Adidas is down for the count


Adidas is headed in the wrong direction

Adidas is headed in the wrong direction

In a small, rain-soaked town in northern Bavaria, a German company is trying to design athletic apparel and footwear that will appeal to the masses in America. And they’re failing miserably.

Adidas, the world’s second largest sportswear company in the world, has a problem: the American consumer doesn’t think they’re “cool.”

“At the moment, Nike is cool, very cool,” said Tammy Smulders, head of marketing consultancy at SCB Partners, to Reuters. “If you ask a 20-year-old, they are not going to pick Adidas right now.”

Part of this is due to the disconnect between their headquarters in Herzogenaurach, Germany, and the US market. Analysts and even the company itself have acknowledged the difficulty in recruiting top design and marketing talent to live in a German farm town with a population of less than 25,000 people.


Being based in Bavaria has left Adidas out of the loop with US consumers

Being based in Bavaria has left Adidas out of the loop with US consumers

Their products, while functionally sound, have recently lacked the style and marketing necessary to permeate the American market.

Nike, on the other hand, has been more willing to push the envelope. A recent illustration is their introduction of neon-yellow shoes for their athletes at the 2012 London games, a bright color scheme that has become a staple over the past two years.

The Swoosh has also introduced several well-received footwear innovations in recent years. Flywire, Hyperfuse, and Flyknit technologies, for example, have been hits with the US consumer because they are both stylish and practical.

“[Nike] understands the US consumer. Adidas does not,” said Matt Powell, head of Forbes’ Sneakernomics blog.

But Powell doesn’t believe the disparity between the companies is due to technological innovations, but rather their ability to market them.

“Adidas has a very credible technology in Boost [a new shock absorbing system],” said Powell. “They just have not exploited it here.”


Footwear expert Matt Powell believes Adidas has the tech to compete -- they're just not promoting it right

Footwear expert Matt Powell believes Adidas has the tech to compete — they’re just not promoting it right

It certainly hasn’t helped that the North American faces of Adidas have been trending downward.

After signing a 13-year, $185 million extension with Adidas in 2012, Chicago Bulls guard Derrick Rose has dealt with a myriad of leg injuries that have kept him off the court for nearly two full seasons. While his $40 million in signature sales ranks fourth overall among athlete-endorsed basketball sneakers, it’s difficult to make a shoe look good when the lead endorser is wearing a suit on the bench.

Adidas’ other top endorser in North America, Rockets center Dwight Howard, has faired even worse. His line only moved a paltry $5 million in product. Big men generally don’t sell shoes as well as guards to begin with, and Howard’s Q Score, which measures “the familiarity and appeal of celebrities,” has fallen to 13. The average is 16.

Between the location of the company, its inability to market fashionable products, and its pitchmen failing to resonate, it becomes clear why Adidas has lost ground in the States.

Conversely, The fact Nike’s lead endorser, LeBron James, rarely wore his signature shoe and still generated huge returns speaks to the company’s Teflon status. As long as the shoe design appeals to the consumer, they’re willing to look the other way. This speaks to the underlying divide between the companies – that consumers feel Nike inherently makes a better and more desirable product.

The numbers back this up. Combined, Nike and its largest subsidiary, Jordan Brand, account for 60 percent of all US footwear sales, ten times the market share of Adidas. The gap is also substantial in their apparel sales, with the Swoosh enjoying a 30 percent cushion.

Nike is crushing Adidas in US

Nike is crushing Adidas in US

And with Nike making inroads in Adidas’ home turf of Western Europe, the increasing divide between the world’s two biggest athletic companies has only become more glaring.

Nike’s nearly $28 billion in total sales for 2014 dwarfed their German rival’s most recent sales figures. In 2013, Adidas’ total sales were €14.49, equal to a little more than $18 billion. It represented a 2 percent drop from the year prior.

Adidas is headed in the wrong direction, and they’re looking for answers.

Where does Adidas go from here?

The Trefoil realizes it has to make its brand sexy again, both in America and internationally.

Adidas fears its headquarters in sleepy Bavaria has lead to being out-of-touch with the US market. To assuage this, they poached three of Nike’s top designers last month and pegged them to open a new design studio in Brooklyn this winter.

They’re also looking beyond athletes to help make an impact on the American market. Collaborations with hip-hop artists such as Big Sean, ASAP Rocky, and Snoop Dogg have been geared towards drawing the younger demographic back into the fold.

Adidas has also partnered with fashion designers Jeremy Scott and Raf Simmons in an effort to target the high-end casual shoe market, where products can run for several hundred dollars.

These moves point to a concerted effort from Adidas to reposition itself as a company that not only see itself as a sportswear brand, but a lifestyle brand.

Still, Adidas has a ways to go before catching Nike on this front, where the Swoosh has benefited from having artists turn up online wearing their performance and casual wear. In essence, celebrity is just as important as athlete product endorsement.

“[hip-hop artist] Wale wearing a pair of Durant’s is just as important as [Durant] wearing a pair Durant’s,” said Ian Stonebrook, writer for His weekly “Celebrity Sneaker Stalker” column routinely ranks as the most-viewed page on their website.

