SGB WEEKLY 1123 by SportsOneSource

June 6, 2011

A Weekly Web Magazine for the Sporting Goods Industry

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June 6, 2011

Editor In Chief James Hartford (704.987.3450 x104) james@sportsonesource.com

A Weekly Web Magazine for the Sporting Goods Industry

Senior Business Editor Thomas J. Ryan (917.375.4699) tryan@sportsonesource.com Editor/Analyst Kyle J. Conrad (704.987.3450 x111) kconrad@sportsonesource.com Creative Director Teresa Hartford Graphic Designer Camila Amortegui Advertising Sales Katie O’Donohue (704.987.3450 x110) katieo@sportsonesource.com Sean Hall (704.987.3450 x107) shall@sportsonesource.com Circulation & Subscriptions subs@sportsonesource.com Technology Chief Information Officer, Mark Fine VP Research & Development, Gerry Axelrod Manager Database Operations, Cathy Badalamenti

4 SportsOneSource Publications SGB TEAM Business Sportsman’s Business The B.O.S.S. Report Sports Executive Weekly SGB Update Footwear Business Update PSR Update Sportsman’s Business Update Team Business Update SGB Weekly

NEWS

Footwear Business Weekly Outdoor Business Weekly

4 N IKE Launches First-Ever Action Sports Just Do It Campaign 5 SPORT CHALET Swings To Fiscal Fourth Quarter Profit MOVERS AND SHAKER 6 QUIKSILVER, INC. Posts Steep Fiscal Q2 Loss On Asia Pacific Charges BY THE NUMBERS 8 THULE GROUP To Acquire Chariot Carriers RODDICK Launches Lacoste Apparel Collections SIGG SWITZERLAND’S Canadian Unit To Acquire Bankrupt U.S. Subsidiary WEST MARINE Unveils Plan For Fort Lauderdale Megastore

FEATURES

Team Business Weekly Sportsman’s Business Weekly

Photo courtesy of Nike

10 CABELA’S, INC. Lays Out Strategy To Grow Business 12 ADIDAS Aims To Reach Outdoor's Next Generation

DEPARTMENTS

18 CALENDAR

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Copyright 2011 SportsOneSource, LLC. All rights reserved. The opinions expressed by writers & contributors to SGB WEEKLY are not necessarily those of the editors or publishers. SGB WEEKLY is not responsible for unsolicited manuscripts, photographs or artwork. Articles appearing in SGB WEEKLY may not be reproduced in whole or in part without the express permission of the publisher. SGB WEEKLY is published weekly by SportsOneSource, LLC, 2151 Hawkins Street, Suite 200, Charlotte, NC 28203; 704.987.3450. Send address changes to SGB WEEKLY, 2151 HAWKINS STREET, SUITE 200, CHARLOTTE, NC 28203; 704.987.3450.

WEEK 1123 | SGBweekly.com

NEWS

IKE LAUNCHES FIRST-EVER N ACTION SPORTS JUST DO IT CAMPAIGN

Nike, Inc. launched its largest advertising campaign targeting action sports as well as its first global 'Just Do It' campaign featuring a pantheon of action sports stars. The centerpiece of "The Chosen" campaign is a film featuring skate legend Paul Rodriguez (P-Rod), Olympic snowboarder Danny Kass, surf prodigies Julian Wilson and Laura Enever. The film was shot around the world at night and features lighting and pyrotechnics reminiscent of a live rock concert. Throughout the course of the campaign, Nike will be conducting global grassroots events providing athletes an opportunity to participate in the sports featured in the film. "The Chosen" campaign also includes a video contest inviting skaters, surfers, BMX riders, snowboarders and skiers to submit a video of their crew in order to be chosen for an opportunity to travel with the Nike team while getting access to exclusive Nike product. The contest will run on Facebook where winners will be determined by fan support, Nike and Nike athletes. "'The Chosen' represents a new voice for Just Do It, a passing of the torch to the next generation of sports heroes," said David Grasso, Nike's vice president of global brand marketing. "This is a defining moment for Nike Action Sports as we evolve this iconic campaign to

bring it to new audiences, in new ways around the world." The campaign debuted globally June 2 on Facebook and aired June 5 on television during Game 3 of the NBA Finals. Movie theatres will air 3-D versions nationally over the July 4th weekend. The campaign will be seen in 23 markets, including US, China, Brazil, Western Europe and Australia. The 25 athletes featured in the campaign also include the following Nike Action athletes: Theotis Beasley, Omar Salazar, Nicolas Muller, Annie Boulanger, Ellery Hollingsworth, Mason Aguirre, Greg Bretz, Louie Vito, Peetu Piiroinen, Andreas Hatveit, Alejo Muniz, Monyca Byrne-Wickey, Michel Bourez, Kolohe Andino, Malia Manuel, Garrett Reynolds, Dennis Enarson, James Stewart and Ryan Dungey. Action sports represents about $390 million a year in sales for Nike, company officials indicated at its May 2010 analyst meeting. The company expects to double that amount and be one of the top three brands by 2015. Nike entered the action sports space with the launch of Nike SB ("SB" for skateboarding) in 2001, Nike 6.0 (named for six action sports activities) was introduced in 2005, and Nike Snow in 2007. It also owns Hurley and Converse. Both have a foothold in action sports.

