SGB WEEKLY 1144 by SportsOneSource

OCTOBER 31, 2011

The Weekly Digital Magazine for the Sporting Goods Industry

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ISSUE 1144 OCTOBER 31, 2011

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NEWS 2011 WORLD SERIES

6 LOUISVILLE SLUGGER Creates Commemorative 2011 World Series Bat 7 MAJESTIC Sets up 45 Centers to Celebrate World Series Winners Rose 2 Hits Chicago ICE Seizes 58 Counterfeit MLB Product Websites

8 9 10

UNDER ARMOUR Unveils Basketball Ad Campaign TIMBERLAND Opens Earthkeepers Pop-Up Experience MOVERS AND SHAKERS FINANCIALS

12 ADIDAS OUTDOOR SEES TRACTION IN U.S. RE-LAUNCH 20 THE MAKING OF GORE-TEX ACTIVE SHELL

24 CALENDAR

FEATURE

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WEEK 1144 | SGBweekly.com

NEWS

WORLD SERIES 2011

St. Louis Cardinals fans celebrate outside Busch Stadium during a parade celebrating the team's 11th World Series championship

In celebration of the St. Louis Cardinals World Series win, Louisville Slugger created a collector's bat with both the Cardinals and 2011 World Series logos. The bat can be personalized with a name to make any Cardinal fan a part of 2011 World Series history. Said Rick Redman, VP corporate communications for Hillerich & Bradsby Co., makers of Louisville Slugger bats, "We've witnessed how great Cardinal fans are over the decades. The Cardinals have won 11 World Series Championships, second most to the New York Yankees 27 wins. We know that Cardinals fans will want to remember this magical 2011 season. What better way than with a personalized bat with both the Cardinals and 2011 World Series logos and your own name or message engraved on the bat? It's a great keepsake that fans will want to display for years to come."

SGB WEEKLY OCTOBER 31, 2011

ICE SEIZES 58 COUNTERFEIT MLB PRODUCT WEBSITES

MAJESTIC SETS UP 45 CENTERS TO CELEBRATE WORLD SERIES WINNERS

In preparation for the crowning of the new World Series Champion, Majestic Athletic set up 45 domestic locations in St. Louis and other parts of the country to start producing Clubhouse and other Official World Series Championship gear for fans. Printing did not begin until the final out of Friday night's final game. In addition to t-shirts and fleece, sewers at Majestic’s Easton, PA facility and other locations churned out Cardinals' jerseys and outerwear with World Series Champion patches. A new option was the Official Clubhouse tees with graphics highlighting the identity of the winning cities, including one depicting the team's rally squirrel. “This is the most complex and the most exciting challenge we’ve ever had at Majestic, but we are ready,” said Jim Pisano, president, Majestic Athletic.

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Owner Bill DeWitt, Jr. of the St. Louis Cardinals participates in the parade

With the conclusion of Major League Baseball's 2011 World Series, U.S. Immigration and Customs Enforcement's (ICE) Homeland Security Investigations (HSI) and the National Intellectual Property Rights Coordination Center (IPR Center) announced the results of "Operation Strike Out." The operation, which commenced at the beginning of the American League and National League Championship Series, resulted in the seizure of 58 commercial websites that sold counterfeit sports paraphernalia. HSI special agents also seized 5,347 items with a manufacturer's suggested retail price (MSRP) of $134,862. "HSI and the IPR Center have made a major dent in these criminals' plans to profit from fan enthusiasm surrounding a very exciting seven-game World Series – both in U.S. cities and in cyberspace," said ICE Director John Morton. "Counterfeit products represent a triple threat by delivering shoddy and sometimes dangerous goods into commerce, by funding organized criminal activities, and by denying Americans good-paying jobs. " The seizure of the 58 domain names is the seventh phase of "Operation In Our Sites," a sustained law enforcement initiative to protect consumers by targeting counterfeiting and piracy over the Internet. In June 2010, the IPR Center began "Operation In Our Sites." Since its launch in June 2010, the IPR Center has seized a total of 200 domain names and redirected those domain names to a seizure banner.

Manager Tony La Russa of the St. Louis Cardinals acknowledges the crowd

WEEK 1144 | SGBweekly.com

NEWS

From left to right - Kemba Walker, Greivus Vasquez, Derrick Williams Brandon Jennings new signature shoe, the UA Micro G Bloodline from the new Micro G basketball collection by Under Armour

UNDER ARMOUR UNVEILS BASKETBALL AD CAMPAIGN Under Armour unveiled its new "Are You From Here?" campaign for its new Micro G basketball collection. Under Armour NBA players Brandon Jennings, Derrick Williams, Greivis Vasquez and Kemba Walker were on hand at a media event at Openhouse Gallery in New York City last Wednesday night. The new collection includes Jennings’ new signature shoe, the UA Micro G Bloodline. The new UA Micro G Bloodline shoe collection goes on sale November 4 at ua.com, and at retail stores such as Foot Locker and Finish Line. The campaign will include a 60-second TV spot, an extended long-form video, and a number of 15-second spots for both TV and digital. The creative depicts what it means to train until it hurts, put your faith in your team and come from a place where the game comes first. Shoot locations include legendary gyms Rice High School in New York City and Roman Catholic High School in Philadelphia. The commercials began airing on November 1 on ESPN, BET and The NFL Network. Print and digital partners include 6

SGB WEEKLY OCTOBER 31, 2011

Complex Media Network, Dime Magazine, Slam Magazine and Pandora. The new advertising will also be available on facebook. com/uabasketball.com. Jennings, Walker and Williams star in the advertising, which puts an unfiltered lens on the dedication to training, never-quit attitude, and love for team embodied by young basketball players that strive everyday to perform better. This is the first campaign the agency produced by CP+B since the advertising agency was awarded the basketball account this past summer. "We continue to be passionate about basketball and our new footwear, and the look, the feel, and sounds of this campaign fit our brand perfectly," said Steve Battista, senior vice president, creative, Under Armour. " 'Are You From Here?' is more than a literal question about where you're from, it's about where you're coming from. It's about what's inside you, what's empowering you to be better every single day."

