Is Kanye West the Michael Jordan of adidas?

With high-profile athletes and entertainers, such as Kanye West, on its roster, Adidas is kicking in the right direction. (Washington Post staff illustration) 


For last month’s NBA All-Star Weekend in Los Angeles, Adidas rented space at 747 Warehouse St. Over the course of two days, tens of thousands of people wandered through the venue — which had a full-sized basketball court, a pop-up design studio, food stations and a “sneaker pickup” point. Sponsored stars also stopped by, including the Houston Rockets’ James Harden and Kanye West, who gave an impromptu concert.

 “Fifteen or 20 hip-hop bands and athletes and basketball … It was a celebration,” said Mark King, president of Adidas North America. The company also released a dozen new models in L.A. — from all-white high-tops to orange runners.

 Adidas has cause to celebrate. Since King took over in 2014, the company has more than doubled its North American market share and, globally, its stock has nearly quadrupled. Even a pay-to-play college basketball scandal, which could send one of the company’s former executives to prison, has so far done little to slow Adidas’s momentum.

 On March 14, Adidas released its 2017 annual report showing that North American revenue grew 27 percent. That’s compared with 3 percent growth for Nike in 2017, and Adidas’s 2013 increase of just 2 percent. Experts said the company’s sudden growth spurt is a story of technology, celebrity and a healthy dose of luck.

 Starting in the 1920s, brothers Adolf and Ruda Dassler made shoes together in the small German town of Herzogenaurach. In 1947, they had a falling out — with Ruda starting what would become Puma and Adolf founding Adidas.

 In 1954, the German national team won the World Cup wearing Adidas cleats — complete with screw-in studs and a lightweight build — and the brand took off. The European company also saw some success in the American market. By 1984, Adidas was the front-runner to sign a highly touted NBA draft pick named Michael Jordan.

 Instead, Nike swooped in and made a now-famous deal that propelled it to the top of what has since been dubbed the “sneaker war.” Relegated to second fiddle, Adidas has been stuck in that position (or worse) for decades.

 Part of Adidas’s problem, industry analysts said, is that it was designing for a European audience, not an American one. “Sometimes the shoes that worked in Europe worked here,” said Matt Powell of the NPD Group market research company. “And sometimes they didn’t.”
 
By the 2010s, as its market share dwindled and stock prices stalled, Adidas decided it was time for a change. Beginning in 2014, the company looked west.

 Aside from bringing in King as the North American president, their gamble involved moving some 200 top employees from Germany to the United States — including lead designer Paul Gaudio — and investing millions in the American market. The company also launched a shoe design hub in Brooklyn, a robotic “speedfactory” in Atlanta and has plans to expand its North American headquarters in Portland, Ore.

“They’re still in growth mode,” said Yu-Ming Yu, publisher of Sneaker News, a website that covers the shoe industry. “Last I heard, they had employees sitting in hallways.”

 The expansion has taken many by surprise. When Adidas overtook Jordan Brand, a subsidiary of Nike, as the No. 2 sport footwear last fall, Powell, with NPD, tweeted, “This is an achievement I never thought I would see in my lifetime.”

 Even King said the magnitude was a bit unexpected. “I’m a dreamer. I had high hopes,” he said. “[But] I didn’t know all this was going to happen.”

 One major contributor to the change came in 2013, when Adidas introduce its Boost midsole technology. Designed in conjunction with the German chemical company BASF, Boost is essentially a squishy foam cushioning that is layered into the shoe to help increase comfort and energy transfer. Boost has since been integrated across Adidas products, from lifestyle to running shoes. John Horan, founder of the Sporting Goods Intelligence analysis firm, calls the technology “comfortable as hell.” But, at first, sales were sluggish.

 “Boost checks the boxes from an innovation standpoint,” Gaudio said. “You just need to let [consumers] know it’s out there and why they should care.” To do that, Adidas took out its checkbook and went looking for talent.

 Since 2014, Adidas has quadrupled its presence among Major League Baseball players (signing Xander Bogaerts of the Boston Red Sox, among others) and doubled its NFL roster (King said two-time league MVP Aaron Rodgers of the Green Bay Packers, a longtime friend, actually asked to join Adidas). On the basketball court, Adidas’s massive $185 million deal with then-Chicago Bulls point guard Derrick Rose was being hampered by injuries to Rose, but that didn’t stop the company from luring Harden, the Rockets superstar, away from Nike in 2015, for $200 million. This season, he’s the front-runner for league MVP.

