Herbert Hainer
Adam Burns:
Thank you very much indeed for agreeing to talk to MeetTheBoss. I suppose I’d like to start with the fact of sports must be a little bit fickle, it’s a little bit of a fickle market with so much sales peaks around trends and around sporting icons and that sort of thing. How important is heritage to something like the sports industry in this day and age, and how do you ensure that you walk the line to make the best of what Adidas stands for, but also to be creating stories for a healthy tomorrow?
Herbert Hainer:
I definitely do believe that heritage is a quite important thing, because I think this defines our route where we are going. Just a few months ago we have re-launched the so-called Adi Dassler standards here in our company and we tried to educate everybody who is in the company to go the way how Adi Dassler did it, what he really meant when he spoke to athletes, when he brought in new products, when he brought innovative products, tried to permanently improve the products for the best of the athlete. And this is what is our heritage but also our future. We have to make the best products for the athletes, and this is only possible if you permanent be in dialogue with the athletes, if you listen to the athletes, and if you work together with them in trying to get all their needs and their experience into the product development. And this is exactly what we are doing.
I give you a recent example – Reebok. You know that we have acquired Reebok for some years and we have then repositioned it and clearly said that one of the key pillars going forward for Reebok is the women’s business, because Reebok has an extremely good reputation with the woman consumer. Reebok was the one who founded step aerobic 20 years ago and therefore created a complete new way of fitness market, and this is a heritage which Reebok still has in the mind of a lot of consumers. And the first success which we already see with the new Reebok, if I may call it so, is the women’s category. We have a new shoe, EasyTone, the bestselling shoe in the industry in the moment. So therefore heritage can definitely be a very, very positive tool to guide you into the future if you use it right.
Adam Burns:
Absolutely. So you talked about the Adi Dassler kind of approach that you’ve got there. Is that very much a back-to-basic approach, and how does that then – how does that filter through the whole company?
Herbert Hainer:
I won’t call it back to basics, but in general I think it describes what it is all about. Do what is important and necessary to create a better product, and this is what Adi Dassler always did. He was not the marketing genius and the one who fancied around the product, he really looked to the practice field to the sport and to the athlete, how they moved, what they did, and how the product – in this time it was a shoe – how they catered to the movements and to the needs of the athlete. Then he spoke with the athlete and then he tried to improve the product. And this is what it is all about: to make the best product that the athlete can perform the best.
And then of course you have to make the product nice as well. It doesn’t help if the product is good but it looks terrible. But first and foremost the functionality of the product – this has to be right.
Adam Burns:
Absolutely. And you’ve done, you know, a tremendous job since you’ve taken over Adidas. I mean, the net revenues, I believe, in 2007 were up €10.5 billion, within spitting distance of Nike’s 11.1. What are the key lessons that you’ve learned in adapting enterprise and making Adidas a quicker, more agile company?
Herbert Hainer:
At the beginning of 2001, we had already a great success story behind us. You might remember we went to the stock market in 1995 and then we had four or five good years, but then became a little bit too self-complacent, a little bit too self-confident. We were not aggressive anymore. The processes were not harmonized anymore. Our lack of innovation was shining through. So my job was not to revolutionize the company again – we had very good pillars for company – but my job was to make the whole trip much faster and make out of a big tanker speedboats again, and this is what we did at that time.
Adam Burns:
And it was the – the sale of Salomon, was that very much a part of that? I know that you said it was to focus on your core competencies. What were the benefits that arose to Adidas from that?
Herbert Hainer:
I mean, when you look back we acquired Salomon in 1997, and when we acquired Salomon, the Salomon group, we acquired the brand Salomon and the brand Taylor Made. Golf is a natural sport for Adidas. We started already 35 years ago when we made golf shoes for Bernhard Langer and for Sandy Lyle. These have been the two ambassadors for our brand at that time. So ten years later we sold the Salomon brand, which was mainly ski and winter-driven. The key ingredients or the key decision point for that was that the winter sport market is a market which is in decline since more than ten years, and when you don’t create synergies then there is no chance to make money. And therefore we decided that we will go out of the winter sport – the winter hard good sports, which is skis, bindings, ski boots, and we sold it to somebody who really can create synergy. So we sold it and they have Atomic in their portfolio, so two big ski brands.
