Wednesday, 25 March 2015

As Adidas Seeks New Boss, Today’s Boss Still Wants Big Shoes

The sooner Hainer hands the baton to a successor the better,” said Ingo Speich, a portfolio manager at Union Investment, which holds 1 percent of Adidas shares. “A new strategy would be believable only with new leadership.”
At a March 26 event at Adidas’ headquarters in Herzogenaurach, about two hours’ drive north of Munich, Hainer and his deputies will present a five-year financial plan. The initiative is aimed at wresting back market share from Nike Inc. -- which has proven better at courting young people in big cities like London, Hong Kong and San Francisco -- and protecting its soccer franchise from upstarts such as Under Armour Inc.
“I want to have a convincing message that says, ’OK, we are waking up,’” said Cedric Rossi, an analyst at Bryan Garnier & Co. in Paris who has a “neutral” rating on the shares. “When you look at the last two strategy plans Adidas implemented, the two were a failure.”
Successor Search
On stage with Hainer will be internal candidates for his job, brand chief Eric Liedtke and sales head Roland Auschel. The board is also looking outside, part of “a long-term process that has just begun,” Hainer wrote in his letter to employees. The company declined to comment on calls for Hainer’s early departure.
The No. 2 athletic gear maker -- sponsor of soccer’s quadrennial World Cup since 1970 and of last year’s top two teams, Germany and Argentina -- last summer said it wouldn’t reach targets of 17 billion euros in revenue and an operating margin of 11 percent for 2015. Adidas is now predicting sales of roughly 15.5 billion euros and a margin of 6.5 percent to 7 percent this year as it boosts marketing. After the world financial crisis in 2008, the company also abandoned targets for 2009.
Nike, the world’s top supplier of sports gear, on March 19 said its sales for the quarter ended in February rose 7 percent from a year ago and its profit margin widened to 14 percent -- double Adidas’.
“Adidas makes really good products,” said John Guy, an analyst at brokerage MainFirst AG in London. The problem is, “they don’t know how to communicate them to consumers.”
In the U.S., which accounts for about a third of global sport shoe sales, according to market researcher Euromonitor International, Adidas is far behind Nike in basketball and American football. And “soccer isn’t meaningful here,” said Matt Powell, an analyst at market researcher NPD Group.
“The problem is there’s no quick fix,” Powell said. “An idea someone has today will take months to make it to retail.”
That’s not to say Hainer’s tenure has been a total flop. Adidas has made strong progress in China, and its shares are up 20 percent this year after losing 38 percent in 2014, the worst performer in Germany’s 30-stock DAX index. Its market value has more than tripled since Hainer took over in 2001 -- though Nike has grown almost nine-fold in that time period.
Adidas fell 0.8 percent to 70.60 euros at 4:24 p.m. in Frankfurt. Nike was little changed at $100.63.
The problems aren’t lost on Hainer, who said on a March 5 earnings call that the company has “turned our entire marketing organization upside-down” to let divisions such as running shoes and soccer cleats take charge of their advertising.
“There’s a European mentality that comes out of Germany and you try to apply it here and it becomes very difficult,” Adidas North American president Mark King said in a recent interview with Bloomberg Television.
Middle Fingers
Yet some recent Adidas’ marketing isn’t in keeping with the company’s history as a no-nonsense supplier of precision shoes used by Europe’s soccer elite, top marathon runners, and mountaineers like the legendary Reinhold Messner. A video ad, There Will be Haters, featured Uruguay’s Luis Suarez, expelled from last summer’s World Cup for biting an opponent, surrounded by graphics of raised middle fingers. And a World Cup campaign featured players holding bloody cow hearts pledging to “give their heart” to the tournament.
The company declined to say which agency was responsible for those ads, but says it has shifted most of its business to 72andSunny, a shop in Los Angeles that makes cheeky ads with swimsuit models for Carl’s Jr. and more wholesome spots on work-life balance for Google Inc. Adidas says it expects those ads, to be unveiled this summer, to focus more closely on its core values as a sporting goods brand.
Even before revealing his new plan, Hainer has made a series of strategic moves. Adidas sold its Rockport walking shoe business in January and on March 16 said it won’t pursue a new NBA sponsorship deal when its current one ends in two years. The company has even managed to rekindle interest in its faded Reebok brand by targeting niche sports like mud-racing, though that’s a long way from 1985, when movie star Cybill Shepherd was shot at the Emmys wearing a black gown, formal gloves — and orange Reeboks.
“It never feels good when you don’t reach all the goals you set out in either sport or business,” Hainer said on the earnings call as explanation for failing to meet the 2015 targets. “I have lots of interests and hobbies and my wife is crying for more time.” But if Hainer has his way, his wife will have to wait
http://www.bloomberg.com/news/articles/2015-03-25/as-adidas-seeks-new-boss-today-s-boss-still-wants-the-big-shoes

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