MOVERS AND SHAKERS

SPORT CHALET SWINGS TO FISCAL FOURTH QUARTER PROFIT Marking its first profitable quarter in the 13 quarters, Sport Chalet netted a profit of $300,000, or 2 cents a share, in its fiscal fourth quarter ended April 3, against a loss of $300,000, or 2 cents, in the year-ago quarter. Sales increased 8.8 percent to $98.2 million. The sales gain was primarily due to the extra week in the latest fourth quarter, which contributed $5.9 million to sales. Excluding the extra week, sales increased 2.4 percent due to a 1.3 percent comp increase on top of an increase of 5.7 percent for the fourth quarter of last year. Also driving the gains was a 60 percent jump in online sales and a 24 percent climb in Team Sales division revenues. Gross margins improved to 29.0 percent of sales in Q4 from 27.7 percent in the year-ago quarter, primarily due to lower rent expense. SG&A expenses as a percent of sales increased to 25.4 percent from 24.3 percent, primarily reflecting increases in labor and workers compensation expense. The increase in labor for store staff helped drive the improvement in comparable store sales, the company noted. In an exclusive interview with SGB Weekly, Sport Chalet Chairman and CEO Craig Levra said the notable improvement for the retailer came despite still challenging economic conditions in the markets the retailer serves. A budget crisis continues to impact consumer spending in California while sluggish economies continue in Nevada and Arizona. The housing crisis also continues to weigh on many parts of the region. For instance, Levra noted that studies show about half of Arizona's homes and twothirds of Nevada's homes are "underwater," or have a negative equity position. "I'm proud of my whole team," said Levra. "This has been three really difficult years and we've had no external help. Everybody's been working their tails off to improve and so I'm happy we've got 3,200 Sport Chalet experts and I'm proud of each one of them." Levra noted that Sport Chalet increased its store staff and customer service to allow associates to focus on an expanding assortment of specialty brands, which resulted in higher sales per transaction. Among the new brands introduced in recent months at select or all doors over the last year included Vibram FiveFingers running shoes, Kuhl mountain clothing, Icebreaker baselayer apparel, True Fitness, Nemo Tents, Santa Cruz mountain bikes, Grivel moutainteering gear, GoPro wearable digital cameras, and GoalZero solar powered battery chargers. "Our customers really demand the latest in performance, technology, and lifestyle merchandise," said Levra. "That's one of the key factors that really makes us different." Sales for the full year increased 2.5 percent to $362.5 million. Excluding the extra week, sales increased 0.8 percent, due to online and Team Sales division sales increases of 110 percent and 15 percent, respectively. Comps dipped 0.4 percent. The full year net loss was reduced to $3.0 million, or 21 cents per share, from a loss of $8.3 million, or 59 cents per share, in the prior year. Excluding non-cash impairment charges and the effect of income taxes, the prior-year loss would have been $6.5 millionor 46 cents per share.

Reebok's top global marketer, Richard Prenderville, has left the sportswear business after five years in the job. Prenderville, head of global brand marketing, has departed to pursue "other opportunities." He will be replaced by Viktoria Wallner, who previously headed Reebok's digital marketing. Point6, the manufacturer of merino wool socks, hired Paige Boucher, who will now handle the company's public relations through the newly established PR and marketing firm, Inside Out. Her 23-year career includes experience as PR director, marketing director, product development and founding member of Mountain Hardwear. U.S. Senator, Mark Udall, D-CO, used the Teva Mountain Games in Vail Friday as a venue to promote his bill to extend ski area leases on Forest Service land and his summer initiative to get kids outdoors and enjoying their natural backyards. Under Armour has selected Omnicom Media Group agency Optimum Sports to manage its media account, marking the first time that the athletic performance brand has assigned media planning and buying duties to an outside agency. Hibbett Sports said Albert Johnson and Ralph Parks were reelected to its board. The two will serve three-year terms that end in 2014.According to its proxy statement, Johnson, age 66, has been a director since March 2008 and currently serves as chairman of its audit committee and as a member of its Compensation Committee. Johnson Health Tech North America said Andy Richters, a 24-year industry veteran, will become the vice president of national accounts for Matrix Fitness. Rage Outdoors, LLC., the manufacturer of archery brands including Rage Broadheads and Ghost Quivers, announced that Jon Syverson has joined the company as its vice president of sales.