But we kept the Taylor Made brand, and then we owned an exclusive golf unit with Taylor Made-Adidas Golf, placed in Carlsbad where Taylor Made was already and where the Eldorado or the Silicon Valley of golf is, and then since we are the fastest-growing golf company.
Adam Burns:
Absolutely. And you said yourself that Adidas wasn’t aggressive enough. I know you’ve described yourself in a previous interview as – your management style as being aggressive. You say, you know, you get things done, you’re impatient. How does that manifest itself in your Adidas?
Herbert Hainer:
Good – I mean, you are what you are, and of course if I run the company then I want to have people around me who are as I am. I want to have people who are fast, who are direct, who are aggressive, and therefore you create a culture with you and your people around, because they want to have people around themselves which are in the same style. And I definitely do believe that we are today much faster, much more proactive how we cater to the market, how we talk to our consumers, how we bring products and concepts to market, how fast we can react to certain trends in the market. And I think this is what it is all about, that you become faster, not the size - forget the size in my opinion, because otherwise dinosaurs still would be alive, and all the little animals would be dead. It is the fastest one who will win the race, at least in my opinion.
Adam Burns:
That’s what we’re here to get, so that’s fantastic. I’m interested then in, I suppose really, your background just a little bit if we can touch on that, because I know that you were a professional football player at one time – or soccer player for the rest of the world. Do you think that that has come through? Have you brought things from that? You say that you’re direct, you want things that are quick, and perhaps there is that innate competitiveness of the sportsman?
Herbert Hainer:
Good – first and foremost, to be precise, I was only a semi-professional soccer player. I was not good enough to become really professional, which was always my dream when I was a young boy. I don’t know exactly how much football or soccer has taught me to do my job proper, but what it really has learned me to work together with a team, to work with teammates, to celebrate together, or even to lose together, to share the pain. And this always learned me that you need people around you to do your job and to get your job done. You can’t do it by yourself. Even if we had had excellent individual players, but they need defenders, they need strikers or whatsoever. And I think this was the biggest learning for me playing football, that this is teamwork and you need in your professional life as well people who work with you together to a common goal.
Adam Burns:
Absolutely, of course. How important do you think – move on now to something that I know is dear to your heart, which is innovation. How important is innovation to Adidas’ continued success, and have you managed to make it – or to your mind is it the very heart of what the company does?
Herbert Hainer:
In my opinion this industry is clearly product-driven and the product is innovation. You can see it already in these tough times where we are in the moment where consumption is going down, consumer very cautious what they are doing. We’re still bringing products to the market which selling like hotcake. For example, the EasyTone, the Reebok running shoe which I talked at the beginning, sell-through rates of 25 to 30 percent per week, which we haven’t seen for several years within Reebok. Another example is Taylor Made. The new golf driver, the R9, which has adjustable ankle, came out in February and was within a week the most sold driver in the industry. This clearly shows you that when you are able to bring innovative products to the market the consumers are still there and want to buy. If you just bring existing products, nobody needs it in the moment and nobody’s buying it. Therefore innovation, in my opinion, is the key to success.
And just to underline that, what I mean with that, when I took over in 2001 I still do remember in my first press conference when we did the annual results, and I put five points on the chart which I said, “This is where I want to have as a company steered,” and one point was innovation, and the sub-line was that we have to bring out one innovative product every season. And this innovation I do not mean just color-ways. This is a real, complete new product, and so far we even exceeded this promise, so we are bringing permanently new, innovative products to the market, and I think this is one of the key success factors for us.
