Article name: "How Adidas Aims to Get Its Cool Back"

Adidass U.S. market-share slide has been a big challenge for the German company and its CEO. Above, an Adidas store in Berlin.

Adidas AG notched a big win when it signed a deal in January to sponsor University of Miami sports. The school had been rival Nike Inc.s turf for decades, a perfect place to show that Adidass new U.S. chief was breaking its long slump in America.

But many fans of The U balked, starting anti-Adidas chatter on social media. Miamis coaches seemed excited, says Mark King, Adidass new North America president. But at the kid level, he says of students, theyre like, Why would you sign with Adidas?

Thats been a recurring question about Adidas in America, and it speaks to the hurdles facing the worlds second- biggest sports brand as it tries to regain footing in the biggest sports market.

Mr. Kings challenge, simply put: Adidas isnt cool in America, and cool is what sells sports gear.

At stake are huge U.S. salesand the hearts of sports fans globally, who increasingly take their cues from American pop culture. U.S. sports apparel and footwear wholesale revenues were $51.6 billion in 2013, 43% of global sales, estimates industry tracker Sporting Goods Intelligence.

The U.S. is 40% of the worlds sneaker market and 100% of the worlds sneaker culture, says Matt Powell, a sporting-goods-industry analyst. To win the world, you need to win the U.S.

Adidas was dominant in the U.S. sports-shoe market in the 1970s; its retail market share was about 7% in 2014, according to Sterne Agee and SportScanInfo. For Mr. Kings boss, Adidas Chief Executive Herbert Hainer, the failure to reverse the German companys U.S. market-share slide is a big blemish on his 14 largely successful years running the brand.

Adidass share price more than quadrupled from 2002 through 2013. In March 2014, the company extended Mr. Hainers contract to 2017.

Then results soured. Adidass stock fell 38% to 57.6 last year, recovering to about 70 ($76) last week ahead of a five-year-strategy launch this week. Adidas reported 2014 net income of 490 million, down 38% from 2013, on sales of 14.5 billion, up 2%.

An acute problem last year was turmoil in Russia, a big Adidas market. But a deeper woe is the U.S., where sales have fallen since 2012. Adidas reported 2014 North American sales of 2.97 billion, down 7% from 2013. Nike posted $12.3 billion in fiscal 2014 North America sales, up 10% from 2013. Some investors are questioning Mr. Hainers leadership.

Off-mark in America

The 60-year-old Mr. Hainer, known for his analytical approach, has lifted Adidass market share over much of the globe. Much of his success traces to a centralized strategy of dominating soccer markets with the brand.

But his approach hasnt fixed a problem that predated his ascension: Adidas has often been off-mark among American shoppers, whose sports-gear tastes can shift unpredictably and whose spending is swayed by sports other than soccer.

U.S.-based Nike long ago outpaced Adidas in American sales and is gaining in Western Europe, Adidass home turf. Last year, Adidas fell to No. 3 in the U.S. behind Under Armour Inc. in retail sales of sports apparel and footwear, according to Sterne Agee and SportScanInfo.

When Herbert took over, America was a problem, says Christophe Bezu, former head of Adidas Asia Pacific, who left in 2011 after almost 24 years with the company. America has always been a problem, and despite serious efforts nobody has been able to fix it.

Mr. Hainer declines to be interviewed. In a financial presentation this month, he said Adidas underperformed in North America and we are all disappointed.

Mr. Hainer wants to reboot in the U.S. with Mr. King, an Adidas-group veteran who took over North American operations last June. Mr. King, an American, says headquarters in Herzogenaurach, Germany, has given him more leeway than to predecessors to craft a U.S.-specific strategy.

America is a very different mind-set from Germany, Mr. King says. Thats really the epiphany. Branding and product creation for most products sold in America will originate in the U.S. for the first time, Mr. King

says. Last year, he announced plans to hire three Nike shoe designers for a new Brooklyn, N.Y., studioAdidass first American design outpost outside U.S. headquarters in Portland, Ore.

