adidas-Salomon AG

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adidas-Salomon AG

Adi-Dassler-Strasse 1-2
91074 Herzogenaurach
Germany
Telephone: 49-9132-842471
Fax: 49-9132-843127
Web site: http://www.adidas.com

Public Company
Incorporated: 1949
Employees: 12,036
Sales: $5.94 billion (1999)
Stock Exchanges: Frankfurt
Ticker Symbol: ADDDY
NAIC: 315211 Men’s and Boys’ Cut and Sew Apparel Contractors; 315212 Women’s, Girls’, and Infants’ Cut and Sew Apparel Contractors; 315299 All Other Cut and Sew Apparel Manufacturing; 33992 Sporting and Athletic Goods Manufacturing; 316211 Rubber and Plastics Footwear Manufacturing; 316219 Other Footwear Manufacturing

German-based adidas-Salomon AG is the second largest manufacturer of sporting goods in the world. Once the undisputed leader in the world athletic shoe market, the company faced fierce competition that left it nearly bankrupt in 1993. After cutting costs and transferring production to Asia, adidas returned to prominence, adidas expanded from an athletic shoe and apparel company into a major sporting goods manufacturer in 1997 with the acquisition of Salomon Worldwide, a French maker of ski, golf, and bicycle equipment. Among the brands in the adidas group are Taylor Made (golf equipment), Mavic (bicycle equipment), Erima (swimwear), and Salomon. In the late 1990s adidas focused on the U.S. market, the largest sporting goods market globally, and sponsored numerous sports teams, athletes, and high-visibility athletic events in an effort to boost brand recognition.

Humble Beginnings for the Athletic Shoe: 1920s-40s

adidas emanated from a bitter dispute between two brothers, Rudolph and Adi Dassler, in the small Bavarian mill town of Herzogenaurach. Rudi and Adi were born in 1898 and 1900, respectively, to Christolf and Pauline Dassler. Their hometown of Herzogenaurach was a regional textile manufacturing center at the time, but during the early 1900s most of the mills converted to shoemaking. Adi was trained to be a baker, but those skills offered him little hope of finding a job in the final years of World War I. Instead, the Dassler family started a tiny shoe-making business in the back of Pauline’s laundry. Adi began making shoes using materials from old helmets, tires, rucksacks, and other refuse that he could scavenge. Adi’s sister cut patterns out of canvas, and the always innovative Adi built a shoe trimmer that was powered by a bicycle.

The company’s first shoes were bedroom slippers that sported soles made from used tires. Adi, who had a lifelong love of sports, converted those slippers into unique lightweight gymnastics and soccer shoes with nailed-on cleats. Demand for those shoes allowed the family to build a factory in 1926, when output rose to about 100 pairs per day. Adi’s brother and father both quit their jobs to work in the company.

The Dassler family’s company received a major boost when their shoes were worn by German athletes in the 1928 Olympics in Amsterdam. Four years later, moreover, athletes clad in Dassler shoes won medals in the Olympics in Los Angeles. Then, in the 1936 Games, the world-renowned American sprinter Jesse Owens raced to victory in Dassler shoes. Owens’s shoes featured two widely spaced stripes that wrapped over the ball of the foot, a design that became increasingly commonplace on the feet of athletes around the world.

Demand for Dassler shoes mushroomed during the early 1930s and continued until the start of the German offensive that led to World War II. During the war, the Dassler factory was commandeered for the production of boots for German soldiers. Both Adi and Rudi were reportedly members of the Nazi party, but only Rudi was called to service. Adi stayed home and ran the factory. Allied forces occupied the region at the war’s end, and American soldiers even moved into the Dassler home. Christolf Dassler died about that time. Adi made friends with some of the American soldiers, and even made a pair of track shoes for a U.S. soldier who eventually wore them in the 1946 Olympics.

After the soldiers left, Rudi returned to Herzogenaurach and rejoined his brother. He had spent several years fighting and one year interned in an American prisoner-of-war camp. Just as they had been forced to do after World War I, Adi and Rudi scavenged for shoemaking material to rebuild their business in war-torn Germany. They used army tents for canvas and old American tank materials for soles. They paid their 47 workers with such materials as firewood and yarn.

