Faster, stronger, higher

By Robin van der Giessen

Its iconic triumvirate of perfectly parallel stripes have been synonymous with sport for decades. But with profits tumbling in the year Adidas celebrates it’s 60th birthday, Chairman and CEO Herbert Hainer talks candidly about trimming the fat, beating archrival Nike into submission and why innovation is key to this sportswear giant’s future.

“It's about being faster and not your size, otherwise the dinosaurs would be still alive and all the little animals dead. It's the fastest one who will win the race”
-Herbert Hainer

When Barcelona FC's playmaker Lionel Messi put his side two-nil up in this May's UEFA Champions League final you could say the diminutive Argentinean tore up the celebration rulebook. There was to be no acrobatic back flip, no belly-flop slide across the turf and no John Travolta-esque hip wiggling against the corner flag. Instead, in front of 72,000 fans packed inside Rome's Stadio Olimpico, and millions watching around the world on TV, he removed one of his glossy blue boots and pressed it against his lips in an actions-speak-louder-than-words seal of approval. A few days earlier those very same F50i boots were personally presented by Herbert Hainer to Messi when he dropped by at Adidas HQ in Herzogenaurach, Germany. Whether the kiss by arguably the world's finest player was impromptu or planned is irrelevant to Adidas because the boot's sales shot through the roof after Barcelona's victory. It was a marketing masterstroke.

Messi is the latest in a long list of sports superstars to don 'the three stripes' - stretching back to the earlier days when the company was founded by the late Adolf (Adi) Dassler (Das). The bedrock of Dassler's business strategy more than half a century ago was to engage with the athletes and pick their brains in order to manufacture and refine performance-enhancing and comfortable sportswear. It's an uncomplicated ideology that has stood the test of time, according to Hainer. "Just a few months ago we re-launched the so-called Adi Dassler standards and we tried to educate everybody to go the way he did it," Hainer reveals. "Adi Dassler spoke to the athletes when he brought in new and innovative products and tried to make improvements. We have to make the best products for the athletes and this is only possible if you are permanently in dialogue with the athletes, if you listen to the them and work together."

Hainer, who joined the company as a sales director back in 1987 before rising through the ranks to Chairman and CEO 14 years later, refrains from describing the Adi Dassler standards as a back-to-basics approach. Instead, he says it encapsulates that constant strive to manufacture better and innovative products for today's sportsmen and sportswomen. And they need to, such is the competitive and fickle nature of the sports apparel market with trends evaporating just as quickly as they emerged. Adidas and market leader Nike still battle to see who is top dog, although the likes of Puma - Adidas' domestic rival - and specialist sportswear and equipment manufacturers are snapping at their heels.

Ever since Hainer took control eight years ago he has refused to let the company rest on its laurels. The 55-year-old, who describes himself as aggressive in business and impatient to get things done, pushes Adidas, which produces 200 million pairs of shoes and 400 items of apparel a year, to perform like a lean, mean athlete. "In 2001 we had a great success story behind us and four or five good years after the stock market flotation but we had become a little bit too self-complacent, a bit too self-confident," he recalls with a tinge of annoyance in his voice. "We were not aggressive anymore, the processes were not harmonised and our lack of innovation was shining through." Hainer says his remit in the top job was to "revolutionise" the company and the Adidas brand.

Restructuring

As part of this transformation he offloaded mountain sports company Salomon, although Hainer opted to hang on to the TaylorMade golf brand. "Golf is a natural sport for Adidas," Hainer explains. "We began 35 years ago when we made golf shoes for Bernhard Langer and for Sandy Lyle." In 2005, US-based Reebok was bought for €3.1 billion in order to strengthen the Adidas group and challenge Nike. Hainer also recognised that R&D was to be the cornerstone of the company's future success. Eight years ago R&D, which employed 30 staff, operated with a management tier between itself and the board. So Hainer put measures in place to ensure they reported directly to the head of marketing on the board. He also ploughed more money into the research facility and doubled the team to 60. "This showed the importance we gave to the R&D department within the organisation." R&D was also divided into separate units - one facility in Germany and one in the US geared toward the lucrative American sports market.