 “It’s always great when you have a brand that wants you and will do whatever it takes to get you and market you the right way,” Harden told ESPN, just after making the switch to Adidas. “I have a voice that can and will be heard.”

 Adidas has been making even bigger bets on the entertainment side — a realm in which it’s typically been stronger. The company has added Pharrell Williams, Kendall Jenner and West, whose 2016 deal could end up being worth more than $1 billion. “I think it was one of the wisest investments in the sneaker world,” Wu said of a West-Adidas relationship that is already paying off. “You can think of Kanye as being somewhat of a Michael Jordan for Adidas.”

 West’s first Jordan moment came in 2015. On May 9, he took the stage at the Wango Tango concert wearing all-white Energy Boost sneakers. Before the performance, the shoes weren’t doing particularly well. After the performance — as photos of West in the kicks circulated on the Internet — the product completely sold out. A week later, he did the same thing with the Ultra Boost shoe.

 While Adidas’ Kanye era has brought once-unimaginable success for the company, it also highlights the industry’s fickleness. “Absolutely, they had a business plan and marketing strategy. [But it] was a lot of luck as well,” Yu-Ming said. Referring to the success of Kanye’s concerts, he added, “You can’t have a marketing plan for that.”

 Horan posited that Adidas was the beneficiary of another stroke of fortune, as well.

 Thanks to the NBA All-Star Game, February is a huge month in the footwear industry — especially the basketball segment. That’s when companies release their biggest products. It’s also when income tax returns start coming in, fueling shoe purchases.

 But, in 2015, the government enacted the Protecting Americans from Tax Hikes Act. While the law was aimed at combating tax fraud, it also delayed tax returns for many low-income families starting in 2016. That meant less money for the February shoe releases, which caused sales at places such as Foot Locker to tumble.

 “The late refunds crushed the whole industry,” Matt Powell said. “There was no brand that benefited from that.”

 Horan, however, said he believes Adidas emerged from the carnage in a better position than its competitors. “When the tax checks didn’t show up, people in that market started saying: ‘I don’t need Nike. Maybe I could go with the Kanye West [shoe],’ ” Horan said. “The whole narrative was changed at that point.”

 But there have been challenges, as well, even as Adidas has been reaching milestones.

 Last fall, Adidas director of global sports marketing Jim Gatto was arrested for allegedly funneling (with the help of two other Adidas associates) hundreds of thousands of dollars to high school basketball recruits to get them to sign with preferred universities. The case, which is based on federal wire-fraud charges and still winding its way through the courts, could land Gatto in prison.

 The scandal has rocked college basketball and may eventually curtail the enormous influence sneaker companies have on the sport. In the short term, though, there are few signs that it is weighing on Adidas’ bottom line. “The early results don’t indicate that there’s been a negative impact,” Powell said.

 Wu added, “I honestly don’t think, unless it’s a much more severe controversy, that it’ll affect them that much.”

 Adidas officials are staying relatively quiet on the topic. “We regret that it happened,” said King, noting that the company has made a few internal adjustments but can’t comment much on the incident. “We’re moving forward.”

 Beyond the NCAA scandal, experts said they’ll be watching whether Adidas can keep up in the product game and stay up on latest trends. “Athletic footwear industry is pretty cyclical,” said Andy Annunziata, a researcher with SportsOneSource. “Trends change in a moment’s notice.”

 Wu said Nike has been on the upswing recently and has “more money than God” at its disposal. That has allowed them to sign LeBron James to a lifetime deal potentially worth more than $1 billion. About Adidas, Wu said its UltraBoost shoe “is sort of played out” but that the company has amassed a lot of talent, including a few designers who moved over from Nike.

 Following up on Boost, Adidas recently released similar bounce technology. And it says it has more drastic technology changes in the works. “We’re not here to finish second,” said Adidas’s head of U.S. sports, Jeff McGillis. He specifically avoided saying Nike, but emphasized that “none of us play to lose.”

 While Adidas’s market share has climbed to around 11 percent, it’s still far behind Nike’s roughly 37 percent share. And even King admitted that current growth levels are bound to slow at least somewhat. But the sneaker wars aren’t over — and may just be heating up.

 “We’re going to have let it play out and see what happens,” Wu said. “We’re going to see a good fight.”

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