Adam Burns:
Absolutely. Innovation of course is a potentially messy and disruptive process. How do you formalize something like that within Adidas to ensure that you are hitting these targets that you’re setting out?
Herbert Hainer:
I think in general it starts with the people which you put in charge. I do remember going back to 2000 when I formulate the new agenda for Adidas, we had around 30 people who were working in R&D. And there were two hierarchic levels in between until they come to the board member. What we did at that time simply, we were taking – we took out the R&D department and let them directly report to the board member of marketing so that they go to the highest level. This on the other hand also showed the importance which we gave to the R&D department within the organization.
The second point was that within the next 12 months we doubled the number of people in R&D. We put much more money into it. And then we put two different locations for R&D, one here in Herzo, where we more or less put all the European sports categories under the R&D umbrella, and then one R&D umbrella in America for the more American sports, which is basketball or auto sport or some others.
Adam Burns:
Excellent. And then do you find that with something like – let’s take for example a soccer shoe. So you have to do, you know, all kind of bits and bobs, and you’re watching the athletes, and we saw some of the tremendous technology you’ve got at the golfing center of excellence with the three-dimensional models and center of gravity and all these sorts of things. How much of that is applicable to the day to day, to everybody who’s just out having a jog and trying to keep generally healthy?
Herbert Hainer:
Good – I definitely do believe that better products can make the athlete better or can make even every normal person who are doing sport better. Simple example – 30, 40 years ago a football boot had a weight of around 400 gram, today it’s 200 gram. So it’s 50 percent lighter, and of course if you don’t have to carry so much weight on your foot you can run faster or you can run longer. Today a football player during a 90 minute game is running double the distance than they had done 20 years ago. It’s around 13 to 14 kilometer. It was seven to eight kilometer 20, 25 years ago. Of course, you can’t do it in 400 gram football boot, full of leather. When the water is coming in it sucks the water in, etc. The new materials, new functionality, stability, cushioning, which all should be happen has to go into this shoe.
And the same is in jogging or in golf. Of course, a new golf club cannot make an amateur to professional, but it definitely can improve the game of a normal golf player from – I don’t know – handicap 25 down to handicap 15, because he has the ability to play better with the club. At the end of the day he by himself have to perform as well, but the club or the equipment can help him a lot. And this is what we try to do, to make sport easier for people, that they have more fun, that they stay in shape, and at the end of the day be more healthy.
Adam Burns:
Sure. And what is that process of innovation? What does it look like? And I suppose, really, how long does it take? How far ahead are you currently working?
Herbert Hainer:
I mean, this is quite different from product to product. Sometimes you are lucky and sometimes it takes much longer because things don’t work out as you have thought it in the process. We have two different departments within R&D. The one is a short-term development and the other one are the long-terms, because sometimes you have to start very from scratch when you want to do something.
Giving you an example, two years ago we brought out the first intelligent shoe. It was a shoe with a chip that adjusts automatically the cushioning as soon as you step in, and measures your weight and the surface where you run, and then it adapts the cushioning. Developments like that of course take longer because it’s a complicated process to put a microchip into a shoe, that it works, bring different components, metal and EVA and polyurethane together, glue them together, etc. So therefore we have two different streams, one which are the very short-term people which we need every quarter and every season that we bring in new products, and the other one is the guys who are not set much under time pressure and really think a new product through, how we can improve and revolutionize the category.
Adam Burns:
How do you know – I suppose the million dollar question – how do you know when you’ve got a product right?
Herbert Hainer:
Good – we have a lot of experts for that, and of course not every product which we bring to the market is a hot seller, luckily most of them. But we have I don’t know how many hundreds of people who are working in the product marketing area which are really experts, most of them trained in-house but also brought from the outside, and they are the experts. I’m far away from looking to every product and saying, “This is right or this is wrong, and this color I do like or I don’t like,” because I not the target group. So most probably if I like it then it might be not too good for the market or the other way around. But we really have the experts, and I give the responsibility to the expert, and then they are – they should take care about their category. And as long as this works they can work in silence and I keep a distance.