MOVERS & SHAKERS Footbalance has tapped Tom Jungell as the new Group CEO for Footbalance Oy of Helsinski Finland. Westcomb Outerwear hired Tommy Knoll to lead all wholesale and retail sales efforts in the United States. Most recently, Knoll served as business development manager for Sport Hansa and managing director of C.A.M.P. USA. Zoot Sports has named Chris Bogue as vice president of sales and marketing for North America. Previously, he held high-level sales and marketing positions with Pactimo, Pearl Izumi, Casio and K2 Sports. Fred Trezise of Trezise & Associates will begin handing off his responsibilities as head rep with the brand to the Dedication Sports Group of Ithaca, NY. Trezise has represented Marmot for the past 15 years in the Mid-Atlantic States. Big 5 Sporting Goods Corp. appointed Dominic DeMarco to serve on its board of directors and expended the board to seven members.

TIMBERLAND OPENS EARTHKEEPERS POP-UP EXPERIENCE Timberland last week opened up a temporary pop-up booth for its Earthkeepers brand at the Flatiron Pedestrian Plaza in New York City. Made with reclaimed and recycled materials, the booth showcases the latest eco-minded footwear from the Timberland Fall 2011 Collection and also educates and inspires consumers to be "heroes for nature." Brand activists are being deployed in the area surrounding the Earthkeepers pop-up booth to reward unsuspecting New Yorkers for random acts of Earthkeeping, including simple, everyday acts such as recycling a water bottle or carrying a reusable shopping tote. Consumers will also have an opportunity to plant a tree via the Timberland “Plant a Tree” application (on the Timberland Facebook page (you plant a virtual tree, they’ll plant a real one). Timberland has already planted over one million trees worldwide, and has committed to planting five million more by 2015. In addition, a representative from “Million Trees NYC” will be on-hand to educate consumers about local tree planting efforts, and how they can get involved in their own neighborhoods. The booth will be open from 11 a.m. to 6 p.m. daily. Another will take place in San Francisco next month.

La Sportiva N.A. hired Kevin Fonger, who spent the last three years running ActiveGearReview.com, as its marketing manager. Spyder Active Sports strengthened its sales presence in Western Canada this week by appointing Shannon Tomasek as the new sales representative in Alberta and The Prairies. Brooks Range Mountaineering Equipment announced that Jim Kaiser will handle all sales throughout New England. G3 recently added new sales representation in the Rocky Mountain territory, as well as expanded marketing support in its Van- couver headquarters.

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AMER SPORTS FINDS LIFT FROM WINTER & OUTDOOR GROWTH IN THIRD QUARTER Amer Sports reported net sales for the third quarter increased 17 percent in local currency terms to €559.2 million ($792 mm). The growth was said to be particularly strong in Winter Sports Equipment, which grew 24 percent in currency-neutral terms, Footwear (+36 percent c-n) and Apparel (+30 percent c-n) due to stronger pre-orders compared to 2010 and earlier deliveries in Winter Sports Equipment and Apparel. Comparable net sales increased in EMEA by 22 percent, the Americas 12 percent and Asia Pacific by 13 percent. Group EBIT grew by a third in euro terms to €74.4 million ($105 mm). In local currencies, increased sales volumes contributed €47.6 million ($67 mm) to EBIT growth, and higher gross margins by €2.0 million ($2.8 mm). Operating expenses increased by €24.0 million ($34 mm) driven by increased sales and distribution costs. Net earnings rose 17 percent in euro terms to €55.3 million ($78 mm) and earnings-per-share were €0.45 (64 cents) versus 0.38 (49 cents) in the year-ago period. ”The third quarter was strong with good growth in Winter Sports Equipment, Footwear, Apparel, Cycling, Team Sports and Fitness. The growth was further boosted by earlier deliveries compared to 2010 in Winter Sports Equipment and Apparel, and our full-year guidance remains unchanged. Racquet Sports was still adversely impacted by the overall soft tennis market. I’m especially pleased with the progress in our strategy to grow faster in footwear and

apparel. The growth which was accelerated in 2010 continued, and in the first nine months of 2011, softgoods grew by 32 percent. We stay on the path set last year as our strategy is working. We continue executing the strategic programs guided by our financial targets, with strong focus on synergies, internal improvement and organic growth.” Winter & Outdoor division net sales totaled €395.7 million ($560 mm), representing an increase of 24 percent in local currencies. Net sales growth was driven by Winter Sports Equipment, Footwear and Apparel. Ball Sports division net sales totaled €106.7 million ($151 mm) and was flat to last year in local currencies. Racquet Sports decline of 9 percent was mainly driven by the soft tennis market. Team Sports continued its good performance and net sales in local currencies increased by 12 percent. Fitness division net sales, represented by the Precor business, totaled €56.8 million ($80 mm), an increase of 10 percent in local currencies. In local currencies, the Americas was at last year’s level, EMEA increased by 24 percent and Asia Pacific by 36 percent. Looking ahead, Amer Sports expects its full-year net sales in local currencies to grow by approximately 9 percent and EBIT margin, excluding non-recurring items, to improve by approximately one percentage point from 2010.