At his first press conference Hainer recalls how he placed a major emphasis on innovation. He vowed to release one innovative product every season – a completely new product and not just a change of colour. This pro-active approach to change and ambitious vision has made Adidas a different animal. "I definitely do believe that we are today much faster," he announces, "much more proactive in how we cater to the market, how we talk to our consumers, how we bring products and concepts to market, as well as how fast we can react to certain trends." We are bringing permanently new, innovative products to the market, and I think this is one of the key success factors for us." He also sees speed rather the size of a company being a game winner: "It's about being faster and not your size, otherwise the dinosaurs would be still alive and all the little animals dead. It's the fastest one who will win the race."

Uphill battle

The dinosaurs eventually became extinct and in today's marketplace it very much is survival of the fittest since the economic global meltdown and subsequent recession. In August, Adidas reported a massive 95 percent plunge in profits as consumer spending dried up. Sales grew in the Americas but shrunk in Europe and Asia. It was a headline-grabbing downturn in fortunes for the sportswear titan but Hainer argues that this figure needs to be put into context, especially in year succeeding the European football championships and the Beijing Olympic Games. He says higher manufacturing costs and devaluation of currencies like the Russian rouble, UK pound and Argentinean peso had an impact. Adidas also shelled out €100 million on restructuring measures. "Compared to the rest of the world and compared to other industries, I think we are still doing very well."

Adidas holds meetings with employees every six months to update them on developments, but during the downturn this has been stepped up to quarterly. Dialogue is paramount in this situation, Hainer discloses. "I want to keep communication with the people going because everyday they hear negative things in the news and then rumours start. If you don't talk to people then you never know what kind of rumours they just have heard and you cannot correct them if they are wrong."

In a similar fashion to how he shaved expenditure and re-moulded the company in the first half of the decade, Hainer says the crisis opened up opportunities to again trim excess fat. "This crisis gives you a lot of chances to cut out the dead wood or cut out the fat that we gathered over the last eight years. When you are permanently running from one success to the next and from one successful or record year to the next, you are gaining fat. You are not as aggressive anymore and you're not as strict anymore on cost controlling and process improvement. So we took the opportunity to cut through, to change the way how we do business to a certain extent, to define new processes, to get faster, to get learner and to get more efficient."

Shortly following the cataclysmic collapse of investment bank Lehman Brothers last year Hainer says he instigated a policy dubbed 'divest and invest'. On the one hand they had to slash costs, such as putting a freeze on hiring, but continue to invest for the future, including the announcement of increased football sponsorship and investment in company ambassadors. "We have to do the hard and dirty work and to save costs and lose some people to make us leaner, but on the other hand we take this money and we invest it into the future of the company." Adidas has dabbled in a big of shopping too, picking up two small companies – Ashworth (golf apparel) and Textronics (chips and sensors). The latter will boost efforts to implement technology into products for runners and performance athletes. In these tough times Hainer, however, is quick to stress that Adidas won't be cutting back on innovation and product development, especially with a lucrative football world cup in South Africa on the horizon. Indeed, Hainer describes the world cup products in the pipeline as "fantastic" because "football is in our DNA".

