Adidas-Salomon

"Case 22: Adidas-Salomon"

Table of Contents

Executive Summary 3

1 Adidas-Salomon Strategy Overview 4

2 Strategic Fit of adidas-Salomon Businesses 4

2.1 adidas 4

2.2 Salomon 5

2.3 Taylor-Made 5

3 Financial Analysis 6

4 Issues Facing Management & Recommendations 7

5 Exhibits 9

Executive Summary

Since its inception in 1949, adidas have been a leader in innovation; which is also their main competitive advantage in the market place. Along with innovation, the company differentiates itself in the market place with its strong brand equity, supported by a strong global marketing and advertising program.

With their 1998 acquisition of Salomon, the company became adidas-Salomon, and the number 2 sporting goods company in the world. Although there were good strategic fits between adidas' and Salomon's core competencies, its obvious that the divisions failed to uncover these synergies. The future performance of Salomon have lagged behind expectations and It failed to provide much anticipated growth. Even more so, it dragged down the growth rates for adidas-Salomon overall.

To recover the ground it lost, adidas-Salomon needs to go back to its core business which is the footwear and apparel, and exploit opportunities in this division; namely the heritage and sports style footwear and apparel lines which expect 40% growth. The company also needs to increase its market share in North America to be able to substantially increase its growth rates and profitability.

The debt used to acquire Salomon has been an important issue for the finances of the company. Although financially storng and unlikely to default, the company needs to look into reducing its debt to increase its profitability.

1 Adidas-Salomon Strategy Overview

Since its inception in 1949, adidas have been a leader in innovation; which is also their main competitive advantage in the market place. Along with innovation, the company differentiates itself in the market place with its strong brand equity, supported by a strong global marketing and advertising program.

At the first glance, the acquisition of Salomon (and vicariously, Taylor-Made, Clichй, Mavic, Arc'Teryx, Bonfire and Nordic) seems to be a good fit for adidas. Both companies are in the sporting goods industry and have well-known brand names. Both of them have strong apparel lines, and have presence in similar geographical regions. However, it's also obvious that the hard-goods categories of Salomon (skis, bindings, boots, and like.), Taylor-Made (irons, woods, and like), and all Mavic products, are unlikely to create synergies with the apparel and footwear industries of adidas. The company will have administration and management cost savings all across the board by consolidating the management of the companies. The combined purchasing power of all the business units will also provide a better bargaining power overall.

2 Strategic Fit of adidas-Salomon Businesses

2.1 adidas

One of the value chain activities that adidas is superior to the others is their know-how in apparel and footwear manufacturing. Almost all adidas-Salomon's other businesses (Taylor-Made, Salomon, etc.) have their own footwear and apparel lines. adidas' know-how and bargaining power in apparel and footwear industries means cost savings for all companies across the board. Adidas, on the other hand, (although possible) is unlikely to benefit from any synergies created by the acquisition. It is unlikely that Salomon skis, or Nordic bindings, or Mavic bicycle parts are sold in the same outlets that adidas shoes and clothing are sold. It should be in mind that the retail industry is also changing with mega-retailers with bigger floor spaces are emerging. These retailers carry more SKUs than and may be inclined to carry the skis and other hard goods, as well as the shoes and apparel all under one roof. These retailers, however, are not yet wide-spread, and most products are sold through specialty stores (winter sports stores, cycle shops, golf equipment retailers, etc.).

Adidas may also choose to brand Salomon and Taylor-Made's products with its own name and include them in their retail mix (for example adidas skis, and adidas golf clubs), but because of the aforementioned issue (lack of mega-retailers), the distribution of these products will not benefit from the existing distribution channels.

2.2 Salomon

As the division's soft-good products reached almost 50% of its overall revenues, the synergy between the apparel businesses of Salomon and adidas is obvious. Salomon can use adidas' expertise in new product development (i.e. R&D and innovation) and come up with new products that it can distribute through its distribution channels to the retailers that already carry its products. Cost cutting is also a given by utilizing adidas' know-how and their combined bargaining power. In the side of hard-goods, Salomon's know how may be transferred to other hard-goods of other divisions if not already done so.

Salomon's other brands (Clichй, Arc'Tyrex, Bonfire, Mavic, and others), seem to be contributing very little to the company's bottom line and may be insignificant in the greater scheme of things.

2.3 Taylor-Made

Similar to Salomon, Taylor-Made can use adidas' apparel and footwear manufacturing strengths to its advantage. It can come up with more apparel and footwear products and increase its market share in the market while reducing costs by bargaining power and cost cutting procedures acquired from adidas.

Maxfli and Noodle brands, like Salomon's other brands, seem to be insignificant in terms of size and financial contribution to adidas-Salomon's portfolio, however they complement Taylor-Made's core competencies and seem to be a good strategic fit.

3 Financial Analysis

By looking at adidas-Salomon's 1995-2003 financials, it's easy to say that adidas' acquisition of Salomon has been far from perfect. This is obvious from the compound annual growth rates prior