Scale of Adidas
Adidas: Strengths -Strong success in Europe -High-performance products -Recent selling of subsidiary “dog” Salomon -In many invents is the biggest sponsor -Strong management team. -Strong control over its own distribution channel. -In the soccer industry, it has a stronghold. -No bad reputation like child labour or environment pollution. -Diversity and variety in products offered. -Strong financial position with minimal long term debts -Innovative designs in footwear enabling consumers to design their own shoes online -First movers advantage in e-commerce Weaknesses American athletes endorsed by adidas are not as popular as Nike’s -Nike gaining ground on European soccer market -Public dissent over use of sweatshops -E-commerce is limited to USA -Direct sale to consumers is creating conflicts with its own resellers. -High prices in some products. -Online customer service not ‘helpful’ or easy to find. Opportunities -Acquisition of Reebok. -Growing strength in golf industry through TaylorMade and recent acquisition of Maxfli -Growing revenue from opening of own retail stores. -Collaborate with other online retailers to offer Adidas products.
Threats -Foreign exchange rates will result in loss of actual profits. -Nike’s strong reputation in the footwear and apparel industry. -Continuing challenges in import/export duties. As mentioned on their website Adidas has been a leader in Europe for years and have been able to become comfortable there. Another strength is that Adidas-Salomon produces high-performance shoes. They have been able to attract hardcore athletes as customers due to efficiently made shoes (adidas. com). Adidas recently announced that it will be selling its Salomon brand to Amer Sports Corporation for $624 million.
Salomon was originally acquired by the Adidas Group in 1997 when it paid $1. 4 billion for Salomon and its subsidiaries, including golf brand TaylorMade and cycling brand Mavic. The sale will include the brands and subsidiaries Salomon, Mavic, Bonfire, Arc’Teryk, and Cliche. Herbert Hainer, Adidas-Salomon Chairman and CEO, stated that “Salomon has been a great member of our group. However, we have decided that now is the time to focus even more on our core strength in the athletic footwear and apparel market as well as the growing golf category” (Bloomberg).
This move will allow Adidas to rid itself of the recently slumping Salomon brand, which posted a 1 percent drop in revenue along with a 74 percent drop in operating profit in 2004. The sharp decrease in operating profit is due to recent restructuring that reduced French production of Salomon products from 55 to 35 percent with new production taking place in Romania and China. News of the sale spiked Adidas’ shares up 9. 2 percent, reaching its highest point in six years, while Amer Sports shares gained 7. 6 percent.
A major weakness of the Adidas brand is that they are currently third in the American market for athletic footwear sales. Another weakness is Adidas’ recent fall in the soccer shoe market. Nike took over first place in the European soccer shoe market with its success of the Air Zoom Total 90. Adidas’ final weakness that must be mentioned is their use of sweatshops. There were allegations of inhumane conditions in Adidas’ Asian factories in 2000. However, Adidas-Salomon maintained that they were trying to fix the conditions. Adidas has a huge opportunity on its horizon.
The acquisition of Reebok should allow adidas to have greater access to the American market, where Reebok is currently second in the athletic footwear industry. Another opportunity for adidas-Salomon is the possible expansion of their TaylorMade brand. Although adidas is currently selling the Salomon brand for nearly half of what it paid for it in 1997, the deal does not include the golf brand TaylorMade. TaylorMade-adidas golf has a strong hold on the golf industry and was ranked as the number one driver on the United States and European PGA tours (adidas-Salomon. om). TaylorMade holds 7. 5 percent of the market share for golf balls and adidas increased its opportunities in 2002 by acquiring golf-ball maker Maxfli from the Dunlop Slazenger Group. Finally, adidas can expect to see revenue increases due to their newly implemented and recently successful own-retail activities. These include concept stores, factory outlets, Internet sales, and parts of Asian markets. A threat for adidas is that it sees a negative impact on its revenues due to the exchange rate differences between the Euro and the United States dollar.
They manufacture most of their product in Asia, where business transactions are conducted in dollars. Therefore, adidas is forced to convert back to the Euro as early as the manufacturing stage. Then, later on, after sales in countries that do not use the Euro. PORTER’S FIVE FORCES Barriers to Entry – Low Due to the large scale of Adidas, the firm is able to control their costs to retain performance advantage over emerging competitors in the industry. Their web site is more sophisticated and enticing to browse, contributed to their large marketing budgets.
The capital injection into web site development is high and must be updated frequently with new promotions and added features to attract online shoppers. There are many proprietary product differences in the industry therefore brand identity has an immediate competitive advantage. Adidas brand is well renowned globally and plays a major role in consumer decision making. Selling footwear online is highly competitive; however, barriers to enter into this e-commerce industry are quite low. The capital requirement for setting up an online shop is comparatively lower than setting up a traditional bricks and mortar establishment.
