LEAD STORY
Three Stripes And You're In
Look out, Phil Knight.
Adidas is reviving the great sneaker wars.
BY BOB YOUNG
byoung@wweek.com
"Recently...Nike seems to have become too big, too comfortable and too establishment for the young, energetic consumer," according to The New York Times last year.
Adidas CEO Steve Wynne believes American teens
dislike one thing above all: bigness. "They have a disdain for bigness,"
he says. "Big business, big government, big labor."
Adidas has faced
little criticism for
its labor practices, which are similar to Nike's, "because they're a European company and Nike is the biggest player," says Medea Benjamin of the U.S. watchdog group Global Exchange.
Moving Adidas headquarters to a vacant Portland hospital was developer the idea of Jim Winkler. "It was gutsy," says U.S. Rep. Earl Blumenauer.
It was Wynne's
law firm that Neil Goldschmidt turned to in 1990 when he wanted to create SMART (Start Making A Reader Today), a children's literacy program.
Not everyone in North Portland is pleased with Adidas' move. Neighborhood activist Lewis Marcus says he's "appalled and alarmed" that the company's expansion may spill onto the city's nearby Madrona Park.
Nike is even going after German favorites, sponsoring Germany's best
soccer team of
1997 and Michael Schumacher, a popular racing driver.
Some young Adidas employees have torn up carpets, removed ceiling panels and welcomed pet dogs, giving their space in a Beaverton office park a funky industrial feel that once characterized Nike.
Wynne jokes about the revived rivalry and Adidas' new location above the river in North Portland: "If it comes to hand-to-hand combat, I want to start on higher ground."
BATTLE OF THE BOSSES: Some fast facts about the rival C.E.O.s
It's got to eat at Phil Knight.Last year was dreadful for Nike. While revenues sagged and 1,600 jobs were cut, the company continued to take a beating for its overseas labor practices. When he learned that Nike's main man, Michael Jordan, was retiring from basketball, company chairman and founder Knight had to wonder how much worse it could get.
He found out last month when local media, political leaders and neighborhood activists lauded another Portland-area shoe company, Adidas, for its decision to move its American headquarters from a Beaverton office park to an old vacant hospital in North Portland. The Wall Street Journal went so far as to call Adidas winners in the latest round of Swoosh vs. Stripes.
"For the first time in a while, Nike has some competition," says John Horan, a longtime industry analyst and publisher of Sporting Goods Intelligence.
And it's not just any competition. Knight first started obsessing about Adidas 35 years ago. This is a rivalry as bitter as those between Coke and Pepsi, Leno and Letterman, Ali and Frazier.
"It's a new match," acknowledges Nike spokesman Lee Weinstein. "Let's see what happens."
Portlanders will certainly have a good view of the games. With both companies headquartered in the region, Portland is ground zero for the revival of the great sneaker wars.
Knight may have the soul of an athlete, but he's an accountant by training. And if there's one thing that's got to bother him, it's that Nike has suffered a miserable financial year.
Last month, Knight reported that Nike's worldwide revenues were down 15 percent from the same period last year. He admitted he was disappointed: "Basically we had hoped to show an up trend by this meeting and did not."
Meanwhile, Adidas' fortunes were headed in the opposite direction. For the first half of 1998--the most recent numbers available--the company reported a 37 percent increase in profits and an 85 percent increase in North American sales.
Nike still dwarfs Adidas, with $9 billion in annual sales compared with just under $5 billion for Adidas, but some think the three-stripe company has got the momentum.
Peter Moore, who designed the logo for Nike's Air Jordan brand and later went on to run Adidas America for a short spell, believes the best is yet to come for the Nike rival.
"Adidas has still got a lot of room to grow here," Moore says. "Its biggest growth potential is here in America, the biggest market in the world.''
And it's not just in financial circles that Nike is hearing Adidas' footsteps.
Phil "Buck" Knight was a pretty good miler at Portland's Cleveland High and the University of Oregon. Even as a billionaire, he's maintained the competitive edge of an athlete. So it no doubt frustrated him to see Adidas kick Nike's butt on playing fields all over the world last year.
The first setback in 1998 came at soccer's World Cup--an event that occurs only every four years.
Because Adidas considers soccer its trademark sport, Nike wanted to strike aggressively in the World Cup. Some industry experts thought Nike tipped its hand three years before the event with a TV commercial it dubbed the "evil" ad.
