Welcome to the thirteenth article in our Sports Economy series where today we take a look at the economic story of the big three sportswear manufacturers Nike, Adidas and Pauma.

Sport activities have a narrow definition in official economic classifications but there are many aspects of the wider sports economy such as media, publications, clothing and equipment that are measured as part of other sectors and industries that could not exist without sport.

This article discusses the past, present and future of one such industry, sporting goods, and its leading players Nike, Adidas and Puma.

Characterised by storied rivalries and interwoven journeys, the boardroom battles between these companies are etched just as boldly into sports history as the World Cup and Olympic clashes in which their products have been worn.

The Brothers Dassler

In 1924, in the small Bavarian town of Herzogenaurach, The Brothers Dassler Shoe Company was founded with the idea that sports footwear should be designed to meet the individual demands of different sports.

Depicted in the book Sneaker Wars, Adi and Rudolf Dassler’s company came to prominence at the 1936 Berlin Olympics when Jesse Owens wore their innovative screw-in spikes and claimed four gold medals in front of an onlooking Adolf Hitler.

The relationship between the craftsman brother, Adi, and the salesman brother, Rudolf, deteriorated so much thereafter that The Brothers Dassler Shoe Company was split in two in 1948. South of the Aurach River grew Adidas and a few kilometres away to the North, emerged Puma.

Driven by an intense desire to beat each other, Adidas and Puma grew into the preeminent global sportswear companies of the time. The industry was dominated by their rivalry and sprinter Armin Hary and the German National Football Team were at the centre of endorsement battles that were so ruthless that in the lead up to the 1970 World Cup, the two companies agreed to the ‘Pele Pact’ agreeing neither would sign the Brazilian star to avoid a bidding war.

The tournament itself was the first to be broadcast in colour. The start to the quarter-final between Brazil and Peru was delayed momentarily when Pele asked the referee for time so he could tie his shoelaces, giving the world a close-up of the Puma boots he was wearing and confirmation the pact had been covertly broken.

A Third Force

In 1964 Blue Ribbon Sports was founded in Eugene, Oregon, by Stanford student-athlete Phil Knight and his coach Bill Bowerman. In 1971 the company was renamed Nike, and the famous Swoosh logo debuted shortly after.

Nike, a production orientated company, gained an advantage over their European rivals by outsourcing manufacturing to lower-cost Asia and by the early 1980’s began to threaten the global dominance of Adidas and Puma until their business model suddenly came unstuck and they lost their place as leader in the U.S. market to Reebok who emphatically won the battle to supply the sports apparel and footwear needed for the explosion in popularity of aerobics and jogging.

However, Nike soon found its niche. Working with ad agency Wieden & Kennedy they changed sports marketing forever. Nike became the global market leader by dividing their product offering into sub-brands, each with their own defining and unique marketing campaigns and by using athletes that were not only winners but also stirred up emotion amongst fans. The Air Jordan basketball shoe was the first of such sub-brands.

Adidas had actually passed on signing Michael Jordan during his college basketball days. Various corporate missteps taken trying to catch Nike then left the company in a precarious financial situation and in 1989 the Dassler family sold their interests to eccentric and infamous French industrialist Bernard Tapie, a name familiar to Irish sport fans as the owner of Marseille during Tony Cascarino’s stint with the French club.

The Tapie tenure of Adidas was unsuccessful and by 1992 the company was near bankruptcy. As too were Puma after a prolonged period of mismanagement. Just as the two companies had come from the same beginnings it seemed their ends would also mirror each other.

Back to the Future

It was in fact two ex-Nike employees, acting as independent consultants, that led to a turnaround in Adidas’ fortunes. One of them, Peter Moore, recalls that five minutes into his tour of the company museum he realised Adidas unwittingly “had a gold mine on their hands” and suggested modernising and re-launching their famous shoes from the past. The retro line was one of many successful strategies thereafter that propelled an Adidas recovery.

The bold decision to make 30-year-old Jochen Zeitz CEO in 1993 proved to be a watershed moment for Puma and under his control, the company transitioned from a struggling, bureaucratic low-price brand into a successful, streamlined premium sport-fashion company. Signing a 16-year-old Usain Bolt to an endorsement deal in 2003 was one of many successful moves made during Zeitz’s reign.

In more recent times, Nike has firmly entrenched itself as not only the most valuable sporting goods company in the world but also the largest apparel brand ahead of Gucci.