Therefore, the online footwear industry is highly abundant with hundres of online merchants. Switching cost is low for the consumer, and may occur frequently depending on consumer preference and other factors affecting consumer buying decision, (i. e. price sensitive consumers). Another major barrier is security. Although, Adidas have invested millions of dollars into their web site, there is an industry wide problem of securing data over the Internet medium. Hackers may potentially lacerate into the site and could retrieve sensitive data such as consumer profiles, credit card numbers, and other corporate data.
They could even redirect the company’s web site traffic to another web site similar to the case of Nike in June 2000. Nike experienced a hijacking of its web site. The traffic from www. nike. com was redirected to a server at a Scotland-based Web hosting company. Bargaining Power of Buyers – High There are a large number of buyers relative to the number of firms in this industry. Therefore, companies like Adidas must continuously market their product and differentiate their brands against competitors, in order to increase sales and market share.
The use of online tools has helped to enhance the accessibility and intimacy among users. For example, its website’s link allows consumers to customize and design their own footwear by permitting customers to specify the desired colours and the option to personalize the footwear with their name. Brand identity plays a critical role in the buying behavior; strong identity will offer consumers trust and loyalty. Many online buyers are price sensitive and switching cost is low for the buyer. Bargaining Power of Suppliers – Low There are many suppliers in this industry.
In essence, there is very little differentiation among the suppliers which makes suppliers’ bargaining power non-existent. Leather, rubber, and cotton are commodity items and are available abundantly in the market place. Conglomerates such as Adidas have a definite advantage and power over their suppliers. These suppliers become dependent on these firms as their means to survival. Additionally, Adidas have standardized their input procedures pertaining to the materials used, their labor force, supplies, services, and logistics.
Firms are able to switch between suppliers quickly and cheaply, due to the globalize networks of cheap labor on various continents. Additionally, inputs are readily substituted and there are an abundant number of suppliers available. Threats of Substitutes – Low Buyers’ propensity to substitute is low. Consumer substitutes for athletic footwear products are low because there are little alternatives to switch, some substitutes for athlete footwear could be boots, sandals, dress shoes or bear feet. Consumers are not likely to substitute due to the performance specification of the product.
For instance, a basketball player would not wear boots to play basketball. Therefore, there are no real substitutes for athletic footwear. Rivalry among Existing Competitors – High The rivalry among existing competitors in the footwear industry is quite high. Large firms such as Adidas have grown immensely over the last two decades. Their global reach has expanded through all continents; this is attributed to the emergences of the Internet and e-commerce. Online selling has enlarged the reach for these firms allowing them to increase sales while minimizing operating costs.
Almost every large firm has a web site, and most of these web sites contain virtual stores which provide convenience to consumers. Most individuals in North America have access to high speed Internet and online purchasing has become the new trend for the twenty first century. Competition is fierce in the footwear industry and those who dominate or lead the market do so with high capital expenditures, aggressive sales and marketing strategies, and strong brand identity. Sources: Adidas-Salomon. 2005. adidas-Salomon to combine with Reebok and create €9 billion footprint in global athletic footwear, apparel and hardware markets. online]. Adidas. [cited 10 September 2005]. Available from World Wide Web: (http://www. reebok. com/NR/rdonlyres/eypsl3l24vnxekyolk3ctuxcueejdzg6o4q7cgltnrzta5ednwvoehtyhbqi dqixc7p2cfd5vljiek/ADIDASREEBOKPRESSRELEASE. pdf) EBSCOhost. 2005. adidas-Salomon SWOT Analysis: Threats [online]. Business Source Premier [cited 10 September 2005]. Available from World Wide Web: (http://search. epnet. com/login. aspx? direct=true&db=buh&an=16895217) Kiley, David. 2005. Reebok and Adidas: A Good Fit [online]. BusinessWeek Online [cited 7 September 2005]. Available from World Wide Web: (http://www. usinessweek. com/print/bwdaily/dnflash/aug2005/nf2005084_8430. htm) Knight, Philip H. 2005. Chairman’s Letter to the Shareholders [online]. Nike’s 2004 Annual Report [cited 12 September 2005]. Available from World Wide Web: (http://www. nike. com/nikebiz/investors/annual_report/ar_04/NIKE_2004_Annual_Report. pdf) NikeBiz. com. 2005. Company Overview. [online]. About Nike. [cited 11 September 2005]. Available from World Wide Web: (http://www. nike. com/nikebiz/nikebiz. jhtml? page=3&item=facts) NikeBiz. com. 2005. Mission. [online]. The Nike Mission. [cited 8 September 2005].
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