128 CHAPTER 5 COMPETITOR ANALYSIS

strategy, just as in war, it is impossible to exaggerate the importance of gathering information

on the adversaries a company faces. As Sun Tzu says: ‘An army without spies is like a man
without ears or eyes’ and, because of this, ‘to remain in ignorance of the adversary’s condi-
tion simply because one grudges the outlay of a few hundred ounces of silver in honours and
emoluments, is the height of inhumanity’.

Case study Adidas kicks off US drive to close in on Nike

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 recognis-
able 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. 10 percentage points on average, once currency fluc-
But Nike’s dominance in the world’s most important tuations are excluded, according to UBS analysts.
sneaker market gives it a painfully sharp edge on Adi- The result is that Adidas and Nike are now level
das, which is pushing a new strategy to claw back share in the region that has traditionally been the Ger-
across key sportswear segments, with a strong empha- man company’s stronghold. Euromonitor, a market
sis on the US. With such a big gap to close in trainers, research provider, calculates that both groups had a
Adidas has a mammoth task on its hands. 12.8 per cent share of the western European sports-
Outside the US there is much greater parity wear market in 2014.
between Nike and Adidas. ‘But the US is the epicen- ‘Alarmingly for Adidas, Nike has caught up in its
tre of the global sneaker/“athleisure” market’, says core western Europe market, and may overtake it in
Matt Powell, sports industry analyst at research firm the short term,’ says Natasha Cazin, senior analyst at
NPD, which calculated the market share data. ‘Ulti- Euromonitor International.
mately to win globally, sneaker brands must win in the Even maintaining the dead heat in which Adidas
US. Nike has a deep and rich understanding of the US now finds itself with Nike could be hard, says Zuzanna
sneaker consumer.’ Pusz, an analyst at Berenberg. ‘Adidas is doing fine
Nike has been a runaway success over the past in western Europe, but they should be as they are
five years. It is the world’s biggest sportswear com- spending 14 per cent of their sales on marketing,’ she
pany by sales and in the year to June 2015 revenues says. ‘The question is whether this is sustainable.’
rose 10 per cent, to $30.6bn. Adidas, meanwhile, A recent survey by analysts at UBS also found
reported a 6 per cent rise in revenues on a currency- signs of Nike’s surge, particularly among the young.
neutral basis to €14.5bn, for the full year 2014. The survey looked at how many times consumers
Profit at Nike has risen at a double-digit rate – and ‘liked’ Facebook pages associated with different
that is despite its overseas business grappling with a sports brands, and found that Nike was far ahead of
strong dollar that has made prices less competitive. its rivals in all the big European markets – and recently
Adidas will need to add sales at a brisk pace to even overtook Adidas in Germany.
maintain the existing gap with Nike. UBS also found that the perception of Nike’s
The western European market shows how tough brand exceeded that of Adidas in London and Paris,
this race will be. Over the past three years, the sales two of the six cities around the world that Adidas is
growth of the Nike brand has outstripped that of the targeting as part of its efforts to regain ground on
German group’s Adidas and Reebok brands by roughly its US rival.

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 CASE STUDY 129

‘Adidas undoubtedly needs to improve brand have come to expect. ‘They’ve gotten such strong
perceptions among younger consumers. But the growth in apparel and basketball, it just can’t go on
good news is that we think it has a big opportunity forever; you can’t have 15–20 per cent growth for-
to achieve this by placing a bigger focus on social ever,’ Mr Swinland says.
media, leveraging its sponsorship asset base, and Yet being Nike’s rival must feel a lot tougher. ‘Impos-
creating more relevant product for the target teen- sible is nothing’, or so goes Adidas’s well-known
ager,’ the analysts wrote. slogan. It will be hoping it does not prove itself wrong.
Adidas’s recent overhaul of its football boot offer- Rivals take different approaches.
ing – it replaced its famous Predator and F50 lines When Adidas and Nike make headlines in China, it
with two newcomers, Ace and X – is seen as one way is often because workers at one of their suppliers in the
in which it can renew its appeal among teenagers. ‘world’s workshop’ have gone on strike in manufactur-
The company has also taken steps to improve its ing centres such as Dongguan. But as Adidas seeks to
position in the fast-growing area of fitness tracking, make up ground on Nike, the two companies are paying
snapping up app developer Runtastic. Ms Pusz says attention to China as an important market in its own right.
focusing on sports software is the right way to go, In announcing its second-quarter results on Thurs-
but adds that Adidas is playing catch up instead of day, Adidas highlighted a 19 per cent increase in its
setting the pace. Greater China sales.
Nike is already by far the trendsetter in its home With second-quarter revenues of €564m ($615m),
market. Not only does it have the financial clout when Greater China is Adidas’s third-largest market, after
it comes to endorsements, it was quick off the mark in western Europe and North America. But it is also the
recognising the importance of social media and adver- German company’s second-most profitable one, with
tisements uploaded on YouTube. During the recent a second-quarter gross margin of 59 per cent.
women’s World Cup in Canada, although Adidas was Similarly, Nike’s Greater China earnings in the
the main sponsor, Nike emerged victorious in terms of three months to the end of June ($266m) were almost
social media engagement. Its #NoMaybes campaign as big as western Europe’s ($277m), despite a much
was 121 per cent more associated with the World Cup smaller revenue base – $829m in Greater China com-
than Adidas, according to Amobee Brand Intelligence. pared with $1.2bn in western Europe.
But it is an area again where it has the potential Reflecting the wealth disparities that make China
to catch up and win over more millennials. It plans to both a manufacturing powerhouse and coveted
improve marketing, be more innovative with its prod- market, a pair of Nike’s LeBron basketball trainers sell
ucts and bring them more quickly to market. ‘Adidas has for the equivalent of $275 compared with a monthly
made the right decisions to move global product and minimum wage in Dongguan of $210.
marketing to the US,’ NPD’s Mr Powell says. ‘Hopefully Analysts say that Adidas and Nike have adopted
they will develop a less European-centric point of view.’ different approaches to the China market. ‘Nike
It helps Adidas that the so-called athleisure wear has gone through the basketball route, focusing on
trend is only growing stronger. As more people wear celebrity endorsements, while Adidas has taken a
casual sports clothes in situations – even work – that more grassroots focus aimed at youth culture,’ says
were previously considered more formal, there is Matthew Crabbe, a retail analyst with Mintel.
room for many companies to expand. Both will have to contend with a tougher retail
This also means there are more companies to climate as China’s economy is now growing at its
overtake it. Under Armour, a relative newcomer, last slowest annual rate for 25 years.
year sold more trainers, tracksuits and T-shirts than Source: from ‘Adidas struggles to catch up with Nike’s runaway
Adidas in the US. success’, Financial Times, 07/08/15 (Whipp, L. and Shotter, J.).
And fashion is fickle. Some analysts question whether
sports brands really benefit by overly focusing on chas-
ing trends or working with celebrities – as Adidas is doing Discussion questions
with Kanye West after the pop star dropped his rela- 1 Why is Adidas focusing on the US market?
tionship with Nike. Paul Swinland of Morningstar says 2 Why has Adidas seemingly lost ground to Nike?
that for a company whose raison d’être is performance –
3 Should Adidas only benchmark itself against
which breeds loyalty – chasing fashion ultimately only
Nike? What steps should it follow when
gives short-term gains and is ‘off brand’.
conducting benchmarking activities?
As Adidas works its new strategy in the US, Nike’s
challenge is maintaining the pace of growth investors

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