Adidas has maintained the position of the second-largest sportswear company, despite struggling to re-vitalise Reebok, a brand it bought in 2006,

Puma has reclaimed third place edging back ahead of Under Armour by pivoting back toward sport and away from lifestyle and fashion, signing deals with Neymar and Manchester City amongst others.

Impact of Covid

The pandemic has been a game of two very distinct halves for Nike, Adidas and Puma. As Covid hit in February 2020, the stock prices of all three fell between 35-45% in just a few weeks as the world went into lockdown. Adidas sought and secured a government-backed emergency loan. Puma also needed emergency debt finance.

However, following an upsurge in e-commerce sales, the industry was interpreted thereafter by stock markets as one that would not only recover but also prosper, in the ‘new normal.’ As of today, Adidas has nearly recovered to pre-covid stock price levels while Puma is 15 per cent higher than it was before Covid. Nike is 30 per cent higher.

All despite huge decreases in revenue from retail closing across the globe.

Why?

Netscape founder Jim Barksdale once famously quipped “there are only two ways I know of to make money: bundling and unbundling.”

Many industries are currently in an unbundling stage. Whether it is Nespresso or Netflix, cutting out the middleman is very much in fashion and within sportswear Nike, Adidas and Puma are taking tighter control of their distribution strategy and selling directly to customers through a combination of digital channels, factory outlets and company-owned retail shops.

Digital Acceleration

Even before the pandemic, the sporting goods industry had begun shifting away from traditional wholesale models but these long-term plans ended up coming early due to Covid.
Nike and Puma had been first to move.

Prior to Covid, Nike had pursued a shift towards e-commerce via their strategy “Nike Digital” and Puma had also decreased nearly all types of traditional advertising in favour of digital mediums. Adidas has been slower to pursue digital transformation but in March of this year unveiled their five-year eCommerce strategy, “Own The Game” and intend investing more than €1billion on digital transformation to double eCommerce sales through direct connection to consumers via digital communities.

Digital sales are clearly a massive part of the future for the sportswear industry but bricks and mortar retail will not go away. According to Consultancy firm McKinsey, sporting goods retail in the future will be defined by immersive experiences and engagement, and designed upon the wider notion that “the era of utilitarian, in-and-out in-person shopping is ending. To attract consumers back to shops there is a growing belief that physical retail needs to find new purpose, new experiences and new levels of convenience that cannot be offered digitally” such as foot-scanning applications that tell users their accurate shoe sizes.

Nike, Adidas and Puma envision their products being sold through company-owned shops and not through 3rd parties. Nike even cut ties with thousands of U.S. retailers in 2020 that had been selling their products for decades to encourage footfall to their own shops such as multi-level flagships called “House of Innovation” and smaller formats “Nike Live.” The Nike App allows customers to scan barcodes for pricing, check available inventory & complete their transaction. Adidas and Puma have rolled out similar immersive experience-based shops.

In summary, successful businesses often have an idea for their future that is very different from their present.

Major sportwear companies are investing in digital channels and company-owned shops so they can improve direct-to-consumer service. The pandemic not only accelerated trends that had been on multi-year pathways to instead occur in a matter of months but also brought about structural changes throughout the sporting goods value chain and as a result Sportswear companies are reimagining themselves in many ways.

Tidying up supply chains amid consumer demands for environmental sustainability and social justice will be at forefront of the industry’s thoughts.

As the massive backlash against the European Super League has shown, sport is meant to be unpredictable and competitive. The many ups and downs, and fierce battles along the way, of Adidas, Nike and Puma are reminiscent of the swinging fortunes within many of our favourite sporting rivalries in which the jerseys and footwear of those companies have been worn. All three companies have been reimagining themselves for decades, sometimes successfully and on occasion to their detriment, but over the long-term have proved to be ground-breaking designers, manufacturers and marketers and illustrate to the wider sport economy that innovation should be a continuing and continuous process.

 

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Conor Foley has a business degree from Trinity College Dublin, an MSc in finance from DCU and is a Chartered Financial Analyst. Over a 12-year professional career, Conor has experience of advising clients such as institutions, charities and bodies in the areas of global strategy, project management, asset allocation and financial structure. Conor will be working with Sport For Business to produce The Sport Economy, a regular piece, offering insights from the domestic and international sporting worlds of finance, economics and business, aims to bring Sport For Business members lessons and information from around the world to aid you in your strategy, financial affairs and business decisions. Conor has worked in leading financial institutions both at home and abroad and is committed to the growth and development of professional and amateur sport in Ireland.

 

 

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