Sibling Rivalry and the Birth of adidas: Late 1940s

It was only a few years after Rudi’s return that an infamous dispute broke out between the two brothers. Although the men kept the impetus for the fight a secret until their deaths, rumors swirled that the battle stemmed from disagreements related to the war. One story indicated that Rudi was upset that Adi had not used his connections with the Allies to get him out of the prison camp during the conflict. Whatever the reason for the feud, Rudi walked away from the family home and business forever in the spring of 1948, intent on starting his own shoe business. He took with him the company’s sales force and control of a building that was to become a new factory. Adi kept most of the workforce and the original headquarters offices and factory. From that time forward, the brothers never spoke a word to one another except in court. The businesses that they created represented one of the most intense rivalries in all of Europe.

When they split, Rudi and Adi agreed that neither would be allowed to use the Dassler brand name on their shoes. Rudi named his new company and shoes Ruda, while Adi named his Addas. Shortly thereafter, Adi changed the name to adidas (emphasis on the last syllable) and Rudi, on the advice of an advertising agency, changed the name of his shoes to Puma. Adi altered the Dassler family trademark of two stripes by adding a third. He also adopted the slogan “The Best for the Athlete” as part of his marketing campaign. Rudi chose as his logo a cat’s paw in motion.

For many years a signpost in the center of town had two arrows: one pointed to adidas and the other to Puma, which faced adidas on the opposite side of the River Aurach. Each company had its own soccer team, and employees from each company drank different beers. Enrollment at the two elementary schools in town was determined by the factory at which a child’s father worked (adidas employees’ children attended one school, while Puma employees’ children attended the other), and children learned early in their lives to look down on the competing shoe company.

Each shoe company’s culture bore the mark of its founder. It may have been for that reason that Adi came to dominate the global athletic shoe industry. Both Rudi and Adi were intelligent and able. Puma eventually became a venerable and established shoe company throughout the global industry. But under Adi Dassler’s guiding hand, adidas grew during the mid-1900s to became the undisputed world shoe industry giant. Adi, considered shy but extremely bright, was respected in his village. A natural athlete, inventor, and craftsman, Adi combined his interests to produce a number of breakthrough innovations that catapulted the company to prominence. By the time Dassler died in 1978, in fact, adidas shoes were being worn throughout the world—more than any other sports shoe—by both professional and weekend athletes, and as casual footwear.

An Innovative Leader in Athletic Footwear: 1950s-7Os

Adi was credited with numerous inventions during the late 1940s and 1950s, including the first shoes designed for ice and the first multi-studded shoes, adidas is also credited with pioneering the now commonplace practice among athletic shoe manufacturers of selling sports bags and athletic clothing bearing their brand name. Among Adi’s most notable early contributions was his improvement of the soccer shoe. Prior to 1957, soccer shoes were designed as they had been for decades, with metal studs mounted in leather. These shoes were heavy, particularly when they got wet. Adi designed a new type of shoe that sported a nylon sole and molded rubber studs. The result was a more lightweight, durable shoe. Introduced in 1957, the revolutionary soccer shoe was eventually copied by other shoe companies, including chief rival Puma.

Another of Adi’s pivotal innovations, and the one that helped most to thrust the company into the global limelight, was the screw-studded soccer shoe, which allowed worn cleats to be replaced. The cleats were introduced in 1954 at the World Soccer Championships in Bern, Switzerland. Heavy rains during the first half of an important game turned the soccer field to a muddy mess by half-time. The West German national team members went to their locker room, removed their standard cleats, and installed longer cleats to get a better grip in the field. Adi watched as the West German team captured a 3-2 victory over the favored Hungarians, a triumph that was viewed by the German people as a symbol of their return from the ashes of war. Soon after that event, adidas’s shipments exploded from about 800 pairs to 2,000 pairs of shoes per day.

