Adidas CEO Steers Brand Revival with Samba Shoe Success Amid Challenges

Adidas CEO Bjorn Gulden is revitalizing the brand with the popular Samba shoe, doubling stock value despite losing the German football team sponsorship to Nike and navigating various controversies.

Adidas Faces End of Era as German Team Shifts to Nike Amid Challenges and CEO's Strategic Shifts

The host country's football team and one of its most recognizable brands will conclude an era, regardless of Germany's performance during Euro 2024 over the next three weeks. Die Mannschaft will compete in Adidas uniforms in its final European championship tournament match.

It would have been unimaginable not long ago for Adidas AG to lose such a prominent sponsorship to archrival Nike Inc., as announced earlier this year (via Bloomberg). The team and the sportswear maker were once bound together by what chief executive officer (CEO) Bjorn Gulden once described as an almost "emotionally inseparable" seven-decade relationship.

However, Adidas encountered numerous obstacles before Gulden's arrival last year, including a boycott of Western brands in China and the termination of its partnership with rapper Ye due to his anti-Semitic remarks. Additional complications have arisen during the tenure of the new CEO, such as allegations of corruption in China and controversy regarding the numbers on the German football uniforms, which were purportedly reminiscent of the Nazi SS logo.

Gulden successfully navigated these challenges during his 18 months, aided by Samba Shoe's impressive sales performance. Since he was appointed as the new CEO, the stock has increased more than twofold. However, investors are increasingly concerned about how Gulden's dependence on instinct, which has already resulted in some intelligent decisions regarding the product lineup, will sustain the company or whether it could introduce new vulnerabilities in the future.

“He’s managing it in a more intuitive way; it’s hard to see any long-term strategic plan,” said Ingo Speich, a portfolio manager with Deka Investment in Frankfurt. “Time will show if that’s enough going forward, or if maybe he has to announce further details about where growth is going to come from.”

Kasper Rorsted, his Danish predecessor, was a numbers-driven executive who observed his intricately constructed strategy to boost profits unravel in the face of crises both within and outside the company. In contrast, the Norwegian boss provides a stark contrast.

Upon his arrival in January 2023 from his smaller rival, Puma SE, Gulden, who declined to be interviewed for this story, endeavored to revive the business's sagging spirits. He has expedited introducing new footwear and apparel lines, reestablished relationships with retail partners, and interacted with celebrities and top athletes on the company's campus and in his Instagram feed.

“Bjorn was the right person at the right time,” says Justin Hance, a partner at Harris Associates LP in Chicago and a top shareholder. Hance lauds Gulden’s efforts to focus less on financial targets for now and more on the fast-changing desires of consumers and retailers. “It’s hard to imagine someone coming in and having done much better in this period of time.”

Gulden Boosts Adidas with Luxury Collaborations and Samba Revival, Surpassing Financial Targets

According to The Edge, Gulden maintained that Adidas continued developing enticing products during the challenging times from his first day at the company. Although the brand had yet to capitalize commercially on the enthusiasm surrounding it, he cited recent collaborations with luxury partners such as Gucci, Moncler, and Balenciaga.

Gulden accelerated the iconic Samba shoes, which had been spotted on the feet of celebrities such as Kendall Jenner and Bella Hadid. Within months, it was evident that the footwear and comparable "Terrace-style" shoes such as the Gazelle and Spezial would gain popularity.

Gulden has advanced one of his initial objectives by capitalizing on the Samba mania, which involves Adidas reestablishing retail partnerships. Adidas's prior strategy concentrated on its digital and direct-to-consumer sales channels, which do not necessitate profit sharing with intermediaries. Retailers who were experiencing frustration with Adidas's product availability transitioned to lesser-known brands, such as Hoka from Deckers Outdoor Corp. and On Holding AG.

“If you went to Dick’s Sporting Goods like six months or a year ago, they didn’t have that much Adidas,” said Cristina Fernandez, an analyst at Tesley Advisory Group in New York. “As the trends started to pick up last year, the retailers felt more comfortable ordering and thinking, like, with the footwear doing better, that was going to drive apparel sales,” too.