Ideas factory

The shift in emphasis toward the creative side has made a tangible difference, even if you just judge the products aesthetically, "It doesn't help if the product is good but looks terrible," he says. Of course, new durable and lighter materials are constantly improving products and, ultimately, the athlete's performance. Take the humble football boot, for instance. Forty years ago it was a distinctly unattractive chunky black leather shoe with half a dozen studs protruding from the sole. Today's boots come in a wide array (some may say nauseating) of colours, are fashioned from tough, lightweight synthetic materials and don't absorb water like a roll of kitchen towel, á la the previous generation of boot. It probably explains why Messi was so keen to publicly smooch with his F50i. "A boot used to weigh around 400 grams but today it's 200 grams, so it's 50 percent lighter and, of course, if you don't have to carry so much weight on your foot you can run faster or you can run longer," says Hainer, a semi-professional footballer in his youth. "Today a football player runs 13 to 14 kilometres in a game but it was seven to eight kilometres 20 or 25 years ago. You can't do it in 400-gram leather boot sucking in water. The new materials offer functionality, stability and cushioning."

Perhaps anticipating the next question, he's quick to dispel the notion that sports equipment can magically transform a Sunday morning footballer into a professional. It's the same with golf. "A new golf club cannot make an amateur a professional, but it definitely can improve the game of a normal golf player from a handicap of 25 down to handicap 15, because he has the ability to play better with the club." Adidas strives to make sport easier and more fun by introducing groundbreaking products, a case in point being a golf diver released earlier this year - the R9 sporting an adjustable ankle. Within a week of hitting shelves it was highest selling driver on the marker. It's similar story with the Reebok EasyTone running shoe with its in-built balance pods that create instability, much like the feeling of walking on a sandy beach. EastTone, which encourages toning in three areas of the wearer's leg, has proved a huge hit with people looking to workout. "Therefore, in my opinion, innovation is the key to success," the boss acknowledges.

R&D at Adidas adopts short-term and long-term vision simultaneously. One part is improving existing products or producing products for new seasons based on existing technologies; the other is starting from scratch with less time pressures to find that next big thing. Being able to steal a march on the likes of Nike with a groundbreaking trainer, sweatshirt or football can prove invaluable in the tussle for supremacy. For example, Hainer notes how his company was the first to roll out the 'intelligent' trainer two years ago. The shoe could automatic adjust the cushioning by measuring the wearer's weight and analysing the hardness of the ground. "Developments like that take longer," he remarks. "It's a complicated process to put a microchip into a shoe, ensure it works, and glue together different components like metal and polyurethane."

Whilst Adidas keeps a watchful eye on what the competition is up to in terms new products, technologies and sponsorships, the company's priority is focused solely on it's own work and the brand. First and foremost, we look to ourselves, what our mission and where we want to be as a company in the future," Hainer says. "Of course, we monitor our competitors quite closely, and this is not only Nike; you have a lot of other competitors who are good in several individual categories, so you have good running brands, good tennis brands, good golf brands, and so on." He adds: "If we have to adjust our strategy then we do it, but on the whole we stay in the direction that we think is right for our company and for our brand."

Not all products, though, are hot sellers, he admits with a chuckle. The company has hundreds of staff dedicated to marketing so Hainer chooses to keep his distance when judging whether a potential product will be a hit. "I'm far away from looking at every product and saying, 'this is right or this is wrong, and this colour I do like or I don't like this colour,' because I'm not the target group. So most probably if I like it then it might be not too good for the market or the other way around. I give the responsibility to the experts and they can work in silence and I keep a distance."

Despite his reticence to get involved with product development, he recognises the importance of being seen as an inspirational figure for his staff. It also means practising what you preach. "As a CEO you are always a role model, whether you like it or you dislike it, because people look to you and follow whatever you do, good or bad." Hainer offers up an example of this philosophy: "If as a CEO you talk permanently about sport and how people should be active but you don't do any sport, then they will see it and they will not believe you, and this applies to whatever you do. There is a saying in Germany, 'The fish always thinks from the head,' so your employees believe in what you make them do." Perhaps unsurprisingly, Hainer is an advocate of sport at Adidas - not just because it's his industry but because it keeps in touch with his employees. "I play sport with our people, we play football and run together which gives you feeling that you are one of them and they can tell me what's going on I the company."

