Deal sets stage for full-scale war with Nike

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Now it's a sneaker war.

Adidas' pending $3.8 billion purchase of Reebok will drive up ad spending in the category, drive down retail prices and spark a war for endorsers that will make the most-sought-after superstars even richer.

While the two companies, the No. 2 and 3 players in the sneaker and sports-apparel markets, have long been described as being in a war with Nike, the truth is that until now they've not really had the leverage to draw the 800-pound gorilla into anything more than the occasional scuffle, and Nike has dominated the business for more than a decade.

Now analysts and sports-marketing experts expect Adidas will be able to put up more of a fight, particularly in the U.S. market, where it will gain clout and better command of shelf space with such important retailers as Foot Locker and Sports Authority, as well as media-buying discounts. Apparel experts said they also expect marketing spending to go up-the trio spent $344 million in measured media alone last year-and retail prices to go down as they duke it out.

"You will see increases by those who are defending their space, and those trying to increase space," said Marshal Cohen, chief analyst at the market research firm NPD Group. "Nobody can afford to fall behind."


But the true battle ahead lies in endorsements, where new sole mates Adidas and Reebok can lure bigger-name stars away from Nike's stable. "You only have to look at the LeBron James situation to see that," said Jon Hickey, senior VP-sports and entertainment marketing for Wenham, Mass.-based ad agency Mullen. The shop has worked on Reebok business before, and Mr. Hickey is a former VP-marketing for the Boston Celtics.

The LeBron James situation that he refers to concerns the National Basketball Association superstar, often dubbed the next Michael Jordan. Mr. James made the leap to the NBA straight out of high school. Both his high-school team and his summer Amateur Athletic Union team were sponsored by Adidas. The company made significant investments in time and money to sign Mr. James to a lucrative deal. But, in the end, Nike's $90 million, seven-year offer came in higher than Adidas could afford, and Mr. James now dons the swoosh logo instead of Adidas' three stripes.

But athletic endorsements are only the start.

Where Reebok has done the better job has been in making inroads into the urban community, with signature shoes from rappers Jay-Z and 50 Cent and an endorsement deal with rapper Nelly. While Adidas has a deal with rapper Missy Elliott, its best-selling clothing line has come via its affiliation with designer Stella McCartney, and the company is perhaps better-known globally through an endorsement deal with English soccer star David Beckham.

Adidas CEO Herbert Hainer said he intends to keep both companies separate-much as Nike does with the companies it purchased, such as Converse-and praised Reebok for its marketing strategies. "They have brought a new kind of business to the table, the fusion of sport and lifestyle and music," he said in a conference call. "I would say they have done it better than we in the U.S."


Dean Bonham, president of sports-marketing firm Bonham Group, Denver, went further, calling the urban market "the most significant trend to hit the sneaker and apparel world."

Nike spent $213 million in measured media in 2004, according to TNS Media Intelligence, while Adidas spent $89 million and Reebok $42 million. Though Mr. Hainer did not comment on specifics, he did say Adidas would "invest in both brands what is necessary to drive it forward" and hinted at a possible increase in spending by adding, "We can definitely [now] schedule the calendar when we introduce products in the future so that we can have, month-by-month and week-by-week, new-product launches going into the market and new, exciting campaigns."

Adidas is handled by TBWA/Chiat/Day and 180 Amsterdam while Reebok works with Arnell Group and Mcgarrybowen, both New York.

Through a spokesman, Nike, which works with Wieden & Kennedy, Portland, said it has no plans to change its marketing strategy. But Mr. Hickey suspects the company will respond more sooner than later.

Nike has its "first real, legitimate threat since the `80s," he said. "There's no way either one would even approach Nike, much less overtake them, on their own." But now, he said, "Nike has to respond. This new, combined entity has a chance to make a run. Now, it's game on."

Two teams

Adidas CEO Herbert Hainer praised Reebok’s marketing strategies, but said he will keep the companies separate.

Word on the street

What the analysts are saying

"Adidas-Reebok will make inroads against Nike by presenting a stronger fashion brand, which will also gain wider support and endorsement deals. When they present this united brand, they will have the luster to get more endorsements from high-profile athletes. Separately, they had a very small niche, but together Adidas and Reebok will have a global presence to compete one-on-one with Nike."--Faith Hope Consolo, Prudential Douglas Elliman, New York

"Strategically, it seems to make little sense. The move makes Adidas bigger but not necessarily better. The message Adidas is making is ‘We can’t cut it alone in the U.S.’"--Gavin Finlayson, Commerzbank, Frankfurt

"[The move] should enable Adidas to attain ‘critical mass’ in the U.S. market."--John Paul O’Meara, Dresdner Kleinwort Wasserstein, London

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