Economy

Adidas The Underdog's Three-Stripe Comeback Plan

Adidas CEO Herbert Hainer
Adidas CEO Herbert Hainer
Uwe Ritzer

NUREMBERG Soccer isn't everything. At least not in the sports equipment business. Adidas is learning that the hard way. The brand with the familiar three-stripe logo used the World Cup in Brazil to its advantage far better than global leader Nike but the hoopla died when the games ended.

Adidas is in big trouble, primarily because of the weak market for golf equipment and flucuations in exchange rates. The company has been forced to retreat from previously announced goals, and the stock has taken a corresponding nosedive. Meanwhile, the gap with Nike widens as the American company springs ahead.

"I'm a striker, and I want to win," Adidas CEO Herbert Hainer recently said defiantly when he presented his plan to steer the company out of its rut. The 60-year-old hobby soccer player said the company would have to fight hard to win back trust lost with the financial markets, investors and the public.

The Americans may be No. 2 to Adidas in soccer equipment sales, but in all other product categories and many regions, they surpass Adidas. They’re also growing significantly stronger — even on Adidas' home turf of Germany. The gap is largest in North America, the most important market for the sports equipment industry. There, Adidas is slumping despite the fact that it is the exclusive sponsor of the NBA, one of the most important U.S. sports leagues.

Losing ground? — Photo: Zac Allan

Adidas hasn't been helped by its 2006 decision to narrow the gap with Nike by spending billions to buy the U.S. brand Reebok. Since the takeover, Reebok has been a problem child for Adidas.

It’s not as if business for the Adidas and Reebok brands is terrible. Allowing for exchange rate fluctuations, they showed increases of 14% and 9%, respectively, in the second quarter. Adidas shirts and shoes are strong sellers in Western Europe and do exceptionally well in South America.

Investors demand better performance

But investors are not impressed. The global problems appear to them to be too great, and management lost a lot of credibility by issuing three profit warnings within the space of a year. The Adidas stock price sank to 55.5 euros per share Aug. 7, its lowest in two years. At the beginning of the year, its stock price was down by a third, more than any other stock in the German DAX index. So something has to happen fast.

Hainer, who's been CEO since 2001, believes the way out involves a mix of investment, savings and reorganization. He has announced more stringent organizational structures in marketing and sales. The jobs of those working with the TaylorMade golf brand, which has lost over a fourth of its business in the first half of the year, are on the line, although just how many will be lost is still unclear.

In view of the uncertain ruble and the Ukraine crisis, Adidas will open only 80 of the previously planned 150 shops in Russia and the Commonwealth of Independent States countries this year and next. The prices for shoes and jerseys have already been lowered in those markets.

Adidas store in Moscow, the biggest in Russia — Photo: Lite/GFDL

The sports equipment manufacturer wants to invest primarily in marketing. Its efforts during the 2014 World Cup demonstrated how successful Adidas can be when it engages in intense, direct communication with its customer base, Hainer said. So the advertising budget is being increased. Hainer called the 1.8 billion euros that will be funneled into advertising and marketing next year "the most ambitious marketing campaign of all time."

Still, a number of recent company predictions aren't quite panning out. For example, 2014 profits are expected to be a fifth less than anticipated. Other key figures such as operating margins were less than projected as well, and figures for the second half of the year aren’t expected to be much better. The cost of restructuring TaylorMade alone will reduce profits by 50 to 60 million euros.

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Geopolitics

Iran-Saudi Arabia Rivalry May Be Set To Ease, Or Get Much Worse

The Saudis may be awaiting the outcome of Iran's nuclear talks with the West, to see whether Tehran will moderate its regional policies, or lash out like never before.

Military parade in Tehran, Iran, on Oct. 3

-Analysis-

LONDON — The Iranian Foreign Ministry spokesman Saeed Khatibzadeh said earlier this month that Iranian and Saudi negotiators had so far had four rounds of "continuous" talks, though both sides had agreed to keep them private. The talks are to ease fraught relations between Iran's radical Shia regime and the Saudi kingdom, a key Western ally in the Middle East.

