas Group North America
“We have a big ambition to be the best sports brand in the world,” says King, who was appointed nearly two years ago to help make that happen. “It’s a massive global sports brand, and we want to do as well in the United States as we do everywhere else in the world. That means we have to have the right environment, people, our designs, our consumer insights, the way we execute.”
Depending on your perspective, Adidas’ aspirations are lofty or unrealistic. In the domestic and global athletic-apparel markets, Nike stands head and shoulders above its rivals. The Beaverton-based giant raked in $30.6 billion in international sales in 2015 and commands 21.1% of the U.S. market as a brand, according to Euromonitor.
Claiming just under 4% of U.S. market share, Under Armour (3.9%) and Adidas (3.3%) are jockeying for second place. Baltimore-based Under Armour, which expanded its Portland presence last year when it purchased the former Metro Family YMCA, grossed $3.96 billion in global sales in 2015. Adidas, a far stronger brand overseas than in the United States, surpassed expectations in 2015 with $19.1 billion in global sales.
In what appears to be an ongoing locker-room brawl, Kevin Plank, Under Armour’s CEO, last year called the German corporation his “dumbest competitor,” a reference to the brand’s marketing strategy. Schoolyard insults notwithstanding, Adidas has struggled to carve out a niche in the United States, company executives and analysts agree. The big problem? The German brand has steeped itself in European sports culture and style at the expense of the American sports categories that matter: basketball, football, baseball, running and volleyball.
One of the most visible signs was Adidas’ shoe aesthetic: a clunky European style, seen in the Pro Models of the late 2000s and the Crazy Light 2s a few years later. The design makes sense for handball courts — American basketball courts, not so much.
“Adidas tried to compete in the U.S., and have for years, with a product that’s not localized enough for the U.S. market,” says John Horan, founder of the influential industry website Sporting Goods Intelligence. “That’s been a constant issue for them.” Matthew Watson, a former Nike designer and the founder of Watson Creative, a Portland design agency, agrees with that assessment. “There are clear differences between European and American tastes,” he says, and Adidas’ failure to recognize the differences has set the company back. “What is right for one culture is not necessarily the same to another,” Watson says. “I think that’s philosophical; it’s cultural.”
These cultural and design differences help explain the series of blows Adidas has suffered in the past few years — from major educational institutions abandoning the brand in favor of archrivals to retailers who were unwilling to ally themselves with a second-rate brand. In 2015 the University of Wisconsin decamped to Under Armour, while Michigan eloped with Nike’s Jordan brand.
That same year, Nike raised the price for NBA negotiations far beyond Adidas’ spending limit. As a result, Adidas lost the coveted NBA apparel contract to Nike, which will shell out a reported $1 billion over the eight-year deal.The upshot? In the battle for celebrity-athlete endorsements — the lifeblood of the athletic-apparel business — Nike keeps winning. The company has nailed the Jordan brand, along with other superstar NBA players such as Kevin Durant, Kobe Bryant (for whom they will continue making signature shoes even after he retires) and Rob Gronkowski, in addition to countless others across different sport categories.
Meanwhile, Under Armour in recent years has gotten lucky: As Horan observes, the brand’s recent athlete signings were sprinkled with “magic pixie dust.” That is: After Stephen Curry, Cam Newton and Jordan Spieth, young sports icons favored by millennials, signed up with Under Armour, their careers took off, and they became some of the most visible players and personalities in three of the most important sport categories in the U.S. — basketball, football and golf.
And Adidas? In basketball in particular, the brand has experienced rough sledding. One of the brand’s biggest investments, Chicago Bulls point guard and 2010-11 Most Valuable Player Derrick Rose, struggled with so many injuries that some resorted to blaming the shoes (a rumor fueled by a subtweet from the Nike designer responsible for LeBron James signature shoe after Rose tore his ACL in 2012). A Forbes article published last fall noted that Rose’s 13-year, $185 million contract “almost represents a sunk cost.”
