KEY POINTS:
In the fifth and final extract from Barbara Smit's Pitch Invasion, new adidas owner Robert Louis-Dreyfus has a strategy to resurrect the three stripes. His plans for moving production to Asia were ultimately to have a far reaching impact on the globalisation of the world economy.
* * *
Robert Louis-Dreyfus opened his first adidas board meeting in April 1993 after an early lunch. Utterly relaxed, clad in his habitual jeans and polo shirt, he introduced himself with the promise that adidas would regain the lead in its industry. "I can't tell you when, but I promise you that we'll be back in the lead," he told them. It should be a great ride, the opportunity of a lifetime for all of you."
To the Frenchman's dismay, the speech didn't appear to stir as much enthusiasm as he had hoped. He quietly moved on to the next part, asking each of the board members to outline the three problems that worried them most. But again, there were few reactions. Louis-Dreyfus felt that the managers didn't dare speak up, and they certainly didn't have a clear view of what had gone wrong.
"They reacted like boxers who have been knocked down too many times," sighed Louis-Dreyfus.
For several years the adidas managers had suffered continual humiliation at the hands of their American rivals. Just as Louis-Dreyfus arrived in Herzogenaurach, it was confirmed that adidas had made losses of about DM149 million (then about $170 million) for the previous year and sales had dwindled to DM2.7 billion, down by 18 per cent. They were trailing far behind Nike and at a widening distance from Reebok.
Their fresh ranges had not yet hit the market, and the measures that had been taken to improve marketing would not be felt until later that year. In the meantime, adidas continued to be constantly mocked as the decaying German brand that just could not compete with the wit of the fast-moving market leaders. As Louis-Dreyfus saw it, the board members had spent so much time scratching their heads at the causes of this discomfiture that they had forgotten to fix the problems.
He was equally startled that the managers in charge did not appear to be concerned about the company's appalling organisation - the deliveries that never arrived on time and rarely contained the requested products.
Worse still, the Frenchman discovered that the board didn't have the slightest control over the company. Unlike Bernard Tapie before them, Louis-Dreyfus and Christian Tourres immediately seized control of the company.
Louis-Dreyfus made it clear that he was not about to tolerate executives who constantly made excuses for unacceptable problems.
The distribution of tasks was based on their complementary skills. Louis-Dreyfus had all the charisma that was required to inspire the rejuvenation of the company, and after his spell at Saatchi & Saatchi, he was best-equipped to take care of marketing. Christian Tourres had the thankless task of supervising sales and operations. He could come across as somewhat mischievous and careless, but he tackled structural issues at adidas down to the smallest detail.
All but one of the sitting board members swiftly left the company, but as Louis-Dreyfus settled in Herzogenaurach, he was much relieved to find that the inertia he had felt among the leading executives had not spread to the rank and file. Adidas retained a cast of hard-nosed executives who displayed unswerving loyalty to the three stripes and burning impatience to hit back at Nike.
Once they were satisfied that they had imposed their style, Louis-Dreyfus and Tourres broadly mapped out a strategy to revive adidas. The plan per se didn't differ all that much from the measures advocated by several predecessors - the difference was that Louis-Dreyfus and Tourres actually saw it through.
While the cultural revolution at adidas took several months, Louis-Dreyfus immediately dealt with the problem that threatened the company's existence: the relatively high cost of production, which was responsible for the company's gross margin of 30.3 per cent for 1992 (against 38.6 per cent at Nike). No matter what else Louis-Dreyfus did, as long as the margin remained so much lower than their competitors', adidas could not begin to strike back.
Previous adidas managers had been flogging this particular horse for nearly 10 years. They had closed down nearly all production plants in Europe and set up sourcing offices in the Far East. But there were still two French factories which Gilberte Beaux had hesitated to close for fear of political reprisals, and the company's sourcing contracts in the Far East were far from as efficient as competitors'.
Christian Tourres was faced with the task of closing the last two French factories. But while employees formed lines and harangued management, Tourres stood firm and the closures were implemented without too much hullabaloo in Paris.
For the Far East, Louis-Dreyfus poached Steve Liggett from Reebok to sweep a new broom through the production arrangements. He fired many of the old German hands and ruthlessly pruned the organisation there. Louis-Dreyfus ignored the predictable complaints: after two years gross margins had jumped to nearly 36 per cent and nearly all of the improvement could be attributed to cutbacks in production.
The company's payroll, which had reached 14,600 by the time Horst Dassler died, had shrunk to 6400 when Louis-Dreyfus took over, and by the end of 1994 it had been squeezed further to 5000 employees.
When Louis-Dreyfus entered the fray Far Eastern suppliers had begun to form huge conglomerates. They built up full-fledged shoe towns in China, with canteens, stores, bars and dormitories, that were home to thousands of employees. The largest suppliers often worked for two or more competing companies, with one line turning out Nike and the next one working on adidas.
Liggett adjusted adidas sourcing to the concentration of the industry, more than halving its number of suppliers. Paired with the sourcing cuts were in-depth changes to the organisation, to ensure that adidas could closely oversee the whole flow from development to production to delivery. This was the problem that had caused the worst headaches over the previous years.
Brand wars
In the big business world of sport, adidas and Puma are two of the major global brands paying stars, clubs and competitions millions to display their label.
It all started in the 1920s when brothers Adi and Rudi Dassler started a shoe business in a small German town. Their passion for sports shoes coincided with the rise of organised sports and was an immediate success.
But World War II resulted in a bust-up between the brothers, who then set up competing operations - adidas and Puma.
The book Pitch Invasion charts their story and the expansion of the sports industry under the management of their children.
