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ORGANIZATIONAL STRATEGY & POLICY

COMPANY PROFILE:

Adidas is a strong brand in athletic shoe business and the second largest company in the industry.

The vision of company founder Adolf Dassler has long become reality, and his corporate philosophy

the guiding principle for successor generations.

Adi Dassler’s aim was to provide every athlete with the best possible equipment. It began in 1920,

when Adi Dassler made his first shoes using the few materials available after the First World War.

Today, the Adidas product range extends from basketball, soccer, fitness and training shoes to

adventure and trail running shoes.

The Adidas name dates back to 1948, deriving from the first two syllables of Adi Dassler’s first and

last name. One year later, Adi Dassler registered the Three Stripes as a trademark. After a period of

almost 70 years, the Dassler Family withdrew from the company in 1989, and the enterprise was

transformed into a corporation (“Aktiengesellschaft”).

Robert Louis-Dreyfus has been Chairman of the Executive Board since April 1993. He was the

person who initiated Adidas’ flotation on the stock market in November 1995.

In 1997 Adidas acquired the Salomon Group, and the company’s name changed to Adidas-Salomon

AG. With the brands Adidas (athletic footwear, apparel and accessories), Salomon (skis, bindings,

inline skates, adventure shoes, accessories), Taylor Made (golf clubs, balls and accessories), Mavic

(cycling components) and Erima (sports apparel), Adidas-Salomon AG has a large portfolio of sports

brands in the sporting goods industry, offering products for both summer and winter sports.

Adidas primarily subcontracts the manufacturing of its shoes to the Asian manufacturers. Currently

there are more than 3,000 employees working at Adidas’ two main operational centers, at HQ in

Herzogenaurach (Germany) and in Portland, Oregon (USA). Adidas-Salomon AG has around 13,000

employees worldwide. A team of designers, product developers and experts for biomechanics and

material technology carries out research in Portland and at Adidas’ second technology center in

Scheinfeld near Nuremberg.

In Scheinfeld; models, prototypes and made-to-measure performance products are also manufactured

and tested. Scheinfield is the place that Adidas maintains the only sports shoe production facility still

in existence in Germany. Here, special shoes for Olympic sports such as fencing, wrestling,

weightlifting and bobsled are made.

Each season Adidas markets around 600 different sports shoes and 1,500 different Adidas apparel

items. In 1999 Adidas sold more than 80 million pairs of shoes and over 150 million outfits

worldwide. Products such as athletic footwear, sports apparel and sports equipment like bags and

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balls are today sold in over 160 countries. More than 50 subsidiaries, joint ventures and licensees

guarantee marketplace presence for Adidas products around the world. Sales and distribution of

Adidas products is grouped in five regions worldwide: Europe/Near East, Africa, North America,

Asia/Pacific and Latin America. Today, Adidas is Europe’s biggest supplier of athletic footwear and

sports apparel. The company holds about 13% of the World’s athletic footwear market and holds the

second place after Nike. With Reebok and Nike, Adidas is one of the giants of the industry and after

passing Reebok and starting to get an higher portion in the US market, Adidas is a nominee for the

market leader position in the long-term.

Competitors

Nike: Nike is the largest company in the industry, in other words it is the market leader. Nike

constitutes approximately 1/3 of the world athletic shoe market and approximately ½ of the US

market. Nike constitutes great brand awareness on its large product mix, especially in basketball

section. Although loosing a bit from its huge market share in recent years, it seems like Nike would

handle the market leader position for more years.

Reebok: Reebok is the 3rd largest firm in the industry, after Adidas. Until last few years Reebok had

the second place in the industry in terms of sales, however, the company lost its place behind Adidas.

Like Adidas and Nike, Reebok; as having a large product mix, can utilize economies of scale and

economies of scope. With the two other industry giants, Reebok also differentiated in the industry by

its high budget on advertising and R&D.

Fila: Fila is originally focused on tennis shoes. It has a market share about 5.6% and it comes just

after the three industry giants.