These failures left Adidas with a reputation as the distant, third-choice brand — not exactly a compelling business model for retailers and distributors. “Basketball went on a run and Foot Locker and Nike worked together and they did a great job and made each other a lot of money,” Horan says. “But every season, Nike would take a little higher part of the retail margin away from Foot Locker. They’d love to be able to say, ‘Well, when you take the margin points away from me, I have to look at another brand, because Adidas is very competitive with you right now.’ But they just weren’t that.”
Energetic, affable and dressed down in a golf-club fleece, King doesn’t disagree with the critics. Asked to identify Adidas’ biggest mistake in the past decade, he doesn’t hesitate: “It was not making the U.S. a top priority,” he says. “The parent company realized that if we’re going to attain the best sports brand in the world, we have to be the best sports brand in America. You can’t say one without the other.”
Adidas’ focus on the U.S. market has been several years in the making. Since late 2014, the company’s head of design has been centered in Portland, not Germany. The brand’s decision to promote King, the former CEO of Adidas’ golf brand TaylorMade in 2014, was itself a turning point. In a press release announcing King’s appointment, then CEO Herbert Hainer said: “Mark King’s appointment underlines our clear commitment to the North American marketplace.”
The hire and the brand overhaul took equal parts courage and self-awareness, industry experts say. It was time to “hit a reset button,” says Ellen Schmidt-Devlin, director of the University of Oregon sports product management program. The move was absolutely necessary, she says. “Adidas decided to take a pause and said: ‘You know what? We could reposition ourselves to lead.’”
That repositioning takes several forms. The company is focused on “finding our purpose, finding our ‘why,’ and internally and externally sharing that more powerfully,” according to Kelly Olmstead, senior director of brand activation. More specifically, Adidas has a game plan for beating Goliath (Nike) while keeping the vandals (Under Armour) at the gate: introduce efficiency initiatives aimed at moving faster — and “failing faster,” says King — and connect with a new generation of consumers by focusing on sleek designs and the edgier side of popular culture.
Sprawling and expansive, the Adidas campus — like Nike’s — is a sports fan’s dream. Monumental photos of Adidas athletes line the walls, as do popular shoes the brand has released. There is a large sports field, coffee shops in two of the six buildings and a gym featured in the recently-released Damian Lillard commercial. Employees speak well of the company rec leagues, and the entire operation feels like being embedded with a sports team — at least when it comes to workplace look and feel.
An internal redesign is bringing the varsity-team approach into the marketplace. Adidas used to segregate work teams (the design team clustered together, as well as the communications team and so forth) in their North American headquarters with little regard for sport category. Starting in early 2015, the group reorganized so anyone who works on a basketball shoe, for example, from designers to marketers, are situated in the same physical space. This allows teams to make big changes more quickly.
To encourage employee buy-in, King recently launched an “Innovation Hub,” pooling ideas from every employee in the Adidas Group — which has about 1,200 employees in Portland alone. (The global outfit employs around 53,000 worldwide.) The innovation initiative bore fruit recently with the announcement of Avenue A, a quarterly subscription delivery service for women runners. After receiving more than 440 ideas in the running category — “some of them not so good,” admits King — Adidas found a new platform for “running to touch consumers in a different way,” he says.
Ironically, the winning idea came from an employee with the CCM hockey brand in Canada. “It didn’t come from the top, or even the running team,” says King. “He just had a great idea about running in the U.S.”
Great ideas take many forms. Mark Daniels, Adidas vice president of sport, says the brand needs to become a more nimble and culturally relevant player in the marketplace.
“Yes, we’ve got products that separate us from the other guys, but that’s not enough for how the kids are today. We’ve got to bring the culture side together as well.” The company put attitude into action in February when Adidas offered $1 million to any athlete who breaks the record for fastest 40-yard dash at the upcoming NFL Draft Combine. (To qualify for the prize, prospects must wear the brand’s Adizero 5-Star 40 cleats.)
