The battle for sporting goods supremacy: Nike vs Adidas

Nike and Adidas have long been at the forefront of the sporting goods industry, and the pair have been battling for both supremacy and market share for decades. But how do Nike and Adidas differ, how have the pair performed and what is on the cards for each of them in the future?

Joshua Warner @JoshWarner_IG
Analyst, London

Publication date : 2018-03-29T17:42:30+0100

Source: Bloomberg

'That's all you see me rock! Nikes and Adidas, Nikes and Adidas, Nikes and Adidas,' – lyrics from ‘Nikes & Adidas’ by D Chamberz and Bill Collector.

Nike and Adidas have been entangled in an incessant battle that has dominated the sporting goods industry throughout the modern era. Financially, Nike is much larger than Adidas, but the latter’s performance has been better over recent years.

Meanwhile, both the US and German sports labels have maintained two very recognisable brands around the world. According to the Interbrand Top 100 Global Brand Report for 2017, Nike was number 18 on the list, compared to Adidas at 55.

So what has been different about Nike and Adidas in the past, what paths are they each heading down now, and what is in store for the pair and their share prices going forward?

A brief history of Nike: ‘Just Do It’

The company was founded by two individuals named Bill Bowerman and Phil Knight in Oregon, US, the inspiration for the company’s creation being to design better footwear for athletes. The firm was originally named Blue Ribbon Sports, before becoming the Nike the world knows today back in 1971.

The business only had one shoe and one t-shirt within its portfolio in the initial years, but now sells thousands of sporting products in about 170 countries spanning around the world.

A brief history of Adidas: ‘Impossible is Nothing’

The business was founded by a German named Adi Dassler in 1924, when he operated the company out of a wash room and registered the name ‘Gebrüder Dassler Schuhfabrik’. However, Dassler started fresh in 1949 with a new name, ‘Adi Dassler adidas Sportschuhfabrik’, and focused on footwear by registering the famous three-stripe design that Adidas still lives by today.

The business remained run by family until 1987, and almost went bankrupt in 1992 before Robert Louis-Dreyfus took over the helm in 1993 to mark a new beginning for Adidas. The firm now sells over 850 million products each year in 160 countries.

What products do Nike and Adidas make?

While both Nike and Adidas make the vast majority of their money from their core brands, the pair have other brands which help supplement earnings. As well as the Nike brand, the company owns Converse, Hurley, and the Jordan brand (after basketball player Michael Jordan), while Adidas also owns the Reebok brand.

All of Nike’s brands generated $34.4 billion in total revenue in the last financial year (running to the end of May 2017), while Adidas reported annual revenue of 19.2 billion euros in the last financial year, which matched the calendar year of 2017 (all charts below are based on these financial years).

For Adidas, the core brand accounted for $19 billion of total revenue to serve as an explanation for over 91% of the company’s total revenue in the last financial year, while Reebok generated $1.8 billion.

Both companies sell three types of products. Nike and Adidas make the majority of their revenue from selling footwear, with apparel being the second biggest revenue driver for both. This is followed by sporting equipment such as balls and bags.

What products drive revenue for Nike?

Compared to its German competitor, Nike’s revenue is slightly more weighted toward footwear.

What products drive revenue for Adidas?

Adidas generates more of its overall revenue from selling apparel, but footwear is still the biggest product category for sales.

Nike vs Adidas sales: where do they make their sales and revenue?

Adidas and Nike both have powerful brands that are sold around the world. North America and Western Europe are the pair’s two top regions for sales. Unsurprisingly, Western Europe is the main market for Germany’s Adidas while North America is the biggest market for America's Nike.

Both have footholds in emerging markets, with Greater China representing the third largest market for the pair. However, Adidas generates more of its revenue in the country than Nike does.

Nike sales: where does Nike make its revenue?

Adidas sales: where does Adidas make its revenue?

Where do Nike and Adidas source their products?

Unsurprisingly, both Nike and Adidas source the vast majority of their production from Asia, with Adidas concentrating slightly more of its manufacturing in the region than Nike. As expected, Nike has more production happening in the Americas, whereas Adidas has more facilities in Europe. Africa forms a tiny portion of overall manufacturing for both companies.

What countries are Nike suppliers in?

Nike has about 554 factories spread over 42 countries supplying it with footwear, apparel and equipment.

