Nike vs Adidas: a league of their own

Whether on the field of play, on social media or emblazoned on replica kit, it is clear that Nike and Adidas crush the competition when it comes to sports branding

 
Nike Football Boots
Football is the main battleground between Nike and Adidas. Although the latter spent an estimated $100m on the World Cup, many fans thought Nike was in fact the official sponsor 
Author: Selwyn Parker
November 7, 2014

The World Cup of football may be over for another four years, but there’s one global sporting battle that never stops – the eternal war between Nike and Adidas for the hearts, minds and pockets of sports fans and consumers worldwide.

It’s a contest fought across many sports besides football, and the protagonists are engaged across several venues at once: in laboratories, on television, online, in sponsorship deals, via quirky marketing campaigns, on the high-street and on every playing field on the planet, from local parks to the Camp Nou.

Between them the two leading brands command a value of more than $25bn. Over the years they have carved up their own territories – Nike in the Americas and Adidas in Europe and Asia. But that’s now changing as the two giant brands go head to head in a pitched battle for world domination. And, increasingly, the brands are clashing on the same turf.

Turf war
In 2006, Adidas engineered a coup that would have once been unthinkable, by securing an 11-year merchandising partnership with the National Basketball Association (NBA) in the US. In 2010, it wrote a big enough cheque to win an eight-year extension of Major League Soccer (MLS). At that time Adidas’ subsidiary Reebok had its name on all the apparel of the National Football League (NFL). Rubbing salt in the wound, Adidas is also official sponsor of the Boston marathon, one of the world’s best-known running events.

Suddenly, Nike wasn’t just looking over its shoulder at an emerging competitor in its home market – it was left in its dust and trying to catch up. It has, however, been fighting back. In 2012 it wrestled back the NFL rights from Reebok and is working on getting back into other so-called ‘hard sports’. And it is highly unlikely to give up its long-term support of such historic connections as the Penn Relays, a sentimental event for intercollegiate sports that takes the brand back to its athletic roots (founders Phil Knight, currently Chairman, and track coach Bill Bowerman started making shoes because the Japanese brands at the time did not meet their requirements).

Even their marketing pitches summarise the nature of this all-out competition. ‘Impossible is nothing,’ trumpets Adidas. ‘Just do it,’ insists Nike

Wherever there’s growth in the sporting goods market, Nike and Adidas are there slugging it out. Nike sponsors basketball in Greece, Spain, Israel, Poland, Russia and Brazil (to name a few). It supports cricket in India, baseball in South Korea and rugby in Argentina. As for Adidas, it sponsors archery in Pakistan, artistic gymnastics in the US and Italy, baseball in China, and boxing in Thailand. Indeed there’s hardly a country or a sport where the brands are not present in some form. Even their marketing pitches summarise the nature of this all-out competition. ‘Impossible is nothing,’ trumpets Adidas. ‘Just do it,’ insists Nike.

Clash of the titans
The captains of these respective teams come from very different backgrounds. At Adidas, 50 year-old CEO Herbert Hainer is the son of a butcher who opened his first business, a pub, while still a student in business school. His main sport was football. His counterpart at Nike, Mark Parker, is a political scientist who ran track for Penn State. A company veteran, he worked his way up from the job of shoe design in the R&D department. He still likes to work on shoes and was in fact jointly responsible for the company’s first ‘green shoe’, an environmentally sustainable product. Parker is also much better paid than his rival CEO – last year total compensation came to nearly $15.5m compared with Hainer’s €2.7m [$3.5m].

There are no major opportunities in the sporting goods market that Adidas and Nike, famously identified respectively by their three-stripes and swoosh logos, have neglected. Including its Reebok, TaylorMade golf and Rockport shoe brands, Adidas covers just about all sports from football and basketball to athletics, tennis and golf with many others besides. Under the umbrella of Nike, the Greek goddess of victory, are also brands such as Jordan, Umbro, Converse and Hurley, among others.

Nonetheless, football is the main battleground. Before the victorious German team had even boarded their plane home from the Fifa World Cup this summer, sports-marketing analysts were already figuring out which brand was the real winner of the tournament. Their collective conclusion is that while Nike outfitted more teams, 10 to Adidas’ nine, the German brand came out on top because its home team won the trophy. And, no doubt to Nike’s distress, the German brand also sponsored Argentina in an all-Adidas final.