Company Perspectives:

There are moments in life that bring people together, that inspire us, educate us and make us laugh. We’ve noticed that quite often, these moments happen on a field or court. An athlete overcomes injury. A team beats the odds. A performance defines a moment. In a world where everyone is as different as ever, very few things have the power to truly bring us together. LONG LIVE SPORT.

Two years later Adi started its successful and longstanding tradition of naming one of its shoes after the Olympics. The shoe introduced at the 1956 Olympics was the Melbourne—the Games were held in that Australian city that year—the first to offer multiple studs. Adi’s son Horst handled the promotion with a marketing strategy that won accolades abroad. He simply gave the shoes away to Olympic athletes, who wore them for a global audience. Athletes wearing adidas shoes won a whopping 72 medals that year and set 33 records. After that, adidas scored another major marketing coup by signing agreements to supply entire sports teams with footwear, an agreement that ensured that adidas equipment would be worn by many of the world’s greatest athletes on both sides of the Iron Curtain. Other shoe and sports equipment companies eventually followed the company’s lead, and contracts to supply free equipment to such high-profile athletes became highly competitive.

adidas initiated a number of savvy marketing programs during the 1950s, 1960s, and 1970s, but the Olympics remained the centerpiece of its marketing strategy for several years. In the 1964 Tokyo Games, medals won by adidas-shod competitors amounted to 80 percent of the total, as they captured all but 30 of the medals awarded. At the Montreal Olympics, adidas outfitted all of the winners in hockey, soccer, volleyball, and women’s basketball, adidas shoes were worn by athletes who accounted for 83 percent of all medals awarded and a fat 95 percent of the track-and-field gold medals, adidas became virtually dominant in the athletic shoe industry. Aside from its clever marketing and winning designs, moreover, it was considered the quality leader. Indeed, other shoemakers considered adidas superior in machinery, craftsmanship, and materials.

adidas’s most lucrative strategic maneuver was its entry into the giant and blossoming U.S. athletic shoe market in the late 1950s, adidas attacked that market at a good time. Its major competitors were manufacturers of canvas sneakers that bore names like Keds and P.P. Flyers, adidas’s high quality, well-designed shoes became explosively popular, first with more serious athletes, but finally with the weekend athlete and casual footwear markets. Puma also made a run in the United States beginning in the 1950s. Its shoes sold relatively well, but ultimately came to be regarded as inferior to adidas in quality. In contrast, by the mid-1970s adidas had become nearly synonymous with quality athletic shoes in the United States.

adidas expanded globally during the 1960s and 1970s, maintaining its dominant position in the world sports shoe industry. By the late 1970s the company was churning out about 200,000 pairs per day and generating well over a half billion dollars in sales annually. (The company was still privately owned, so revenue figures are speculative.) adidas operated 24 factories in 17 countries and was selling a wide range of shoes in more than 150 nations. In addition, the company had moved by that time into diverse product lines including shorts, jerseys, balls and other equipment, track suits, and athletic bags. The company had registered about 800 patents and was producing roughly 150 different styles of shoes. About 90 percent of all Formula 1 drivers, for example, raced in adidas.

Throughout the company’s rampant growth, its founder continued to lead and innovate. In 1978 the 77-year-old president introduced what he considered to be his greatest contribution ever to his beloved game of soccer. In recognition of the fact that players spent about 90 percent of their time on the field running rather than kicking the ball, Adi designed an ultralight soccer shoe with a sole resembling a sprint shoe. The shoe also featured an orthopedic footbed, a wider positioning of the studs to give better traction and even a special impregnation treatment designed to counter the weight-increasing effect of the humid Argentinian climate. The shoes were first used in the World Cup in Argentina by almost every team in the competition.

Increased Competition and the Loss of Global Dominance: 1980s and Early 1990s

Adi Dassler died shortly after he introduced his landmark soccer shoe in 1978. He had run the company and its predecessor for about 60 years and built it into the unmitigated giant of the world shoe industry. His death marked the end of an era at the company. Indeed, adidas suffered a string of defeats in the late 1970s and 1980s that severely diminished its role in the world sports shoe industry. The company’s loss of dominance was not solely attributable to Dassler’s death, however. In fact, the athletic shoe industry became intensely competitive following his death, primarily as a result of aggressive U.S. entrants. The increased competition actually began after the 1972 Olympics in Munich, when a mob of companies decided to hop into the lucrative business. After having the industry mostly to themselves for years, adidas and Puma suddenly found themselves under attack from shoe manufacturers worldwide.