Mr. King in December signed a sponsorship with Arizona State University, a Nike school. He persuaded headquarters to let him sponsor up to 500 National Football League and Major League Baseball players over the next few years, up from the few dozen Adidas sponsors today. I know were a soccer brand globally, he says, but in the U.S. we have to be about U.S. sport.

Some retailers are skeptical Adidas has changed its stripes. Christine Noh, who runs Nohble, a New York area chain of street-wear stores, says she has cut back Adidas allotments. Its representatives arent as attentive as rivals to her input on what shoes will resonate with consumers, she says, and Adidas tends to flood the market when it has a hit, depressing prices.

If your upper management is in Germany, and they dont know Flatbush from Harlem from Virginia, she says, its hard to have that information percolate back up to the top and have that action executed.

The Adidas spokeswoman says: We listen to retailers and consumers every day and make our business decisions based on that collective insight. She says Adidas has recently reorganized its sales teams to have dedicated reps for its Adidas and Reebok brands.

A picture of upper managements U.S. missteps emerges from interviews with more than 20 current and former Adidas executives.

Founded by German athlete and shoemaker Adolf Dassler in 1949, Adidas turned sneakers into mainstream-fashion items. Its three-striped shoes were everywhere in America in the 1970s. Industry veteran John Horan, Sporting Goods Intelligences publisher, estimates Adidas had the majority U.S. sports-footwear market share at the time.

Michael Jordan miss

In 1984, Adidas made a misstep that presaged others. A University of North Carolina basketball star named Michael Jordan wanted a sponsorship deal with Adidas when he went professional, say people familiar with the matter.

Adidas distributors wanted to sign Mr. Jordan, says someone who was an Adidas distributor then. But executives in Germany decided shoppers would favor taller players and wanted to sponsor centers, the person says, adding: We kept saying, nono one can relate to those guys. Who can associate with a seven-foot-tall guy?

Adidas signed centers of the era, including Kareem Abdul-Jabbarit still sells sneakers named for him. Mr. Jordan in 1984 signed with Nike, which built his name into a blockbuster basketball business. Mr. Jordan and Adidas decline to comment.

Tensions between Adidass people on the ground in America and in Herzogenaurach would continue for decades, say company veterans. The Americans always asked to be allowed to do what they wanted, says Mr. Bezu, the former Adidas executive, while headquarters was maybe a bit too dogmatic.

An Adidas spokeswoman says each U.S. leader had a long and successful track record.

Adidas got a pop-culture boost in 1986 when hip-hop group Run-DMC released My Adidas, a song lauding the rap worlds favorite shoes. But the boost diverted Adidas from its sports markets, hurting business when the trend waned, say former executives and distributors.

The spokeswoman says Adidas is first and foremost a sports brand but says its fusion of sports and lifestyle is a

unique attribute.

Herbert Hainer, 60, has been Adidass CEO since 2001. The Bavarian native, known for his analytical approach, is under investor pressure to improve results. Photo: Bloomberg News

By the 1990s, Nike was gaining as its swoosh adorned a broad range of stars, from Olympian Carl Lewis to tennis champ Andre Agassi. It began designing an annual signature shoe for Mr. Jordan, driving consumers to buy again and again.

When Mr. Hainer ascended in 2001, Adidass market share was rising globally but falling in the U.S. He became known as a disciplined CEO who focused on spreadsheets, several Adidas executives say.

Erich Joachimsthaler, a business consultant who has worked with Adidas, says Mr. Hainers analytical, long-term view has helped walk a fine line between stability and responding to the latest fashion trends. Running almost 54,000 employees in 160 countries, you need strategic planning and an approach like Hainers.

Some former Adidas executives say that analytical style could sometimes keep German headquarters out of touch with U.S. consumers.

During Mr. Hainers tenure, Adidas had four U.S. bosses before Mr. King. In 2005, Adidass U.S. retail market share had fallen to about 10% in sports shoes, says industry researcher SportsOneSource, versus Nikes roughly 35% and Reeboks 8%.