The dark fantasy shows Nike soccer players battling alien-like monsters on the field. Finally, a Nike player rockets a kick--which explodes like a fiery missile--right in the gut of the demon goalie. Bob Carr, a veteran industry analyst and editor of Inside Sporting Goods, believes the demon team was supposed to represent Adidas.
"Phil likes to get worked up about the competition," Carr says. Indeed, Knight shelled out $200 million to sponsor the heavily favored Brazilian team in the World Cup. He then hired movie director John Woo to shoot a commercial that would introduce Americans to the Brazilians and their one-name star, Renaldo.
Unfortunately, Knight's $200 million bet went bust.
A gutsy French team--sponsored by Adidas--dominated Renaldo and the Brazilians in the championship match. (The mainstream media never seemed to notice charges by a Chinese dissident that the Adidas World Cup soccer balls were manufactured in Chinese slave-labor camps.)
Next in 1998 came baseball's World Series. Another Adidas team, the New York Yankees were crowned world champions. Along the way, the Yankees rolled to the best record in baseball history and did so during the season that saw fans flock back to ballparks.
Adidas took full advantage of the Yanks and unveiled an ad campaign that offered a striking counterpoint to Nike's "sports is life" philosophy. Unlike Nike's über alles ads that deify athletes and glorify every righteous bead of their sweat, the Adidas ads featured five shirtless guys with "YANKS" spelled out on their paunchy guts. Cynical New Yorkers loved the ads. So did industry critics--the ads won top honors at the prestigious Clio Awards.
"That was probably the smartest marketing move I saw in 1998," says Carr. "All the money Nike spent didn't have the same effect on New York City as the Yanks ads. Everybody was talking about them. Those guys became absolute cult figures. The only piece of merchandise I wanted but couldn't get at Christmas was the blue Yankee jacket with three stripes on it."
Adidas kept chalking up victories. Teams the company sponsored won college championships in men's and women's soccer and women's basketball. Then, to open 1999, its best college football team, Tennessee, went up against Nike's Florida State for the national pigskin championship. In front of a national TV audience, Tennessee triumphed.
Closer to home, in August an Adidas team won the elite Hood to Coast Relay race, which Nike had dominated for the previous five years. "Can't you just see it if Adidas is all over the sports page Sunday morning?" Hood to Coast founder Bob Foote told The Oregonian the day before the race. "Phil Knight is going to die."
Things only got worse. Nike was hit with a one-two punch from pro basketball, a sport in which Nike has endorsement deals with 250 players. First, NBA owners locked out players for 191 days, which scrapped a chunk of the season and cost Nike vast amounts of publicity. Then Jordan announced his retirement. According to Sports Business Journal, retailers and stock analysts are convinced that Nike's Air Jordan brand will "lose steam with Jordan off the court."
Meanwhile, Adidas had to feel good that one heir apparent, Lakers star Kobe Bryant, was in its stable. At the time of Jordan's announcement, Sports Business Journal reported that 110 Pro Image stores around the country were now carrying the jerseys of just two NBA players--His Airness and Bryant.
To make matters worse for the patriotic Knight, Adidas is not an American company. It's German. But its growing U.S. operations, which account for 30 percent of worldwide sales, have been located in the Portland area since 1993. For the last three years, those operations have been headed by Steve Wynne.
There's no mistaking Wynne for the Nike boss. The two CEOs are a study in contrasts. Knight is known for being relentlessly driven and, like many runners, a loner. He's also painfully shy. "I wouldn't be surprised if Phil ended up a recluse like Howard Hughes," says Moore.
While Knight declined a request for an interview, Wynne made himself available to WW for three hours. Although Wynne runs a $1.4 billion operation, there was no trace of pretense--nor any palace guard or PR people--in his office. The room contained a chair made in the likeness of Bob Marley's head and a CD collection of be-bop jazz and boomer favorites like Bob Dylan, the Band and Jimmy Buffett. Wynne was also quick to show off a hat given to him by the group Run DMC, which recorded the anthemic rap "My Adidas."
"Wynne is out there enjoying himself," says industry analyst Carr. "God bless him. Not many people enjoy their job in this business right now. The state of the industry is the worse anybody has seen in a while."