Ever since founder Adi Dassler started making football boots, the ‘beautiful game’ – and the World Cup in particular – has been the historic powerhouse of the German company’s revenues and it has put aside a large war chest so that it can stay on top. Adidas is the official sponsor of the World Cup and has succeeded in extending its contract with Fifa for the next 15 years, right through to 2030. Although the price is high, at an average $70m for every World Cup between now and then, it’s a price Adidas is willing to pay.

At first appearances such a long contract should hand all the spoils from the World Cup to Adidas. In fact, excluded as it is from Fifa’s murky corridors of power by its rival’s close relationship with the top echelon in the sport’s controlling body, Nike has opted for a different route into football – that of guerrilla marketing. Nike employs digital and other alternative channels that enable the brand to go straight to the ordinary fan, essentially bypassing officialdom.

Nike has, for instance, developed an app that helps footballers to join pick-up games in the local neighbourhood. If they want a game, they just click the app and wait for a response. In Latin America, a region of street football, this kind of marketing will go a long way.

Nike v Adidas head to head infographic
Sources: Nike, Adidas, Forbes, Twitter, Facebook. Notes: Sales and profit taken from Adidas Q2 and Nike Q4

Paying for the shirt
Nike is also aiming to spoil its rival’s party in Europe where it traditionally dominates. The Oregon-based company now sponsors the kits of more of the leading clubs in the ‘big five’ – Germany’s Bundesliga, Spain’s La Liga, France’s Ligue 1, Italy’s Seria A and, the biggest prize of all, the English Premier League – than any other brand.

But, as the BBC reports, an alarmed Adidas has pulled out the chequebook. In a bet on the return to form of Manchester United, the German brand has signed a record-breaking £750m, 10-year deal with the club to begin next season. The current sponsor? Nike. And Adidas will, from next year, have its name on the kit of Italian champions Juventus for a more modest £112m (€140m).

In European football the stakes are astronomical – in the 2013 season the fans of the big five leagues bought 13 million shirts. “The brand awareness of football is like no other,” explains Professor Chris Brady, Director of the Centre for Sports Business at the UK’s Salford University.

In football it pays to buy up the most-televised, highest-ranking teams. As Andrew Walsh, the football analyst at Repucom, a worldwide sports marketing research group, told the BBC: “In terms of revenue it is the top 10 European teams that dominate, delivering 65 per cent of total shirt sales. Most of these come from clubs in the English Premier League, Adidas’ strongest market.”

As Walsh adds, while Nike has signed up more clubs, Adidas still owns the bulk of the shirt market. And that’s what counts. As David Beckham’s management team will vouch, the transfer fees for top-line players are often calculated on the amount of kit they sell as well as on their footballing ability.

Nike and Adidas don’t have it all to themselves, in football or any other sport. German rival Puma sponsored eight teams at the World Cup while Italian Lotto and Spanish Joma were able to enter the fray. In the English Premier League, the financially astute Arsenal has signed with Puma.

The biggest global brands after Nike and Adidas are also-rans. Ranked by customer preference rather than sales, they are Puma, Asics, Under Armour, North Face, Umbro, Fila and Vans – but they’re a long way back. Puma, for instance, rattled up sales of €2.99bn last year, impressive but a long way behind Adidas’ €14.5bn.

In individual sports it’s easier for rival brands to make raids into the Nike/Adidas domination because the price is not as high. In something of a shock to both brands and an all-Asian final for the sporting goods industry, the men’s winner of the 2014 US Open tennis was Croatian Marin Cilic, who was showcasing Chinese brand Li-Ning, a 25 year-old company founded in Beijing. Cilic had switched from Fila in 2011. Meanwhile, runner-up Kei Nishikori was dressed by Uniqlo, a Japanese casual wear company.

Adidas Ball
Adidas is the official sponsor of the World Cup and has succeeded in extending its contract with Fifa through to 2030 – the price an average $70m for every World Cup until then

Research and retail
As consumers reveal a willingness to spend more on higher-end products, both brands are changing their distribution and retail strategies to hike their margins. This is most obviously reflected in a marked trend to wholly owned and branded stores as well as to supporting the more up-market retailers. “Nike and Adidas see the benefit of creating their own retail environments so they can tie the in-store experience closer to what they’re doing elsewhere in their marketing,” says Magdalena Kondej, Head of Apparel and Footwear at Euromonitor International.