Fashionista: Mark Daniels, Adidas vice president of sport, wears the brand’s new Yeezy Boost shoes. Adidas created the Yeezy in partnership with rapper and fashion mogul Kanye West.
As for culture, Adidas’ approach has been to tack aggressively away from the mainstream. Whether the brand aligns with a lightning rod for controversy like rapper (and husband of Kim Kardashian) Kanye West or selects a polarizing character like James Harden — another Kardashian connection who has gotten flack for his perceived lack of effort on defense — as the face of the most important sport category in America, the company isn’t afraid to make rich investments in people who are far from sure things.
“We have a unique approach, and it’s about finding your own path,” Olmstead says. “It isn’t about elevating icons and keeping them untouchable and about emulating your icon. It’s about finding your own way, a level of creativity and individuality that is not about copying.” Daniels is more explicit: “No discounting what Jordan does for Nike, but what we do on that side is so much more powerful, the way we connect culture to sport.”
In February 2015, Adidas launched its “Sport 15” campaign, a series of glitzy commercials featuring its star athletes. The brand also secured free marketing from Kanye West, who on Dec. 31 released “Facts,” a song that doubles as a slap at Nike: “Tell Adidas that we need a million in production. I done told y’all all I needed was the infrastructure.”
1. Adidas signed football linebacker Von Miller in 2011 when he was the No. 2 overall pick in the NFL Draft. Five years later, Miller took the game’s top honors: dominating in the Super Bowl 50 against Cam “Superman” Newton and becoming the 10th defensive player to win Super Bowl Most Valuable Player. To commemorate the moment, Adidas sent Miller a pair of kryptonite-themed cleats.
2. In February Adidas signed baseball wunderkind Carlos Correa. “I think the Adidas deal is a pretty good one,” the 21-year-old told FOX 26 Houston. “It’s going to help me through those five or six years that I need to get to free agency.”
3. This past September, Adidas signed Aaron Rodgers, the face of the Green Bay Packers, a team with coast-to-coast reach. Mark King, a big fan of the team, says Rodgers reached out to the brand first. “Honestly, you have the No. 1 sport with arguably one of the best, certainly one of the top, players,” King says. “You don’t have to be very smart to figure that one out.”
Underlying the campaign — and the decision to give West another platform — is the understanding that Adidas needs to do better in the American sports market. Tacitly acknowledging its failure to lure older generations, the brand is focusing on outfitting the high school athlete. The strategy makes sense for a few reasons, Daniels explains. First, professional and college teams are far more expensive. Second, the majority of American athletes peak in high school.
“We treat those high schools how we treat UCLA and Miami, and it builds a recruitment base,” he says. “It builds the ‘Holy shit, look what Adidas is doing.’ And then you give them the tech stuff that you’re giving the pros, and from there it’s all grassroots. We embarked on this six years ago and have been consistent throughout, and I think we’re building customers for life.”
About that tech stuff: Daniels and King are coy about specific initiatives in the pipeline. But all the major athletic sportswear makers are engaged in a modern-age space race, with 3-D printing and custom digital profiles on the horizon. Adidas has created a name and some buzz with Futurecraft, an early-stage “design approach that encourages exploration of new technologies through open-source collaboration,” creative director Paul Gaudio said in a press release last October.
Two years into the Adidas overhaul, the returns are looking good. In the third quarter of 2015, Adidas reported 11% growth in North American sales. Total sales were up 16% for 2015 — 18.4% in China, the world’s second-largest sports- apparel market.
Meanwhile, bringing the design team to Portland seems to have paid off. Damian Lillard’s latest signature shoe, introduced in late December, has gotten rave reviews. “The materials, the lockdown, the support…the shoe is f***ing awesome,” said one enthusiastic reviewer on the sneaker website WearTesters. “I seriously can’t believe these are only $105. They offer premium features for half the price of competitors’ offerings.”
