A German sporting goods company is focusing on the global ‘epicentre’ of the sneaker market to catch up with its rival. They say a picture paints a thousand words but sometimes a number does it even better. Nike, the US sporting goods behemoth whose swoosh logo is as instantly recognizable as its name, together with its Jordan brand have built up a share of nearly 60 per cent of the US trainers market. Adidas has just 4.4 per cent. The German group is far more competitive in sports apparel and markets outside the US. The duo are neck-and-neck in western Europe, Adidas is a long way ahead in Russia, and Nike has a narrow lead in China. But Nike’s dominance in the world’s most important sneaker market gives it a painfully sharp edge on Adidas, which is pushing a new strategy to claw back share across key sportswear segments, with a strong emphasis on the US. With such a big gap to close in trainers, Adidas has a mammoth task on its hands. Outside the US there is much greater parity between Nike and Adidas. ‘But the US is the epicentre of the global sneaker/“athleisure” market’, says Matt Powell, sports industry analyst at research firm NPD, which calculated the market share data. ‘Ultimately to win globally, sneaker brands must win in the US. Nike has a deep and rich understanding of the US sneaker consumer.’ Nike has been a runaway success over the past five years. It is the world’s biggest sportswear company by sales and in the year to June 2015 revenues rose 10 per cent, to $30.6bn. Adidas, meanwhile, reported a 6 per cent rise in revenues on a currency neutral basis to €14.5bn, for the full year 2014. Profit at Nike has risen at a double-digit rate – and that is despite its overseas business grappling with a strong dollar that has made prices less competitive. Adidas will need to add sales at a brisk pace to even maintain the existing gap with Nike. The western European market shows how tough this race will be. Over the past three years, the sales growth of the Nike brand has outstripped that of the German group’s Adidas and Reebok brands by roughly Case study 10 percentage points on average, once currency fluctuations are excluded, according to UBS analysts. The result is that Adidas and Nike are now level in the region that has traditionally been the German company’s stronghold. Euromonitor, a market research provider, calculates that both groups had a 12.8 per cent share of the western European sportswear market in 2014. ‘Alarmingly for Adidas, Nike has caught up in its core western Europe market, and may overtake it in the short term,’ says Natasha Cazin, senior analyst at Euromonitor International. Even maintaining the dead heat in which Adidas now finds itself with Nike could be hard, says Zuzanna Pusz, an analyst at Berenberg. ‘Adidas is doing fine in western Europe, but they should be as they are spending 14 per cent of their sales on marketing,’ she says. ‘The question is whether this is sustainable.’ A recent survey by analysts at UBS also found signs of Nike’s surge, particularly among the young. The survey looked at how many times consumers ‘liked’ Facebook pages associated with different sports brands, and found that Nike was far ahead of its rivals in all the big European markets – and recently overtook Adidas in Germany. UBS also found that the perception of Nike’s brand exceeded that of Adidas in London and Paris, two of the six cities around the world that Adidas is targeting as part of its efforts to regain ground on its US rival. ‘Adidas undoubtedly needs to improve brand perceptions among younger consumers. But the good news is that we think it has a big opportunity to achieve this by placing a bigger focus on social media, leveraging its sponsorship asset base, and creating more relevant product for the target teenager,’ the analysts wrote. Adidas’s recent overhaul of its football boot offering – it replaced its famous Predator and F50 lines with two newcomers, Ace and X – is seen as one way in which it can renew its appeal among teenagers. he company has also taken steps to improve its position in the fast-growing area of fitness tracking, snapping up app developer Runtastic. Ms Pusz says focusing on sports software is the right way to go, but adds that Adidas is playing catch up instead of setting the pace. Nike is already by far the trendsetter in its home market. Not only does it have the financial clout when it comes to endorsements, it was quick off the mark in recognising the importance of social media and advertisements uploaded on YouTube. During the recent women’s World Cup in Canada, although Adidas was the main sponsor, Nike emerged victorious in terms of social media engagement. Its #NoMaybes campaign was 121 per cent more associated with the World Cup than Adidas, according to Amobee Brand Intelligence. But it is an area again where it has the potential to catch up and win over more millennials. It plans to improve marketing, be more innovative with its products and bring them more quickly to market. ‘Adidas has made the right decisions to move global product and marketing to the US,’ NPD’s Mr Powell says. ‘Hopefully they will develop a less European-centric point of view.’ It helps Adidas that the so-called athleisure wear trend is only growing stronger. As more people wear casual sports clothes in situations – even work – that were previously considered more formal, there is room for many companies to expand. This also means there are more companies to overtake it. Under Armour, a relative newcomer, last year sold more trainers, tracksuits and T-shirts than Adidas in the US. And fashion is fickle. Some analysts question whether sports brands really benefit by overly focusing on chasing trends or working with celebrities – as Adidas is doing with Kanye West after the pop star dropped his relationship with Nike. Paul Swinland of Morningstar says that for a company whose raison d’être is performance – which breeds loyalty – chasing fashion ultimately only gives short-term gains and is ‘off brand’. As Adidas works its new strategy in the US, Nike’s challenge is maintaining the pace of growth investors have come to expect. ‘They’ve gotten such strong growth in apparel and basketball, it just can’t go on forever; you can’t have 15–20 per cent growth forever,’ Mr Swinland says. Yet being Nike’s rival must feel a lot tougher. ‘Impossible is nothing’, or so goes Adidas’s well-known slogan. It will be hoping it does not prove itself wrong. Rivals take different approaches. When Adidas and Nike make headlines in China, it is often because workers at one of their suppliers in the ‘world’s workshop’ have gone on strike in manufacturing centres such as Dongguan. But as Adidas seeks to make up ground on Nike, the two companies are paying attention to China as an important market in its own right. In announcing its second-quarter results on Thursday, Adidas highlighted a 19 per cent increase in its Greater China sales. With second-quarter revenues of €564m ($615m), Greater China is Adidas’s third-largest market, after western Europe and North America. But it is also the German company’s second-most profitable one, with a second-quarter gross margin of 59 per cent. Similarly, Nike’s Greater China earnings in the three months to the end of June ($266m) were almost as big as western Europe’s ($277m), despite a much smaller revenue base – $829m in Greater China compared with $1.2bn in western Europe. Reflecting the wealth disparities that make China both a manufacturing powerhouse and coveted market, a pair of Nike’s LeBron basketball trainers sell for the equivalent of $275 compared with a monthly minimum wage in Dongguan of $210. Analysts say that Adidas and Nike have adopted different approaches to the China market. ‘Nike has gone through the basketball route, focusing on celebrity endorsements, while Adidas has taken a more grassroots focus aimed at youth culture,’ says Matthew Crabbe, a retail analyst with Mintel. Both will have to contend with a tougher retail climate as China’s economy is now growing at its slowest annual rate for 25 years.
1 Why is Adidas focusing on the US market?
2 Why has Adidas seemingly lost ground to Nike?
3 Should Adidas only benchmark itself against Nike? What steps should it follow when conducting benchmarking activities?