New Balance: The company is Asian based and owned by Taiwan`s Pou Chen Corp. New Balance

has opened a factory near Los Angeles last year. The company originally focuses on high quality

running shoes. New Balance has turned the traditional trade route in the industry around and

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established its own plant in the US. In the middle term, the company seems to be a serious threat

against the giants of the industry.1

Asics: Asics has a large product mix and it is very focused on performance shoes with high quality

and technology. However, the company does not constitute the brand-awareness aspect as much as

the largest ones in the industry and has only about 3% market share in the market.

Converse: It is one of the oldest companies in the industry. Converse focuses primarily on basketball

section. The company holds about 3% market share, however, it has lost its old status and a

bankruptcy seems very possible for the company in near future.

Stride Ride: The company focuses on low cost active wear portion of the market. Stride Ride

primarily sells shoes for children, however, by using the Tommy Hilfilger line it is trying to enter the

adult market.

Vans: This company focuses on outdoor activities like mountain biking and skateboarding. The

customers of the company are mostly teens or young people about 20s, and also they are price

sensitive. Vans has gained some market share as a result of the changing preferences of teens from

traditional sports to outdoor sports.

Overview of the Last Period

Sales and Expenses

For the year 2000, Adidas-Salomon`s net sales increased by 9% to a record level of 5.8 billion. The

increase of 13% to 2.4 billion in footwear division was the primary driver on this success. With

respect to regions; the sales increases were like; Europe 5%, North America 4%, Asia 30% and Latin

34%. During the last year, Adidas sponsored important organizations like Summer Olympics in

Sydney and the European Soccer Championship in Belgium. Those were some activities going with

the Growth and Efficiency Program of Adidas for the year 2000. Those sponsorships had a

significant effect on the increase of costs during the last year. Also the increases in taxes and

minority interests and the weakening of Euro lead increase in expenditures. The expenditures

1 www.oregonlive.com/business/99/10/bz102005.html

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increased by 12% during last year and this fact lead a decrease of 13% on the Income Before Taxes,

however this was a symptom of the 2000 year strategy of the company and the decrease was

consistent with the previous year’s expectations in the beginning of the year 2000.

Dividend Level

Last year was a period of consolidation and restructuring. During the process of reshaping the

organizational strategies it is quite possible to lose profitability. However, Adidas managed to

maintain the 0.92 per share despite the disadvantageous environment.

Adidas Athletes

Adidas athletes who showed up in summer Olympics, European soccer championship, US open, and

World Series got high visibility during those global sporting events. //This is an important advantage

for Adidas to prove the quality and performance of its products to especially performance sensitive

customers. It gives confidence to the customers, as they know that they are buying the same quality

with the top athletes.

Rewards

Adidas`s won prestigious degrees upon its commitment to top advertising, innovation and social and

environmental issues. Those were; CLIO award as advertiser of the year, and being invited to Dow

Jones sustainability Index and Fair Labor Association in recognition of the company’s strong social

and environmental performance.

Goals Determined by the Corporate Management

*To get Adidas moving towards peak performance

*To improve product offerings worldwide

*To keep the positive momentum of 2000 in all brands and regions

*To reduce operating expenses (to manage strictly)

*To improve working capital management and debt levels

*To maintain margin strength (financial goal)

SITUATION ANALYSIS

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Expenses-Currency Effects

Adidas is a German brand and Germany is one of the most important countries in European

Economy. The expenditures are fixed to Euro, which is the currency of the European Union.

However, it is always a threat for Adidas that the company’s expenses increase automatically as a

response to Euro`s losing value against dollar. For instance, Adidas spent 19% more euros for every

US dollar purchased in 2000 versus 1999. Through strong product and marketing management, the

company was partly able to compensate that effect. The margin is targeted to be sustained between

41-43% range like achieved last year.

Operating expenses

Operating expenses are too high in Adidas and it is one of the most important issues for the corporate

management to be dealt with. The main reason of the situation is the high level of hierarchy on the

management levels. The changes by the Growth and Efficiency program aims to carry the

organization to a more efficient structure.

