The key to fixing Europe's most iconic sports brand may lie in America.
Beset by plummeting golf sales, a sidelined basketball star and weakness at its sneaker maker Reebok, Adidas is struggling to increase revenue in the United States amid the dominance of Nike and growth of upstart rival Under Armour. With the shares down 35 per cent this year, hedge funds have reportedly considered taking stakes to try and oust longtime Chief Executive Officer Herbert Hainer.
Success in the world's largest economy, where Adidas gets almost a quarter of its revenue, is a priority for Hainer, especially after Adidas cut its 2014 profit outlook and abandoned targets for 2015. Adidas will next year start its biggest-ever brand campaign, and has signed some of the top picks in the National Basketball Association draft.
"Adidas is suffering from a too-European image," said Cedric Rossi, an analyst at Bryan Garnier in Paris. "I don't think US teenagers are thinking of Adidas when they want to buy basketball shoes."
Based in the Bavarian town of Herzogenaurach since its creation in 1949, the world's No. 2 maker of sports gear has targeted soccer, a sport that has only recently started to gain a bigger following in North America.
While Adidas leads the industry in soccer globally, it hasn't managed to lure enough fans to make much of a difference in the US. In the meanwhile, Nike has stepped up its challenge with increased advertising and sponsorship deals with stars such as Brazil's Neymar and Portugal's Cristiano Ronaldo.
Even with Adidas sales gaining on the back of this summer's World Cup, when the company sponsored winner Germany, runner-up Argentina and seven other teams, slumping demand for golf equipment in the US has hit its TaylorMade brand. Meanwhile, the company's NBA star, the Chicago Bulls' Derrick Rose, hasn't won many games in the last two seasons due to injuries.
The 2006 acquisition of Reebok for $3.8 billion hasn't helped. The brand has had to cut its sales forecast and tried to reposition itself as a leader in fitness gear again after being replaced by Nike as the National Football League's apparel supplier in 2012.
"Reebok is almost ruined," said Sam Poser, an analyst at Sterne, Agee & Leach who recommends buying Nike and Under Armour shares. "They're trying to bring it back to what it was in the '70s and '80s" when the aerobics craze was at its peak.
Overall, Adidas's North American sales fell 14 per cent in this year's first half and may decline 1.8 per cent annually between 2013 and 2016, compared with annual growth of 1.8 per cent for the overall company, according to John Guy, an analyst at Berenberg in London. Adidas is the worst-performing stock in Germany's benchmark DAX Index this year.
The difficulties aren't limited to North America. More than 13 per cent of sales come from Russia and neighbouring countries, where the depreciation of the ruble has weighed on earnings. Business in Russia last year was hurt by switching to a new distribution hub that led to inventory shortages, one of "a few mistakes" cited by Hainer.
The CEO's plan to boost US growth includes signing four of the top six picks to deals in this year's NBA draft, including Andrew Wiggins and Joel Embiid.
Next year, Adidas will increase marketing to between 13 per cent to 14 per cent of annual sales. Nike by contrast spent 11 per cent of sales on marketing for the fiscal year that ended May 31. The US company on Thursday reported a 23 per cent rise in first-quarter profit that beat analysts' estimates.
Adidas, which reports third-quarter earnings on November 6, is expected to show a decline of 16 per cent in net income, according to estimates compiled by Bloomberg, marking four declines in five quarters.
Against this backdrop, US and British hedge funds including Third Point have shown interest in pushing for change at the company, including a possible spinoff of Reebok or TaylorMade and removing Hainer, Germany's Manager Magazin reported last week. Hainer, 60, is scheduled to retire in 2017.
Adidas "continues to have an open dialogue with investors," Schreiber said last week after the magazine report. A spokeswoman for Third Point declined to comment.
Meanwhile, Adidas's rivals are taking steps to secure their share. Nike, which says it controls 95 per cent of the US basketball shoe market, plans to expand in sports gear for women. The US giant held 15 per cent of the $255.1 billion worldwide sportswear market last year, compared with 10.8 per cent for Adidas, according to market researcher Euromonitor International. In North America, Adidas's revenue totaled $4.3 billion, compared with $12.3 billion for Nike.
Newer competitor, Baltimore-based Under Armour, has branched into yoga clothes and soccer shoes, and this month signed supermodel Gisele Bundchen and redesigned stores to broaden its appeal to women. Its shares have surged 55 per cent this year.
"They still haven't found the strategy to resist against Nike and also against Under Armour," said Rossi.