Additionally, despite Gulden's initial warning to investors that Adidas may be compelled to write off its US$1.3 billion inventory of Yeezy footwear, a significant portion of it has been sold, enabling him to surpass his conservative financial objectives consistently. Adidas has raised its operating profit forecast from €500 million in April to €700 million for the current year. However, analysts anticipate that the sum will surpass €1 billion.

Sales increased 8% in the first quarter and 5% when the Yeezy stockpile was excluded.

Gulden has expressed his belief that this momentum will increase; however, he has also advised investors to exercise patience. He has consistently advocated for Adidas to attain double-digit sales growth and operating profit margins of at least 10%, although he has not specified a specific date.

Adidas Faces Challenges in China and Competition with Nike as It Strives to Reclaim Market Share

China is one potential potential pace bump. For several years, consumer wrath has been building regarding Western brands' concerns regarding cotton from Xinjiang, the province in which China is accused of human rights violations against the Uyghur minority. Adidas' investigation into allegations of corruption among certain national marketing personnel was announced this past week.

Luxury brands like Dior and homegrown brands like Anta Sports Products Ltd. have expanded their market share. Adidas has announced that it is expediting its supply chain in the country to accommodate its customers' rapidly evolving preferences.

“When I was in middle school, I thought brands like Nike and Adidas were very nice — it’s like a tag of being fashionable,” said Chen Jingfang, founder of an influential Weibo account with over three million followers. She said she will likely buy a pair from On or LuluLemon Athletica Inc.

The question of how and when Adidas will attempt to maintain its fashion buzz and follow up on its current sneaker successes is also present. Earlier this year, Gulden proposed that the return of its retro Superstar basketball shoes would be delayed due to the increasing demand for the football-inspired Samba.

Gulden aims to reestablish Adidas as the world's "best sports brand" globally. This will involve the brand being prominently displayed in most Olympic sports and markets where he was successful with Puma, such as Formula 1 auto racing and cricket. However, there is still much to be accomplished in the three primary categories of basketball, football, and sprinting.

Adidas emerged victorious in the premium segment of the running market with its Adizero Adios Pro Evo 1, a 138-gram racing shoe priced at US$500 for use in as few as one race. In September, Adidas released the footwear two years ahead of the original schedule. Within days, Ethiopia's Tigst Assefa donned them in Berlin while breaking the women's marathon world record. However, everyday athletes have adopted footwear from Brooks, Hoka, and On brands.

Nike has maintained its dominance in the basketball industry for decades. The Anthony Edwards signature shoe, which Foot Locker Inc. has identified as a top seller, is Adidas' most popular product in years.

Nike has leveraged its financial resources to acquire football sponsorships. Gulden has admitted that his business's assessment of the US rival's reported commitment of US$100 million annually was significantly higher than that of his sport-loving heart, as evidenced by the termination of the German national tie-up.

“You just have to accept that sometimes some people pay too much,” he told shareholders at Adidas’ annual meeting in May. He said his firm would run out of its existing contract, “and then we’ll laugh.”

Poonam Goyal, an analyst at Bloomberg Intelligence, identified other prominent clubs, such as Chelsea FC, that previously competed in Adidas but are now sporting Nike. France has also implemented this transition. "If they were to regain some of them, they would be required to pay for the cost." Nike will be willing to offer a higher price if it demonstrates an interest in the teams it is attempting to reclaim.

In the 1990s, Nike surpassed Adidas as the world's largest sports brand, and last year, it generated approximately twice as much total revenue. Gulden may have a unique opportunity to reduce the margin. The United States needs help developing new products and reducing its dependence on the Jordan brand. As a result, it has implemented staff reductions.

“Gulden can use this weakness of Nike to get closer, so that they are getting larger and can pay bigger contracts,” said Thomas Joekel, a portfolio manager at Union Investment in Frankfurt, a top-10 investor. “Gulden knows that scale matters in this industry and he probably will try to seize this chance.”

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