CALLAWAY GOLF LOSSES WIDEN IN Q3

The best Callaway Golf management could come up with when reporting third quarter results was that they were in line with lowered expectations. Tony Thornley, who took over the CEO reins four months ago, said the results also reflect the impact of a challenging golf equipment market and the mistakes they have made in executing a coordinated product and marketing plan based on golf consumers' preferences. Third quarter consolidated sales totaled $173.2 million, down 1.4 percent versus the year-ago period. Sales in the U.S. declined 3.0 percent to $73.9 million in the quarter, and International sales were essentially flat to last year at $99.4 million. The U.S. represented 42.7 percent of total sales in Q3, compared to 43.4 percent of total revenues in Q3 last year. The increase in the International mix was due primarily to the launch of the new Legacy Black line of products in Japan, in connection with their second selling season. Excluding the positive impact of currency rates, International sales would have declined 7.0 percent for Q3 and total sales would have declined 6 percent for the period. 8

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ross margins were down 60 basis points to 27.4 percent of G sales. Margins were positively affected by an improvement in mix and foreign currency, offset by unfavorable manufacturing and absorption due to lower unit volumes seen earlier this year. After charges, the net loss for the quarter more than tripled, to $65.2 million, or $1.01 a share, from a loss of $20.9 million, or 33 cents per diluted, in the year-ago period. On a conference call with analysts, company CFO Brad Holiday said Callaway continues to implement actions this year to position the company for “a return to sustained profitability beginning in 2012.” He said that while this turnaround will take more than a year, it will begin with a return to profitability next year. “We are on track to achieving the annualized targeted savings of $50 million we communicated last quarter,” said Holiday. “Our current estimate shows that approximately $35 million of these savings will affect operating expenses with the remaining $15 million impacting gross margins due to reductions in our cost of goods sold and sales discounts.”

SPORTSWEAR POSTS STRONG Q3 AS FOOTWEAR SURGES AND OUTERWEAR DIPS

With the help of booming international growth, explosive gains for Sorel and solid increases for Columbia and Mountain Hardwear, and improved margins, Columbia Sportswear Companies third quarter earnings jumped 29.4 percent. With a 7 percent increase in its Spring 2012 wholesale backlog, the outerwear giant also raised its outlook for the year. On a conference call with analysts, Tim Boyle, president and CEO, said the results reflect tight cost controls as well as the benefits of ongoing investments in its infrastructure and its brands. Sales improved 12.5 percent to $566.8 million, including a benefit of 3 percentage points from changes in currency exchange rates. In July, Columbia projected a low-double-digit percentage increase in sales. By brand, Columbia brand sales increased 4.1 percent, to $447.8 million, with growth of approximately 20 percent in Latin America & Asia Pacific (LAAP) and Europe, Middle‐East & Africa (EMEA) regions, partially offset by low single‐digit declines in the U.S. and Canada. Footwear and accessories & equipment were the largest contributors to the growth. The Columbia brand comparison reflected a low double-digit Fall 2011 backlog growth rate, previously disclosed, and was negatively affected by earlier shipment of international distributors’ advance Fall 2011 orders in the second quarter of 2011, compared with a larger proportion of Fall 2010 advance orders that did not ship until the third quarter of 2010. Sorel's sales jumped 116 percent to $72.0 million with growth in all regions, but mostly driven by the EMEA region. Sorel's comparison reflected a strong Fall 2011 backlog and also benefited from more timely production, allowing a greater than planned proportion of the brand’s Fall 2011 backlog to be shipped during the quarter versus the prior year. Mountain Hardwear's sales increased 17.0 percent to $44.7 million, with contributions by all four geographic regions. Montrail's sales increased 9.5 percent to $2.3 million. By region, U.S. sales increased 2.4 percent to $333.6 million, driven primarily by 28 percent growth in direct-to-consumer sales, on strong comp growth, the addition of 3 outlet stores, and e-commerce gains. Boyle said that globally, the company's direct-to-consumer business will represent approximately 25 percent of its full-year 2011 sales. U.S. wholesale sales decreased 1 percent, reflecting a planned shift in the timing of shipments of Fall 2011 advance orders between the third and fourth quarters, compared with Fall 2010.

John McCarvel, Crocs President & CEO

CROCS, INC. SEES DOWNWARD REVISION AS A BLIP

Crocs' third quarter results came in line with its downwardly-revised guidance given on October 17 but Crocs management stressed on a conference call with analysts that the revision was an anomaly and demand for the brand remained strong. Third quarter revenues increased 27.5 percent to $274.9 million while earnings advanced 20.8 percent to $30.2 million, or 33 cents a share, versus its updated range of 31 cents and 33 cents. Before the updated guidance, EPS was projected at 40 cents on sales of $280.0 million. On a conference call with analysts, company President & CEO John McCarvel said the shortfall was primarily in its U.S. direct-to-consumer channel and, to a lesser extent, Europe, due to challenging economies overseas. McCarvel believes Crocs' outlets and kiosks in the Americas underperformed because products weren't as promotional as the prior year and versus competitors. Back-to-school promotions also came out too early in August and the stores lacked enough wear-now merchandise given the warm-weather conditions. On the other hand, the performance of its full-price stores in the Americas was in line with its initial outlook as consumers responded to new fall/winter products. Added McCarvel, "We view the shortfall more as an execution issue versus a broad judgment call by consumers about our brand." Crocs is also successfully broadening into a "more casual brand" with a good reception to its crocband, translucent sneaker and Chameleon collections. The next step in the U.S., according to McCarvel, is to build its fall/winter business. Fall 2011 is Crocs' "most diverse" with several boot and shoe styles performing well in early-fall selling. But McCarvel added that Crocs needs "to be more effective in promoting our fall business in order to alter consumer perception that Crocs is just a warm weather brand." WEEK 1144 | SGBweekly.com