Signing Kanye West to a design deal may be the biggest indicator Adidas has caught on to this phenomenon. West had previously designed two popular shoes for Nike – the Air Yeezy – but was upset over his compensation.

Adidas hopes the coup will cut into Nike’s stranglehold on cool.

“[Kanye’s] influence on the market is unmatched…he’s ahead of LeBron” said Stonebrook. “This could be the biggest move since Jordan.”

Adidas is banking on Kanye West bringing some cache back

Adidas is banking on Kanye West bringing some cache back

And if it isn’t, and their marketing continues to be second-rate, Adidas could see a change in leadership. With shares of ADDYY down more than 30 percent on the year, investors have started to grumble about the performance of CEO Herbert Hainer.

Powell believes this is a necessary move for Adidas to truly become a competitor again in North America. “The US must become design and product center for the brand,” said Powell. “Current management does not see that.”

It’s become apparent the latest maneuvers from Adidas will bring change in one form or another – either in market share or in the boardroom.

Insights of a part time real estate agent

A private Realtor, a restaurant owner and a market owner (former state farm branch owner as well); these are things that describe the professional affairs of Gopal Sood, an experienced worker to say the least. Though I originally planned to investigate on the economic status of his very delicious 23rd Street Café, upon discovering that Gopal was also a Realtor I was urged to interview Gopal the Realtor. Considering how the housing market has diminished so much since 2007 the opportunity to know more about the real estate industry was a chance I could not miss.

Let’s go back before 2007 before the crash of the housing market.  At this time I always heard from friends and relatives talking about how great it must be to work as a Realtor. One of friends’ mothers even told me at elementary school how great it was being a Realtor during a career day event. I believed her when I saw her rolling out of the school parking lot in a convertible Jaguar. It was also likely at this time Gopal felt the same. I asked him how his business was at this time.

“You wouldn’t even believe it now; I was closing 10 to 15 houses … a month.”

Considering how little I knew about the business, I figured that was a lot.

I asked him how it was now.

“Maybe one or two”

The housing market essentially crashed in 2008 and combining the edges of my memory I remembered how frequently the term housing market came about within conversations about the recession. So I asked the next question off my list: What economic data do you think impacts your business the most? He said the economy itself is the data that gives him the most information. Not really sure what that meant, I asked instead: What happened?

He explained that because the banks are unwilling to give out loans it is harder for people to buy homes and since current homes prices are so low people are unwilling to put their homes in the market as well. This leads to less, almost none, real estate inventory making it very difficult for the real estate industry.

Still a bit confused I looked up information on the housing market trend in the local area. In all of Los Angeles, between 2007 and 2009, the recession led the house market price to drop almost 25%. It is only since the beginning of 2012 that the prices of homes are slowly beginning to increase. Currently the average price of homes has recovered about 40% of the amount it lost from the recession. So, even though prices of homes are cheap, it is difficult to buy a home because loans are not being given by the bank.

It was at this time I remembered from my Economics class how the recession occurred when banks met a higher than expected rate of foreclosures after eagerly giving out loans to people who were unable to pay the mortgage. So essentially, because of the recession banks are unwilling to give loans to home buyers.

He adds, “Unless you have a job that is what’s called recession proof. Even I, an owner of several businesses would not be able to get a loan for a house.”

That may be why he does not do any marketing whatsoever. All he has is his card and word of mouth (which is the same for his restaurant).

Curious to know more about the condition of his real estate business, Gold Star Realty, I asked him more on the current affairs of his business. What he told me was surprising.

The majority of his clients are attorneys. He enlightened me that because the yield on interest rates for savings accounts dropped so low, people have grouped together to collectively buy a house with the purpose of gaining a higher yield in their investments. It’s no wonder why as soon as a house becomes available, it is almost instantly bought.

But like I questioned earlier, how can it be possible that the housing market is bad if home prices and loan interest rates are so low? Banks are unwilling to give loans to people who do not have recession proof jobs; so, it would be likely that it is the practitioner professionals who the only ones making these investments.  But, this is untrue.

The number of individuals and families that enter this collective contract allows middle-class earning investors to afford the purchase of properties in places such as Beverly Hills.

“The last house I sold was in Beverly Hills and it sold for $1.3 million. I met with the attorney and he brought it all — in cash.”

The obvious assumption is that the middle class people have continued their real estate investments by collectively purchasing a house with on-hand cash, since they are unable to get a loan from banks.

“What many will do is buy a house, and then flip it so they can sell it for a higher price. That’s what I do”

Gopal truly is a man of experience. His real estate company is housed in a small suite in San Fernando Valley and uses it only during the rare moments he is with a client. He pays zero dollars for marketing and relies purely on the word of mouth. Nonetheless, this strategy was able to benefit him very well before the crash of the housing market. Luckily the crash of the housing market did not put his business in debt due to his realty business being self-run. Today his realty business survives through the rare occasions he is able to come across an open house as well as through his other businesses.

“People say to me all the time after seeing my car that my business must be doing great. But that’s not true. I got that car back when I was selling all those homes”