Adidas in 2008: Has Corporate

Adidas in 2008: has corporate restructuring increased Shareholder value?

The case study is basically written for the purpose to giving an overview of Adidas' historical background, past strategic moves which has affected them positively as well as negatively, and the company's current market positioning. The purpose of our analysis is to find the various issues related to Adidas, either strategically or tactically, and are actually affecting the company. We will analyse the current conditions with the help of certain tools. After the analysis, a conclusion and analysis will be provided.

Key Issues:

A poor deal with Salomon SA, which led the company to de-branding and a loss of direction.

Newly acquired company Reebok is basically positioned to appeal only to the female customer base.

A lack of proper direction/leadership in the company after the death of Mr. Adi Dassler.

The acquisition has led to certain cross-cultural issues and inter-organisational change management issues.

5. The Debt to Equity ratio is very high.

6. The prime competitor Nike is much better positioned as a sportswear brand in the niche segment, as compared to Adidas.

Analysis:

The case has successfully elaborated the corporate journey of Adidas to date. The company has faced many ups and downs during the journey. It was started by Mr. Adi Dassler, a German baker. The company's innovation and styling made it a market leader in the industry within few years. The company did not however experience only success, and made both profitable and losing deals. A recent successful deal was made with Reebok, including a profit-making model. However, the total sale of the two corporations has decreased in comparison to the sum of the previous year's sales of two firms individually. Some basic problems with the organisation are highlighted, as follows:

1. A poor deal with Salomon SA, which led the company to de-branding and a loss of direction: Adidas acquired Salomon SA at a price of 1.5 billion euro. The deal apparently was not favourable from the shareholder perspective, and the company saw a sharp dip in the share price.

The basic interest for the deal was diversification in the product portfolio. However, poor efficiency and misdirection has turned the deal into a significant loss. The company sold two out of three major verticals of Salomon to Amer sports, at 485 million euro. The company's balance sheet and P&l statement were badly affected by the deal.

In an attempt to return to market share, Adidas acquired Salomon SA in 1998. The move instantly transported Adidas to the number two grade of sporting goods corporations on the globe. The conquest was short-lived. In 2000, Robert Louis-Dreyfus stepped down from his guiding role as the largest investor under the supposition that Adidas had taken on more than it could in attaining Salomon. Herbert Hainer, head of promotions for Adidas in Europe and Asia, took over the company's reins. Having failed to gain sustained advantage from its diversified businesses, Adidas sold off the Salomon commerce units in October 2005, together with Salomon, Mavic, Bonfire, Cliche and Arc'Teryx (Adidas, 2008). With the acquisition of Reebok in January 2006, Adidas refocused on its core strengths in the athletic apparel and footwear businesses (Adidas).

According to an article on the Spiritualist Church Website (2010), this was the wisest move for Adidas at this point: the Salomon company cost more in capita expenditures than the operating profits it generated could justify. Indeed, the acquired company incurred a massive 63% reinvestment of in capita expenditures as compared to 35% for TaylorMade Golf and 23% for Adidas during the same time period.

According to the article, Salomon continued to prove itself a poor investment by both delivering the least amount of return on sales and taking increasing capital investments as drivers for the business. Indeed, its capital expenditures proved so high that it was barely covered by its operating profits. According to the author, it was a wise move to discard the company, as the situation would only have been exacerbated by keeping it.

2. Reebok is positioned to appeal mainly to the female customer base: Although it was one of the known brands, its position was unbalanced. So practically the brand was not exposed to approximately half of the possible consumer base. After the acquisition of Reebok, Adidas made some effort to change the company's current brand positioning.

The women's section was always one of the key strengths of the Reebok brand. To further its leading place in this vital segment, the profile as the brand delivered the ideal fit for women. The goal was to propose pioneering women's footwear, apparel and accessories across the sports and lifestyle category, in order to enable women to convey their uniqueness.

With both stylish and useful products, emotional promotion concepts and partnerships with the best athletes (e.g. Amelie Mauresmo, Carolina Kluft, Nicole Vaidisova) and other celebrities (e.g. Scarlett Johansson), the corporation showed that Reebok was a product that fully understood the requirements of the female customer. But such niche segments ignored the male and children's market section, incurring a large amount of lost opportunity in these segments. For this reason, Adidas took steps to diversify the market positioning of the company (Annual Report 2006: Adidas, 2006).

And this was a necessary step that Reebok could not quite accomplish by itself. According to Terry Lefton (2009), the Reebok brand struggled with direction at the time of acquisition. Indeed, while it catered mostly to women, the company recognized the need to cater to the rest of the market in order to be able to compete with recognized giants such as Nike. With the latter also being a rival of Adidas, the merger made sense from the Reebok point-of-view.

Once again, a better sense of focus and leadership was required in order to bring more focus to the Reebok brand. The merger appears to be an attempt to remedy a deeper-lying problem rather than being a truly mutually beneficial deal for both parties involved.

3. A lack of proper direction/leadership in the company after the death of Mr. Adi Dassler: Mr. Dassler has been a very good leader and the pivot of the company. In his life the company was able to obtain 700 patents. He had very good leadership skills to make the company grow. But on the death of Mr. Dassler, the company itself was parallelized. Because of the lack of leadership and direction, they descended to the 8th position in an industry that was in fact created by Adi Dassler itself. Recent revolutionary change and restructuring in the company are the only solution to handle this problem.

The poor leadership issue is substantiated by an article on the Streetball and Hip-Hop Website (2008). One manifestation of the lack of direction is the Adidas logo. According to the article, the first Adidas logo was the trefoil. This was replaced by the performance logo in 1991. The use of the logo was however not consistent. In addition to a sudden change of color from green to black, the equipment logo was first used only on equipment products, but later also on products that were not from the equipment line.