Interest Expenses

Interest expenses for the last year were increased by 24%, as a result of both higher interest rates and

higher net borrowings level. So, the high level of borrowings is one of the weaknesses of the

company with respect to its financial standing. On the other hand, if Adidas cannot decrease the level

of borrowing, the possible high interest tares would always be a threat for the company.

Income from Royalties

Income from royalties was up 24%, main driver here was sales by licensees especially in Europe and

Asia. The increasing number of licensees is a strength for the company which would directly support

the profits. Moreover, especially the emerging Asian market is an opportunity for Adidas to focus

while trying to increase the number of licensees.

Working Capital

High working capital is another weakness of the company with respect to its targeted financial

strength. Reducing the working capital is also a part of the Growth and Efficiency program of Adidas

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management. The attempts for it were like reducing the number of products and consolidating

European warehouses and logistics to achieve needed improvements. Here, Europe seems to be the

key point as also being the continent that Adidas is born and most powerful.

Inventory:

Increased by 24% last year. The increasing of inventory can be considered as a weakness for Adidas.

The reasons for the increase were; pull-forward efforts to ensure on-time product delivery (esp. in

Europe), increasing % of sales derived from at-once business, auto-replenishment programs and own

retail in the USA and currency effects stemming from euros losing value against dollar.

On the other hand, quality of inventory is increasing by increase of 40% on goods on transit and

lower provisioning for obsolescence. This is somewhat good for the company because goods on

transit means that the products are sold and there risk of excess stock is decreased.

In 2001, the high US dollar will continue to negatively influence Adidas`s inventory figures. Right now

Adidas is in a position, that even if our volumes remained perfectly flat, the value would be up

significantly.. However, the ongoing situation shows that there this will be a sustainable reduction and

Adidas has even more potential in 2002 and 2003.

Receivables-Level of borrowings-Debt Structure

Receivables increased by 17% with the increase on sales and Adidas is trying to continue with that.

Level of borrowings could not be reduced enough because of the high working capital.

Adidas tries to improve the debt structure.. The aim here is to decrease the dependency on short-term

bank borrowings, which is currently a disadvantage for the company.

With respect to earnings, targets are achieved despite the tougher macro-economic conditions and

negative currency effects.

Backlogs:

North America is problem here. Backlogs are down by 21% on a currency neutral basis. However, it

is positive in athletic specialty retail. The improvements would be visible next year as a result of

distribution oriented sales strategy.

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Expectations for the Next Period as a Result of the Current Strategy

*Sales for Adidas in 2001 is expected to be up in all regions except North America.

*In Europe, backlog development is improving in most major markets and Adidas has started a

variety of high visibility programs to promote the brand.

*One example here is the 1600 square meter Paris megastore, which opened in the middle of February

on the Rue de Rivoli, one of Paris’ top shopping boulevards. This is the only major sporting goods store

in Paris and it is obvious that that it will be a great showcase for Adidas products as well as an important

marketing tool for the brand.

*Latin America and Asia is expected to continue to see the biggest increases with double-digit sales

improvements in both regions.

*By reducing the working capital, controlling the capital expenditures and improving the earnings,

Adidas aims to reduce its borrowings and strengthen its financial independence. Specifically, borrowings

are going to be driven down by 100 to 150 million euros per annum starting in 2001.

North America

Adidas has already made great progress in getting the organization back in fighting shape on the

region. Not being the largest company in the market yet, Adidas became fastest-growing sports brand

in North America.2

Adidas aims to increase its share of the US footwear market to 20% by 2003, from the current 12-13-

% as the new marketing focus starts to produce the benefits.3

2 “adidas expansion signals optimism”, by; steve woodwart, at: www.oregonlive.com/business/99/07

3 By; FT.com staff, at: www.news.ft.com, 03/08/2000

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To achieve the goal Adidas would need to provide the right products for its US customers and

consumers to spur sales. The success of the company at this point somewhat depends on how the

North American economy and industry shape up over the year.

Direct financial results are likely to be seen in 2002, but the US section of the company aims to show

immediate qualitative improvements in a better product mix; more focused marketing effort, exciting

product flow and channeled sales approach.