Adam Burns:
Absolutely. Let’s talk a little bit now if we can about sort of the economic downturn, how it’s impacted Adidas and what you’ve been doing to safeguard the brand. So I mentioned in 2007 revenues were at €10.5 billion. 2008 you were the headline sponsor of the European Soccer Championships and of the Olympics. And in 2009 Q2 net profits are down, along with the industry, and I believe actually were far less than predicted. What are you doing to safeguard this global brand, Adidas, during this sort of global economic downturn.
Herbert Hainer:
Good. When we talk about 2009, the financial and economical crisis and to safeguard the brand, I think we have to divide the numbers in two categories: the one is the revenue and the other one is the profitability. For the profitability there are simple reasons why our profitability was down in the first half. First and foremost higher FOB prices, second one the devaluation of a lot of currencies such as the Russia ruble, the UK pound, the Argentinean peso, the Brazilian real, just to name a few. And the third point was that we also took a one-time charge of close to €100 million for restructuring measures. These are the areas why our profit was significantly down in the first half.
The second point which really shows the performance of your brands and how your products are perceived in the market is the revenue stream. Our revenues are down seven percent currency neutral in the first six months. This is, on the one hand, the financial crisis; on the other hand, we are also running against comparables of the European Soccer Championship and the Olympic Games in 2008. This we calculated being around three to four percentage points. This means net our revenues are down by three to four percentage points in the first six months. Compared to the rest of the world and compared to other industry, I think we are still doing very well, not just as – although the sporting goods industry is in a good position.
I definitely do believe going forward that a crisis like that also gives a lot of chances, and this is what we tried to do. We of course cut out the dead wood, if I may call it that way, we cut out the fat which we have gathered over the last eight years. When you are permanently running from one success to the next and from one successful or record year to the next, you are gaining fat. You are not as aggressive anymore. You’re not as strict anymore on cost controlling and process improvement, etc. And we took the opportunity to cut through, to change the way how we do business to a certain extent, to define new processes, to get faster, to get learner, and to get more efficient, and this is what we are doing.
Of course, on the other hand, we are working on the innovation side to bring new products to the market. And I can tell you or promise you that the World Cup 2010 program which we have shown already to the key accounts around the world is definitely fantastic. So therefore you definitely can expect a lot of new innovative products from our side for 2010.
Adam Burns:
Absolutely. I know that shareholders would agree with you, because - obviously the headline figure was that 93 percent, whatever, but you’re right, the underlying trends rule out, of course. When you talked about that Adi Dassler approach, and my point that I was trying to get to is, is that part of the holistic stripping back of the company, is this kind of process of making it stronger and leaner and more agile? And then do you think that there are opportunities to be had on the other side of this crisis? If you become stronger, leaner, and more agile, is there market share to be gained by Adidas?
Herbert Hainer:
So first and foremost I definitely do believe that we have to look back what Adi has done, and what can we adapt to the time we are in today. And one point is definitely keep it simple, and this is what Adi has done. He has looked to the athletes and he has tried to make the product better and keeping it simple and improve the quality of the product, and sometimes we get a little bit too complicated and too complex in our attempt to reach the market. This is a good opportunity to go back to that, what is really important in our industry, what is really important for our company, and make it simple, make it fast, and make it efficient. This is point number one.
Point number two, yeah, I definitely do believe that this crisis gives us an opportunity to get stronger out of the crisis when it’s over and be to win market share, because a lot of smaller companies will not make it. They don’t have the financial resources. They don’t have the personnel which is able to go through a rough time as we have it in the moment. And we see it already – a lot of smaller companies are struggling. We get a lot of offers on our table. Every week we could acquire companies, and this clearly shows me that there will be a separation. The big ones will get bigger and a lot of the smaller ones will not make it.
