Adidas must take a bold step in battle with Nike

The German sports brand needs a lot of fresh talent to take on Nike, its competitor in the US. But posting them in its sleepy Bavarian base is a challenge and the company must take the plunge to create an appealing environment.

A Malaysian student poses next to the models of Nike sports shoes. Saeed Khan / AFP

Adidas needs world-class designers, brand experts and technical whizzkids to improve its image against Nike, its rival in the United States, but persuading them to move to its headquarters in rural Germany is difficult.

Adidas has been losing market share to the world’s biggest sportswear brand Nike, which is considered far cooler in consumer surveys and is based near the hip US city of Portland, Oregon.

Adidas acknowledges it is hard to recruit at its headquarters near the Bavarian town of Herzogenaurach, particularly for design, marketing and digital roles, and admits it missed trends in the US market, where Under Armour has just overtaken it as No 2 behind Nike.

Nike’s better than expected earnings this week underscored its ascendancy.

Adidas is responding by locating some key design roles in the US at the same time as investing heavily in new facilities at its home base near the historic Bavarian town where adidas was founded by the shoe maker Adi Dassler in 1949.

“We need a lot of that top talent that is cutting-edge. Ideally, they are working in the tech industry, in marketing organisations or are coming from top competitors. We need an environment that appeals to them,” said Steve Fogarty, who is responsible for employer branding and digital recruiting

“Designers tend to gravitate to very large, international cities like Berlin, Amsterdam, London and it is a bit harder to convince them to move to the centre of Germany.”

Eric Liedtke, the American who took over as adidas head of global brands in March, has promoted Paul Gaudio to the role of global creative director and moved him from Herzo to the firm’s US base in Portland, in a bid to turn around its fortunes in the world’s biggest market for sporting goods. Close to 1,000 adidas staff are based in Portland, compared with Nike’s 8,500-strong workforce in the area.

Mr Gaudio announced last week that adidas will open a small creative studio in New York’s Brooklyn district next year to be led by three young footwear designers he has poached from Nike with a mission to explore design direction for the brand.

That will complement existing creative centres in Shanghai, Tokyo and Rio, but the vast majority of the company’s hundreds of designers for football, outdoor, Originals fashion, training and running products remain based in Herzo.

Adidas shares are down more than a third this year, most recently suffering from a third profit warning in a year in July that the firm blamed in part on a disappointing performance in North America, particularly from its golf business.

Adidas trades at 17 times expected earnings, at a discount to Nike’s 22.5 times and fast-growing Under Armour’s 58 times.

Despite the new designers in the US, long-serving adidas chief executive Herbert Hainer, himself a native of Bavaria, remains committed to the company’s base in a region proud of its strong economy, and companies including BMW, Siemens, Audi, Munich Re and Allianz.

About 3,900 of the total adidas staff of 52,500 work in and around Herzo, about a third of them from outside Germany, and Mr Hainer said last month the company planned to add 100-150 new staff at its headquarters every year.

While Bavaria has a reputation for festivals, lederhosen and conservative politics, Nike’s home town of Portland is a city of 600,000 that prides itself on its liberal values and environmental awareness, as well as a proliferation of trendy eateries and microbreweries.

Based on a campus in Beaverton, 11 kilometres outside Portland, Nike’s location in the American north-west also raised questions in its early days in the 1960s, with founder and Oregon native Phil Knight saying everybody originally thought it should be located in New England or the South.

But Portland has since become a magnet for the global footwear industry, helped by the relatively short hop to Asian production hubs and a youthful talent pool, prompting adidas to move its North America headquarters there from New Jersey in 1993, and drawing US brands such as Columbia Sportwear and Keen.

Herzo, by contrast, is a town of just 24,000 people set in rolling fields, although many adidas staff commute from the nearby university town of Erlangen or the city of Nuremberg, known for its walled old town, gingerbread and sausages but not for the most vibrant nightlife or fashion scene. Nuremberg has an airport with direct flights to many cities in Europe but not farther afield, and there is no train link to Herzo from Nuremberg or Erlangen, meaning most staff have to commute by car.

Herzo’s biggest employer is family-owned Schaeffler, which has 9,000 staff in the town, mostly in technical roles producing precision products for the auto and aerospace industry. It is also home to the rival sportswear firm Puma.

Conscious that it was not the best location for a big global consumer brand, adidas considered leaving Herzo in the 1990s, when the company was trying to rebuild its fortunes after flirting with bankruptcy following the death of founder Dassler in 1978 and then his son Horst in 1987.

But when the departure of US troops from Germany at the end of the Cold War freed up the military base outside Herzo, local authorities persuaded adidas to stay.

It moved its headquarters to the base in 1998 from an overcrowded office in downtown Herzo and has been expanding the campus ever since.

The Herzogenaurach mayor German Hacker said surveys showed that foreign inhabitants particularly value the high quality of life and security that the town offers.

“Herzogenaurach is a sheltered and manageable town. That is its charm, but you can get to big towns in 10-15 minutes if you want,” he said.

One former employee, who declined to be named because they still work on a contract basis for adidas, said they left the company because they found living in Bavaria too boring.

“It is so odd that this company is in the middle of farmland. It doesn’t have anything to do with style,” the person said.

Adidas recruiting expert Mr Fogarty, who spent three years working in Herzo but moved back to Portland last year, says the vast majority of staff describe working in Germany as an amazing experience once they arrive.

He set up a website to extol the virtues of Herzo, featuring employees from around the world praising the rural running tracks near the office, local festivals and the proximity to Alpine ski slopes.

Mr Fogarty, who often has to get up at the crack of dawn in Portland to speak to colleagues nine hours ahead in Herzo, said adidas does not lose staff because of the location of its base as it is flexible about where people work.

“While our headquarters is technically in Herzo, the opportunity to work in many locations is already here, so why invest in moving the headquarters?” he said.

However, the experience of Puma, founded by Adi Dassler’s brother Rudolf after the two split a joint business, shows the pitfalls of dispersing key staff.

Puma had based its product management and design team for its lifestyle range in London to be closer to fashion trends, but decided last year to move the division to Herzo as it sought to centralise functions.

Puma is in the process of trying to reaffirm its sporting roots after sales tumbled in recent years. Puma had lost its reputation for sports performance gear by moving too far into the fashion business.

Despite investing in fashion brands such as NEO and Originals, adidas has so far stayed true to its sporting heritage.

Adidas recently announced plans to build two new buildings – with a capacity for 3,600 staff – at its “World of Sports” campus outside Herzo and is about to open a 16-metre high climbing wall in the grounds.

The adidas campus already features sports fields and stylish buildings including a futuristic low-rise “brand centre” clad in black glass that opened in 2006 and a marketing and operations office called “Laces” that opened in 2011 and features criss-crossing walkways above a light-filled atrium.

“You can work in a dull office in the middle of Munich or an awesome office two hours north of Munich,” said Christian Dzieia, adidas director of property development.

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