Dassler had carefully arranged a management succession before his death. Family members remained in key management positions, but several professional managers were also brought in to take over key functions like marketing, production, and public relations. Unfortunately, the effort failed to keep the company vibrant, adidas retained its lead in the global athletic shoe market for several years and remained dominant in its core European market into the 1990s. Importantly, though, it was soundly thrashed in the North American market by emerging athletic shoe contenders Nike Inc. and Reebok Inc. Those companies launched an almost militant marketing offensive on the North American sports shoe market during the 1980s that caught adidas completely off guard.

Key Dates:

1926:: Dassler family builds a factory to make athletic shoes.
1936:: American runner Jesse Owens, wearing Dassler shoes, wins a gold medal in the 1936 Olympic Games.
1948:: The Dassler brothers part ways, and Adi Dassler starts his own shoe company.
1949:: adidas is registered as a company.
1957:: adidas introduces a pioneering soccer shoe.
1978:: Adi Dassler dies, and control of his company is handed to his family.
1990:: French entrepreneur Bernard Tapie buys adidas.
1993:: adidas acquires Sports Inc., a U.S. company. Tapie sells adidas to a group of European investors, and Robert Louis-Dreyfus joins adidas as CEO.
1995:: adidas goes public.
1997:: adidas acquires Salomon Worldwide and is renamed adidas-Salomon AG.

adidas, not used to such fierce competition, effectively ceded dominance of that important region. Incredibly, adidas’s U.S. sales shrunk to a mere $200 million by the end of the decade, while Nike’s grew to more than $2.4 billion. By that time, Reebok and Nike together claimed more than 50 percent of the U.S. athletic shoe market, compared to about three percent for adidas. The adidas brand name had become a fading memory in the minds of many aging baby boomers, and many younger U.S. buyers were virtually unaware of the brand. “This is a brand that has taken about five bullets to the head,” said one observer in Business Journal-Portland in February 1993.

adidas managed to maintain its lead in the soccer shoe market and even to keep a healthy 26 percent of the European market for its products. However, the North American market became the core of the global athletic shoe industry, and adidas found itself scrambling to maintain respect worldwide. Moreover, besides increased competition, adidas suffered during the 1980s and early 1990s from relatively weak management. To make matters worse, members of the Dassler family and relatives that still owned adidas began fighting over control of the company. Amid increased competition and family squabbling, adidas’s bottom line began to sag. The organization lost about $77 million in 1989 before the family sold the entire organization for only $289 million. The buyer was Frenchman Bernard Tapie, a 47-year-old entrepreneur and politician.

From the beginning, analysts doubted Tapie’s ability to turn the ailing company around. A perpetual showman, Tapie purchased the company partly for the attention he would get from the French people for securing ownership of a renowned German institution. Tapie had already gained notoriety as an entrepreneur and as a parliamentary head of the ruling Socialist Party. Tapie’s promotional skills did little for adidas. The company continued to lag and Tapie himself became embroiled in political and business scandals. Tapie stepped aside as chief of the company in 1992 and handed the reins to Gilbert Beaux. Tapie also started looking for a buyer for adidas.

Under new management, adidas looked as though it was beginning to turn the corner going into the mid-1990s. Of import was the company’s 1993 purchase of U.S.-based Sports Inc., an enterprise that had been founded by Rob Strasser. Strasser was credited as the marketing genius that had helped to make Nike into the leading U.S. athletic shoe company. Strasser quit Nike in 1987 to form Sports Inc. When adidas bought out his 50-person marketing venture, it named Strasser head of the newly formed adidas America subsidiary. Strasser brought with him another former Nike executive, Peter Moore, with whom he hoped to regain some of adidas’s lost glory. “We’ll compete from day one,” he said in the Business Journal-Portland in 1993, “but it won’t happen overnight.” Tapie finally found a buyer for adidas in 1993. The company was purchased by a group of European investors for $371 million. Unfortunately, Strasser died late in 1993. Moore took over as head of the U.S. subsidiary, adidas expected Moore to lead the company’s turnaround on that continent and to help it eventually attain the kind of strength adidas International still exerted in Europe and some other parts of the world.