It’s all about taking the consumer on a “structured journey” that employs all forms of marketing including social media to, hopefully, produce a sale. As Scott McLean, co-founder of Intelligent Marketing Institute, puts it: “People will judge the battle between Nike and Adidas by how much chatter they generate. But the real war will be waged around how they take the audience on a structured journey that leads them to a Footlocker store or a website to make a transaction.”

Ultimately though, sales are based on the quality of the product and that, in turn, is based on relentless R&D that produces heavily trademarked and fiercely protected technology. For instance, Adidas golf shoes come with ClimaProof waterproofing, Fitfoam interiors and Traxion cleats. Meanwhile, Nike’s footwear is equipped with Zoom Air, Power Platform and the Q-Lok spike system with Scorpion Stinger spikes. Nike’s sponsorship of Tiger Woods and Rory McIlroy is designed to persuade weekend golfers to trade up to the highest-margin brands such as Tiger Woods’ signature shoe, the Air Tour TW, at around $275 a pair.

Oddly enough, although Nike pays heavily to have its name on the clothing of Woods and McIlroy, it generates only three per cent of total revenues from the sport, or about a quarter of what Adidas books from golf. But that’s a double-edged sword for Adidas. When the TaylorMade golf brand runs into trouble – as it did last year, especially in the US, because of an excess of stock – it hit the German brand disproportionately hard.

Because Adidas started in football, it’s jealous of the technological superiority Nike claims in the sport – and so its laboratories’ current focus is on lightness. Coming on sale in 2015, following years of development, will be the 99g [3.5oz] football boot. For comparison, when founder Adi Dassler produced the water-resistant ‘Argentina’ boot over 50 years ago, it weighted 355g – and that was considered a breakthrough.

The brand awareness of football is like no other – Professor Chris Brady

Indeed, the brand is making a virtue of shedding weight – soon footballers will be able to run onto the pitch in a 630g kit, all up. That’s boots, shirt, shorts, socks and shin guards. Such is Adidas’ commitment to lightweight attire that the gear of all of its sponsored teams in Brazil was exactly half the weight of that in the previous World Cup in South Africa.

But does lightness matter? Both brands are convinced it does and produce copious evidence to prove it. If, for example, a marathoner runs to complete exhaustion and finishes in three hours, calculations show he will have covered the distance precisely 1 minute and 48 seconds sooner provided he wears a shoe that is 100g lighter than an alternative model. For an elite athlete that is clearly a free gain worth having.

Similarly in football, a 100g lighter shoe not only means the player will be able to do 10 more sprints per game, there would also be a 20cm advantage over an opponent for every 10m dash for the ball.

The only stat that matters
In the financial battle Nike is definitely on top. In July Adidas was roasted by analysts for posting net income for the second quarter of €144m, below an earlier €150m estimate, on sales of €3.47bn. It followed Adidas’ third profit warning in a year. The main culprit was falling sales in North America (down 4.3 per cent), Asia excepting China (down five per cent) and Eastern Europe, including the important market of Russia (down 1.3 per cent). Institutional investors aren’t happy. “Execution remains a serious issue for this management team,” argues John Guy, an analyst at Berenberg Bank, in a client note.

Chief executive Hainer, who has been in the hot seat since 2001, was apologetic but plans to fight back. “We left our brands exposed to attack in some markets, which has cost us market share,” he told shareholders. “It’s obvious we have to go back to the training ground. We clearly want to improve our brand leadership.”

His immediate response is to lift the marketing spend from 13 to 14 per cent and, in a reversal of the retail strategy, to slow down the roll-out of new stores while closing the loss-making ones. “As we gear up for our next five-year strategic plan, we will assert ourselves much more aggressively in the marketplace,” Hainer promised.

Adidas’ biggest challenge is to raise the value of the brand, say sports marketers. The Interbrand consultancy puts a worth of $7.5bn on Adidas, less than half that of Nike’s $17bn. The American company’s domination is explained by highly effective, more underground style of selling. “Nike is the cheeky challenger doing guerrilla-like ambush marketing,” explains Repucom’s Andrew Walsh. “Adidas follows the more orthodox line.”

As an example, it was galling for Adidas that it spent an estimated $100m on the World Cup while many fans thought Nike was in fact the official sponsor. “Nike managed to get the benefits without as large an upfront investment,” points out Leah Donlan, marketing lecturer at Manchester Business School.

And that’s almost like winning the World Cup with nine men.