Adidas-Salomon had no intention of telling the world it was developing a standalone fashion brand. But a slip of the tongue by chairman Robert Louis-Dreyfus was noted by a New Zealand journalist and ignited speculation on Wall Street.
Attached to Adidas’ interim results, published last week, was a brief statement saying: “From 2001, the company envisages offering a range of leisurewear for the high income urban male in the 20 to 35 years age bracket.”
To quell market rumour of acquisition, Adidas went public about a project for which, it says, there is no finalised business plan and no garment sketches.
Following the Adidas statement, US investment bank Merrill Lynch lowered its long-term recommendation on Adidas from “buy” to “neutral”, saying the company had not given enough information on start-up costs, brand positioning, marketing and distribution for the new brand.
Moreover, it believes the move raises questions about Adidas’ dedication to its sporting heritage and ambition to overtake Nike and become the world’s leading sporting brand.
The market and the competition are watching like hawks the world’s second largest sports manufacturer’s next move: will the comeback kid of the sportswear industry be able to crack the fashion market?
Adidas stresses the predicted 2001 launch of the brand, given the working title Attribute, is not a certainty. The Adidas board will make the final call before the end of the year.
Adidas has two members of staff working on the project in Germany – a chief controller and a designer. Both will run the subsidiary company if the plan goes ahead.
But from the way Louis-Dreyfus is talking, it sounds a certainty: “The brand not only opens up new growth potential for Adidas-Salomon, it also protects the Adidas brand. It is important to us that the sports character of Adidas is not diluted and that our core brand continues to stand for what we call true sports.”
Damaging Adidas’ carefully nurtured “true” sporting image is the company’s greatest fear. Its rivals wait to see if it takes its eye off the ball.
“High-end fashion is much more difficult than the mass market. Nevertheless Adidas is capable of surprising all of us,” says Robert Senior, former Nike account chief at TBWA Simons Palmer, and now managing partner of Fallon McElligott.
Reebok UK marketing manager Michael Price says: “Everything we do starts with sports, but we try to find street trends and explore them within the sports sector. It is dangerous to move outside because you can hurt the strength of the core brand.”
Louis-Dreyfus has fought hard to win sporting credibility for Adidas, leveraging the brand’s retro Seventies appeal and increasing the company’s worth from DM2.5bn (&£852m) in 1993 to DM10bn (&£3.4bn) five years later. He will not throw its success away for the sake of fashion. But neither can he ignore the fashion market.
Adidas global public relations chief Peter Csanadi says: “Fashion has become more sports related, and we are keen to keep Adidas as a purely sports performance brand.”
Csanadi says Adidas has been contemplating its latest initiative for two years: “One idea was an independent leisure-oriented, sports-rooted brand, aimed at those who like to put on a sporty sweater or shirt at the weekend or for work.”
But Csanadi says: “We may not have the resources to pull it off.” Adidas’ 1999 half-year results show profit down 23 per cent to DM182m (&£62m) on sales up two per cent to DM5bn (&£1.7bn). Clothing sales declined 4.5 per cent, while footwear was up 13.3 per cent.
Sportswear manufacturers as a whole are facing declining clothing sales. One of the reasons for this is the fact that the overwhelming majority of their customers – 91 per cent according to the Taylor Nelson Sofres service Sportswear Trak – do not buy sports products to take part in sport. Leisurewear companies and fashion designers are taking advantage of this trend by encroaching on the sportswear companies’ natural territory. Tommy Hilfiger, Gap, Hugo Boss, Ralph Lauren, Donna Karan, Calvin Klein, Diesel, Prada, Levi’s and Virgin Clothing, to name but a few, have all developed a sporting aesthetic.
In February 1998 Nike issued its second profits warning in two months and subsequently slashed five per cent of its workforce – 1,200 jobs. It blamed the Asian crisis, discounting, and the waning popularity of trainers as fashion items for the slump.
Sportswear Trak business group director Anne Hollomby says: “The sports clothing market has declined by 15 per cent over the past six months. The biggest declines have been in the men’s and boy’s sectors. Sales to boys aged under 14 years and men have fallen by 23 per cent and 16 per cent respectively.”
Hollomby says the only growth over the past six months, of three per cent, has been in cut-price garments: “When full price sales fall you know the sector is in trouble, but now even discounting is slowing.
“Fashion trends come and go, and sportswear has gone,” says Hollomby. “The casual, Gap-look is in, and the sports manufacturers can’t compete with that.”
But they are going to try. With only a fraction of their sales derived from sportsmen and women, Adidas, Nike and Reebok are not about to let sales slip away.
Datamontior consultant Nick Downing says: “Gap and Hilfiger have diversified without their traditional ground being stamped on by anyone else. They are selling a lifestyle and are not interested in on-field performance sportswear.”
As Adidas’ Csanadi says: “Our lines can be used in leisure but leisurewear can’t be used for sports.”
But Downing warns: “Adidas risks spurning its own side if it goes off-field. If it tries to be all things to all people, it could end up getting sandwiched between Hilfiger on one side and Nike on the other.”
Given Adidas’ desperation to keep its fashion brand as far away from its sporting goods as possible, it could contemplate selling the brand through its own retail chain, but says it is too early to discuss the issue. However, its positioning and distribution will be vital to gain fashion credibility.
Harvey Nichols men’s casualwear buyer Nick Walker says: “Distribution ultimately determines if the product is right for our market. If all the sports shops and House of Fraser stores stock it, we won’t.”
Walker points out how fast moving, crowded and fiercely competitive the premium menswear market is: “Modern sportswear has moved on from Tommy Hilfiger and Polo Ralph Lauren. Brands derived from urban sportswear like Mandarina Duck are popular. Even the more commercialised Hugo Boss is moving that way and fashion people, not sports people wear it.”
The trend towards the fashionable sports of surfing and skateboarding has allowed the sports brands to develop fashionable wear within a clothing context. For example, in the US, Adidas has shown a skateboarding and surfing leisurewear collection, Das, to the fashion trade. It will be sold through independent retail outlets normally reserved for surf brands such as Mambo, Quicksilver, O’Neill and Billabong.
Csanadi is quick to point out Das has been developed for the US as a sub-brand and will not come to Europe.
Reebok in the US has created an urban streetwear sub-brand called City Tribe which will be sold through non-sporting outlets.
Josie Esquivel, chief apparel and textile analyst for Morgan Stanley Dean Witters in New York, predicts that in the coming years Nike will sell casual and dress labels through its own retail stores, and Adidas will shift to a focus on select sporting goods businesses.
But Adidas has other ideas. It is setting itself up to do both fashion and sport lines – and to be first off the starting block.