Perhaps Wynne, 46, is having fun because he's not a shoe guy or a jock. He's a lawyer who has specialized in helping start-up companies, and Adidas was one of his clients when he was asked to become its American CEO. He's also a sports fan and an advocate of the arts and public education who thought he could contribute to the city while running the company.
"Steve is a nice, kind, gentle man committed to the community," says Mayor Vera Katz. And how does he compare with Knight? "Don't go there with me," says the mayor. "It's not fair. It's like apples and oranges."
Wynne must be getting under Knight's skin, particularly after what's happened in the last month.
Knight--an Oregon native, the most successful entrepreneur in state history and a generous philanthropist--is getting a bad name in his own back yard courtesy of Wynne and company. The main blow came four weeks ago, when Wynne announced Adidas was moving its American corporate headquarters (and 600 workers) from an office park in Beaverton to an empty hospital in the Overlook neighborhood of North Portland. A number of people were quick to point to differences between Wynne's model for this urban "Adidas Village" and Nike's 170-acre campus, which is hidden behind a 20-foot grassy berm in the suburbs and, like a college campus, segregated from the world around it.
In November of last year, while Knight boasted to Fortune magazine about the recruiting virtues of Oregon's clean air, water and transit, it was Wynne who was taking bold steps to maintain the region's livability. He was the one recycling an old building, moving his company closer to where his employees live and trying to cut down on driving and pollution.
Meanwhile, Knight's company was fighting the City of Beaverton's plans to build a road through Nike property so new housing developments on the other side of the sprawling campus would have access to a Westside MAX station.
No wonder Mike Burton, the executive officer of Metro, was tickled to see Adidas moving into his own neighborhood. "Nike would have probably built a berm around the hospital," says Burton. "This 'Fort Nike' thing is real. I remember being in the governor's office, trying to work out some of the land-use battles we had with Nike, and one of their people said they didn't want any public access to their property because they didn't want Jesse Jackson chaining himself to their trees."
Even neighborhood activists embrace Adidas. They're pleased the company wants to give neighbors access to new running trails on the property and to the hospital's meeting rooms.
"A socially responsible corporation really does exist," says former neighborhood association chairwoman Sandi Hansen. "Let's be real blunt here. They are not surrounding themselves with a berm and gated community like somebody else we know."
"It was a very shrewd deal," concludes Neil Goldschmidt, who was a Nike vice president before he became governor in 1986. "I think Adidas employees will be blown away by what the move does for their identity."
If any other company were striking these blows against Nike, it might be considered only painful. But coming from Adidas, it's like pulling scabs off old wounds.
Knight has been plotting against Adidas for decades. In 1962, while a graduate student at Stanford, he was already drawing a bead on the three-stripe brand. He wrote a research paper that outlined a way to topple the German giant, which was then the undisputed king of sports shoes. In fact, the company's founder, Adolph "Adi" Dassler (after whom the company is named), was considered the creator of the modern sports shoe.
Knight's enmity drove Nike for the next 20 years. "We always talked about how we were going to kick the shit out of the Germans," says Moore, the former Nike designer.
Nike's attacks knew no bounds. Moore says that when Nike execs were vying to wrest the sponsorship of the Wimbledon tennis tournament from Adidas one year, they brought old photos of a pockmarked center court. They wanted to remind British officials that the Germans had bombed Wimbledon during World War II.
It took the brash upstarts at Nike, who partied like frat boys but worked with missionary zeal, just 16 years to unseat Adidas from the top of the industry.
Adidas' fall was fast and hard. The Dassler family eventually died out and was succeeded by a string of poor managers. In the 1980s, Adidas' distribution system was a disorganized disaster; its managers shifted the company's focus from its strong suit--sports--to fashion; and they ignored cultural changes in the American market brought about by innovations like MTV.
Six years ago, Adidas started its comeback. In 1993, Nike exiles Moore and Rob Strasser decided to help Adidas rebuild. "Phil wasn't too happy," Moore says, and with good reason.
Moore was one of the industry's top designers, and Strasser, who had been a vice president at Nike, was considered a marketing genius. "Rob was one of the five or six guys in the shoe business who had seminal ideas," says Horan of Sporting Goods Intelligence ("The Man Who Saved Nike," WW, Oct. 31, 1985).
