Adidas possesses numerous strengths, which encompass successful operations in Europe, the production of high-performance products, recent divestiture of its subsidiary “dog” Salomon, status as a major sponsor for various events, a robust management team, effective control over its distribution channel, dominance in the soccer industry, an untarnished reputation regarding child labor and environmental pollution concerns, wide-ranging product diversity and variety, a strong financial position with minimal long-term debts, innovative footwear designs that enable consumers to customize their own shoes online, and first-mover’s advantage in e-commerce.
Nonetheless, Adidas also encounters weaknesses such as lesser popularity of American athletes endorsed by Adidas compared to Nike’s endorsers’ fame levels. Additionally, Nike is gaining ground within the European soccer market. There is public dissent concerning the utilization of sweatshops. Limited availability of e-commerce functionalities outside the USA poses another limitation along with conflicts arising from direct sales to consumers causing friction with resellers. Certain products have high prices while online customer service proves unhelpful.
Various opportunities are available for Adidas to pursue including acquiring Reebok and expanding strength in the golf industry through TaylorMade’s association and recently acquired Maxfli. Revenue growth can be achieved by establishing proprietary retail stores while collaboration with other online retailers offers avenues for offering Adidas products.
Threats -Loss of actual profits due to foreign exchange rates. -Nike’s established reputation in the footwear and apparel industry. -Persisting difficulties with import/export duties. As stated on their website, Adidas has been a dominant force in Europe for an extended period, establishing a strong presence there. Another advantage is that Adidas-Salomon manufactures high-performance shoes, which have attracted dedicated athletes as customers (adidas.com). Adidas recently disclosed its plan to sell its Salomon brand to Amer Sports Corporation for $624 million.
Salomon was purchased by the Adidas Group in 1997 for $1.4 billion, which included its subsidiaries TaylorMade and Mavic. The sale will involve Salomon, Mavic, Bonfire, Arc’Teryk, and Cliche. Herbert Hainer, Chairman and CEO of Adidas-Salomon, expressed that Salomon has been a valuable part of their group, but they have decided to prioritize their strengths in the athletic footwear and apparel market and the expanding golf sector (Bloomberg).
Adidas will be able to get rid of the struggling Salomon brand, which experienced a 1 percent decline in revenue and a 74 percent decrease in operating profit in 2004. The significant drop in operating profit is a result of restructuring efforts that reduced the proportion of French production for Salomon products from 55 to 35 percent, with new production now taking place in Romania and China. The announcement of the sale caused a surge in Adidas’ shares, increasing by 9.2 percent and reaching its highest point in six years, while Amer Sports shares also rose by 7.6 percent.
A weakness of Adidas is that they are third in the American market for athletic footwear sales. Additionally, they have struggled in the soccer shoe market, with Nike surpassing them in the European market due to their successful Air Zoom Total 90. Another weakness is Adidas’ past use of sweatshops, with allegations of inhumane conditions in their Asian factories in 2000. However, Adidas-Salomon has acknowledged the issue and is working to improve conditions. Despite these weaknesses, Adidas has a significant opportunity ahead.
Acquiring Reebok will give adidas greater access to the American market, where Reebok currently ranks second in the athletic footwear industry. Another potential opportunity for adidas-Salomon is expanding their TaylorMade brand. While adidas is selling the Salomon brand at a significant discount compared to its purchase price in 1997, the deal does not include the golf brand TaylorMade. TaylorMade-adidas golf holds a strong position in the golf industry and is recognized as the top driver on the United States and European PGA tours (adidas-Salomon.com). Furthermore, TaylorMade holds a 7.5 percent market share for golf balls, and adidas expanded its opportunities in 2002 by acquiring golf-ball maker Maxfli from the Dunlop Slazenger Group. Lastly, adidas can expect to increase revenue through their own-retail activities, which have been successfully implemented recently. These activities include concept stores, factory outlets, Internet sales, and expansion into Asian markets. However, adidas faces a threat of lower revenues due to exchange rate differences between the Euro and the United States dollar.
Adidas manufactures the majority of their products in Asia, where business transactions are carried out in dollars. Consequently, the company is compelled to convert back to the Euro during the manufacturing phase. This conversion happens again at a later stage, after sales in non-Euro countries. When it comes to PORTER’S FIVE FORCES, the barriers to entry for Adidas are low. Thanks to their extensive scale, the company can effectively manage costs and maintain a competitive edge over emerging rivals in the industry. Additionally, Adidas’ website is highly advanced and appealing for browsing, thanks to their substantial marketing budgets.
The investment needed for web development is significant and requires regular updates for new promotions and features to attract online shoppers. The industry has numerous unique product offerings, making brand identity a crucial competitive edge. Adidas is a globally recognized brand that greatly influences consumer choices. Selling shoes online may be highly competitive, but it is relatively easy to enter the e-commerce industry. The capital needed for starting an online store is much lower compared to establishing a physical store.