Adam Burns:
Absolutely. In early 2007 you predicted three years of single-digit – high single-digit growth. Now you clearly didn’t know what was around the corner, but when you did see the crisis coming what were your immediate reactions? What were your immediate directions for the company?
Herbert Hainer:
Good – we had two points. We created a program which was called Divest and Invest, and we launched this in October last year, shortly after the Lehman crisis, to our people. When I say shortly after the Lehman crisis this would show you that we have started already early before to fight it. And we called it Divest and Invest – on the one hand divest means, yeah, we have to cut costs and we have to save costs on all the different fronts: hiring freeze, T&D cut, etc., etc. But on the other hand I wanted to tell the employees in our company from the very first minute on that we cannot just cost cut our way out of this crisis. We also have to invest for the future, and we did a lot of investment since then. So October 2008, this is eight months ago, nine months ago, we have bought two little companies, Ashworth and Textronic. Ashworth is a golf apparel company, Textronic is an electronics company but should help us to make more innovative product on the garment side for runners and for performance athletes.
We have also invested into new symbols and ambassadors for our company. We just announced two weeks ago that we will be the sponsor for champions leagues, for Europe League, and for Super Cup for the next four years. We have announced just yesterday that the seven times French champion, will play in Adidas from 2010 onwards. And a lot of other investments, though I clearly wanted to give a signal to the company. On the one hand, yeah, we have to do the hard work and the dirty work and to save costs and make us leaner and lose some people, but on the other hand we take this money and we invest it into the future of the company.
Adam Burns:
Absolutely.
In an interview the CEO of Lego, Jǿrgen Vig Knudstorp, who’s done a really, really cracking job with Lego, said that he thinks the way to manage – one of the vital things for a CEO is that they should have any avenue to the truth that he or she can find. And I was wondering if you would agree with that, and what your avenues to the truth are about Adidas?
Herbert Hainer:
This is a little bit too philosophical for me. What I do believe is important that the CEO will always be seen from his employee how things should be done in the company. So you are always a role model, whether you like it or you dislike it, but people look to you and whatever you do, good or bad, they will follow. This means if you, for example, talk permanently about sport and that people should be active and you don’t do any sport, then they will see it and they will not believe you at the end of the day, and this goes through whatever you do. So there is a saying in Germany, “The fish always thinks from the head,” and I think this is the most important thing, that you live what you make – your employees believe in what you make them doing. You should be the role model for them. And if you do that, then people will relatively fast realize that you are honest, you say what – or you do what you are saying, and then you also get their opinion because they know they don’t have to fear any restrictions if they tell you what they think. And you go out – I do sport with our people. We play football together or we run together, and this gives them a feeling that, “Yeah, I am one of them,” and they can tell me what’s going on in the company.
Adam Burns:
So several transformations of the company that you’ve overseen in the sense of Salomon and the Reebok and through the economic downturn, all those kind of things, how do you manage the human side of these transformations?
Herbert Hainer:
Good. Once again, I definitely do believe that you have to talk to people, and talk means not teaching people. So go out, talk to the people, explain them what your thoughts are, explain them what your beliefs are and what your strategy is, and then keep them permanently updated. What we, for example, are doing in the crisis now, or in general we have – every six months we have a so-called all employee meeting hosted by the CEO where I speak to our people for an hour and explain whether the company are, what we are doing, how we see things, what our results are, and then the employees have the opportunity to ask questions.
In the crisis we do it now every quarter, because I want to be as close as possible and to go out as often as possible and keep the communication with the people going, because they hear every day something different in the news, mainly negative. And then rumors are starting around, and if you don’t talk to people then you never know what kind of rumors they just have heard and you cannot correct if they are wrong. And therefore I definitely do believe that communication is one of the most important things, be it during crisis, be it during turn around mood, or when you do an acquisition.
And of course, when we acquired Reebok I was very often in Canton, held all employee meetings, divisional meetings, talked to the first-line management, but not just talking in a business meeting for an hour. I took them out for the evening, or when we gathered them here I took them out in the evening to my house and to my garden and we had a beer and some barbeque. And then we were all talking and discussing and tried to make some feeling that they are part of the whole.