NEWS

QUIKSILVER, INC. POSTS STEEP FISCAL Q2 LOSS ON ASIA PACIFIC CHARGES With strong performances in the Americas and Europe, Quiksilver, Inc. posted higher revenue for the first time in three years with pro-forma earnings also ahead of expectations. But the action sport giant's net loss swelled to $83.3 million, hurt by charges related to the natural disasters occurring in several of its Asia Pacific markets. The impairment charges related to goodwill that was established between 2003 and 2005 when Quiksilver acquired its licensees in Japan and Australia, along with a retail chain. On a conference call with analysts, company CFP/COO Joe Scirocco said the effects of the earthquake in Japan and its aftermath required the company to test for a possible impairment this quarter, instead of at year-end as usual. Also taking into account recent natural disasters in Australia and New Zealand, the quarter included a one-time, non-cash goodwill impairment charge of $74 million. It also provided valuation allowances against tax assets totaling $26 million. Pro-forma adjusted EBITDA of $62.1 million was higher than the company's expectations and was roughly the same as a year ago. Pro-forma income from continuing operations advanced 10.2 percent to $17.3 million, or 9 cents a share. Fiscal second quarter revenues inched up 2.1 percent to $478.1 million. By region, revenues in the Americas increased 5.5 percent during the quarter to $210.7 million. Operating earnings in the Americas region grew 51.6 percent to $18.0 million. The Americas sales increase was fueled largely by its retail business, which grew nearly 20 percent despite six fewer stores. Company-owned retail store comps were up 23 percent, while e-commerce grew 68 percent. Wholesale revenues in the Americas were on plan, and a couple of percentage points higher than last year, driven by DC Shoes brand. Sales in both Brazil and Mexico were up nearly 20 percent in Q2. European region revenues eased 0.9 percent to $206.9 million. In constant currency, European revenues decreased 4 percent. Operating earnings in the region grew 11.8 percent to $43.8 million. Asia/Pacific region net revenues decreased 0.8 percent to $58.1 million. In constant currency, revenues decreased 12 percent. The Asia/Pacific region posted an operating loss of $81.1 million (after $74.1 million in asset impairments) versus a loss of $859,000 a year ago. By brand, the Fall order book for the Quiksilver brand in the Americas and the corresponding Fall/Winter book in Europe are both up over last year, supporting the company's plan to grow revenues for the brand in the second half of the fiscal year. Quiksilver's global brand revenues grew again in Q2 and the brand took share in apparel and footwear. At Roxy, Fall bookings in the U.S. are up mid-single-digits over last year, while the reaction to the new Winter 2011 range "has been very good." DC Shoes'mid-single-digit growth in the quarter was on plan, and "strong forward orders in each of the regions around the world confirm DC's expanding global traction," said McKnight. The brand also continues to see "strong" sales at core skate and surf shops. 6

SGB WEEKLY l JUNE 6, 2011

BY THE NUMBERS 5.4%

How much consolidated retail samestore sales were up in May, according to the International Council of Shopping Centers

3.7%

How much consolidated retail samestore sales were up for May, excluding the impact of fuel sales

13% and 7.4%

Same-store sales growth, respectively, of Costco and BJ’s Wholesale in May. Each outlet cited fuel sales as a major catalyst to comp growth. At Costco, management said comps were up just 7 percent excluding fuel sales and exchange rates while BJ’s comps improved 3 percent excluding fuel.

13.2%

Comp growth of luxury retailers tracked by SportsOneSource, including Neiman-Marcus (+12.0%), Saks (+20.2%) and Nordstrom (+7.4%). Upscale merchants remained unfazed by most market challenges in May as higherincome consumers are typically less reactive to fuel and food costs.

3.2%

Comp growth for teen retailers, including 8.8% and 7.8% growth for The Buckle and Zumiez, respectively.

3% to 5%

Amount the ICSC predicts comps to grow in June, including fuel

NEWS

THULE GROUP TO ACQUIRE CHARIOT CARRIERS The Thule Group has signed an agreement to acquire Canada's Chariot Carriers, Inc., one of the world's leading designers and developers of bicycle trailers and multi-functional child carriers. Thule Group will acquire all assets of the Canadian family business Chariot, sold by the two brothers Dan and Chris Britton, and Pierre Doyon, the company's CEO. Chariot has annual sales of about $24 million. The parties have agreed not to disclose the purchase price. All products are developed and designed in Calgary, Canada, where about 30 employees are employed. Production takes place both in Canada and in China. Chariot said it is the market leader in its category in North America and in a number of European markets. The purchase of Chariot, which will be subject to formal approval by the European competition authorities, is the Thule Group's first acquisition since the Swedish private equity company Nordic Capital again took over as the dominant shareholder of the Group in December 2010.

RODDICK LAUNCHES LACOSTE APPAREL COLLECTIONS Tennis star Andy Roddick is partnering with Lacoste to create his own line of sportswear, including polos, shorts, track pants and jackets. He has been the tennis sponsor for Lacoste for over six years. Prices will range from $85 for a pair of shorts to $185 for a track jacket. Roddick will wear the line exclusively when competing.

