A New Game Afoot for Adidas and Reebok

Betting that Nike's lack of a proven superstar means the industry's reigning champ is vulnerable, rivals are mounting a full-court press

Tracy McGrady, the Orlando Magic star and top pitchman for Adidas-Salomon, swishes a jumper from the foul line, acrobatically stuffs the ball in the hole, and shows off his lightning-quick dribbling moves. In his new commercial, the 24-year-old NBA scoring champ issues a challenge that seems aimed as much at Nike (NKE ) and LeBron James, the 18-year-old wunderkind Nike recently signed to a $90 million endorsement deal, as it is at Adidas' target audience. Don't worry about all these kids coming straight into the league without an education: "They'll be fine," McGrady says, his slight smirk filling the camera lens before it fades. "I'll be taking them to school every night."

And with that, Adidas escalates its long-running war to loosen Nike's iron grip on the U.S. basketball-shoe market. The $2.5 billion market is crucial for sneaker makers because basketball inspires the kind of shoppers everyone wants to reach: young, urban consumers who lead the way in fashion trends.

After five slow-growth years, analysts expect some bounce in 2003, thanks to a slew of snazzy new sneaker designs and glitzy ads. And with Nike's bench of endorsers thinner than it has been in years, perennial wannabes Reebok International (RBK ) and Adidas see a chance to land a sharp elbow in Nike's ribs and gain a step or two on the giant.


  For their part, retailers are relishing the coming battle, figuring it will restore some needed excitement to the category. "We're very bullish on the overall category," says Shawn Neville, CEO of Footstar Athletic, the Mahwah, N.J.-based footwear chain.

Reebok and Adidas know they face a formidable opponent. Nike controls almost two-thirds of the market for basketball shoes and helped reinvent the concept of the celebrity athlete endorser. Indeed, its 18-year partnership with Michael Jordan created a $500 million franchise and set the standard for how to market sports gear. The company sees James as the next Michael Jordan, with the potential to reach a broader audience than just basketball fans. "LeBron creates a lot of anticipation," says Ralph Greene, Nike's director for global basketball. "There's a lot of heat around that."

Still, Adidas and Reebok are convinced that this year they have a chance to score some points against the Nike marketing machine. For the first time in memory, the sneaker giant has started an National Basketball Assn. season without an established superstar endorsing its products. Jordan is retired. Kobe Bryant, who jumped to Nike from Adidas last year for a $40 million endorsement deal, is still under contract with Nike pending the outcome of his trial on sexual-assault charges. Injuries and poor sales have plagued Vince Carter and his Shox line of shoes. Chinese NBA star Yao Ming jumped to Reebok, which is using him to launch its NBA Enigma shoe.


  And James, for all the hype and hoopla, is still unproven. Although his first games with the Cleveland Cavaliers have demonstrated that he can play with the grownups, he's a long way from Michael Jordan territory. "At the moment, virtually none of the current NBA stars wear Nike," observes Adidas CEO Herbert Hainer. "In my eyes, this is the reason Nike was prepared to spend an outrageous amount of money for an 18-year-old."

With their roster of big-name players, Adidas and Reebok are turning up the heat. Adidas began the new season with three NBA All Stars -- McGrady, Tim Duncan, and Kevin Garnett -- and it just launched a massive marketing campaign in support of McGrady's new T-Mac 3 sneaker, which is hitting stores now. The new T-Mac is winning coolness kudos from retailers for its sleek-looking, shell-inspired structure and an unusual lacing system that exposes the inner loops and hides the outer loops.

After years of advertising missteps, Adidas also seems finally to get the urban basketball culture. The new McGrady ads, called "Lessons," speak directly to the urban "baller." By contrast, ads with former pitchman Bryant had him speaking Italian to inner-city youths. "Now we have put our act together," Hainer acknowledges. He aims to boost Adidas' basketball share to 30% by 2006, from 20% today.


  Reebok, which aims to double its market share to 30% in the next few years, is shipping its latest Allen Iverson signature shoes, Answer 7. To get a buzz going, the model was unveiled at an early-November bash at New York's trendy Capitale club, where music stars like Ice Cube, JC Chasez of 'NSYNC, and Mack 10 were among guests who watched as a half-court basketball court was lowered from the ceiling to host a game.

Reebok also swooped in to sign Yao Ming when his two-year deal with Nike expired and is rushing his NBA Enigma shoe to market. It has also hired basketball superscout Sonny Vaccaro to develop a grass-roots marketing plan to win the hearts, minds, and feet of teens and preteens. Says Vaccaro: "We're coming out running."

Forgive the folks at Nike if they've heard it before. "We sense market growth, and we sense competitive activity," says Nike's Greene. "But we don't play to lose." Nike will release James's signature shoe -- the Air Zoom Generation -- in mid-December, while using its other rookie find, Carmelo Anthony, to keep the Jordan brand fresh.


  And when it comes to the total package -- marketing the athlete, communicating the message, and designing technically superb shoes -- Nike still has no peer. "The other guys are certainly much better at it than they used to be," says John Horan, publisher of newsletter Sporting Goods Intelligence. "But I wouldn't say Nike's quiver is empty."

At a time when all the sneaker makers have been dropping second-tier athletes to place bigger and bigger bets on their marquee players, Nike is taking a huge gamble with LeBron James. Sports-marketing consultant Jeff Bliss of Javelin Group in Alexandria, Va., figures Nike will have to sell an extra 4 million pairs of shoes just to cover James's seven-year, $90 million contract. Throw in the marketing budget, and it's closer to 80 million pairs.

Even if James's budding career isn't thwarted by injury, ethical lapses, or just disappointing play, it's an investment that will be hard to recoup. "Everything has to go just right for Nike," Bliss says. "But they'll never get back his $90 million." For Adidas and Reebok, that adds up to a golden opportunity to go for a fast break.

By Stanley Holmes in Portland, Ore., with Faith Arner in Canton, Mass.

Edited by Gerry Khermouch

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