Moore and Strasser had quit Nike because they thought the company had transmogrified into something too big and lifeless. Gone were the days of the so-called "buttface" management retreats, complete with tequila festivals and Cool Hand Luke egg-eating contests. Instead Nike had adopted an 8-to-5 schedule and a dress code. "Frankly, a bunch of suits took over and made it a big company that doesn't seem to have a heart," says Moore.
Strasser relished the opportunity to reawaken the German giant. But the burly man nicknamed "Rolling Thunder" insisted on one condition: Adidas America would have to move from New Jersey to his native Oregon.
Almost immediately, Strasser breathed life into the tired old company. "Rob rocked the whole corporate culture," says Adidas spokesman John Fread. "When we started in '93, the management team in Germany wore blue suits, white shirts and burgundy ties. But Rob was famous for not wearing ties--or socks. In fact, he'd cut people's neckties off with scissors."
Unfortunately, Adidas' sneaker god was all too mortal. Strasser died Oct. 30, 1993, of a massive coronary. Many of Strasser's friends and colleagues were shocked that Knight did not attend the funeral. His absence only stoked the competitive fires at Adidas.
The troops at Adidas were spurred on by Strasser's legacy, a blueprint for the company's comeback he had left behind--"probably on bar napkins," jokes Carr. It solved the distribution problems, shifted production from Europe to Asia, launched a new line with a new logo, emphasized Adidas' rich sports heritage and sunk millions into ads.
In short, it mimicked Nike--except for the mistakes.
Weinstein, Nike's director of communications, wastes little time in jabbing back at Adidas.
During an interview, Weinstein mentions three times that Adidas is a German company--using the German pronunciation, adi-das, with a stress on the final syllable--hoping, perhaps, that readers might recall that Adi Dassler once made boots for Hitler's Wehrmacht.
Then, in a backhanded compliment, Weinstein notes that Adidas hasn't been this popular since, well, the golden days of disco, when pasty-skinned hedonists at Studio 54 wore three-stripe shoes.
A few minutes later he's pointing out that Adidas isn't entirely virtuous: The Jan. 18 issue of Sports Illustrated charges that Adidas violated NCAA rules because it showed University of Tennessee football players displaying the three-stripe logo in one of its TV ads.
Weinstein's not done. He stresses that Nike contributed over $34 million in cash and products to civic, cultural and youth groups in the last year. The company also launched innovative environmental projects, including one program that recycles shoes into playgrounds and court surfaces.
As for Wynne, Weinstein says he can't even be compared to Knight. "He's not the founder of Adidas," Weinstein says. "He's an American hired by a German company to head their operation here."
The bottom line, concludes Weinstein, is that "you've got to take this whole thing with a bit of humor and a sense of perspective. We are still the strongest by far. We have the lion's share of the market."
Indeed, a little perspective shows that, despite its recent success, Adidas lags far behind Nike in the sports-apparel industry.
Adidas is still battling Reebok for second place in the worldwide athletic-shoe market, and when it comes to American sneaker sales, Nike still controls 47 percent of the market, compared with 15 percent for Reebok and just 6 percent for Adidas.
Nike also remains popular with teen consumers. According to a recent survey by Teenage Research Unlimited, Nike was considered the coolest sportswear brand by 38 percent of American teens, with Adidas coming in second at 19 percent.
"To characterize the last year as a disaster for Nike is an overstatement," says industry analyst Horan, who adds that Adidas' performance has been waning. "On an international basis, Adidas' huge increases are starting to slow down."
Experts also warn against giving Wynne too much credit. It's his boss, Adidas-Salomon owner Robert Louis-Dreyfus, who's more responsible for the company's comeback, they say. A skilled turnaround artist, Louis-Dreyfus took over Adidas in 1992 when it was stumbling and reversed its fortunes, just as he did for pharmaceutical giant IMS International and British ad agency Saatchi & Saatchi.
Industry experts stress that the challenge from Adidas will ultimately be healthy for Nike. "The best thing that could happen to Nike is to have a strong Adidas to keep them on their toes," says Carr. "If Knight reads this article, I'm sure he'll go berserk. He'll get everybody else motivated."
It might also be good for Portland if these two titans try to top each other in good deeds. "It's a great triumph to have these two juggernauts," says Goldschmidt. "For the city, it's absolutely dynamite."
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Willamette Week | originally published January 27, 1999