SIGG SWITZERLANDâ&#x20AC;&#x2122;S CANADIAN UNIT TO ACQUIRE BANKRUPT U.S. SUBSIDIARY

WEST MARINE UNVEILS PLAN FOR FORT LAUDERDALE MEGASTORE

Sigg Switzerland USA, Inc. would sell all its assets to its Canadian sister company under a court-supervised auction aimed at raising money to pay back some non-secured creditor claims, according to documents the company filed as part of its Chapter 11 bankruptcy. The company said it lost millions of dollars in 2009 and 2010 as customers exchanged more than 300,000 of its aluminum bottles over concerns that they contained small traces of the chemical BPA. Sigg was among the aluminum and stainless steel bottle makers that benefited in 2008 when outdoor and other retailers began pulling their polycarbonate water bottles from shelves after learning Canada and Europe were considering banning baby bottles and other juvenile products made from the plastic because of possible health risks of the chemical BPA. But under pressure from the media and consumer groups, Sigg eventually conceded that some of its bottles' liners included trace elements of BPA. The company exchanged more than 300,000 bottles for free but was still hit with a series of lawsuits alleging the company misrepresented its health safety claims and violated consumer protection laws. The company has vigorously defended against efforts to consolidate these lawsuits under a class action. Sigg Switzerland USA lost millions of dollars a year in 2009 and 2010 as sales dropped and is currently unable to raise money needed to recapitalize, according to its petition. Sigg Switerland USA now advertises on its web site that its bottles are manufactured with BPA- and phthalate-free ingredients.

West Marine reported recently it plans to open the biggest store in the company's history by year's end in Fort Lauderdale, FL in order to better serve the boating and "Yachting Capital of the World." The 50,000-square-foot store reportedly will be twice as big as the company's current largest store and will be focused on serving both local and seasonal boating customers. Representatives said the West Marine Boating Superstore will have many in-store experiential features never seen before in a West Marine store. As an example, the centerpiece of the Ft. Lauderdale Boating Superstore will be a Megayacht fly bridge displaying the nation's largest retail presentation of marine electronics and audio systems. There will also be a fishing department for offshore and inshore saltwater anglers along with a complete sailboat hardware selection and an on-site rigging shop. In addition, the boating superstore will possess a comprehensive core engine parts department, marine plumbing and electrical supplies and inflatable boats, kayaks, rigged boats and outboards. This store is being designed by retail architects Bergmeyer Associates, Inc., in conjunction with the West Marine Visual Merchandise Store Design team. The architect of record and developer of the project is Ft. Lauderdale-based Stiles. This is the largest of five flagship locations West Marine is opening across the country in 2011. The other four flagships are in the 22,00030,000 square foot range and are located in Woburn, MA (now open), St. Petersburg, FL (now open); North Palm Beach, FL (now open). Honolulu, Hawaii is planned for later this winter.

SGB WEEKLY l JUNE 6, 2011

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CABELA’S, INC. LAYS OUT STRATEGY TO GROW BUSINESS By Kyle J. Conrad

In his opening statements to analysts Cabela’s, Inc.’s recent Analyst/ Investor Day in Allen, TX, CEO Tommy Millner credited the retailer’s successes in initiatives around improving the retailer’s return-on-capital, increasing stores’ profitability, boosting comps and tightening up the balance sheet, among other initiatives. Still, Millner admitted the retailer has “more work ahead of us” to improve merchandise margins and inject some life into a struggling Direct segment. Millner also noted that the company has been pleasantly surprised by the longevity of strong gun sales as well as the rapid improvement of the company’s CLUB Visa segment. Moving forward, company management added that there would be unique challenges in the marketplace as new external pressures mount and the domestic consumer continues to recover from the recession. Chief merchandising officer Brian Linneman said one of the company’s key concerns in the immediate future will continue to be the continually growing input costs of raw materials along with mounting labor costs in Asia. While Linneman said the industry has seen some relief recently from cotton pricing, the commodity price of rubber has produced significant volatility. Linneman said Cabela’s has taken steps to “internally react” to these pressures by raising retail prices on the sales floor, although he admitted it was too early to tell how that would ultimately affect the consumer. He also emphasized the importance of the higher-margin Cabela’s brand products to give the retailer added flexibility from a cash flow standpoint. Furthermore, Linneman said management would have to continue being efficient regarding pre-season planning, 10

SGB WEEKLY l JUNE 6, 2011

in-season management, assortment planning and how the company partners with vendors. Finally, Linnmenan said Cabela’s has tested its promotional methodology by reducing the density of product in promotional vehicles “to understand if we can drive foot traffic with not such a wide offering of products…” Sales staff, he added, will also be driving add-on sales, particularly by pushing the sales accessories when a consumer purchases a firearm. Regarding margin trends, Linnneman said management was “flat out disappointed” with fiscal first quarter margins that slipped 30 basis points, attributing the contraction to higher transportation costs, higher product costs and an imbalance between sales and margin rate. Linneman added that margin struggles of late have been directly due to a “heavy appetite” for lower-margin hardgoods including guns and ammunition along with a channel mix that has seen growth in the company’s Retail business outpace that of the Direct channel. Once again, Linneman stressed the importance of efficient pre-season and in-season management along with appropriate promotions to reduce inventory mismanagement and unnecessary markdowns. Linneman also said management will focus on increasing the penetration of high-margin categories - particularly the Cabela’s branded products - while increasing space and visual presentation at retail, increasing ad space in catalogs and ensuring the products have a “rigorous product lifecycle.” Boosting merchandise margins, he added, would come from incorporating a “compelling product and a competitive price” while producing “predictable, repeatable and sustainable results through retailing best practices.”