Adam Burns:
Absolutely. And how do you – I suppose I can’t really sort of sit here and not mention Nike because I think that that’s – you know, there is Adidas and Nike –
Herbert Hainer:
Yeah.
Adam Burns:
It’s the Beatles and the Stones – there’s one and the other. What are the plans – how do you react when Nike comes up with something, which is quite a nice little idea, you know, the fact that it plugs into your iPod. Do you go and you say that you celebrate together and you lose together? What’s the reaction like internally?
Herbert Hainer:
Good. First and foremost, we look to ourselves, what our mission is, where we want to be as a company in the future, and this is the direction which we are following. Of course, we monitor our competitors quite closely, and this is not only Nike. You have a lot of other competitors who are good in several individual categories – of course, not everywhere, this is mainly Nike. But you have good running brands, you have good tennis brands, you have good golf brands, and so on. So of course we monitor all our competitors, and if we have to adjust our strategy, then we do it. But mainly we are staying our course in the direction which we think is right for our company and for our brand.
Adam Burns:
Absolutely, and what’s the next move then for Adidas? You talked about the big 2010 with the World Cup. What else can we expect from the company?
Herbert Hainer:
Good. First and foremost, as I said 2010 is just ahead of us and football is our DNA, as you know. Therefore the World Cup is definitely the next biggest even for us. But this is just one part of getting to where we want to go, and this is growing the company, and we had eight fantastic years in growing our company, spreading out around the world, becoming one of the most popular and most international brands around the world. Unfortunately this has stopped now in 2009, but our target is definitely to go back to growth as fast as possible, and there are a lot of opportunities out still there, be it individual categories, as I have often said – auto, for example, is a category where there is a lot of growth potential out for our company. Be it in certain areas or regions around the world – India will be one of the next big, emerging markets. So we have still a lot of growth potential for the years to come, and this is what we try to harvest.
Adam Burns:
Absolutely, and how do you address, I suppose, the other perhaps negative perception of Adidas, which is to do with kind of the outsource of the – the putting together of the shoes, you know, that they’re made in India, they’re made in Indonesia, and these rumors or accusations or whatever you want to call them that perhaps the staff aren’t being treated well? How do you react to those?
Herbert Hainer:
Good. As you said, we have outsourced our complete production already 15 years ago, and this does not mean that we are losing responsibility for the production process and for the people who are working in the production facilities. And therefore we have started already ten years ago to work in close cooperation with our suppliers that the people are treated well. We have a so-called social and environmental department which takes care about that, and we have a report which we publish every year either in written form or on our website and on the Intranet or Internet where we clearly give targets and objectives out, what we want to achieve in cooperation with our suppliers, and then everybody can measure us against it. And this is, of course, no child labor, fair wages, sanitary installations, how pregnant women are treated, no forced labor, how many hours they can work per week or per month, etc,. etc. And I do believe that we are one of the leaders in our industry. This you can see that we are in most of the – or I do believe in all of the global market be it FTSE or the Dow Jones sustainability index and so forth. And this is what we are doing, and I do believe that this is highly appreciated by the worker and by the consumer at the end of the day as well.
Adam Burns:
Of course. And do you go out yourself, do you go and visit these factories? Are you aware of what’s going on?
Herbert Hainer:
Of course, because the sourcing guy is reporting to me directly as well. I mean, we are producing around 220 million pairs of shoes a year and 400 million pieces of apparel. This is quite important to us. And I go out at least once a year where I do a tour between seven and ten days and visit the key suppliers in Far East, talk to them, we talk about new programs, what we as a company do well in cooperation with them, but also where we can improve. And of course I let our suppliers know as well what we are expecting from them.
Adam Burns:
Absolutely. Mr. Hainer, thank you very much indeed – much appreciated.
Herbert Hainer:
Pleasure.