BERLIN (Reuters) - Sportswear firm Adidas (ADSGn.DE) probably thought it had hit the marketing jackpot when Adidas-sponsored Germany beat Adidas-sponsored Argentina to win the Adidas-sponsored World Cup. But arch rival Nike (NKE.N) may have stolen much of its soccer branding thunder with quirky videos, innovative boots and amusing Tweets, not to mention the odd sponsorship coup of its own such as signing up hosts Brazil. Adidas said it had secured “victory on and off the pitch” at the soccer tournament, providing the highest-scoring boots and generating 22 percent more discussion on social media than Nike.
But more than half the players displayed Nike’s brightly-colored shoes and it was one of Nike’s new lightweight “Flyknit” boots worn by Germany’s Mario Goetze that volleyed in the winning goal. Nike has been eating into its German rival’s market share and some branding experts and investors don’t believe throwing more cash into marketing will necessarily fix the problem. Instead, Adidas needs to spot and set more trends and create a buzz among fashion and sports-mad youngsters. “At the moment, Nike is cool, very cool. If you ask a 20-year-old, they are not going to pick Adidas right now,” said Tammy Smulders, head of marketing consultancy SCB Partners. “It is not as easy as just writing a check. They need to be doing more of the viral, underground activities which brings out the cool factor of the brand.”
MARKETING SPEND After recently issuing its third profit warning in a year, Adidas said on Thursday it would boost spending on marketing to about 13 percent of sales in 2014 and to between 13 and 14 percent of sales in 2015. The company also said it would give marketing experts more responsibility and bring them closer to sales and product development staff. Adidas spent 12.4 percent of its 2013 revenue of 14.5 billion euros ($19.4 billion) on sales and marketing, up from 12.1 percent in 2012 and already well above Nike, which spent 10.8 percent of sales of $27.8 billion in the year to May 31. Adidas chief Herbert Hainer admitted the company, known for its three stripes logo, was being taken on even on its home turf. But he said second-quarter results – including double-digit growth in Germany, Britain, Spain and Italy and a 41 percent jump in soccer sales – showed Adidas was fighting back. While Nike can focus on its “swoosh” logo and the “Just do it” slogan it has used since 1988, Adidas has to spread its ad budget across a range of brands such as Reebok, TaylorMade golf and Rockport shoes, as well as its Originals and NEO sports-inspired fashion labels. “They are fighting fires everywhere. Pouring money into marketing might put out some fires, but they will continue to burn elsewhere,” said Ingo Speich, a fund manager at Union Investment which has a 1.2 percent stake in Adidas and has repeatedly criticized management in recent months.
While Nike has encroached on Adidas’s home territory, the German firm has failed to make serious inroads in North America. The U.S. firm extended its lead to take a 15 percent global market share in 2013 compared with 10.8 percent for Adidas, according to Euromonitor. Nike has focused on exploiting social media to target young consumers, while Adidas has relied more on official partnerships with the likes of the FIFA World Cup and the National Basketball Association (NBA).
Nike’s animated film “The Last Game”, featuring soccer stars Cristiano Ronaldo and Neymar on a quest to save football from the hands of a villainous mastermind, has become one of Facebook’s most shared posts ever. “Nike is the cheeky challenger doing guerrilla ambush marketing, whereas Adidas follows the more orthodox line,” said Andrew Walsh at sports marketing research group Repucom.
The value of the Nike brand rose 13 percent in 2013 to $17 billion, making it the world’s 24th most valuable brand, according to consultancy Interbrand, more than double the value of Adidas on $7.5 billion. Even though Adidas was thought to have forked out about $100 million to FIFA to sponsor the World Cup, two Nike World Cup ads are among the top 10 most shared ad videos so far this year, according to marketing technology company Unruly. No Adidas videos feature in that ranking, though it says its videos published during the tournament made it the most-viewed sports brand on YouTube. “Quite a lot of people thought Nike was the official sponsor. They manage to get the benefits without as large an upfront investment,” said Leah Donlan, marketing lecturer at Manchester Business School.
Adidas has started to replicate Nike’s tactics, setting up a “news room” in Rio during the World Cup to generate a stream of social media chatter on its sponsored teams and players. Investment in social media will be a big part of its increased marketing spending and it plans to open similar news rooms in key cities around the world to continue its engagement with fans.