UGG AGAIN DRIVES REVENUES FOR DECKERS OUTDOOR Propelled by robust demand for Ugg across distribution channels and geographic regions, Deckers Outdoor Corp. reported net income rose 48.3 percent in the third quarter on a 49.1 percent revenue gain. EPS of $1.59 a share easily topped Wall Street's consensus estimate of $1.36 a share, prompting the company to increase its guidance for the full year. Excluding the acquired Sanuk brand, revenues would have still increased 43.5 percent for the quarter. Ugg revenues soared 47.3 percent to $376.7 million. The sales gain was primarily attributable to higher sales in the U.K. and Benelux regions, resulting from the conversion to wholesale operations in these markets; higher domestic fall wholesale sales, and an increase in sales of the fall line at company-owned stores. For the full year, Ugg's revenues are now expected to increase by 32 percent, up from its previous expectation of 25 percent. On a conference call with analysts, Angel Martinez, president and CEO, said Ugg’s gains were broad-based with the brand witnessing "a meaningful pick-up in the demand for our expanded line of men's sneakers, casuals, boots, and slippers.” Boots included equestrian, cold weather, fashion, Classics led by the Sparkle and the Bailey Button Triplet, and wood bottom styles. Among its casual mix, clogs, slippers, and sneakers all sold “very well.” The introduction of its Italian handcrafted Ugg collection was also well received. Men’s, helped by the debut of its new ad campaign featuring New England Patriots quarterback Tom Brady, “had a strong quarter too,” said Martinez. At Teva, sales increased 7.3 percent to $14.7 million in Q3. The sales improvement was driven by an increase in global shipments of fall product, including higher sales of closed-toe footwear, partially offset by lower reorders of sandals in the U.S. The quarter also benefited from the conversion to a wholesale business model in the U.K. Martinez said the company is "very happy" with the sell-through of Teva's closed-toe product and continues to see more than 20 percent top-line gains for the brand this year. Sanuk, which was officially acquired on July 1, contributed $15.6 million in revenues in the quarter. Sanuk's sales for the second half of the year are now projected to be in the high-$20 million range versus Deckers' previous guidance in the low-$20 million range. Combined, sales of Other Brands - TSUBO, Ahnu, MOZO and Simple - decreased 11.7 percent to $7.4 million. The decline primarily reflects the phasing out of Simple, which is being discontinued at the end of 2011. Consumer Direct sales leapt 72.1 percent in the quarter to $34.7 million, fueled by an aggressive store opening schedule in Asia and a 15.4 percent comp sales gain. E-commerce sales increased 18.3 percent to $10.3 million in the quarter, driven by higher Ugg brand sales on both its U.S. and U.K. websites. 10

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SEES FLAT EARNINGS GROWTH IN THIRD QUARTER Puma SE saw third quarter sales growth moderate just a bit from its nine-month, year-to-date pace but still posted a solid double-digit increase in revenues on a currencyadjusted basis. Gross margins and net income remained flat to last year’s third quarter. Puma management reiterated the company’s target for €3 billion in sales for the full year. In light of Puma's “Back on the Attack” growth strategy, investments and expenses are expected to “remain at a high level,” and gross profit margins will continue to be “stressed based on procurement price volatilities.” Management said they continue to foresee an improvement of net earnings in the mid-single-digits for the full year. “Puma posted a very solid sales performance for the fifth consecutive quarter,”said Franz Koch, CEO of Puma SE. ”This underpins our 5-year growth strategy, which is already delivering results. After a strong performance in the first nine months of this year, we are now approaching our sales target of €3 billion for the full year, and despite continuing cost pressures we maintain our forecast of an improvement in net earnings in mid single-digits.“ Third quarter consolidated sales increased 7.3 percent to €841.6 million ($1.19 bn), or a 10.2 percent increase on a currency-adjusted basis, representing the “most successful quarterly performance in the company’s history.” Asia and Latin America drove the increases with double-digit growth. Global brand sales, including distributors, grew 10.3 percent, currency-neutral. Asia/Pacific grew 16.4 percent currency-neutral to €196.0 million ($278 mm). Management said lightweight running gear such as the Faas range and women’s fitness products (Bodytrain) drove the overall growth in this region. EMEA posted a 9.5 percent currency-neutral revenue increase to €410.6 million ($581 mm). Russia, Turkey, Spain and Germany were called out as contributing to the growth. Sales in the Americas grew by 6.7 percent currencyneutral but were down 0.7 percent in euro terms to €235.0 million ($333 mm). Puma said Latin America delivered a “remarkable top-line performance,” reflecting broad-based, double-digit growth across all countries in the region, while North America had to comp against strong double-digit growth numbers from the previous year.

USA Q3 PROFIT PLUNGES ON TONING WOES Skechers USA’s third quarter earnings tumbled 77.2 percent to $8.3 million, or 17 cents a share as total sales slumped 25.7 percent to $412.2 million. The revenue decline was due to difficult comparisons against Q3 2010, which benefited from strong toning sales at high average selling prices, as well as lower than expected sales in the recent quarter across many of its other footwear lines within key wholesale accounts. Domestic wholesale revenues were down 48 percent due to the challenging comparisons. On a conference call with analysts, COO and CFO David Weinberg

said the company launched new fitness shoes in the second and third quarters of this year, "as well as great fall and winter packages resulting in improved sales for those lines." Inspired by its fitness push, its core active, women's, active, men's and kids collections are all being redeveloped. Skechers "first, true performance footwear line" is also being introduced in the current quarter with a broader offering set for Spring 2012. Said CEO Robert Greenberg, "Early reads on this line in our own retail stores has been strong, and we believe this performance product will also experience solid sell-throughs in our key accounts."