Thus, the online footwear industry is teeming with numerous online merchants. Consumers can easily switch between them at a low cost, depending on their preferences and factors influencing their purchasing decisions like price sensitivity. However, security poses a significant challenge in this field. Despite Adidas’ substantial investment in its website, there persists an industry-wide issue of safeguarding data transmitted over the internet. Hackers have the ability to infiltrate the site and acquire sensitive information such as consumer profiles, credit card details, and other corporate data.
In June 2000, Nike experienced a hijacking incident where their website’s traffic was redirected to a server owned by a Scotland-based Web hosting company. This serves as an example of how companies can redirect their web traffic to another similar site. In this industry, the Bargaining Power of Buyers is significant due to the large number of buyers compared to firms. Therefore, it is crucial for companies like Adidas to continuously market their products and distinguish their brands from competitors in order to enhance sales and market share.
The accessibility and intimacy among users have been improved through the use of online tools. For instance, the website’s link enables consumers to personalize and design their own footwear by selecting preferred colors and personalizing the footwear with their name. The buying behavior is greatly influenced by brand identity, as it builds trust and loyalty among consumers. Additionally, online buyers tend to be price sensitive with low switching costs. The Bargaining Power of Suppliers is low in this industry due to the presence of numerous suppliers.
In summary, suppliers have no bargaining power due to the lack of differentiation among them. Leather, rubber, and cotton, which are commodity items, are easily accessible in the market. Conglomerates like Adidas have an advantage over suppliers and establish a dependency on their products. Furthermore, Adidas has standardized their procedures for sourcing materials, labor, supplies, services, and logistics.
The presence of global networks consisting of inexpensive labor spread across various continents allows firms to easily and cost-effectively switch between suppliers. This also provides firms with the ability to replace inputs and access a wide range of suppliers. However, buyers have a limited desire to substitute products. In terms of athletic footwear, consumers have few options available such as boots, sandals, dress shoes, or going without shoes altogether. Nevertheless, consumers are unlikely to make these substitutions because athletic footwear has specific performance requirements.
Athletic footwear is essential for the game of basketball and cannot be replaced by boots or any other substitutes. The competition in the footwear industry has been intense, with major companies like Adidas experiencing substantial growth in the last twenty years. This growth can be credited to the worldwide accessibility offered by the Internet and e-commerce. The emergence of online selling platforms has broadened their market, leading to increased sales and reduced operating expenses.
Large firms typically have websites, which often include virtual stores for convenient online shopping. The popularity of online purchasing has been driven by the widespread availability of high-speed internet in North America. In the competitive footwear industry, leading companies heavily invest in capital expenditures, employ aggressive sales and marketing strategies, and establish strong brand identities (Adidas-Salomon, 2005).
Sources:
- Adidas-Salomon.2005.adidas-Salomon to combine with Reebok and create €9 billion footprint in global athletic footwear, apparel, and hardware markets.
- EBSCOhost.2005.adidas-Salomon SWOT Analysis: Threats
- Kiley, David. 2005.Reebok and Adidas: A Good Fit
- Knight, Philip H. 2005.Chairman’s Letter to the Shareholders in Nike’s 2004 Annual Report.NikeBiz.com (2005) provides an online company overview and annual report for the year 2004 [online]. The report can be accessed from the World Wide Web at http://www.nikebiz/investors/annual_report/ar_04/NIKE_2004_Annual_Report.pdf. According to the site, Nike’s mission can also be found online at http://www.nike.com/nikebiz/nikebiz.jhtml?page=3&item=facts,and it was last accessed on 8 September 2005 [online].
Below is a collection of web sources:
– Osborn, Andrew. 23 November 2000. “Adidas Attacked for Asian ‘Sweatshops'” [online]. Guardian Unlimited [cited 14 September 2005]. Available from World Wide Web: (www.globalpolicy.org/socecon/tncs/2000/1123ao.htm)
– Thomas J., Ryan. 2005. “Amer Group Acquires Salomon” [online]. Business Source Premier. [cited 12 September 2005]. Available from the World Wide Web: (http://search.epnet.com/login.aspx?direct=true&db=buh&an=17402675)
Additionally, the following links are also available:
– http://www.channelseven.com/newsbeat/99features/news19990624.html, October 2003
– http://www.urlwire.com/newsarchive/062499.html, October 2003
– http://www.adidas-salomon.com/en/news/archive/2000/2000-07.asp, October 2003
– http://www.adidas-salomon.com/en/overview/welcome.asp, October 2003
– http://www.adidas-salomon.com/en/investor/strategy/default.asp, October 2003
– http://www.adidas-salomon.com/en/investor/reports/default.asp, October 2003
– http://www.adidas-salomon.com/en/overview/history/default.asp, October 2003
– http://www.cybersource.com/solutions/success_stories/nike.xml, October
