The Adidas Group has decided to reduce its interest in the golf market by starting talks for the sale of the TaylorMade, Adams Golf and Ashworth brands. While pulling out of the golf equipment market, it would focus its golf apparel and footwear business on the Adidas brand.
After a slump in sales at TaylorMade in 2014, the Adidas group confirmed in August 2015 that it was studying strategic options for its golf business. It hired Guggenheim Partners and conducted a strategic review, to be finalized by the end of the first quarter.
TaylorMade Adidas Golf (TMAG), the business unit that encompasses the Adidas group's interests in the golf market, brought in sales of €902 million in the 2015, which was a decline of 1 percent in reported terms and 13 percent in constant currencies. This is far below the turnover of €1,344 million chalked up in 2012, before TMAG's sales slumped by 4 percent in 2013 and then collapsed by 29 percent in 2014.
In the interval the Adidas Group has made far-reaching cuts in its golf business. They involved the closure of the Adams Golf facility in Plano, Texas, and the reduction of the group's golf-related workforce by 15 percent, amounting to 200 people. Some of the 200 employees in Plano moved to the TaylorMade head office in Carlsbad, California.
The group has been working on more than 40 initiatives to achieve operating efficiencies in manufacturing, assembly, margins and the marketing budget, all to support a return to profits in 2016. TaylorMade has also refrained from multiplying product launches, acknowledging that it should take the lead in cleaning up the market.
Herbert Hainer, the Adidas Group's chief executive, described TayloreMade as a “very viable” business and said in a conference call that the turnaround plan is gaining traction. He pointed to a sales increase in the first quarter, along with an improvement in the profitability of the business and unspecified market share gains. Hainer added that TaylorMade remains the “clear” number one driver brand in the industry and the most played brand on the Tour.
Sales of TMAG slipped by 1.7 percent to €275 million for the first quarter, with a decline of 1.4 percent in constant currencies, but the drop was entirely due to double-digit declines at Ashworth and Adams Golf brands. Taylor Made raised its sales by 6 percent, driven by increases in the metalwoods and irons categories, while Adidas Golf sales were up by 3 percent.
Hainer explained that the divestment would allow the company to reduce the complexity of its business and to focus on its strength in athletic apparel and footwear – emphasizing that this encompassed both the Adidas and Reebok brands. Another recent divestment was the sale of Rockport, the footwear brand. Adidas reaffirmed that it currently has no intention of selling Reebok, which has hit its stride as a fitness brand.
TaylorMade became part of the Adidas group in 1998, when it acquired Salomon, the French winter sports equipment company. While Salomon was sold to the Amer Sports group in 2005, Adidas held on to TaylorMade. Ashworth, a traditional golf apparel brand, was added in 2008 for a transaction value of €54.1 million (including the assumption of €34.4 million of Ashworth debt) and Adams Golf was acquired in 2012 for about $70 million, supposedly to complement the TaylorMade brand with products targeted more strongly at beginners and less competition-oriented players.
TaylorMade's relentless innovation under the ownership of the Adidas group enabled it to surpass Callaway in terms of turnover, but in the last two years the dynamics have clearly been more favorable for Callaway: While TMAG's sales declined by 32.9 percent in the three years from 2012, Callaway has raised its sales by 1.4 percent (and that would have been more without currency exchange rate changes in 2015).
The Adidas group put some of the blame on the downturn of the golf market, which has been affected by a lack of growth in participation. But others opined that TMAG contributed to the issues with overly frequent product introductions, which ended up clogging the U.S. golf retail market.
Hainer declined to provide any further details on potential buyers and other aspects of the divestment. The decision on this potential transaction rests with the supervisory board.
Another strategic decision announced earlier this month was to close down the European stores of the Neo brand, the range of cheaper fashion products operating with a vertical business model. The Neo brand has risen to sales of €1 billion in 2015, mostly in China and other Asian markets. The brand's sales again soared by 60 percent in the first quarter.
Along the way, the Adidas group opened 16 Neo stores in Germany, Poland and the Czech Republic. Hainer said that the group had decided to close them in favor of a stronger push for Neo in the wholesale channel. He acknowledged that the stores helped the company to learn about vertical retailing and to connect with a younger audience that may not be able to afford Originals and other Adidas products. The stores were sometimes used to pilot projects aimed at accelerating the supply chain, which are an important aspect of the group's strategy. However, the company has done better in Europe with Neo products sold by key wholesale partners.
Unlike most of the Neo stores in other countries, the 16 to be closed down are owned and operated by the Adidas group. Hainer emphasized that the decision would not affect stores in other countries. About 2,000 Neo stores are run by franchisees in China alone.
These two strategic moves were outlined by Hainer again at the Adidas group's shareholders meeting last week. It was a somewhat special occasion since it will be the last time Hainer appears at the meeting as chief executive, five months before he hands over to Kasper Rorsted.
Hainer declared himself a “completely satisfied” chief executive in a farewell speech that outlined some of the group's achievements under his tenure. Many of them related to the group's recognition as an outstanding employer and a leader in terms of sustainability, as well as a progressive company investing in manufacturing advances and digital development.
Perhaps more importantly for shareholders, Hainer pointed out that revenues have tripled in the last 15 years and net income has multiplied five-fold, while the average annual return of Adidas shares reached 15 percent, against 3 percent for the Dax index. The company's market capitalization surged from €3 to €24 billion.
The annual meeting approved the appointment of new board members representing two large shareholders: investment vehicles related to Albert Frère in Belgium and the Egyptian billionaire Nassef Sawiris. Ian Gallienne, co-chief executive at Group Bruxelles Lambert, and Sawiris himself both joined the board, which had to be enlarged from 12 to 16 members to accommodate two more employee representatives as well.