Iran's Foreign Minister Hossein Amirabdollahian has said that the talks were going in the right direction, while an Iranian trade official was recently hopeful these might even allow trade opportunities for Iranian businessmen in Saudi Arabia. As the broadcaster France 24 observed separately, it will take more than positive signals to heal a five-year-rift and decades of mutual suspicions.


Agence France-Presse news agency, meanwhile, has cited an unnamed French diplomat as saying that Saudi Arabia wants to end its costly discord with Tehran. The sides may already have agreed to reopen consular offices. For Saudi Arabia, the costs include its war on Iran-backed Houthis rebels fighting an UN-recognized government in next-door Yemen.

The role of the nuclear pact

Bilateral relations were severed in January 2016, after regime militiamen stormed the Saudi embassy in Tehran. Amirabdollahian was then the deputy foreign minister for Arab affairs. In 2019, he told the website Iranian Diplomacy that Saudi Arabia had taken measures vis-a-vis Iran's nuclear pact with the world powers.

It's unlikely Ali Khamenei will tolerate the Saudi kingdom's rising power in the region.

He said "the Saudis' insane conduct toward [the pact] led them to conclude that they must prevent [its implementation] in a peaceful environment ... I think the Saudis are quite deluded, and their delusion consists in thinking that Trump is an opportunity for them to place themselves on the path of conflict with the Islamic Republic while relying on Trump." He meant the administration led by the U.S. President Donald J.Trump, which was hostile to Iran's regime. This, he said, "is not how we view Saudi Arabia. I think Yemen should have been a big lesson for the Saudis."

The minister was effectively admitting the Houthis were the Islamic Republic's tool for getting back at Saudi Arabia.

Yet in the past two years, both sides have taken steps to improve relations, without firm results as yet. Nor is the situation likely to change this time.

Photo of Iranian Supreme Leader Ali Khamenei in 2020

Iranian Supreme Leader Ali Khamenei in 2020

commons.wikimedia.org

Riyadh's warming relations with Israel

Iran's former ambassador in Lebanon, Ahmad Dastmalchian, told the ILNA news agency in Tehran that Saudi Arabia is doing Israel's bidding in the region, and has "entrusted its national security, and life and death to Tel Aviv." Riyadh, he said, had been financing a good many "security and political projects in the region," or acting as a "logistical supplier."

The United States, said Dastmalchian, has "in turn tried to provide intelligence and security backing, while Israel has simply followed its own interests in all this."

Furthermore, it seems unlikely Iran's Supreme Leader Ali Khamenei will tolerate, even in this weak period of his leadership, the kingdom's rising power in the region and beyond, and especially its financial clout. He is usually disparaging when he speaks of Riyadh's princely rulers. In 2017, he compared them to "dairy cows," saying, "the idiots think that by giving money and aid, they can attract the goodwill of Islam's enemies."

Iranian regime officials are hopeful of moving toward better diplomatic ties and a reopening of embassies. Yet the balance of power between the sides began to change in Riyadh's favor years ago. For the kingdom's power has shifted from relying mostly on arms, to economic and political clout. The countries might have had peaceful relations before in considerably quieter, and more equitable, conditions than today's acute clash of interests.

If nuclear talks break down, Iran's regime may become more aggressive.

Beyond this, the Abraham Accord or reconciliation of Arab states and Israel has been possible thanks to the green light that the Saudis gave their regional partners, and it is a considerable political and ideological defeat for the Islamic Republic.

Assuming all Houthis follow Tehran's instructions — and they may not — improved ties may curb attacks on Saudi interests and aid its economy. Tehran will also benefit from no longer having to support them. Unlike Iran's regime, the Saudis are not pressed for cash or resources and could even offer the Houthis a better deal. Presently, they may consider it more convenient to keep the softer approach toward Tehran.

For if nuclear talks with the West break down, Iran's regime may become more aggressive, and as experience has shown, tensions often prompt a renewal of missile or drone attacks on the Saudis, on tankers and on foreign shipping. Riyadh must have a way of keeping the Tehran regime quiet, in a distinctly unquiet time.

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