One example to Adidas`s attack in the North America is;

New US Headquarters - Adidas Village:

It will open early next year and will centralize all Adidas`s Portland-based employees into one place

versus the seven locations. Thus, it is going to be a great opportunity for Adidas North America as

communication, design and marketing efforts will be better coordinated in the region.

Targeted Distribution Channel Strategy:

In the past, Adidas`s success in North America was item driven. Two or three key items were the major

drivers of sales in the market. As Adidas having a good track record for innovation, this generated lots of

good business, but little sustainability. Adidas`s goal now is to build a platform for business that will

really drive continued growth going forward. The key to this would be the targeted distribution channel

strategy, where the company delivers the focused product offerings that provide retailers in each of these

channels with products that meet the needs of their unique consumers.

The primary channels in the US are;

Athletic specialty and other specialty retail – This section constitutes about 35% of the market. This

sector includes customers like Venator(Foot Locker and Champs), Footaction and Finish Line: This

section is at the top of Adidas`s priority list for 2001, currently the healthiest part of the athletic goods

market and it is also the most important channel for Adidas`s most critical consumer group: urban youth.

Buying decisions in this channel are based on cutting-edge product and exclusives where retailers can

differentiate themselves from their competitors. For consumers, design is critical and large-scale

marketing campaigns can have a big impact. This has always been a channel where Adidas was under-

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represented in recent years. Adidas is expanding its high-profile exclusive programs with these retailers

from one in 2000 to five in 2001. Adidas would show more aggressive marketing efforts to build brand

awareness for the brand and these new “cool” products. Athletic specialty will be the fastest growing part

of the company’s US business this year.

However, last year Just For Feet went bankrupt and several stores were closed. That was a result of the

over boom in the section during the past few years. Moreover, the changing trend in the market to the all-

day sneakers from the performance products leads the decrease in the sales. Also, the inventories that the

retailers hold increased substantially and the prices had to be cut. If this situation continues during the

next period, Adidas`s efforts focusing on this section may lead a disaster for the company. In fact the

shakeout of the retailers threatens mostly smaller vendors and according to Mr. Shhneider, the Finish Line

executive, the industry is going to come back and being store in this section would bring a higher sales

opportunity for Adidas.4

Sporting goods – This includes big box shops like the Sports Authority, Garts and Galyans and makes up

about 20% of the US retail market today. It is another critical part of Adidas`s US business. This section

is focused on delivering top performance products to athletes in their specific sports. As one could easily

expect, this is an area where Adidas is strong and Adidas wants to strengthen and extend its strong market

position in this channel. Adidas can manage this by providing unique, performance products and backing

them with superior customer service be utilized to deliver the greatest benefits. This section is also

expected to gain sales growth.

Family footwear and department stores – Family footwear and department stores are the other major

category in US footwear market. These include stores like JC Penney, Kohls and Famous Footwear. This

group also represents about 40% of the market. Most important factors for the consumers here are value

for money and fashion. This section is the main distribution channel for mid-priced shoes where Adidas

has traditionally been strong. Here is an area where price pressure has been strongest in pat periods.

Adidas will be setting up special teams to create product specifically targeted to the value for money

4 By; Andy Dworkin, at: www.oregonlive.com/business/00/03, 03/05/2000)

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orientation of family footwear consumers. These retailers are an important part of the industry and have

long been ignored by all the major players. The head of Adidas America has met all of them personally

over the last several months and it would bring the company an opportunity to commit time and resources

to ensure improvement here. This effort will not show tangible benefits until 2002. Adidas will not offer

its original or exclusive products to these retailers. There is high demand for these products in this

channel and it is strongly possible that the competitors may offer high-end products here to clear excess

inventories. This isn’t what builds brand identity in fact, the company believes that it weakens it. To build

its brand in the United States for good, simply can’t be done by putting all products in all channels. A

short-term approach like this would improve Adidas`s sales in the short-term, however, it is not

something that is healthy for the brand in the long-term.

Own retail – This is a young category, in which sporting goods suppliers operate their own concept shops,

mega stores and factory outlets. This contributes less than 5% of industry sales but has two important

advantages: building brand image and improving clearance margins. It is also an important channel for

Adidas and all the competitors in the long-term development of business opportunities in the United

States. However, the industry is not healthy today and it is not the company’s top priority for the next

period.

