How sneaker wars were fought

The athletic footwear industry has seen tremendous growth over the past 100 years, turning into a $70 billion apparel juggernaut. Dominated by Nike, Adidas, Puma and Reebok, the industry revolves around huge marketing budgets and advanced technologies that dwarf the general fashion industry and creates a formidable barrier to market entry.

Nevertheless, the history of manufacturing athletic shoes is dotted with latecomers overcoming seemingly insurmountable odds. How they entered and thrived in an oligopoly offer lessons on adaptability and agility.

Since its birth in 1920, the modern athletic shoe industry has gone through four major changes in its landscape.

Oligopoly (1920-70) - Two brothers in Germany, Adolf and Rudolf Dassler, started the modern athletic footwear industry in 1920, but in 1948 they split to form two separate companies, Adidas and Puma. Together or apart, the Dasslers constituted a tight oligopoly, claiming an 85 percent market share for 50 years.

The Dasslers developed a pyramid-shaped marketing model that “locked up” athletes and athletic events. At the top of the pyramid, the brothers focused on establishing a connection to star athletes, sports associations and international sports events such as the Olympics and World Cup. Those associations had a ripple effect, stimulating sales to hard-core sports enthusiasts and eventually the mass market of casual players.

The Dasslers also had a technical advantage thanks to their research and development in producing the best shoe for specific sports.

The Overtaking (1970-80) - Adidas’ dominance ended in the 1970s with the emergence of Nike. Unlike Adidas, Nike adopted a bottom-up strategy. It quickly recognized the potential in the jogging boom in the U.S., and its marketing campaigns targeted the ordinary person getting exercise. In the late 1970s, Nike slashed its operating costs by relocating production to Asia. The move fattened profits, which were poured into R&D and marketing.

Adidas stuck to its pyramid model. It ignored its distributors’ warnings about the trend toward leisure sports, and the company’s U.S. market share plunged to below 5 percent from over 70 percent in the 1970s. Eventually it found itself locked up in a lawsuit filed by distributors. In addition, sponsor contracts with athletes, associations and international competitions took a beating. By 1980, Adidas was on the brink of collapse, watching Nike widen its dominance and widening its profit.

The Struggle (1980-90) - In the 1980s, Nike faced its own comeuppance. UK-based Reebok entered the U.S. market in 1980 and became the world’s No. 1 athletic footwear maker in just five years. Reebok’s success came from refining Nike’s strategy of appealing to the leisure sportsperson. Reebok created a new category, “fitness wear,” and fed the burgeoning demand for leisure sports apparel for women.

Nike counterpunched by lifting a page out of Adidas’ playbook: star player branding. It signed up basketball star Michael Jordan and unveiled Nike Air, which became a spectacular hit. Also, Nike came up with its “Just Do It” slogan. Reebok attempted its own star branding, but its shoes could not beat Air Jordan. In 2005, Reebok was sold to Adidas.

Reorganization (1990-2010) - Adidas embarked on a comeback in 1992 under new CEO Robert Louis-Dreyfus, who quickly targeted the company’s high-cost structure. After the revamp, Adidas expanded its focus from footwear to general sportswear to differentiate itself from Nike. Meanwhile, Puma, which was on the brink of bankruptcy in 1990 due to reckless over expansion, found its own CEO for a turnaround. It created “sports lifestyle.”

Innovation in consumer goods companies starts by identifying changes in lifestyles and new ways of thinking. From the athletic footwear rivalry history, one notices how social and market changes lead to new opportunities: Changes in consumer lifestyle lead to changes in perspective on products which then leads to massive new demand.

Understanding consumer trends will be possible only when different capabilities are put together. Innovation capabilities are particularly crucial. Even if a company succeeds in encroaching on existing markets, it should promote flexibility. Market trends are bound to change, and strategies need adjustments.

by Jung Tae-soo