UNDER ARMOUR BOASTS 42 PERCENT Q3 REVENUE GAIN Marking the third consecutive quarter of 40 percent plus revenue growth, Under Armour reported third quarter revenues surged 41.7 percent to $465.5 million. The company’s owned-retail business and the apparel category continued to drive top-line growth. But company officials also indicated that its gaining traction in footwear as well as in securing a foothold overseas. The momentum prompted Under Armour to raise its 2011 revenue outlook to a range of $1.46 billion to $1.47 billion, representing growth of 37 percent to 38 percent over 2010 revenues. Under Armour previously estimated revenue of $1.42 billion to $1.44 billion, or a 33 percent to 35 percent increase for the year. Net earnings in the quarter climbed 31.9 percent to $46.0 million, or 88 cents a share, topping Wall Street's consensus estimate of 83 cents a share. Apparel revenues grew 31.3 percent to $363.4 million in the quarter with strength across men's, women's and youth. Men's was driven in part by growth in the training category, including Armour Fleece and Storm Fleece, while both graphic and hunting easily outpaced overall growth during the quarter, said CFO Brad Dickerson on a conference call with analysts. In women's, Armour Fleece was particularly "a stand out" while strong growth was seen in running, led by the Escape program of both tops and bottoms. Footwear revenues vaulted 96.7 percent to $52.0 million last year, representing 11 percent of revenues. "Solid results" were seen from back-to-school running product, led by the Split series, with strong consumer response seen for outdoor boots as well. From a timing

standpoint, the bulk of Under Armour basketball footwear shipped during the third quarter of this year versus the fourth quarter of last year when the collection was first launched. Under Armour also shipped nearly $5 million in footwear orders to its Japanese licensee. Accessories sales jumped 211 percent to $39.7 million, reflecting the move to bring its hats and bags business in-house in January as well as a healthy overall consumer acceptance of its product. Hats and bags are projected to contribute $65 million to $70 million in revenues in 2011. Licensing revenue declined 17.8 percent to $10.4 million, driven by the transition of the hats and bags business in-house. North American sales grew 40.8 percent to $432.7 million while International revenues expanded 53.9 percent to $32.8 million, representing 7 percent of revenues. The International gain was helped by the increased footwear sales to its Japanese license. Under Armour opened its first store in China in Shanghai. Under Armour's direct-to-consumer revenues increased 73 percent for the quarter, representing 22 percent of revenues versus 18 percent in the prior-year period. Growth rates for both retail and e-commerce were strong. Four outlet stores were opened in the quarter, increasing their count to 76, up from 50 locations at the end of last year's third quarter. Four more openings are set for the fourth quarter. Dickerson said e-commerce growth "remains robust as we continue to drive both higher traffic and conversion rates year-over-year." A new Web platform is expected to go live over the next few weeks with enhanced features and functionality added in 2012. WEEK 1144 | SGBweekly.com

ADIDAS OUTDOOR SEES TRACTION IN U.S. RE-LAUNCH Adidas Focused on Building €500 Million in Outdoor Business By Thomas J. Ryan

SGB WEEKLY OCTOBER 31, 2011

hile taking a measured approach with its fall 2011 relaunch into the U.S., Adidas Outdoor in mid-October confirmed that it is making headway in establishing a foothold in the U.S. outdoor specialty channel. Globally, growth for the Adidas Outdoor business has been explosive. Only three years after its re-launch overseas, the unit reached €200 million in sales in 2010. In the first half of 2011, Adidas Outdoors' sales vaulted 40 percent, outperforming all other areas in Adidas' Sports Performance segment. "And it's a very healthy growth," said Rolf Reinschmidt, senior vice president and head of the global outdoor unit for Adidas, during a press tour for U.S. journalists last month at Adidas' headquarters in Herzogenaurach, Germany. "This is not growth in only one market. We're growing in every market...It's really, really working and we are very proud of the results. At the same time, it gives us confidence to continue what we are doing. We feel very clear that what we're doing is the right thing." Much of his presentation outlined the different approach Adidas is taking to the outdoor market versus other sports it targets. While the ultimate key to success will be the performance of its outdoor products like other sports categories, outdoor takes a more localized and low-key approach, he said. "We need to earn our way in," said Reinschmidt. "It comes down to more of a humble, confident approach than a very aggressive and loud approach. You can't be, ’We are the big player! We buy market share!’ That does not work. Some other brands have big-time failed with that. As a big brand we want to act like a small brand."

A recent press tour for U.S. journalists at Adidas' headquarters in Herzogenaurach, Germany included a visit to Adidas’ Walk of Fame.

Reinschmidt noted how Adidas at one point had a sizeable outdoor business in the 1970s. It was credited with creating the first lightweight trekking shoe, SUPERTREKKING, that helped Italian climbing legend Reinhold Messner make his first Everest ascent without artificial oxygen in 1978. But Reinschmidt admitted that Adidas "kind of dropped the ball" in outdoor as the company's focus soon shifted more heavily toward basketball, running, Olympic pursuits and other areas. Adidas also acquired Salomon in 1999, a deal that included Arc'teryx, to mark another angle toward reaching the outdoor customer only to sell both brands to Amer Sports in 2005. When Adidas began exploring the outdoor opportunity again for the Adidas brand about seven years ago, Adidas' management WEEK 1144 | SGBweekly.com

Jon Edgar, global business unit director outdoor footwear/hardware, Adidas Outdoor

recognized that it needed to be "very serious about it" and have a "long-term vision and plan for it," said Reinschmidt. The initiative was named Peak 2015 not so much to mark any goals set for that specific year, but to show "this time Adidas is very committed and very focused to go after this huge opportunity," asserted Reinschmidt. Reinschmidt also stressed how Adidas recognized that a different approach would be required to outdoor versus other sports. For one, Adidas recognized that unlike running, football (soccer) or tennis, outdoor ranges across a number of activities, whether climbing, hiking, skiing, trail running or a host of other pursuits. "Whereas the other sports we are focusing on are one sport, outdoor is more like a lifestyle," said Reinschmidt. "It's an attitude of people and when it comes to product, it's very different. In running or football (soccer), the longest duration you wear a product may be two or three hours. In outdoor, you can wear it up to seven days and 10 hours a day. And sometimes, your life can depend on it." While Adidas is looking to eventually sit among the leaders in the outdoor space as it aims to do in other sport categories, it realized that credibility was particularly important in establishing the brand in outdoor. "The outdoor community is very, very sensitive when it comes to credibility and authenticity," said Reinschmidt. "They don’t like big corporate brands because the outdoor business is driven by local specialists in the U.S. and local specialists here in Europe. And they don't believe the big brands can do that. Credibility for us is very, 14

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A heated/sweating mannequin, nicknamed Newton, tests for moisture-management and breathability.

very important. It takes a long time to build a brand up in outdoors and you can lose it very fast. We are taking a sustainable long-term approach to this."