Forever Sport Categories Targeting esp the US Market:

Soccer

Adidas is known throughout the world as the premiere soccer brand. This is something that is particularly

true also in the US, where Adidas sells more than one million pairs of soccer shoes each year and have a

market share of over 40%.

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Tennis

Adidas is also the US market leader in terms of footwear for tennis. With high profile players like Martina

Hingis, Marat Safin and Anna Kournikova, and top products this is an area where Adidas is committed to

extending its market leadership.

Basketball

Adidas is making major headway in the basketball category. This is a category, which is currently

dominated by the company’s major competitor, Nike. Adidas had double-digit increases in its US

basketball sales, even excluding original products like the Superstar. In 2001, Adidas expects to generate

even greater improvements.

The catalyst for this growth has been Adidas`s most successful new basketball launch in more than a

decade: The Kobe. This is Adidas`s highest priced shoe ever in the category at $125 and the company

launched this shoe in five color ways over the last 4 months. This shoe was critical to Adidas`s success in

the US market and the basketball category as Adidas proved that it could execute bringing a top product,

at a top price, with great marketing to the market. As a result, Adidas will be releasing the white shoe

again in the summer. And it will be following it up with a solid portfolio of basketball products in 2001.

Running and training

In both these areas, success is driven by design, technical innovation and, increasingly, exclusive

programs. On the design front, products like the Oberon running shoe, and the Quicklite training shoe

show that Adidas is expanding its traditional offering to focus on the fashion and design elements that are

playing an increasingly important role in the sporting goods market

The other key issue for these two categories is technology and Adidas plans take a major step forward in

2002 with the introduction of two new footwear technologies. That means Adidas is definitely going to

create some market excitement in 2001 when it starts introducing these footwear technologies to retailers,

investors and journalists.

Evidence shows that both have potential to make a significant sales impact and really improve Adidas`s

footwear offering in all markets, but especially in North America

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Exclusives.

This is a product segment, which is critical to the US market, and Adidas believes that the trend will also

play an increasingly large role in other markets in the future. Adidas will be expanding its exclusive

offerings with top retailers from one project,

For the year 2001 Adidas aims to build a better, sharper Adidas in the US. This will be the base for the

company’s superior financial performance in 2002 and beyond. Recent news about some major

competitors clearing inventory are likely to make the US market even tougher than Adidas expected at the

beginning of the year.

Other Key Points on SWOTs of Adidas

*Designers like Tommy Hilfilger, DKNY etc. that have started to produce sneakers, are getting

increasing shares from the urban segment of the market. They use their strong brand image as

leverage here.

*Because of the frequent changes in designs, retailers have to mark down prices to clear room for the

next design. Consumers who realized this fact wait for a few weeks to capitalize this opportunity.

Also they think the outlets are important alternatives to the retailers.

*According to the 1998 survey of SGMA, soccer has become the number 1 sporting activity with

respect to athletic shoe sales. This also brings a competitive advantage to Adidas, as it is the market

leader in that segment.

*Superstore chains, gaining more buying power in the industry. So it is not possible for Adidas as its

largest competitor, Nike, to dictate all terms of a real. Adidas has to work harder to get big retail

contacts.

*The superstores like Foot Locker and Champs are applying a private label program that targets

brands like Adidas. As the superstores promote their brands directly to the customers and have their

strong `brand names`, they can threaten Adidas`s and other brands` sales in case of using private

labeling on shoes besides apparel.

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*The newcomers like Vans and Airwalks has become popular among the teens. Moreover, major

retailers do not want major brand s to have much power on them so they give more space on their

shelves for the new brands. 5

*The brands like Vans and Airwalks produce low cut suede sneakers in variety of colors. Those are

cheap sneakers around 40$ and Adidas is also penetrating in this market. Sport sandal segment of the

market is rising. Adidas has the number 1 selling sports sandal. However, large mail order catalogs

like L.L.Bean and Eddie Bauer compete in the same segment.