When asked during the meeting about the challenges of maintaining sales and margin growth despite higher material costs, Millner said “The real differentiator over time (is) our customer is going to go duck hunting, deer hunting, elk hunting, moose hunting, dove hunting, and they're going to go ice fishing and bass fishing and walleye fishing no matter what - that's a very good place for our company to be and for our industry to be.” Linneman said the company would meet margin and sales goals by continuing to focus on an assortment of Cabela’s brands, national brands, co-branding and exclusivity, private labels and sub-brands and high-end product extensions. He said branded vendors would remain a “big part” of the business. “We will use the Cabela's branded products with purpose, by channeling not only our product expertise and knowledge and innovation to offer new products, but we will use the Cabela's brand to differentiate from the competition or national brands,” added Linneman. Doug Mean, the retailer’s chief supply chain officer, noted a “huge demand increase” from China and Vietnam as well as improved demand domestically. Mean said the key challenge is dealing with how to supply product internally in Asia amidst wage developments. He also pointed to new regulations within the trucking industry in the U.S., which continue to drive up transportation costs. Mean said Cabela’s would use a variety of ways to counteract these challenges, including focusing more on the Cabela’s brand, reviewing how the company develops materials, maximizing the utilization of packaging material and managing the production of product by utilizing price-friendly factories, minimizing overhead costs at factories and ensuring that the company is best utilizing its containers and freight network. Cabela’s recently promoted its director of quality assurance to the role of source development, where he will be responsible for developing current strategic partners, establishing new sources and partnering with custom groups to ensure the company is taking advantage of trade and duty programs. As the company focuses on product innovation of the Cabela’s brand by developing field testing programs, aligning resources to the merchants on design and maintaining strict quality standards, the retailer has also revamped the way it approaches its marketing message. For example, Linneman said they have used larger presentations and lifestyle settings in print ads while utilizing end-cap displays at retail that are more appealing and contain more technical messaging. To effectively market innovative product, management said the retailer has ramped up its focus on employee training. “No longer are we opening a new store and hiring somebody off the street, giving them the keys to the Ferrari and saying jump out there on the autobahn and drive this store,” said EVP & COO Michael Copeland. “…quite frankly, a Cabela's store is much more complicated than most retailers and the level of expectation for the customer experience and for how you manage your people and take care of your people is completely different.” Copeland said Cabela’s spent more than 50,000 hours last year on employee training compared to about 125,000 total hours in 2009. In doing so, Cabela’s has broadened its talent depth through leadership development programs like the Manager-in-Training programs for external and internal talent and the SUMMT program, an internal program for senior management training. Regarding retail expansion, management said Cabela’s will continue to focus opening NexGen store formats on the best retail locations within the top 50 markets with minimal competitive pressures.

Tommy Millner, CEO Cabela's, Inc.

Brian Linneman, EVP and Chief Merchandising Officer, Cabela's, Inc.

Management said 25 to 35 percent of future stores could be repurposed real estate, assuming the NextGen plan fits within the property. In Canada, management said the Cabela’s brand is “very strong” since the acquisition of SIR Warehouse Sports. Management said the competition is “in disarray” in Canada and Cabela’s sees the opportunity to open 15 to 25 stores. On the customer side, Cabela’s has updated its 2010-launched Voice of the Customer tool, an Internetbased survey that provides feedback on a shopper’s in-store retail experience. Copeland noted that the 2011 analytical tool provides in-depth actionable data that can give sales staff an idea of how to increase customer satisfaction. Cabela’s has also boosted the retail experience by incorporating in-store mobility efforts along with next-generation kiosks and interactive digital signage. Millner added that Cabela’s would be taking on a significant initiative to capitalize on “socionomics” through the utilization of social networking and mobile commerce to boost direct sales. “The most important thing whether it's direct, retail or call center business is the acquisition of new multichannel customers,” said Millner. “That continues to be the real key metric for us. We're not able to control where our customers shop. What's important is we grow the number of multi channel customers over time and we've been able to do that over time.” ■

