Adidas Struggles in America: Too Much Fussball, Not Enough Football?

The No. 2 athletic gear maker faces continued difficulties in America

Struggling Adidas scored big at this summer’s World Cup in Brazil: The company sponsored nine teams, including Germany and Argentina, the winner and runner-up. Yet the key to bolstering Europe’s most popular sports brand may lie in America. Beset by plummeting golf sales and weakness in its Reebok sneaker business, Adidas is trying to boost revenue in the U.S. despite the dominance of Nike and strong growth for upstart Under Armour. With the company’s shares down about 35 percent this year, the German press has reported that hedge funds have considered taking stakes to try to oust longtime Chief Executive Officer Herbert Hainer.

Adidas spokeswoman Katja Schreiber declined to comment beyond saying that Adidas “continues to have an open dialogue with investors.” On Oct. 1 the company announced it will buy back up to €1.5 billion ($1.89 billion) of its shares over the next three years, a move analysts say is an attempt to placate investors.

Success in the U.S., where Adidas gets almost a quarter of its revenue, is a priority for Hainer, especially after the company cut its 2014 profit outlook in July and abandoned previously announced targets for 2015. Adidas will roll out its biggest-ever brand campaign next year, after having moved Global Creative Director Paul Gaudio from Germany to Portland, Ore., this summer. It’s also signed endorsement deals with six of the first-round picks in this year’s NBA draft, including Andrew Wiggins of the Minnesota Timberwolves and Joel Embiid of the Philadelphia 76ers, to generate buzz among American sports-gear shoppers.

“Adidas is suffering from a too-European image,” says Cédric Rossi, an analyst at investment bank Bryan, Garnier in Paris. “I don’t think U.S. teenagers are thinking of Adidas when they want to buy basketball shoes.”

Based in the Bavarian town of Herzogenaurach since its creation in 1949, the world’s No. 2 maker of athletic gear has long focused on soccer, a sport that’s only recently started to gain a big following in North America. While Adidas leads the industry in soccer globally, it hasn’t managed to lure enough fans to make much of a difference in the U.S. Nike has stepped up its challenge in soccer gear with increased advertising and sponsorship deals with stars such as Brazil’s Neymar and Portugal’s Cristiano Ronaldo.

Slumping demand for golf equipment in the U.S. has hit Adidas’s TaylorMade brand hard. The biggest NBA star on its endorsement roster, Derrick Rose of the Chicago Bulls, hasn’t been a winning force in many games over the last two seasons due to injuries. And the 2006 acquisition of Reebok for $3.8 billion hasn’t helped. Nike replaced that brand as the NFL’s apparel supplier in 2012, leading to a cut in its sales forecast. An Adidas spokesman says the NFL tie-in didn’t mesh with the fitness-gear focus Reebok had been pursuing since 2009. “Reebok is almost ruined,” says Sam Poser, an analyst at Sterne Agee & Leach. “They’re trying to bring it back to what it was in the ’70s and ’80s,” when the aerobics craze was at its peak. The company disagrees, pointing to Reebok’s partnerships with popular contemporary fitness outfits such as CrossFit and Spartan Race.

Derrick Rose
Photograph by Jonathan Daniel/Getty Images

Adidas’s North American sales fell 14 percent in the first half of this year and may decline 1.8 percent annually from 2013 to 2016, compared with annual growth of 1.8 percent for the overall company, according to Berenberg analyst John Guy. Adidas was the worst-performing stock in Germany’s benchmark 30-stock DAX Index through September.

The company’s difficulties aren’t limited to North America. More than 13 percent of Adidas’s sales come from Russia and neighboring countries, and the depreciation of the ruble has weighed on earnings. Business in Russia last year was also hurt by a switch to a new distribution hub that led to inventory shortages, and the company will close stores there this year. “We need to be more decisive and faster in dealing with our challenges,” Hainer told analysts in August.

Next year, Adidas will increase marketing to 13 percent to 14 percent of annual sales, which were $18.4 billion in 2013. Nike spent 11 percent of sales on marketing for the fiscal year that ended May 31. Adidas, which reports third-quarter earnings Nov. 6, is expected to show a decline of 16 percent in net income, according to estimates compiled by Bloomberg, marking four declines in the past five quarters. Nike in late September reported a 23 percent increase in its first-quarter profit.

Against this backdrop, U.S. and British hedge funds, including Third Point, have shown interest in pushing for change at the company, including possibly spinning off Reebok or TaylorMade and removing Hainer, Germany’s Manager Magazin reported in September. Hainer, 60, is scheduled to retire in 2017. A spokeswoman for Third Point declined to comment.

Sporting goods rivals are taking steps to continue their growth. Nike, which says it controls 95 percent of the U.S. basketball shoe market, plans to expand in sports gear for women. The U.S. giant had 15 percent of the $255.1 billion worldwide sportswear market last year, compared to 10.8 percent for Adidas, according to market researcher Euromonitor International. In North America, the gap is bigger: Adidas’s 2013 revenue totaled $4.3 billion, vs. $12.3 billion for Nike.

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