*Nowadays Adidas is in a trademark fight with a company named C&A which uses two stripes on its

logo that would infringe Adidas`s trademark and damage its brand. The Bavaria`s High Court has not

decided on the issue yet, however, if Adidas loses this fight it might probably destruct its image and

sales especially in Europe.6

*Tim Joyce, who was the president of global sales when he left Nike in 1999, became executive vice

president of Adidas America. He might bring insight to Adidas, which it doesn’t have about sales. Also

he can bring some top-secret knowledge about Nike’s strategies as being the toughest competitor of

Adidas.7

* Nike`s shoe model Shox has entered the market. Shox is a high-tech shoe, which seems to be

performance oriented and can be used for both running and basketball. The endorsement of the shoe

was made by basketball star Vince Carter. At the same time, Adidas introduces Kobe Bryant

basketball shoe, which is also a high-performance shoe and also emphasizes fashion. Both Adidas

and Nike got help from automobile designers and Adidas`s Kobe shoe was particularly helped to

create by Audis designers which is a car that found quickly popularity in the U.S.8

5 at: Parkercenter.Johnson.cornell.edu/pdf_files/nike.pdf6 at: http://berlinworldwide.welt.de/daten/2000/07/11, 07/11/20007 at: www.oregonlive.com/business/Oregonian, 12/07/2000

8 at: www.bostonherald.com/business/business/shox12042000.htm, 12/04/2000

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*Most Adidas goods are produced in Third World countries, particularly Asia with orders given to

locally run factories. Adidas is accused of using child labor under 15(especially in the factories in

Indonesia and Thailand) to work overtime, paying wages less than 60$ a month and forcing them to

wrk under very poor conditions. This case is brought to the European Parliament last year. Whether

Adidas claimed that they were not aware of those conditions in the third world country factories,

which are owned by independent local organizations, the company has admitted some ignorance on

the international labor standards. Moreover, the campaigners against Adidas in this case hope that the

publicity surrounding the hearings on the working conditions in Adidas factories will force states to

become involved in the regulatory process.9

*Adidas has to deal with the problem of fake Adidas products that are sold illegally in the market.

Those fake goods do not only lead decrease in company revenues but also harm the brand image. A

small example here can be the arresting of a fake Adidas importer in Japan, who imported

4.69million yen Adidas labeled products from Japan. It is also known that the arrested amount of

those fake goods is only a small portion of the fake Adidas goods in the market.10

*Adidas is waiting for Tracy McGrady, the young player of Toronto Raptors to mature to be the new

focus of Adidas`s basketball message after Kobe Bryant. Adidas is going to wait for a few years for

that, because it is a lot of pressure for a young athlete to be the center of a marketing campaign and

there have been some errors on Kobe Bryant who went directly to NBA after High School.11

9 By; Jason Burke, at: www.observer.co.uk/uk_news/story0,6903,3999834,00.html, 11/19/2000

10 “fake adidas importer arrested”, at: www.japantimes.co.jp, 01/15/2000

11 “Adidas denies it wants McGrady in U.S.”, by; Bill Harris, “Toronto Sun”, at;

http://slam.ca/BasketballTorontoArchive/jun21_adi.html),06/21/2000

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*With more and more teens turning off traditional sports clothing and shoes (preferring more

lifestyle wearing like FYBU, Old Navy etc. and so abandoning traditional mall-based sporting goods

retailers), Adidas has had to rewrite the game plan for selling its new extreme sports lifestyle line by

avoiding mall-based distribution outlets and playing down on its corporate culture.12

CRITIQUE

*Adidas`s one of the most significant problem seems to be the high operating expenses. This

problem should be focused by Adidas management to increase the financial performance of the

company. The most critical issue here is the problems stemming from the currency problem. Adidas

has to find a way to avoid from its losses as a result of the possible devaluation of Euro against

dollar. So, the expenses can be fixed to a certain currency rate which can be negotiated in the

beginning of each period with Adidas`s suppliers and customers (retailers, department stores etc).

That would give the company the opportunity to minimize risk stemming from the possible currency

fluctuations and a significant decrease in expenses can be observed after then.