Photo courtesy of adidas

ADIDAS AIMS TO REACH OUTDOOR'S NEXT GENERATION By Thomas J. Ryan

FAL

Adidas admits that many traditional outdoor customers in the U.S. may not relate to finding the iconic German athletic brand in their favorite outdoor store but the company believes it may help outdoor specialty capture a customer base it isn't reaching enough - today's youth. "We believe that outdoors, especially if you talk about the U.S., is a little bit old or traditional," Rolf Reinschmidt, senior vice president and head of the global outdoor unit for Adidas, recently told SGB in an interview at Adidas' offices in New York City. "It's all dark, black or brown. If you go into an REI store, the average customer is about 55. We believe that's one of our key selling points - we are very young, very fresh, very colorful and very technical." At the same time, Reinschmidt recognizes that Adidas' ability to win shelf space in outdoor specialty has to be earned by performance and believes it has the expertise to bring cuttingedge technologies to the outdoor channel. "We do the best football (soccer) boot in the world. We do the best running shoes in the world and, of course, we will do the same in outdoor," said Reinschmidt. "Function and performance is in the core of everything. This is who we are at Adidas." Finally, Adidas has been stressing that its commitment to outdoor has never been stronger. A much-larger, highly-technical and more-focused division of dedicated outdoor individuals has been set up with complete support from the top on down. While talking big, however, Adidas is taking a low-key approach to re-entering the U.S. market. That's included the hiring of Agron, Inc. as its exclusive distributor to help drive sell-in with a specialty mindset as well as employing more of a grassroots marketing thrust compared to Adidas' other brands. "We are listening to the community and we are learning from the mistakes of others," said Reinschmidt. "The outdoor community normally does not like big brands. They like small specialists. And while it's important to convince them with great product, we also think it's very important to actually act like a small brand." So far, the response to Adidas' relaunch in the U.S. appears to be largely favorable. Its Fall 2011 line will debut this summer in about 350 doors, including accounts such as REI, Eastern Mountain Sports, Ramsey Outdoor in New Jersey and Paragon Sports in Manhattan. Globally, Adidas Outdoor has already regained a firm foothold in the outdoor space since its reintroduction in Europe three years ago. In 2010, Adidas Outdoor's revenues reached €200 million (approximately $300 million), which Reinschmidt said already positions Adidas as the fifth or sixth largest outdoor brand in the world. Reinschmidt said the outdoor segment was the fastest growing segment in Adidas' Performance division in 2010 and again outpaced Adidas Group's 18 percent revenue gain in the first quarter of 2011. The goal is to build a €500 million business. Adidas has no acquisition plans for the category to drive that growth.

Rolf Reinschmidt, Senior VP & head of the global outdoor unit for Adidas

Greg Thomsen, U.S. managing director of Adidas Outdoor

ADIDAS UPS THE ANTE IN OUTDOOR Reinschmidt said Adidas never really left the outdoor market. At one point it had a sizeable outdoor business, even gaining credit for introducing the first trail running shoe, the Response Trail, in 1994. But the Adidas brand for much of the last decade has focused on supporting core category areas such as basketball, football (soccer) and running, according to Reinschmidt. The outdoor push for a time consisted of a small collection of trail running and hiking shoes in the U.S. Said Reinschmidt, "We didn't leave it, it was just not a focus." WEEK 1123 | SGBweekly.com

Photo courtesy of adidas

The decision to recommit came after Adidas recognized that outdoor is "really a huge, huge growth opportunity," supported by trends such as health and fitness and sustainability, according to Reinschmidt. And with the popularity of activities such as sport climbing and trail running, outdoor activities have become more athletic. As such, management felt compelled to follow their customer outdoors. "People want to be outdoors and they want to be active outdoors," observes Reinschmidt. "We are an athlete's brand so it's normal that we want to support athletes in the outdoors." Underscoring its bumped-up commitment, Adidas Outdoor's staff in Germany over the last three years has grown from 25 to 70 people. (About 40 are just in production.) While taking advantage of Adidas Group's internal competencies, the group - many climbers and mountaineers – is solely dedicated to developing high-tech outdoor apparel and shoes. Hires included designers from The North Face, Berghaus, Mammut and Schöffel. "This product is done from athletes in the outdoors for athletes in the outdoors and you can see it," said Reinschmidt. "It's very unique in terms of the technologies and we believe is very, very competitive to other outdoor brands." Reinschmidt also points to his own hiring in 2007 to head up the outdoor initiative as a signal that Adidas is making a bigger investment in outdoor. Reinschmidt was Adidas' global director of running in the late '90s and his last position was SVP, product marketing for Adidas globally, overseeing a €6 billion business. 14

SGB WEEKLY l JUNE 6, 2011

"To the outside world it clearly showed that if he is doing this, they are very, very serious this time," said Reinschmidt. "The leadership and investment that is going into this new category is going to be significantly different than before." The company successfully relaunched in Europe in 2008 with a focus first on Germany, Austria and Switzerland. Notes Reinschmidt, "It's the Alps. We said that if we want to succeed long term we need to succeed first in a very technical market." Adidas renewed its partnership with Italian climbing legend Reinhold Messner in May 2009 to launch a new product concept - SUPERTREKKING. Adidas Outdoor began in the 1970’s with the creation of the first light trekking shoe for Messner for his first Everest ascent without oxygen in 1978. The Huber Brothers, reknowned for breaking records for speed climbing, also signed on as ambassadors for Adidas Outdoor's awardwinning TERREX collection and have worn the product on recent expeditions to Antarctica and Pakistan. The 370-gram TERREX GoreTex Active Shell jacket is designed to protect trekkers at heights of up to 6,000 meters (19,686 feet). Adidas also was among the first companies - along with Mammut and Patagonia- to partner with Gore-Tex in using the waterproofing giant’s ultralight, three-layer fabric, Active Shell. While regaining its foothold and continuing to see "strong growth" across Europe, Adidas Outdoor also found "nice doubledigit growth" in Asia, particularly China and Korea. Access in those

countries has been helped by Adidas' having owned stores and multi-brand franchise partners. Russia, where Adidas operates 500 stores, has also been a vibrant market for Adidas Outdoor.