But Nike is also investing, launching an interactive Football app. It is kitting out more of Europe’s top clubs, such as Barcelona and Paris St Germain, for the 2014/15 season, even though Adidas is ousting Nike at Manchester United (MANU.N) and Italian champions Juventus from next year. Adidas CEO Hainer said the record $1.3 billion shirt deal struck with Manchester United last month - almost three times per year what Nike has been paying the former English champions - and the signing of four of the top six National Basketball Association (NBA) draft players - showed he meant business.
“We have three out of the four biggest symbols in the football club world with Real (Madrid), Bayern (Munich) and ManU. This gives us huge reach,” he said, predicting the ManU deal will generate sales of 1.5 billion pounds ($2.5 billion).
But not everybody is convinced. “The ManU deal is too expensive. It might bring management top-line growth and exposure in emerging markets, but means that the expected margin improvement will be delayed,” said Stefan-Guenter Bauknecht, fund manager at Deutsche Asset & Wealth Management, which holds a 1.4 percent stake in Adidas. “The strategy has changed from profitable growth towards building up the top line and the brand image against Nike.” Adidas acknowledges it has cut its 2014 target for its operating margin - operating income as a proportion of sales - to between 6.5 and 7.0 percent for 2014, from 8.5 to 9.0 percent, partly due to higher marketing spend.
Nike recorded an operating margin of 13 percent in the fiscal year to May 31.
”We know driving higher levels of profitability is absolutely critical to our long-term success, and we will get there. But we will not get there if we are not constantly winning in the marketplace,” Hainer said.
Adidas shares, down 39 percent this year after tumbling since last week’s profit warning, trade at 16.9 times forward earnings to 22 times for Nike and almost 62 times for fast-growing U.S. upstart Under Armour Inc (UA.N).
The success of Nike’s “Flyknit” shoes worn by Goetze - made out of machine-knitted fiber rather than stitched-together pieces - is just the latest example of the U.S. firm’s ability to innovate and set trends after its popular wearable “FuelBand” fitness device and “Free” barefoot-feel running shoes. The Portland, Oregon-based firm has also arguably been quicker than Adidas to respond to booming demand for sportswear from women that has helped drive the rise of yoga specialist Lululemon (LULU.O). Adidas says it has run campaigns targeted at women in the United States and China in the last year.
The biggest recent innovation hit Adidas can boast of - which it will now be marketing even harder - is the “Boost” cushioning technology initially developed for running shoes that it is now rolling out to other sports. It expects to sell 8 million pairs of the shoes this year and 15 million in 2015. A Cowen survey of 2,500 U.S. consumers published last month showed 43 percent named Nike as their first choice of athletic apparel, compared with just 13 percent for Adidas, 6 percent for its Reebok brand, and 14 percent for Under Armour. More than three-quarters of respondents saw Nike as a cool brand. Adidas is also struggling to dent Nike’s dominance at home despite acquiring golf market leader TaylorMade in 1997 and Reebok in 2006. Euromonitor data showed its U.S. market share falling to 5.4 percent in 2013, while Nike grew to 20.2 percent.
Adidas has not been helped by repeated injuries to basketball star Derrick Rose, whom it signed in 2012 in a 13-year $185 million deal, the biggest ever. In addition to its latest NBA signings, it plans to spend more on marketing “Boost” in a new basketball range this fall. But Berenberg analyst John Guy said Adidas - under new Americas president Mark King - would be better off investing in its Originals, Boost and Reebok brands, given Nike’s dominance in basketball where it has about a 90 percent market share. “We continue to question the logic of sizeable investments in basketball, where key-man risk is high and endorsement contracts are expensive,” said Guy, who rates Adidas a “sell”. CEO Hainer said Adidas will launch its most ambitious brand campaign to date in 2015 after its current “All in or Nothing” slogan, used since the 2012 Olympics in London. It will also be pushing new collaborations for its Originals label with celebrities Kanye West and Pharrell Williams and is optimistic for new products like relaunches of classic sneaker brand ZX Flux. Marketing specialist Donlan says investing in building a brand is a long-term project that could take three to five years. But some investors are becoming impatient. “Management must be shown a yellow card,” said Bauknecht at Deutsche Asset & Wealth Management. “There is not much more room for disappointment.” (1 US dollar = 0.7486 euro)
Additional reporting by Anjali Athavaley; Editing by David Holmes and David Clarke