*Another reason for the high operating expenses in the past was the high costs of the sponsorship

agreements. Adidas management should evaluate the benefits and losses of those sponsorship

contracts very carefully. After the possible increases in sales as a result of those sponsorship

programs (like summer Olympics) are examined, the expenses of these for Adidas should be

calculated and those two should be compared. If the result does not proven to be a `gain`, the

resources devoted to sponsorships can be shifted to other operations like R&D or direct advertising.

*Adidas also pays a lot of interest every year, which destructs the organizational profitability each

term. Especially the high level of short tem borrowings is a crucial problem for the company. Instead

of borrowing at a high level, the company should focus on minimizing the operating expenses and

also the high sponsorship costs can be avoided. Moreover, the top management can use its

12 “Adidas courts smallness to sell extreme gear”, by; Simon Ashdown, at:

www.kidscreen.com/articles/ks29018.asp), 03/2000

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bargaining power and can try to shift short-term borrowings to long-term at the minimum additional

cost.

*Operating expenses are too high in Adidas as being one of the most important concerns of the

corporate management and it should be decreased. For that purpose, Growth and Efficiency Program

would be beneficial. According to the program, Adidas streamlined the organization and by doing so,

too many duplications were eliminated. Global and US apparel activities were combined, footwear

and apparel business units were united with their design teams. So a lot of unnecessary management

levels were eliminated. It seems to be an opportunity for Adidas to increase the organizational

efficiency in the upcoming years. Moreover, this opportunity would enable Adidas to utilize

economies of scale much more.

*The high working capital should also be decreased to improve the financial strength of the

company. There are a few ways for it. Consolidating the warehouses, which are not far away from

each other, would help to decrease the working capital. On the other hand, eliminating inefficient

product lines would be a critical attempt here. For determining the inefficient product lines, the

regional managers should coordinate very efficiently with the corporate management to achieve the

task effectively.

*Adidas should apply a customer-focused strategy, especially for athletic specialty retailers and other key

accounts. Account teams can be established with independent design and development resources. These

teams may work directly with the key accounts to develop various account specific concepts and products

that meet the needs of each retailer’s unique consumer profile. That would help Adidas to come over the

excess inventory and clearance sales. Moreover, Adidas would gain competitive against its rivals in the

retailers and sustain its strength at those points.

*Adidas has to follow very carefully the trend in the market to the all-day sneakers from the

performance products. It is no longer enough for a shoe to simply perform its intended function; it

also must make a statement about the wearer and their personal style. Only brands that fulfill both

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needs and who allow their products to live in the blurred area of sport and fashion will be successful

in the future.13

The design teams should also focus on the fashion side of the Adidas products. Some shoes, which are as

good as other performance shoes and also can be worn all-day should be developed to compete with the

brands like Tommy Hilfilger which are trying to enter the sneaker market. Moreover, the innovations on

multi-sports usable shoes should be focused on. An athlete who plays basketball, but also runs and weight

trains would prefer one single shoe which fits for all types of exercises. It would be cheaper and more

practical for the athlete. Also, it would be a great competitive advantage for Adidas that having that kind

of a shoe against its rivals.

*Adidas should take more strict precautions against the fake Adidas products, which are illegally sold, in

the market. A symbol, which is impossible to imitate, can be designed and put on every original Adidas

shoe. Adidas should also emphasize that symbol on its advertisements and it should be easy for

consumers to distinguish fake goods from the original ones. It would help Adidas to strengthen its brand

image and to prevent losses stemming from the fake goods.

*Adidas should focus on benchmarking while developing strategies against its rivals, especially Nike.

Adidas can utilize Tim Jones, who was one of the top managers of Nike in the past to learn more about

the strategies of its most challenging rival. Especially in North America, Adidas`s success mostly depends

on its success to gain sales from Nike’s potential customers. So, Adidas has to examine and learn very

well how Nike established its current position and what are the critical points for sustaining that position.

*Adidas should also be careful on the child labor issue, which can threaten the company like other large

sneaker brands in the near future. Adidas management should empower regional managers who are

assigned in the locations of the manufacturing plans to check and ensure that working conditions in

Adidas manufacturing plans corresponds with the international standards. This would enable Adidas to

not conflict with business ethics and would strengthen company’s values.