A LOW-KEY RELAUNCH IN U.S. Much like Europe, the U.S. approach is focused on establishing the brand with core outdoor specialty chains using dedicated outdoor reps. As part of that effort, Los Angeles-based Agron, Inc., the long-time accessory licensee for Adidas America, was hired as its exclusive distributor to take advantage of connections of Greg Thomsen, Larry Harrison and others on Agron's team in the outdoor space. "They know this industry inside and out," said Reinschmidt. "The community sees, 'Adidas is doing something different. They're doing it the right way.' " "At Agron, we have assembled a team of outdoor industry specialist," said Thomsen, U.S. managing director of Adidas Outdoor. "We share a common passion with our partners in Germany for great products and a love of the outdoors." Adidas Outdoor is also not planning any TV commercials or big media campaigns like Adidas' other sub-brands. Print ads are planned in vertical publications such as Rock + Ice. Magalogs will be distributed in climbing gyms featuring stories about climbing and done-ina-day activities while showcasing product and technologies. Social media components are also being developed with an overall focus on driving word of mouth. "We'll work the floor. We'll seed products," said Reinschmidt. "We want consumers to discover a great product and create demand." The approach was evident with Adidas' return to the Outdoor Retailer show this past January where many buyers "discovered" the brand on the floor. "We did not billboard Salt Lake City saying, 'Here comes Adidas!' It was very humble," said Reinschmidt. "I think we need to earn our way." Adidas Outdoor also partnered with OIA to support the OIA Inspiration Awards, and is working closely with Outdoor Retailer to support key show events, including the opening night event and the bouldering championship on the second evening of this Summer's Market. Adidas Outdoor is looking at other OIA events, including the OIA Rendezvous, to reinforce its commitment to the industry. Regarding specific grassroots initiatives, Adidas Outdoor is working with climbing gyms in and around urban areas - starting in New York and California - to foster participation in a sport that is experiencing growth and more importantly, offers new opportunities for a greater diversity of participants. Adidas is also sponsoring climbers, especially young climbers, in competitions within the U.S. and internationally. It's also exploring event sponsorships across a wide number of activities, including climbing, hiking, paddling, camping and off-trail running. With response to its apparel collections particularly strong, footwear represents approximately 55 percent of orders in the U.S. and apparel, 45 percent. Worldwide, apparel represents 35 percent of the Adidas Outdoor mix, up from 15 percent two years ago. The Fall 2011 collection consists of 200 footwear styles and about 450 in apparel. Thomsen said Adidas didn't want to be a "fill in, style-by-style company" with the full collection enabling retailers to replace one of their lagging brands on the selling floor. Said Thomsen, "We can come in and cover their Gore-Tex, fleeced and mid-layers all at once." Reinschmidt said Adidas had wondered if the Adidas Outdoor's collection was too edgy for the U.S. outdoor customer but is finding that many European trends are working around the globe. "Outdoor is nature. Outdoor is fun," said Reinschmidt. "If colors don't work there, where else? And contoured fits are coming from a certain side of fashion and that's a global thing. People are preferring a more body-shape fit."

Super Trekking Formotion GTX is a serious boot for longer expeditions requiring enhanced support, stability and protection. Waterproof fullgrain leather featuring Gore-Tex and ForMotion control and impact protection. MSRP $230

Terrex Windstopper Hybrid Jacket (Women’s ) offers the ultimate in wind-stopping technology without sacrificing breathability, combining the comfort of a soft mid-layer and the water resistance of a shell in one garment. The hybrid construction and body mapping design combine the advantages of different performance fabrics in respective body-zones. Includes ventilation zips to control body temperature and a Softshell adjustable hood. MSRP $200

Terrex Gore-Tex Active Shell Jacket has the lightest and most breathable fabric with next-to-skin comfort. Includes ForMotion fit and adjustable helmet-compatible hood. Women’s version has detachable fitted sleeves. MSRP $395

THE YOUTH CONNECTION

Terrex Swift Softshell Hybrid Jacket (Men’s) offers technical performance with adidas athletic styling. Its hybrid construction combines the advantages of different performance fabrics in respective body zones, including Climaproof Wind for windy and light rain conditions, Nano-Tex for superior water repellency and ForMotion fit. MSRP $130

Jawpaw II is a slip-on, heavy-duty shoe for water sport activities with a strong mesh upper, extra toe protection and enhanced traction. The open mesh nylon on the upper provides superior breathability and quick drying while the ADS drains water from the shoe. The Water Grip outsole provides exceptional traction in wet and slippery conditions. MSRP $45

Terrex Fast X FM GTX (Lowcut) is a very light and technical versatile boot providing the highest level of performance. It features Gore-Tex, ForMotion, adiprene and Traxion. MSRP $140