A THREE-PHASE APPROACH WAS SET UP TO RE-EXPLORE THE OUTDOOR OPPORTUNITY

T he First Phase - the Establishment Phase running from 2008 to 2011 - focused on creating compelling product. The Adidas Outdoor team at its German headquarters has grown to approximately 70 people dedicated solely to outdoor product, largely in design and marketing. The TERREX series has particularly put Adidas on the outdoor map in Europe. In footwear, three TERREX styles – Fast X, Solo, and Fast R to be released in Spring 2012 - have won three straight Outdoor Show Industry awards in Friedrichschafen, Germany, which Reinschmidt said had never been accomplished before. A particularly innovative feature of the TERREX Fast R is the use of rubber from Continental AG, the German auto and biketire giant, that has proven to provide a grip 32 percent better in dry conditions and 30 percent better in wet conditions versus a leading competitor’s outsole. Adidas also was among the first companies to partner with W.L. Gore in using the waterproofing giant’s ultralight, three-layer fabric, Gore-Tex Active Shell. To maintain its innovative edge, Adidas Outdoor built a team of 200 testers at mountain guide schools across Europe that it works with on a daily basis. Product is the entry way to the world of outdoors, noted

Reinschmidt. "Specialty stores recommend a product only if you can convince them that the product works. Because if the store recommends it and it doesn't perform, the consumer will never come back. It has to work. And in extreme situations, the athlete's life depends on it." Underscoring the importance of innovation, the press tour included presentations by its footwear and apparel teams, including Stefan Loerke, who heads up Adidas Outdoor apparel and accessories; and Jon Edgar, who heads up Adidas Outdoor footwear and hardware. It also included a peak into Adidas' facilities and testing center. A highlight was a look into Adidas' Athletic Services, which produces customized product for its sponsored athletes across sports. The press tour was coordinated with a visit to W.L. Gore's headquarters in Feldkirchen, Germany for a presentation on its Active Shell technology as well as a visit of Gore’s garment and footwear labs. The Adidas headquarters tour also included a visit to Adidas’ Walk of Fame that showcased Adidas’ commitment to innovation over the years while also providing a broad overview of the prominent role Adidas has played in historical sporting events and in the feats of sports legends. With a long-time mantra of “Only the best for the athlete,” Reinschmidt said it’s natural for Adidas to serve the athletic pursuits of outdoor athletes. Reinschmidt also said Adidas’ history and broad appeal provided it an opportunity position itself as "the athletic brand in the outdoors." Moreover, the overall coloring and styling of Adidas' collections speak to the "faster and more athletic" looks that younger generations are looking for in their footwear and apparel. In particular, the U.S. market is in need of a younger approach, he contended. "The market in my opinion a little older and darker and I think we are a fresh, young and athletic alternative. Our

The Adidas tour include visits to garment facilities and testing labs.

color story is not a typical U.S. color story. And I think that's what a smart retailer will realize. That this is that next generation - very athletic, young and fresh." In his presentation, Edgar pointed to the success of the TERREX collection as an example of how Adidas Outdoor wants to drive the market through innovation. Said Edgar, "We want to add something new to [the outdoor market]. There are a lot of outdoor brands and we want to take outdoor in somewhat of a new direction and use the strength of the Adidas brand to drive that. To lead the outdoor market is a big statement. The ambition is to at least start to lead it in certain

The TERREX Fast R, to be released in Spring 2012, undergoing a durability test. The shoe's Traxion sole with its newly developed Continental rubber compound guarantees the necessary ground adhesion at high speeds and in all weathers.

WEEK 1144 | SGBweekly.com

Rolf Reinschmidt, SVP and head of the global outdoor unit for Adidas

segments of the market in the short term." Adidas Outdoor's positioning, according to Edgar, will focus on creating lightweight product "so people can move fast in their activities." He described Adidas Outdoor's core customer as the "next generation" outdoor athlete. Said Edgar, "It's someone who is younger and looking for more athletic challenges in the outdoors. Sometimes that might be challenges that are done in the day; sometimes that might be multi-day challenges. For Adidas Outdoor, we generally talk about our consumer being 20-plus. For basketball or running, Adidas might talk about their consumer being a teenager or high school student. But for us and with Terrex, we really talk about our consumer being 20-plus. But compared to other outdoor brands, that's already quite a lot younger and this is also very important for us that we differentiate ourselves in the consumer we want to talk to." Beside the investment in innovation, Adidas Outdoor's first phase was marked by a decision to focus on growing through specialists’ reps with connections to outdoor specialists. In the re-launch, the brand also initially sought to establish a foothold in the core Alps regions – Austria, Switzerland and Germany. Said Reinschmidt, "It's a very technical market so if you establish yourself here, then it's easier somewhere else because then you have a real benchmark." China and Russia were also a focus, partly because they are both regions where Adidas already operates many stores to ease entry. Korea, another key technical market, was a last region launched in the first phase. The Second Phase - the Expansion Phase running from 2012 to 2015 – extended the launches to the U.S. and Japan. In the U.S., Agron, Inc., the long-time accessory licensee for Adidas America, was hired as its exclusive distributor to take advantage of connections with Greg Thomsen, Larry Harrison and others on Agron's team in the outdoor space. It also in September 2011 opened the first Adidas Outdoor store in Harbin in Northern China. In the second phase, marketing also increased in importance. On the grassroot's side, one of the most successful has been Rock Stars, a bouldering event that was launched this year in Australia at Area 47 16