13 by; Jack Buckner, at: www.biz.yahoo.com/prnews/010131/or_adidas_.html, 01/31/2001

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*Adidas`s targeting sustainability instead of short-term growth is a very accurate decision of the corporate

management. Especially, in the North America market; where the largest rival Nike is very strong and

newcomers threaten the others, Adidas should be very careful while taking steps. Strengthening the brand

image would be a result of companies giving high end products only to athletic specialty retailers but not

the department stores. So, Adidas is going to be able to build brand loyalty much better in the long-term

among its target customers. The new supply chain strategy of Adidas seems to be very beneficial in that

respect.

*Credibility in soccer and tennis categories is the key and Adidas has the best portfolio of global teams

and players, the leading performance products and the strongest heritage in those categories. Adidas

should strengthen and expand its leadership here with new sales packages to extend its position in

growing market segments.

*The macroeconomis conditions in the market is expected to be tough for some more years, so the

advertising staretegy is a key in that point to come over the challenge. Adidas wants to reach

earnings targets despite generally tougher markets and negative currency effects. For that purpose,

the will focus its advertising on technology and performance rather than the three stripe logo to

increase its sales.14 Moreover, Adidas should also emphasize the design and fashionable aspect of its

products to meet the changing demands in the market.

*The rewards that Adidas won last year like CLIO award as advertiser of the year, and being invited

to Dow Jones sustainability Index and Fair Labor Association in recognition of the company’s strong

social and environmental performance. Those rewards enable Adidas to become complex and global

organization, which does not aim only profit but sensitive to the environment. However, those should

be published and advertising more effectively to help promoting the brand and also for strengthening

the corporate values.

14 “Adidas will shift ad focus away from logo”, at: www.oregonlive.com/business/oregonian),

08/08/2000)

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*I can conclude that the future seems to be better than today for Adidas. If the strategies determined

by the corporate management can be applied efficiently the goals are possible to accomplish.

However, Adidas has to follow the trends in the market very carefully and it should develop

strategies to beat not only the large rivals but also the newcomers. The top management should focus

more on the financial strength of the company while not ignoring the design and innovation aspects

of the business. Finally; it is a fact that, being the global market leader is a big challenge for Adidas

but it is really possible in the long-term.

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APPENDIX

Financial Highlights

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Bibliography

1)www.oregonlive.com/business/99/10/bz102005.html

2)“adidas expansion signals optimism”, by; steve woodwart, at:

www.oregonlive.com/business/99/07

3) by; FT.com staff, at: www.news.ft.com, 03/08/2000

4) by; Andy Dworkin, at: www.oregonlive.com/business/00/03, 03/05/2000)

5) at: Parkercenter.Johnson.cornell.edu/pdf_files/nike.pdf6) at: http://berlinworldwide.welt.de/daten/2000/07/11, 07/11/2000

7) at: www.oregonlive.com/business/Oregonian, 12/07/2000

8) at: www.bostonherald.com/business/business/shox12042000.htm, 12/04/2000

9) by; Jason Burke, at: www.observer.co.uk/uk_news/story0,6903,3999834,00.html, 11/19/2000

10) “fake adidas importer arrested”, at: www.japantimes.co.jp, 01/15/2000

11) “Adidas denies it wants McGrady in U.S.”, by; Bill Harris, “Toronto Sun”, at;

http://slam.ca/BasketballTorontoArchive/jun21_adi.html),06/21/2000

12) “Adidas courts smallness to sell extreme gear”, by; Simon Ashdown, at:

www.kidscreen.com/articles/ks29018.asp), 03/2000

13) by; Jack Buckner, at: www.biz.yahoo.com/prnews/010131/or_adidas_.html, 01/31/2001

14) “Adidas will shift ad focus away from logo”, at: www.oregonlive.com/business/oregonian),

08/08/2000)

15) www.adidas.com: All company specific information except my comments is referenced from Adidas homepage

unless any other resource is given

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