Still, Thomsen admits that his team received some pushback initially from outdoor specialty dealers. "It's almost always the same process," notes Thomsen. "The first thing is, "Why Adidas when we already have all these brands? We don't have a lot of space." And then they say, "But Adidas is an athletic sports brand and we're an outdoor store." So we basically start with that." Adidas Outdoor starts winning customers over as it shows product, Thomsen said. Buyers supporting the line recognize that the "light, fast" message on the technical side coupled with "fresh and young" on the style side offers something unique to their mix, he said. "They see we're not trying to be like any of the other outdoor companies currently," said Thomsen. "Most of the outdoor brands have been around for a long time and they have a certain customer who likes their fit or feel or maybe likes their darker colors. But the retailers who get it understand that they better have something fresh that addresses that younger generation otherwise they're not going to be around for long." Thomsen also said younger generations see Adidas as a "hip" brand and don't appear to have any issue using Adidas in the outdoors. "If you're 25 and under, you're going to buy that over any outdoor brand because it's so much cooler," said Thomsen. "We've got all these young rock climbers that we're sponsoring and they all want stripes. It's fashion, too, so they can wear it around. It's amazing. They won't take it off!" Reinschmidt likewise readily admits that the Adidas name might not connect with some older outdoor customers. "If we are a football (soccer) brand for some, we're always going to remain a football brand. They don't make that switch." But the Adidas brand has been undergoing a comeback since 2010 as it has reconnected with its target younger consumers. Building on its success, Adidas' new advertising campaign, All In – its largest ever – marks the first time the brand featured its Adidas Sport Performance, Adidas Originals and Adidas Sport Style subbrands in a single campaign. "We are very cool for a younger consumer," said Reinschmidt. "They have a connection to us where we are kind of fresh and young. And when they find Adidas in the outdoor area where they are active as a climber, mountaineer or whatever, then the three-stripes are really cool to them." Moreover, being widely-known also provides benefits. Thomsen notes that A didas Originals alone has over 9 million Facebook fans with approximately 20 million across all Adidas brands. A goal for Adidas Outdoor is to introduce sport climbing and outdoor sports to a more diverse and younger population that are already fans of the Adidas brand. "Sport climbing is perfect for inner cities and it's perfect for places where it's flat because you don’t need mountains and you don't need good weather," said Thomsen."You also don't need much money. You just need a pair of shoes. We're already working with young climbers and they're so focused and inspiring. I think our goal is to bring new customers to the outdoor world." While Adidas Outdoor has aggressive growth plans, the brand plans to focus on building the brand solely in specialty channels. Unlike other outdoor brands, Adidas has many sub-brands that can chase growth in non-core sports retail channels. "The specialists create credibility and authenticity and that is important," said Reinschmidt. "There are some brands that have lost it because they are becoming too big." He added, "We want to grow this slow. Quality comes first, quantity second." ■

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CALENDAR

For full year calendar go to sportsonesource.com/events

Athletic Dealers of America 1395 Highland Avenue Melbourne, FL 32935 t 321.254.0091 f 321.242.7419 athleticdealersofamerica.com

21-23

MRA June Market Lansing, MI

11-13

Sports, Inc. Outdoor Show Kansas City, MO

23-24

NBS Specialty Outdoor Market Austin, TX

16-18

EORA Greenville Primary Expo Greenville, SC

23-25

Sports, Inc. Athletic Show Denver, Co

22-24

EORA Killington Primary Expo Killington, VT

24-26

SGB 40 Under 40 Awards Chicago, IL

SEPTEMBER

27-29

EORA Southeast Early Bird Show Greenville, SC

Surf Expo SUP Demo Orlando, FL

27-29

EORA Northeast Early Bird Show Manchester, NH

8-10

Surf Expo Orlando, FL

27-29

EORA Mid-Atlantic Early Bird Show Parsippany, NJ

9-11

NBS Fall Semi-Annual Market Ft. Worth, TX

28-30

TAG Spring/Summer Show St. Louis, MO

12-13

Interbike Outdoor Demo West Boulder City, NV

12-14

EORA Lake Placid Expo Show Lake Placid, NY

JULY 7-8

NBS Summer Market Mobile, AL

13-16

WDI Worldwide Fall Show Portland, OR

8-10

ADA Spring Buying Show Atlanta, GA

14-15

MRA Paddle & SUP Demo Gull Lake, MI

13-15

ASA-ICAST Int’l. Sport Fishing Expo Las Vegas, NV

14-16

Interbike Int’l. Trade Expo Las Vegas, NV

13-15

BCA Int’l. Billiard and Home Recreation Expo Las Vegas, NV

14-16

Health & Fitness Business Show Las Vegas, NV

14-17

European Outdoor Trade Fair Friedrichshafen, Germany

NOVEMBER

21-24

Bike Expo 2011 Munich, Germany

27-29

WSA Show Las Vegas, NV

AUGUST

1-4

NASGW Annual Meeting & Expo Reno, NV

2-4

TAG Fall/Winter Show Kansas City, MO

3-4

NBS Fall Market Mobile, AL

Outdoor Retailer Open Air Demo Heber City, UT

12-14

ADA Fall Buying Show Kansas City, MO

4-7

Outdoor Retailer Summer Mkt. Salt Lake City, UT

20-22

Sports, Inc. Athletic Show Las Vegas, NV

SGB WEEKLY l MAY 30, 2011

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