SGB WEEKLY OCTOBER 31, 2011

combining rock music and rock climbing. In the years to come, local Rock Stars' events will occur in the U.S. and other parts of the world with a global final ending in one location. Said Reinschmidt, "The first one wasvery well received and for the community it was a milestone in terms of a new competition format for the athletes." Adidas’ outdoor athletes include the Huber brothers, renowned for breaking records for speed climbing, as well as Sasha DiGiulian, who in October became the only U.S. climber to reach the finals in the International Federation of Sport Climbing (IFSC) Lead Climbing World Cup held in Boulder, CO. Adidas has also renewed its partnership with Reinhold Messner. In the U.S., the brand launched in 300 doors in fall 2011. Reinschmidt said the strong introduction partly reflected the fact that U.S. stores had already heard of the healthy reception the re-launch had received in Europe. Said Reinschmidt, "They already knew that we presented a good range and I guess that is underlined by the fact that we are very pleased with our start in the U.S." The brand has found success at Eastern Mountain Sports, which was among the few U.S. stores to receive the early June/July drop of its boat shoe. Particularly encouraging has been that sell-throughs at Zappos have been "really positive," said Reinschmidt. The Goal For The Third Phase – 2015 and Beyond – is for Adidas to gain leading positions in key outdoor categories in key markets. The initial revenue goal is to build a €500 million business for Adidas Outdoor, although there is no timeframe. Said Reinschmidt, “Once we reach it we'll set up another one.” Adidas Outdoor appears to be in no rush. Reinschmidt said Adidas wants to slowly build its position in outdoor “in a very authentic and credible way” and is willing to wait to earn its way into the outdoor world. Said Reinschmidt, “I believe we are a young, fresh and different alternative to the established and little-older brands already in the outdoor channel. It will take time until people realize this, but I'm confident they will. They’ll see there’s a clear commitment and passion for the outdoor industry here.” ■

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THE MAKING OF GORE-TEX ACTIVE SHELL

W.L. Gore focused on sweat management when they came up with their new fabric technology for trail runners, mountain bikers and speed ascent fanatics. By Thomas J. Ryan

SGB WEEKLY OCTOBER 31, 2011

Timm Smith, Gore's product specialist and product developer, presents the Gore-Tex Active Shell Technology

At W.L. Gore & Associates' headquarters in Feldkirchen, Germany, Timm Smith, Gore's product specialist and product developer, last month provided a broad overview of the technologies behind the Gore-Tex Active Shell. But a large chunk of his presentation focused on why Gore brought such a product to market. "The big question that keeps coming up is, 'You got Gore-Tex Pro Shell, Gore-Tex Soft Shell, Gore-Tex Paclite Shell, Gore-Tex Performance Shell and now Gore-Tex Active Shell. How many shells can you make Gore?', '" he joked at the beginning of his presentation during a press tour for U.S. journalists. Noting that one of Gore's core values is "fitness for use," Smith said that Gore's overriding goal is to create "highly targeted products for highly targeted end uses." In essence, it's creating fabrics to enable an athlete, whether a climber, skier, hiker, biker or runner, to endure and excel in any environment. "For instance, when skiing you cover a wide range of temperatures. But you'll also be sitting still on the lift and then suddenly go down a hill really hard, often on bumps. It's about how you handle going from no activity to a lot of activity or to moderate activity - all with a single garment system." Around 2009, Gore's team noticed that it was missing an athletic end-use. In conversations at its Athlete Councils, where top climbers, skiers and runners gather periodically at Gore's headquarters in Newark, DE to discuss product, many of its core athletes admitted they were pushing the limits of alpine environments. Gore began noticing the trend toward "fast-forward alpine" emerging. "They were saying, 'We've reached the farthest places on earth. We've all been to these 8,000 meter peaks and that’s not sexy anymore' - so to speak. Those guys were figuring out how to take it to the next level and the next level for them in an alpine environment was, 'How do I do it faster?,' 'How do I do more peaks in a single

The Gore-Tex Active Shell jacket by Berghaus

day?,' 'How do I ascend something that used to take four days and do it in four hours?' " At the same time, many runners were no longer viewing the marathon as their "bucket list" or "ultimate pinnacle" of success, but "only a step in their journey" toward an ultra-marathon. Many of these ultras were marked by single races extending well over 100 miles and easily lasting over a day, but Smith said many ultra-runners were increasingly looking to challenge themselves in alpine environments as well. Said Smith, "You've got climbers that are taking more of a runner approach in a way and you've got runners taking more of an alpine climber approach. We had to decide how to respond to all of this." As is often the case, the whole 'fast and light' trend – also seen among skiers - was already being addressed on the hard goods side with the arrival of lightweight boots and lightweight skis and other gear. In apparel, the challenge was that athletes pursuing these speedier pursuits in colder climates were generating more heat and sweat "than probably has ever been generated in the outdoors," said Smith. Moreover, humans in general are "pretty inefficient machines," he added. Even highly-accomplished athletes such as Lance Armstrong, only get 20 percent of the benefit of useful food energy into their workout, with the remaining 80 percent representing heat being discharged, he noted. For Gore, the mission became to take the current waterproof, breathable offering and extend the rate at which an athlete "can run and get the most heat and most sweat out." From a garment design perspective, the goal was to come up with a laminate that was lighter, thinner and more breathable. Comfort experts, according to Smith, were telling Gore, "If you can take garments that used to be big and bulky and trap all this air in here and you can drive that garment in tighter and get rid of all those dead WEEK 1144 | SGBweekly.com

A U.S. press tour of W.L. Gore & Associates' headquarters in Feldkirchen, Germany included a visit to the fabric giant's garment and footwear labs.