In 1993 the new owners of adidas hired Robert Louis-Dreyfus, a French businessman, to run the company. Though Louis-Dreyfus was unfamiliar with the athletic shoe business, he had a reputation for revitalizing failing companies; in fact, Louis-Dreyfus was credited with saving London advertising agency Saatchi and Saatchi. After joining adidas, Louis-Dreyfus implemented severe cost-cutting and reorganization strategies and moved production to Asia. He also increased the marketing budget, from 6 percent of sales to 11 percent, to increase brand visibility.

The Comeback of adidas in the Late 1990s

adidas reacted favorably to Louis-Dreyfus’s changes, and profits rebounded, reaching DM 244.9 million in 1995, up from DM 117.3 million in 1994. The company went public in 1995, and the relatively unathletic Louis-Dreyfus signaled his commitment to adidas and its athletic roots by running in the Boston Marathon. Also that year a new CEO, Steve Wynne, joined adidas’s U.S. subsidiary. In 1996 apparel sales rose an impressive 50 percent, and brand visibility was enhanced by adidas’s involvement with the 1996 Olympic Games—the company provided gear for about 6,000 competing athletes, representing 33 countries, and the Olympians sporting adidas’s equipment won 220 medals.

In a significant move to strengthen its position in the global sporting goods category, adidas acquired French holding company Sport Developpement SCA in late 1997. Sport Developpement owned 38.87 percent of Salomon’s shares and 56.12 percent of the voting rights. After sealing the deal with Sport Developpement, adidas acquired the outstanding shares of Salomon in a deal estimated to be worth $1.4 billion. The purchase, which included U.S.-based Taylor Made, manufacturer of premium golf clubs, and the French Mavic, maker of cycling equipment, positioned adidas in the number two position of sporting goods worldwide, behind Nike Inc. but ahead of Reebok International Ltd. Traditionally known as a manufacturer of ski equipment, Salomon had begun to branch out in the mid-1990s to shield itself from the declining winter sports and ski segments. The company placed a greater emphasis on Taylor Made and Mavic and also focused on hiking boots, inline skates, and snowboards. Salomon also changed its name to Salomon Worldwide in mid-1997 to signal its international diversification.

Though industry observers applauded adidas’s purchase of Salomon and stated that consolidation within the sporting goods industry, particularly between equipment manufacturers and makers of apparel and shoes, was a growing trend, news of adidas’s decision caused the share price to decline nearly four percent. Concerns that adidas’s earnings would be adversely affected for several years by the debt-financed acquisition made many investors nervous. Still, many felt the adidas and Salomon merger was a positive move. Allan Raphael, president of Raphael, C.R.I. Global LP, said in the Financial Post, “adidas’ goal is to be the No. 1 sports equipment company in the world and I think they’re going to get there. … The key is that adidas’ management has a very innovative sense of how to recreate a brand.”

In 1998 adidas-Salomon turned toward the U.S. market while also focusing on integrating Salomon’s operations. Though the global sporting goods market experienced flat growth that year, adidas managed to achieve extremely high sales growth. Overall net sales grew 48 percent in 1998 compared to 1997, and the company achieved record high net sales in both footwear and apparel. In the United States, the top market for sporting goods, adidas-Salomon achieved extraordinary growth rates. Net sales in the U.S. market alone rose 71 percent over 1997 results, and the brand’s share of the U.S. footwear market reached 12 percent, thanks to the increase in footwear sales of 93 percent. Apparel sales also fared well in the United States, growing 48 percent. Sales in Europe, Asia, and Latin America also rose in 1998.

