will Kanye West bring Adidas back into fashion?

Kanye West

Kanye West has many fans, but Herbert Hainer is clearly not among them. Asked which of the American rapper’s songs he likes most during an earnings call on Thursday, the chief executive of German sportswear company Adidas laughed. “I guess I’m too old to follow Kanye’s music.” Hainer and his business will be hoping that Adidas customers are more switched on.

Next week, the latest trainer from the collaboration between the pop star and Adidas, launched under the “Yeezy” range, hits stores. If the buzz on Twitter and Instagram is to be believed, the release of a new Yeezy Boost 350 is much anticipated.

One of Kanye West’s 'Yeezy' shoes released earlier this year.

Adidas is also hoping that its fiercest competitor takes note. The collaboration with the rapper is Adidas’s latest attempt to gain ground in its ongoing rivalry with Nike. Although the company with the three distinctive stripes presented solid third-quarter growth figures on Thursday, with sales up 13% to €4.8bn (£3.4bn) and net income up 10% to €311m, it is still struggling to catch up with its old enemy.

Last year, Nike’s revenues rose 10% to $30.6bn (£20bn). Adidas, meanwhile, reported 2% growth on revenues of €14.5bn for 2014. The gap gets even bigger once company targets are factored in: Nike recently set its revenue target for the year 2020 at $50bn. Adidas’s aim for the same date is less than half that, at €22bn.

Much of this disparity is due to the role of the US market in global sportswear, and the relative positions of Nike and Adidas within it. The country, where Nike was founded in 1964, accounted for $96.5bn of the industry’s total revenue of $268bn last year, according to research firm Euromonitor International. Western Europe, the home turf of Adidas, was worth only $56bn.

North America is not only the biggest market in terms of revenue. “It still defines what’s cool in sportswear”, says Christoph Metzelder, the former German football star and now managing director of sports marketing firm Jung von Matt/sports in Hamburg. Coolness, however, has not been a key asset for Adidas in its battle with Nike until now.

Adidas has focused on the functionality of its shoes as its main selling point. This has been the case since the company’s founder, Adi Dassler, invented a football boot with removable studs, whose suitability in all weather conditions made it an unlikely hero of the West Germany football team that won the 1954 World Cup in the “Miracle of Bern”. Until the late 1970s that worked quite well and Adidas dominated the market. But then came Nike.

Nike’s co-founder, Phil Knight, chose a different approach. When he brought in American basketball star Michael Jordan as the brand’s face in 1985, he hit a nerve. The “Air Jordan” has been lauded as the most famous sneaker ever since.

Nike’s first Air Jordan, released 1985.

In 2005, Adidas tried to catch up by acquiring its US competitor Reebok.Hainer, who has led Adidas since 2001, called the $3.8bn deal “a once-in-a-lifetime opportunity”. But it has not paid off so far. Last year, Adidas dropped to the No 3 rank in North America for the first time, falling behind newcomer Under Armour.

But Adidas is far from giving up. Last year, the company promoted two Americans to top management roles. Mark King, who previously ran the golf division TaylorMade, is now overseeing the North America business, while Eric Liedtke is taking care of the group’s brands. Adidas has also hired three of Nike’s top designers to join its newly established design studio in Brooklyn – a more trendy workplace than the company’s headquarters in the rural Bavarian town of Herzogenaurach.

Adidas headquarters in Herzogenaurach. The campus also has a running track.

Finally the company signed Kanye West, who previously was Nike’s brand ambassador. In Thursday’s earnings call Hainer did not want to comment on how much Adidas pays for the rapper’s commitment. Analysts estimate it to be a multi-million dollar investment. West himself said earlier this year that Nike has offered him $4m per year to stay, but had disappointed him by failing to offer royalties. Adidas spends more than 13% of annual sales on marketing, which is above the industry average of around 10%.

Despite the frenzy among Kanye fans whenever a new “Yeezy” goes on sale, industry experts are doubtful about the size of the benefit it brings to Adidas. “Such collaborations will continue to help the company’s brands bolster sales in the short term, but they are unlikely to provide a significant boost to long term revenues”, says Natasha Cazin, analyst at Euromonitor International.

Stars come and go, and so do customers and their fashion preferences. “Young consumers are not as loyal as their older counterparts, they switch brands quite often”, says Metzelder. Brands can soon be forgotten, he adds. “Who would have thought that a brand like Nokia could disappear?”

While Adidas is pushing for greater success in the US, Nike is making gains in the core business of its German rival: football. Although Adidas is official partner of the German football federation DFB until 2018 and and Fifa until 2030, some domestic stars do not feel a patriotic pull when it comes to footwear. In the World Cup final last year, Germany’s Mario Götze scored the winning goal in a pair of neon yellow Nike boots.

Mario Götze during the 2014 Fifa World Cup final - wearing Nike shoes.

Recently, Adidas’s American rivals have targeted a long-time neglected customer group in the sportswear market: women. Nike has started a womenswear collaboration with Sacai, a Japanese label overseen by former Comme des Garçons designer Chitose Abe. Under Armour has also signed supermodel Gisele Bündchen for an advertising campaign.

Next year the marketing battlefield will move south, from the US to Brazil for the Olympic Games in Rio de Janeiro. Unlike in the London and Beijing games, Adidas is not an official sponsor – this time it is Nike’s turn. “We decided to use the money otherwise,” Hainer said. For Adidas, the hope is that Kanye will make a significant contribution to the fightback.