Aside from getting sweaty in competitive football matches with his staff, the pressing priority for this boss is to put disappointing results of 2009 behind him and steer Adidas back into positive territory. This he hopes to achieve "as fast as possible" with the help of exploiting new markets. "There is still a lot of opportunity for us out there, be it individual categories or in certain regions of the world. India will be one of the next big emerging markets and I see plenty of other growth potential for us in the years to come, which is what we are trying to harvest." In the mean time the race for sportswear dominance continues to rage.

 

With your products being manufactured India and Indonesia there is a negative image of Adidas and a perception that profits are put before the wellbeing of the workers. What's your reaction to this accusation?

Herbert Heiner. "We completely outsourced our production 15 years ago but this does not mean that we are losing responsibility for the production process and for the people who are working in the production facilities. Around 10 years ago we started to work in close cooperation with our suppliers to ensure that the people are treated well. We have a so-called social and environmental department to take care of this, and we publish an annual report that clearly gives targets and objectives of what we want to achieve in cooperation with our suppliers. This ensures no child or forced labour, fair wages, sanitary installations, pregnant women are treated fairly and a restriction on how many hours they work a week or per month. I do believe that we are one of the leaders in our industry, and I do believe that this is highly appreciated by the worker and by the consumer. I go out at least once a year for a tour of between seven and 10 days and visit the key suppliers in Far East, talk to them, explain about new programmes, and ways we can improve. And I let our suppliers know as well what we are expecting from them."

Hainer on heritage:

"Since we acquired Reebok we repositioned it after identifying that one of the key pillars for this brand was the women's business. Reebok has an extremely good reputation with the female consumer and was the company that founded step aerobics 20 years ago, which created a complete new way of fitness. So this is a heritage that Reebok still has in the mind of a lot of consumers. The first success that we already see with the new Reebok is the women's category. We have a new shoe, EasyTone, which is the bestselling shoe in the industry in the moment. So, therefore, heritage can definitely be a very positive tool to guide you into the future, providing you use it right."

Business goals

When footballing heavyweights Germany and Spain locked horns in the final of Euro 2008 in Vienna, Austria, Herbert Heiner says he found himself in sporting nirvana. However, this overwhelming feeling of satisfaction wasn't just because his beloved German side were in touching distance of being crowned European champions. No, the pragmatic businessman inside him was smarting because the eyes of the world were focused on 22 players decked out in Adidas manufactured kits. Adidas one, Nike nil.

FACTOIDS

200 million. Number of pairs of shoes Adidas produces every year
38,982. Number of Adidas group employees at the end of 2008
Adidas group has 792 concept stores and 381 factory outlets

60 years in the making

1949 Adidas is registered as a company, named after its founder: 'Adi' from Adolf and 'Das' from Dassler

1954 Germany football team battle Hungary with a competitive advantage. They are wearing Adidas soccer boots that for the first time feature removable studs

1960s 'Fringe sports' like athletics sees track and field stars donning 'the three stripes'

1970s Franz Beckenbauer lifts the World Cup in victory salute. Germany had just beaten Holland 2-1 in the 1974 final

1980s After Adi Dassler's death, Adi's wife Käthe, his son Horst, and his daughters carry on the business

1995 The company floats on the Frankfurt and Paris Stock Exchange

1996 At the Olympic Games in Atlanta Adidas equips 6000 athletes from 33 countries. These competitors scoop 220 medals, including 70 gold. Apparel sales increase 50 percent

1997 Salomon Group with the brands Salomon, TaylorMade, Mavic and Bonfire is acquired

2000 The European Football Championships and swimmer Ian Thorpe's three gold medals at the Sydney Olympic Games boost sales. The following year Herbert Heiner is appointed Chairman and CEO

2005 Adidas snaps up US rival Reebok. Hainer describes it as a "major strategic milestone"

2009 Lionel Messi shows off his boot after scoring in the UEFA Champions League final, sending F50i sales into orbit