That year, Mr. Hainer agreed to buy Reebok for roughly $3.8 billion. In 2006, he signed a deal, estimated at $400 million, to supply the National Basketball Associations jerseysrights previously belonging to Reebokthrough 2017

Mr. Hainer boasted Adidas was gaining on Nike, telling a German newspaper that year: They feel us breathing down their back.

The Reebok deal surprised top staff in America, say former U.S. executives. From the moment we started looking at the numbers, we knew it was a screwed-up business and that wed paid too much, says a former Adidas executive involved in handling the aftermath.

Efforts to fix Reebok diverted resources from the Adidas brand, say several former executives.

The Adidas spokeswoman says that like all deals of this size, only a small amount of people worked on the preparation, adding that Reebok was not at its top when we acquired it, but we believed and firmly believe in the long-term growth potential of the brand.

Having the NBA logo deal didnt stop the long-term market-share slide. American shoppers tend to choose shoes based on what stars wear, not on what a team wears. Adidas did sign some stars, such as Kobe Bryant. But Nike was particularly adept at landing top current-talent endorsements and had a deep vault of signature shoes for former stars it could reintroduce. Nike now has more than 90% of the U.S. basketball-shoe retail market, SportsOneSource says.

Hainers five-year plan

In 2010, Mr. Hainer unveiled a five-year plan to make Adidas the leading sports brand in the world, projecting sales growth of more than 45%. One target was underpenetrated markets such as the United States.

The plan called for winning U.S. share by converting Reeboka sports brandinto a fitness brand. Adidas also set aggressive targets in American basketball shoes, says Robert Cape Capener, who ran Adidass U.S. basketball division then. His division hit its goals in the first few years, but momentum slowed and executives lost enthusiasm,

.

he says. He says Adidas has very strong assets, very strong athletes, very smart people but needs to fix whats happening in the U.S.

The Adidas spokeswoman says it hit North America targets from 2010 through 2012.

Meanwhile, the U.S. market was shifting toward athleisure, in which workout clothes became everyday wear. Companies like Lululemon Athletica Inc. made pricey yoga pants desirable, and niche sportswear competitors began filling retailers racks.

And Adidas faced new competition in Skechers USA Inc., which has became the No. 4 sports-footwear brand, according to Sterne Agee and SportScanInfo.

Last year, Patrik Nilsson, then Adidass North America chief, invited CEOs from three U.S. sports retailers to Germany to convey shoppers tastes, say people familiar with the trip. Among their messages: Make more product variations, more quickly. Adidass product cyclefrom drawing board to marketis about 18 months.

Ken Hicks, who retired as Foot Locker Inc.s CEO in December and was on the trip, says Adidas managers were successful and they took their eye off the ball a bit and didnt keep the next generation coming.

The Adidas spokeswoman says Mr. Hainer has a longstanding personal relationship with all our major retail partners.

Adidas has had notable successes like its ZX Flux and Boost shoes and in signing young guards like Portland Trail Blazers star Damian Lillard. Reebok is showing signs of growth.

Adidas this week said it wont renew its NBA contract and will instead focus on youth basketball, developing new products and doubling its NBA-player roster.

Mr. King says Adidas is working to shorten product cycles to no more than six months. This year, it introduced a much-anticipated sneaker, the Yeezy Boost, designed with rapper Kanye West. The initial run sold out.

Adidas plans to bring more American flavor to products, Mr. King says. We have so many assets that nobody knows about, and if we could tell those stories in a much better, U.S.-centric way, this brand in a very short time could definitely change its cool factor.

Questions:

As you read through the article, how do you explain why Adidas lost out in the US market in the first place? Where did Adidas go wrong? 2. Why is Adidas now becoming more serious about gaining share in the US? Why is the US market so important? Despite the company's statements, why are many US retailers still skeptical of Adidas? 3. What changes had Adidas made so far to reconquer the US market? Are they enough? What would this firm need to do in order to convince retailers that Adidas is serious about the US?