Olympic Fever Hits Adidas, is it Enough?
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As the 2012 Summer Olympics have kicked off in London, one may be wondering about athletic sponsors and sports brands, and what they could be up to.
Adidas (NASDAQOTH: ADDYY), the official athletic wear sponsor of the games, ran into an identity crisis when rival athletic wear maker Nike (NYSE: NKE) went head to head in an advertising blitz geared towards the Olympic watcher.
Adidas, as an Olympic partner, paid £100 million in marketing for the event; what they got was event sponsorship, athlete outfitting representation, and inclusion in a larger advertising campaign. According to the New York Times the cost of obtaining official sponsorship status for Adidas was £40 million. The cost for Nike? $0.
So why is it that when asked in a Toluna Global Omnibus Survey, 37 percent of respondents identified Nike as an official sponsor of the 2012 Olympic Games, while only 24 percent identified Adidas as the official sponsor? The results are enough to rightfully infuriate investors and company executives.
Nike launched the ‘Find Your Greatness’ Campaign a few weeks ago and tied it directly to the major world city of London, noticeably omitting the words ‘Gold’ and ‘Olympic’ in the commercial spots. To much surprise, the campaign completely ranked better in terms of recognition and awareness, garnering 4.2 million views according to Visible Measures, a brand measuring agency. Adidas ran a separate campaign that failed to gain major traction called ‘Take the Stage,’ which only gathered 2.9 million views.
Although Nike has proven effective at devaluing the Adidas brand at the Olympics, the company has signed on to be a corporate sponsor of the 2016 Brazilian games. Adidas currently holds a 16 percent market share in the British Market.
China & Europe Shoe Slowdown
The ability to market athletic wear and shoes seems to be getting harder in both established and emerging markets. In an effort to keep costs down, Adidas closed it’s only company-owned factory in China as part of a reorganization strategy. Companies in this situation may hand out contracts to meet supply needs, similar to the Apple - Foxconn manufacturing agreements.
German owned athletic wear brand Puma, ran into similar issues when the company reduced its 2012 sales and profit outlook, citing slow growth in the euro zone and elsewhere.
Nike also posted sales increases but entered a newer, tougher market; the brand was able to increase sales in both Europe and China, though the company warned that Chinese sales could slow later.
The news from competitors itself was not enough to stir the Adidas CEO, Herbert Hainer, who had this to say about this company:
"I can only speak for our own business, our own business is doing very well in China," he told Reuters in an interview. "We were growing double digits last year and we will grow double digits this year," he added.
The company outlined that Chinese sales were set to grow 10 percent this year and that the gap in Britain between Adidas and Nike is closing.
Why Europe Matters
The overall problem for this European athletic wear maker seems to be the ability to market and increase sales in a rough European economy.
Simply put, as the economic union shares a common currency, the governments of the major countries involved have to rely on the European central bank to bail out large countries like Greece and Spain.
Unlike a political union shared in the United States, a state like Florida can rely on a larger government to pay entitlements, such as health costs, and retirements. In the case of Greece (and much larger Spain, which has a GDP of $1.69 trillion), a central bank has to pay an entire country’s entitlements programs and fix its economic problems.
The end result is a strained economic region and a set of proud nations. Studying the region is the key for any investments based on global brands. Remember that combined the European Union, which shares a common currency, is the world’s largest economy.
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