How Adidas Turned Around Its Fortune: The Strategic Shift That Led to Success

Introduction

In 2014, Adidas faced a significant decline in revenue and profits, prompting the need for a strategic overhaul. The acquisition of Reebok, challenges in key markets, and the downfall of CEO Herbert Hainer marked critical junctures in Adidas’s journey to success.

Adidas’s Strategic Challenges and Ambitious Multi-Brand Strategy

• In 2014, Adidas faced a significant decline in revenue and profits for three consecutive years, signaling its struggle and directionless state.

• Adidas, traditionally dominant in European football, faced challenges in the US and Chinese markets due to the limited popularity of soccer in these regions.

• To address this, former CEO Herbert Hainer pursued a bold multi-brand strategy, acquiring Reebok for $3.8 billion in 2005 with the vision of global expansion.

• Hainer’s strategy aimed to leverage Reebok’s strong presence in American sports, maintain Adidas’s leadership in European football, and establish Adidas as the leading running brand for emerging markets.

• However, the implementation of the multi-brand strategy faced challenges, with only a 2% growth in overall net sales in 2007, falling short of the high single-digit growth promised by Hainer.

Adidas’s Acquisition of Reebok

• Adidas’s acquisition of Reebok was aimed at repositioning and rebuilding the credibility of the struggling brand.

• The acquisition strategy involved tapping into Adidas’s proven resources to accelerate Reebok’s repositioning as an everyday fitness brand.

• Adidas also aimed to consolidate both brands under one single operating model to maximize synergies and efficiency.

• The company faced challenges in terms of mismanagement, brand positioning, and target customer identification.

• Adidas’s CEO, Hainer, focused on a positive spin to address the challenges and reassure investors.

• Despite initial success in 2008, the recession in 2009 negatively impacted Adidas’s momentum and led to sales drop and inventory issues.

• The decision to double down on retail in 2009 turned out to be a mistake, impacting profitability and leaving e-commerce open for competitors.

• While there were wins in international markets and certain product endorsements, Reebok’s struggles continued, and its reinvention took several years.

• Hainer continued to put forward new long-term strategies, such as ‘Route 2015’, with ambitious sales and operating margin targets.

Adidas’s Strategic Moves and Challenges

• Adidas, under Route 2015, focused on capturing the North American, Chinese, and Russian markets as key battlegrounds for growth.

• The company shifted its target audience to American high schoolers, prioritizing marketing efforts towards them instead of adults.

• Despite initial success in 2011 with net sales growth and positive market reactions, Adidas faced challenges with Reebok’s mismanagement in India, declining sales in 2012, and ongoing struggles in the following years.

• Adidas experienced setbacks in 2013 and 2014, missing its sales guidance and facing exposure to market fluctuations, particularly in Russia with the falling oil prices and currency depreciation.

The Downfall of Adidas CEO Herbert Hainer

• The global sell-off of Russian assets worsened with international sanctions due to Putin’s annexation of Crimea.

• The 2014 Russian financial crisis cost Adidas 550M euros in net sales, leading to a loss of faith in Reebok management and a change in the executive team.

• Mark King, appointed to revive Reebok, faced criticism at Taco Bell for discontinuing popular menu items, reflecting poorly on his leadership and Hainer’s judgement.

• Investors were outraged by Hainer’s failure to execute, grow revenue, or optimize the bottom-line in his 13 years as CEO, leading to public questioning of his leadership and the threat of a hostile takeover.

• Hainer’s new ‘Create the New’ strategy aimed at high single-digit sales growth, increased net income, and a 30-50% dividend payout, admitting that Adidas had lost touch with consumers and was hurting from its consolidated operating model.

• The strategy focused on cities, speed, and open source, with a localized approach in key cities, a push for e-commerce, and collaboration with influencers for trendsetting products.

• However, the uninspiring North America strategy, declining appeal to retailers, and public criticism led to the board bowing to investor demands and initiating a CEO search, marking the downfall of Hainer.

Adidas’s Success under Different CEOs

• Under the leadership of former CEO Hainer, Adidas faced challenges such as underinvestment in e-commerce and failed bets on Russia, retail, and Reebok.

• However, Hainer’s nine-year focus on running led to the successful launch of Adidas’s best product, the UltraBOOST, NMD, and the highly anticipated Yeezy Boost by Kanye West.

• The strategic decisions made by Hainer set the stage for Adidas’s impressive 2015 performance, with a 16% revenue growth and a surge in popularity, making it the most popular brand on Instagram that year.

• Upon Rorsted’s appointment as CEO in 2016, the company experienced further growth, achieving a record revenue of 19.3 billion euros and aggressively selling off underperforming brands like TaylorMade and CCM.

• Rorsted’s shift in marketing strategy involved decreased sponsorship budgets and a focus on grassroots marketing and social media, ultimately contributing to the company’s continued success.

• The evolution of Adidas under Rorsted’s leadership included a strategic shift towards limited-time collaborations, premium products, and a shift in manufacturing processes to support innovative approaches.

• While Adidas enjoyed stellar growth from 2018 to 2019, challenges have emerged, leading to questions about the future, including the longevity of products like UltraBOOST, NMD, and the company’s ability to invent the next winning shoe franchise.

Conclusion

Adidas’s journey from struggle to success is a testament to the power of strategic shifts, market adaptability, and effective leadership. The acquisition of Reebok, along with subsequent CEO transitions, played pivotal roles in shaping Adidas’s success today.

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