Despite strong growth rates in 1998, adidas-Salomon was not without difficulties. Integration of Salomon proved to be more time-consuming and challenging than had been anticipated, and the company’s share prices fell 24 percent during the year. In addition, though some Asian countries experienced positive sales growth, overall sales in the Asian region fell more than 20 percent. The economic problems in Russia led to poor sales as well. The golf industry faced a difficult year in 1998, and this affected sales of Taylor Made, which declined by 15 percent.

adidas-Salomon concentrated on the positive rather than the negative, and although the company expected flat growth during 1999, the year of its 50th anniversary, the company endeavored to improve sales and strengthen operations. The company planned to construct a new world headquarters in Herzogenaurach and thus acquired a 90 percent interest in GEV Grundstucksgesellschaft mbH & Co. KG, a property investment firm that owned the property adidas selected for the building. adidas-Salomon also extended operations globally in the late 1990s, forming a subsidiary, adidas Japan K.K., to handle the distribution of adidas products in Japan, as well as ventures in the Netherlands and Turkey.

In terms of sports, adidas-Salomon had many winners in the late 1990s, adidas was the official sponsor of the 1998 Soccer World Cup, which had extremely high visibility and coverage, and in 1999 the company sponsored the Women’s World Cup, which achieved strong popularity. The company also sponsored the New York Yankees baseball team beginning in late 1997. The Yankees won the World Series that season, and adidas-Salomon publicized its partnership with the team through award-winning advertising campaigns. Among the athletes signed by the company were cyclist Jan Ullrich, winner of the Tour de France in 1997 and runner-up in 1998, and National Basketball Association player Kobe Bryant.

For the first nine months of 1999, adidas-Salomon reported net sales of DM 8.14 billion, compared to DM 7.91 billion for the same period of 1998. Net income for the same period was down two percent. Sales improved during the course of the year, but the company maintained its forecast that annual sales would remain flat. At the beginning of 2000, Steve Wynne, president and CEO of adidas Salomon North America, announced his resignation. Wynne was credited with being a key figure in adidas’s U.S. turnaround, and over the five-year period Wynne was with adidas, the subsidiary’s sales grew from $450 million to $1.6 billion. Also early in 2000 adidas-Salomon announced a group restructuring designed to improve earnings and to facilitate quicker decision making. The company planned to develop innovative new products, increase its Internet presence, and increase the marketing and sales operations of Taylor Made and Salomon. Herbert Hainer, adidas-Salomon’s chief operating officer, explained in a prepared statement, “In the year 2000, we will be laying the foundations for stronger growth in subsequent years.” adidas-Salomon had been through many changes and faced many challenges over its 50-year history, but the company retained its desire to be the top sporting goods company in the world.

Principal Subsidiaries

adidas America Inc.; adidas-Salomon North America Inc.; adidas-Salomon USA, Inc.; Taylor Made Golf USA; adidas (Canada) Ltd.; Erima Sportbekleidungs GmbH (Germany); Salomon GmbH (Germany); GEV Grundstücksgesellschaft Herzogenaurach mbH & Co. KG (Germany; 90%); adidas Sarragan France S.a.r.l.; adidas Espana SA (Spain); adidas Portugal Lda (Portugal); adidas Sport GmbH (Switzerland); Salomon SA (France); adidas Austria AG; adidas Benelux B.V. (Netherlands); adidas Belgium N.V.; adidas Budapest Kft. (Hungary); adidas (U.K.) Ltd.; adidas (Ireland) Ltd.; adidas Norge A/S (Norway); adidas Sverige AB (Sweden); adidas Poland Sp.z.o.o. (Poland); adidas Ltd. (Russia); adidas de Mexico S.A. de C.V.; adidas do Brasil Ltda. (Brazil); adidas Latin America S.A. (Panama); adidas Corporation de Venezuela, S.A.; adidas Japan K.K.; adidas Hong Kong Ltd.; adidas Singapore Pte Ltd.; adidas Asia/Pacific Ltd. (Hong Kong); adidas (Thailand) Co., Ltd.; adidas Australia Pty Ltd.; adidas New Zealand Pty Ltd.; adidas (South Africa) Pty Ltd.