Adidas could also end up spending “well over $100 million” in an incentive-rich extension of Lillard’s contract in 2014, Lillard’s agent Aaron Goodwin said in a USA Today report. Snagging the most-beloved (and valuable) active professional athlete in Portland is a major coup as Adidas continues to grow its roots in the city.
In 2016, you can’t underestimate the power — and the lure — of the city. Adidas’ headquarters in the sportswear capital of the country yields myriad benefits. And in at least one metric, the German brand may have the edge over Nike: Its urban North Portland location may appeal more to millennial workers than the suburbs, where Nike is expanding its campus. Portland also serves as a testing ground for King’s plan to focus on “influencer cities:” trendy metropolitan areas that are moving culture forward in this country.
Athletic-apparel companies face the same challenge as any other industry: the need for “new, smart, aggressive talent,” King says. Adidas’ grittier, come from behind status may also be an advantage in today’s disruptive workforce environment — or at least King hopes that’s the case.
“There’s a different set of requirements that attract [employees] to a company, and probably the No. 1 thing is the environment,” he says. “It’s no longer the pay or stock price. Millennials first care if it’s an environment where they can think, one that’s open to change and fresh ideas. And not everybody wants to be with the industry leader. Some people want to come into something new and special.”
Continuing the brand’s reset, Adidas’ parent company in January hired a new CEO: Kasper Rorsted, the former chief of Dial Soap. Analysts are bullish on the hire, with the caveat that it will take more than a new executive to topple Nike.
“It’s always a challenge to bring in an outsider to compete with a highly experienced sneaker management team like Nike,” Horan said in an email. “Even Nike couldn’t make that work (see Bill Perez). Adidas will have to get more competitive in North America to stop the bleeding elsewhere. Nike makes so much money here that it uses to attack Adidas elsewhere, and until there is more balance here, that global advantage will continue to exist.”
Nike isn’t the only challenge. Adidas is vying with Under Armour for the title of coolest alternative brand. And if Adidas’ fortunes are improving, so are Under Armour’s. In the last quarter of 2015, Under Armour revenue improved by 31%, up from the 28% increase Under Armour registered during the third quarter. In October, Plank predicted, with typical bravado, that Under Armour will become the Facebook of sports apparel.
Nike CEO Mark Parker plans to allocate 10% of sales to marketing in 2016. Adidas has projected spending 13% to 14% of sales on advertising.
King is undeterred. Adidas is sticking to its America-first strategy, and the company’s ability to execute will determine its success. In the coming year, Adidas is expected to continue the focus on sharp designs with the consumer in mind — sticking to a subtly avant-garde aesthetic and demeanor — and being a leader in sport.
But don’t expect to catch King on any fields himself. Although his love of games hasn’t waned — he launched his own podcast last month featuring athletes and sports personalities — King gave up competition after a harrowing experience on the softball diamond during his time with TaylorMade.
“I’m on third base,” he recounts, “there’s a fly ball to center field. Somebody in a wheelchair could’ve wheeled themselves in to score. When they caught it, I tagged up, took one step, caught my toe on my heel, face down in the sand — couldn’t get up. They walked the ball in, tagged me out. I got up and said ‘I’m retiring from intramural sports. I will coach.’ Now I’m on the treadmill.”
And so it goes in Portland, where another quirky executive is hoping to bring his brand to prominence by embracing an underdog mentality and operating outside of the mainstream. “What’s our biggest challenge?” King asks. “Everything. We do a lot of things really, really well, and we do a lot of things not so well. Our biggest challenge is the enormity of the challenge.”
But in today’s fast-changing world, the corporate hierarchy is not as stable and fixed as it used to be.
“One thing I know for sure: Whatever the world looks like in 2015, by 2017 or ‘18, it’s going to look different,” King says. “Hopefully we’re the ones that are making it look different. Just because you’re the leader doesn’t mean you’re going to be the one making it look different two or three years down the road, and that’s the incredibly fascinating thing about business today.”