Adidas Bounces Back Sneaker Maker Challenges Industry Giants Nike, Reebok

When Robert Louis-Dreyfus was tapped five years ago to run Adidas AG, he was taking over the weakest franchise in the global sporting goods league.

For many years, Adidas was synonymous in many parts of the world with sneakers and athletic apparel. But as one more example of a family-run company that stumbled when the founding family died out, Adidas had been badly beaten by agile new competitors like Nike and Reebok. When Louis-Dreyfus took over in early 1993, the company had just reported an $82 million loss for 1992, after eking out an $8 million profit the year earlier. Business in the huge American market, where Adidas had established its three-striped brand as a trendy item a decade earlier, had all but dried up.

But that was before Louis-Dreyfus, a skilled turnaround artist, began his make-over. Now Adidas is sprinting back into contention even as Nike, the industry Goliath, is stumbling.

Adidas closed out 1997 with record net income of $255 million, 48 percent more than the year before, on revenues of $3.6 billion. In the process, it overtook Fila USA as the No. 3 athletic shoe supplier in the United States and has set its sights on passing Reebok for the No. 2 slot.

Louis-Dreyfus even plunked down $1.4 billion last September to acquire Salomon SA, the French sporting goods giant best known in the United States for Taylor Made golf clubs and Salomon skis. Adidas-Salomon, as the merged company is called, is the world’s second-largest sporting goods group, behind only Nike itself, which has been struggling with bloated inventory and faltering demand not only in the United States but also in Asia.

“We’re going in the right direction now,” Louis-Dreyfus said in an interview here, not far from Adidas headquarters in the German town of Herzogenaurach.

The reversal of fortunes was particularly striking last week. On Wednesday, Nike announced disappointing third-quarter earnings, though its stock edged higher, because the results were not as bad as had been forecast. Adidas stock, meanwhile, closed at a record high on Tuesday.

Louis-Dreyfus has turned things around in several ways. He poured large amounts of money into creating a cooler image for Adidas with young people tired of Nike’s in-your-face style. To challenge Nike’s design flamboyance, Adidas took a contrary stance with its “feet you wear” concept, maintaining that built-up sneakers can be unstable. And while holding on to its strength in soccer, Adidas gained ground in more popular sports in the United States by signing up big-name athletes like Kobe Bryant of basketball’s Los Angeles Lakers and Keyshawn Johnson of football’s New York Jets in sponsorship deals.

Nike, which is planning a counterattack on Adidas’ home turf, doesn’t appear too worried.

The 51-year-old Louis-Dreyfus still has a long way to go just to catch Nike’s shadow. Nike may have its problems, but it continues to control 47 percent of American sneaker sales, vs. 15 percent for Reebok and just 6 percent for Adidas.

Yet what Louis-Dreyfus has already accomplished has won him high marks on both sides of the Atlantic. “It is a great company, and Robert is a fabulous manager,” said Faye Landes, senior footwear analyst at Salomon Smith Barney in New York. (The securities firm has no connection with Salomon SA.)

Investors clearly agree. After Louis-Dreyfus took Adidas public in 1996, selling 40 percent of its equity on the Frankfurt exchange, the initial price was 68 marks, a fraction of what it trades for now. Once he assimilates the Salomon purchase, Louis-Dreyfus plans to sell Adidas shares directly on Wall Street or as American depository shares, perhaps as early as next year.

Louis-Dreyfus is a total break in style as well as substance for Adidas. A Frenchman in a company with deep German roots, he lives in Switzerland and has assembled an international team to run Adidas, including Christian Tourres, a French executive often described as his alter ego, and an Australian banker, Dean Hawkins, whom he made chief financial officer. “Diversity brings creativity,” he said.

Fast talking and cigar smoking, he is an avid skier and soccer fan who once personally bought a French team, Olympique Marseille, to keep it from falling into Nike’s hands; at work, he eschews collars and ties for sweatshirts and jeans. A graduate of the Harvard Business School, he is equally comfortable in English and his native French.

In 1993, a group of French banks and insurance companies was saddled with Adidas, which the maverick French financier and politician, Bernard Tapie, had acquired in 1990. Although Adidas, whose founder, Adolf Dassler, is generally considered the father of athletic footwear, had been making athletic shoes as early as the 1920s, it was on the ropes.

Dassler’s son and heir, Horst, died in 1989 at 51, and the family had sold out to Tapie. Management was disoriented, and Nike and Reebok were parlaying a lethal combination of glitzy sneakers made cheaply in low-wage countries and promotions with American sports superstars into dominance of a market that Adidas once ruled uncontested.

Enter Louis-Dreyfus.

In 1988, he had just finished turning around IMS International, a leading U.S. pharmaceutical market research company, when he sold it to Dun & Bradstreet for $1.7 billion and decided to retire.

Yet there was a hitch. Louis-Dreyfus was only 42, and when he sought a skiing or golfing partner, no one was around. “The problem with retirement,” he said, “is that your friends are working.”

So when Charles and Maurice Saatchi asked him to help right their foundering British advertising agency, Louis-Dreyfus bit. After three years, in which he cut costs, fired staff and bolstered profit margins, he achieved his second major turnaround.

Now he is five years into his third effort.

Louis-Dreyfus says his top priority is to accelerate growth in the United States by continuing to whittle away at the market shares of Reebok and Fila. His second goal, growing out of the first, is to integrate Salomon to give Adidas economies of scale and a leg up in such trendy sports as in-line skating and snow boarding.

“I have a belief,” he said, “that while my generation was into team sports, our sons with their in-line skates and snow boards are going to be into individual sports.”