Nike has 8% of all its production based in the US. These production facilities predominantly produce apparel and some equipment, but no footwear is produced in the US whatsoever.

Chinese manufacturers supply 23% of all Nike’s production. The types of products these factories make is more evenly split between the three product categories, with a slight weighting given to apparel.

Factories in Vietnam contribute 16% of Nike’s total production, predominantly creating apparel and footwear with a small amount of equipment.

What countries are Adidas suppliers in?

Adidas has over 800 factories based in 55 countries supplying it with all three product types.

Vietnam produces 44% of all Adidas footwear, followed by Indonesia at 25% and China at 19%. The largest single factory producing footwear accounts for about 10% of all footwear produced.

China is responsible for 23% of apparel made each year, followed by Cambodia at 22% and Vietnam at 18%. The largest single factory producing apparel accounts for about 10% of all apparel output.

China is also the largest producer of Adidas equipment, responsible for about 40% of the company’s total, followed by Pakistan at 18% and Turkey at 15%. The largest single factory producing equipment makes about 15% of the German company’s total.

How have Nike and Adidas performed over the last ten years?

Both Adidas and Nike have delivered consistent revenue growth over recent years, and net income for both firms reached record highs in the 2017 financial year. Adidas reached a milestone last year by pushing its gross margin over the 50% threshold, but Nike has had a tougher time dealing with tighter margins of late.

Adidas (euro, billions)	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017
Revenue	10.8	10.4	12	13.3	14.9	14.2	14.5	16.9	18.5	21.2
Gross margin	48.7%	45.4%	47.8%	47.5%	47.7%	49.3%	47.6%	48.3%	49.2%	50.4%
Net income	0.6	0.2	0.6	0.7	0.5	0.8	0.5	0.6	1	1.1
Dividend (euro)	0.5	0.35	0.8	1	1.35	1.5	1.5	1.6	2	2.6

Nike (USD, billions)	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017
Revenue	18.6	18.5	18.3	20.1	23.3	25.3	27.8	30.6	32.4	34.4
Gross margin	45%	44.9%	46.4%	45.7%	43.5%	43.6%	44.8%	46%	46.2%	44.6%
Net income	1.9	1.5	1.9	2.1	2.2	2.5	2.7	3.3	3.8	4.2
Dividend (dollar)	0.44	0.49	0.53	0.6	0.7	0.81	0.93	0.54	0.62	0.7

Shareholders in both companies have enjoyed reliable dividend payments, but Adidas shareholders have seen more consistent growth in dividend payments than Nike shareholders over more recent years.

How has the Nike share price performed?

Nike joined the New York Stock Exchange (NYSE) after completing its initial public offering (IPO) on 2 December 1980. The following chart covers the period since listing and is in dollars:

How has the Adidas share price performed?

Adidas launched its IPO on 17 November 1995, when it joined the Frankfurt Stock Exchange. The following chart covers the period since listing and is in euros:

Sports sponsorship: Adidas edges ahead of Nike in 2018 World Cup

Sports sponsorship has been at a core activity for both companies throughout their lifetimes, and the pair are active in numerous sporting markets. This year the hot sporting event is the 2018 football World Cup (to be hosted by Russia between 14 June and 15 July.

According to Soccer365, Adidas will not only sponsor slightly more, they will also sponser what are seen as better contenders, compared to its rival Nike. More teams will wear the Adidas brand than any other this year, with 12 teams in total, with Nike in second place, with ten teams signed up. There are 32 teams competing in total.

Adidas boasts the current World Cup holders (Germany) on its list, alongside Argentina, Spain, Belgium, Colombia, Egypt, Iran, Japan, Mexico, Morocco, Russia, and Sweden. That represents a rise from the nine teams Adidas sponsored in the 2014 World Cup in Brazil. The company sponsored 12 teams in 2010, and just six squads in 2006.

Adidas has been a major sponsor of the FIFA World Cup since 1970, supplying match balls, referee uniforms, and official gear for the tournament.

The ten squads to be sponsored by Nike this year comprise of the always favourite Brazil, as well as France, Portugal, England, Australia, Croatia, Nigeria, Poland, Saudi Arabia, and South Korea. Soccer365 notes that three teams that Nike has long supported (the US, Chile, and the Netherlands) did not qualify this year. This means Nike is sponsoring the same amount of teams it did at the last two World Cups but up from the eight teams sponsored in 2006.