layers, you can get more heat and sweat out." Similarly, designers recognized that removing many of the extra features on a jacket (i.e., multiple pocket bags) to create a more streamlined package would improve breathability. The hope was to create a more holistic approach to design that Smith likened to recent evolutions in the outdoor footwear space. "Back in the day there were hiking boots and then there were trail runners and then there was this whole fast-forward push to footwear," Smith noted. "The thought was, 'Can we do the same thing for garments and almost create the trail runner of garments?' " From the materials standpoint, Gore equally tasked its designers to come up with a lighter, thinner, and more breathable fabric membrane. Its innovation team came up with a membrane that was half the thickness and half the weight of a traditional Gore-Tex membrane. The resulting Gore-Tex Active Shell, according to Smith, is the shell "that's lighter, that's thinner, that's more breathable than any one we've ever created in that Gore-Tex space." Designed for highly aerobic, done in a day activities such as trail running, mountain biking and fast alpine ascent, the three-layer waterproof jacket consists of a protective outer shell attached to a membrane, and then a backer glued on to the waterproof membrane. Gore-Tex has stipulated to its partners a weight limit of 400g although many versions are coming in closer to 300g. Smith said Gore wanted to go with a three-layer because two layers often become "clingy" and retain condensation during highly aerobic activities. 20

SGB WEEKLY OCTOBER 31, 2011

Timm Smith discusses the varying garment challenges outdoor athletes face across various activities.

"Two-and-a-half layer products are awesome for that sort of packable piece that you can take anywhere," Smith said. "You can pull it out. You can throw it on if you're stuck in a storm. You can hike in it or trek in it. But when you're pushing sweat as hard as some of these folks are pushing sweat and you don't have a third layer in there to deal with some of that liquid water, that's where it can become uncomfortable next to your skin." Another notable difference is that the Active Shell uses a proprietary lamination technique to attach the membrane to the liner to increase water vapor transfer rates. Older versions have been attached with glue. Said Smith, "By integrating that backer into that barrier layer, we essentially removed a layer of glue, which also increased the breathability of the laminate overall." This creates an even more compact three layer design, a new level of breathability (RET (evaporative resistance of a textile) < 3) and next-to-skin comfort. The breathability of the new laminate is supported by minimalist designs, without unnecessary pockets and features. Officially introduced in Fall 2010, Arc’teryx, Mammut, The North Face, Adidas Outdoor and other big names brought out hardshell jackets for 2011 based on Active Shell at January's Outdoor Retailer Winter Market. In August, Gore extended the collection to include Gore-Tex Active Shell Stretch laminates. The technology has also been incorporated into the Gore-branded bike wear line. Smith did offer one caveat. He cautioned that creating a fabric that maximizes pulling sweat comes with a "trade-off" in other areas, particularly abrasion. He offered that as an example of why Gore has developed numerous shells to suit the varied needs of athletes. Said Smith, "There's some tradeoff when it comes to ruggedness. You don't want to take a Gore-Tex Active Shell into extreme alpine environments. You don't want to stick a Gore-Tex Active Shell into a crack and start rubbing it against sandstone. You wouldn't want to take a stick and jab it into the membrane. Our focus in design was breathability in a lightweight garment." ■

WHERE STRATEGIC DECISIONS BEGIN

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WEEK 1142 | SGBweekly.com

CALENDAR

For full year calendar go to sportsonesource.com/events

NOVEMBER NASGW Annual Meeting & Expo Reno, NV

2-4

TAG (Team Athletic Goods) Fall/Winter Show St. Pete Beach, FL

Fleet Feet Carrboro (NC) Grand Opening

8-10

NBS Fall Show Mobile, AL

12-14

ADA Fall Show Kansas City, MO

20-22

Sports, Inc. Athletic Show Las Vegas, NV

DECEMBER 5-7

MRA December Market Lansing, MI

JANUARY 10-12 ATA Show (Archery Trade Association) Columbus, OH 12-14 Surf Expo Orlando, FL 13-16

NBS Winter Market Denver, CO

17-20 SHOT Show Las Vegas, NV 18

Outdoor Retailer Demo Solitude, UT

19-22 25-28

Outdoor Retailer Winter Market Salt Lake City, UT

26-29

SIA Snow Show Denver, CO

PGA Merchandise Show Orlando, FL

29-2/1 ISPO Munich 2012 Munich, Germany 30-31

SIA On-Snow Demo/Free Ride Fest Winter Park Resort, CO

FEBRUARY 3-7

NBS Spring Market Fort Worth, Texas

15-18

Sports Inc. Outdoor Show Phoenix, AZ

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

TRADE ASSOCIATIONS | BUYING GROUPS

1-4

National Sporting Goods Association 1601 Feehanville Dr. / Suite 300 Mount Prospect, IL 60056 t 847.296.6742 f 847.391.9827 nsga.org Nationâ&#x20AC;&#x2122;s Best Sports 4216 Hahn Blvd. Ft. Worth, TX 76117 t 817.788.0034 f 817.788.8542 nbs.com Outdoor Industry Association 4909 Pearl East Circle / Suite 200 Boulder, CO 80301 t 303.444.3353 f 303.444.3284 outdoorindustry.org SGMA 8505 Fenton Street Silver Spring, MD 20910 t 301.495.6321 f 301.495.6322 sgma.com SnowSports Industries America 8377-B Greensboro Drive McLean, VA 22102 t 703.556.9020 f 703.821.8276 snowsports.org Sports, Inc. 333 2nd Avenue North Lewistown, MT 59457 t 406.538.3496 f 406.538.2801 sportsinc.com Sports Specialists Ltd. 590 Fishers Station Dr. / Suite 110 Victor, NY 14564 t 585.742.1010 f 585.742.2645 sportsspecialistsltd.com Team Athletic Goods 629 Cepi Drive Chesterfield, MO 63005 t 636.530.3710 f 636.530.3711 tag1.com World Wide Distributors 8211 South 194th Kent, WA 98032 t 253.872.8746 f 253.872.7603 wdi-wdi.com

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