However, Nike also has Umbro under its umbrella, which is sponsoring two teams this year – Peru and Serbia.

The other sponsors to feature in the World Cup are New Balance, errea, Uhlsport and Thornico-owned Hummel. Puma, founded by the brother of Adidas founder Dassler, is only sponsoring two teams this year in what will be a disappointment for owners Kering, that also owns the Gucci brand.

What do Nike and Adidas have planned for the future?

Both companies are in strategic plans that run until 2020. Nike and Adidas are both looking to grow revenue and earnings over the coming years, with Nike geared more toward high-growth China, while Adidas is looking to bolster market share in North America.

As the two companies each look to digitally transform their businesses, Nike is focusing on new materials for its products, while Adidas seems more attentive to design by opening up its brand to consumers and other designers.

What strategy does Nike have going forward?

'As the world’s leader in sport, we know there’s never been a more exciting time to be in our business. We’re catalysing our next wave of long-term growth, while being clear-eyed about today’s dynamic environment,' – Nike.

The business is currently working toward goals under a plan that is due to finish in 2020 called ‘The Consumer Direct Offense’, that hopes to transform three core areas of the business: innovation, the supply chain, and the marketplace.

Nike is aiming to double its innovation in performance and sportswear, having recently added new materials such as the VaporFly 4% carbon fiber plate and ZoomX foam. This will also involve ‘doubling down on digital knitting’.

The business is also looking to tighten relations with consumers by forming more direct connections through digital, membership, personalisation and brand experiences. However, it is also continuing to form retail partnerships to maximise its brand. While China (where Nike boasts a market-leading position) is prime for more stores to be opened, the company has also continued to roll out its online store to more countries, available in over 45 at present.

For the supply chain, Nike is aiming to trim the design-to-delivery time by exploring better sourcing, automation, new methods of make, and closer-to-market manufacturing.

Financially, Nike is focused on bringing down costs and improving its gross margin. The company hopes to optimise efficiency to bring selling and administrative costs down, spend its capital more effectively and grow its margin by focusing on more premium-priced products, digitalising the supply chain and reducing product costs.

Nike is aiming to deliver high-single to low-double digit revenue growth each year out to 2020, with earnings to grow at a faster rate. The company is also looking to grow free cash flow faster than net income and improve its return on invested capital.

What strategy does Adidas have going forward?

'Everything we do is rooted in sport. With sport playing an increasingly important role in more and more people’s lives, on and off the field of play, we operate in a highly attractive industry. Through our authentic sports brands, we push the boundaries of products, experiences and services to drive brand desire and capitalise on the growth opportunities in sport as well as in sports-inspired casual and activewear,' - Adidas.

Adidas is currently working toward a strategic plan named ‘Creating the New’ that runs until 2020, the primary purpose of the plan being to make its brand more desirable. The plan was updated in March 2017 to accelerate its growth targets.

The three pillars that will drive brand desirability are speed, cities, and open source.

Speed refers to fashion trends and stock availability. Adidas aims to ensure it is never out of stock and is ready to respond effectively to changing trends, including adding new designs during seasons to keep up, rather than pre-designing all items before each season.

Cities refers to where the majority of its consumers live and the impact they have on designs. Adidas is building individual designs for its major cities like Tokyo, New York, and London. Six cities are at the heart of the plan. This also involves upgrading its stores to produce a more premium shopping experience.

Open source is arguably the most interesting part of the Adidas plan. This is centred on opening up the brand to consumers and outside designers to provide a fresh and more engaging design process. This will also see Adidas continue to release products designed in partnership with athletes and high-profile designers.

Adidas, like almost all companies and sectors, is also transitioning to a more digitally focused operation, with the aim of generating 4 billion euros in e-commerce sales by 2020.

Ignoring the impact of currency movements, Adidas is expecting revenue to grow 10% to 12% per year until 2020 compared to 2015 levels, ensuring the business is outperforming the sporting goods industry to grab market share. Following the notable improvement in margins, Adidas is also aiming to keep growing its gross margin during this time.

Although a huge brand in the region, Adidas believes North America offers the most growth potential moving forward, which will turn up the heat on the competition with Nike.