The Hindu Business Line : `India can be among top three Asian markets'

As the Managing Director of Adidas India since August 2004, Andreas Gellner is responsible for managing the overall business of the apparel and sports footwear company in India and aims to take the brand to a leadership position in the growing Indian market. Gellner, who has been 10 years with Adidas, became one of the youngest MDs of the company in his previous assignment as the MD of Adidas Malaysia. Under his leadership, it became one of the most profitable markets for Adidas in SE Asia. Gellner, who holds a Master's degree in business administration from Portland State, US, and a University degree in business from Stuttgart, was in Chennai recently during the Chennai Open tennis tournament for some initiatives with Adidas's brand ambassador, the Thai player, Paradorn Srichapan. Catalyst caught up with him for an overview of Adidas in India. Excerpts:

Adidas has earlier indicated that it is looking to have India among its top 3 Asian markets. How far are Indian operations from that slot?

India is very far away from that. But when you look at the potential and the potential growth rates that we are seeing in the Indian market right now, there's a very good chance to get close to that goal. In the very long term, India will be there. The question will only be: how long will it take?

Where does India figure?

Right now, it's among the smaller countries, comparable to the size of operations that we have in South-East Asia. But when you look at the growth rates that we have seen already and that I project myself, then next year onwards we are going to be in a different league. We don't talk about country-level info but this year will see tremendous growth.

Do you see yourself overtaking Reebok and Nike?

Right now, it's a very interesting scenario in India. We estimate that Reebok is the market leader in terms of size and Nike and us have roughly the same size, following Reebok. Nike has started its own subsidiary middle of last year, indicating an increased focus on India as a market. We also decided to change our management to gear up for the growth that is expected to come. That itself creates a very interesting scenario.

Adidas had a subsidiary since 1996. It's just that probably now in terms of management focus and what we want to achieve we think we have found a formula that allows us to better capture the potential of the market. We have been here directly since 1996.

How does it change the rules of the game?

Before that Nike had a licensee-distributor relationship. Now, all three brands are directly represented and that indicates the potential of the market, and raises the stake and the competitive levels here. In the long term, India will also develop a competitive scenario closer to the international scenario, which is a two-horse race between Nike and Adidas. In other markets, Reebok is a distant third. Even in South-East Asia, mainly because they are represented by licensees.

What's your retail strategy here?

No (direct) retailing is possible here. That's why we chose a franchise model. We have a lot of mono-branded environments, and they are key to our brand-building and sales targets but it's all done by third-party franchisees. We have 74 stores. On top of that we have a multi-brand environment, we have key accounts that are operating on a nation-wide level. Apart from 74 stores, it would be distributed through between 800-1,000 stores.

When Nike and Reebok came, they came in with brands which were expensive for the Indian market. There's a certain market for that. But the numbers are in the sub-Rs 1,000 range. Is it the case?

I was pretty much surprised. My previous assignment was in Malaysia, so I know South-East Asia a bit better. I think proportionately we are selling more high-end products here than in South-East Asia. Of course, the market size and the percentage of people able to afford in total population is smaller but the ones who are open to foreign brands and products are very educated, they know about technology, and understand the benefits of this additional money that they spend on technology. The market is actually bigger than I initially expected. Of course, if you go sub-Rs 1,000, you make your products available to a much bigger potential buyer group. But it's a very dangerous path to go down, you can easily lose the essence of your brand, what your brand stands for.

In the short term, you can increase your sales dramatically. But what does it do to you and your brand positioning in the long-term... that's what every company has to carefully evaluate. I know in the FMCG business, like in soft drinks, companies run out of patience and look for dramatic growth in the low-price segment. That's the wrong approach in the long-term.

What's the proportion of your business in the sub-Rs 1,000 price levels?

We have very few items. Right now, those would constitute less than 5 per cent of our business. We have traditionally been concentrating on the higherend. Everything above Rs 1,000 is 95 per cent. And I don't think we have to change this dramatically. Of course, in select areas, we can always try to price one product very aggressively to open up a new customer base. But you have to be very careful that you don't lose the essence. We have to make sure the quality and technology aspect is still maintained.

What has Sachin Tendulkar done to your brand?

We do consumer research on our brand positioning. The results that we are getting back is that our brand in terms of defined brand equity (combination of aspirational levels, brand recognition, long term-perspectives of the brand) we are on top among international competitors. One major contributing factor to that has been our association with Sachin. Which has also been confirmed by the research — there has been a very high recall on Sachin and Adidas association.

It's always dangerous if you take some personality who's as big as Sachin and to make sure that he's not overshadowing your brand. I think we have found a fine balance in the past and a lot of our brand positioning is attributable to this association.

How long does your association with Sachin last?

We signed for another six years last year. I think that should work very well, as long as his active playing career. Also, what we prefer globally is to work with athletes once they retire and continue to have them as brand ambassadors and I think Sachin by his character and his ambition would be a great brand ambassador for us even after his active career.

So, you expect to overtake Reebok next year?

I don't know what their plans are, so it's very difficult to say. Our plans are extremely aggressive. Our mission is to be the leading sports brand in the world and in India as well. We have all the ingredients for that. I see our position very positively. We are committed to the market, we have a very good team, we work with the best brand ambassadors in India and have a very strong product on top of it.

Do you have any figures for the market size in India for the premium end of the market?

I don't have any research myself. I have read lot of other statements by competitors andthey have always mentioned the current market size to be between Rs 400 and Rs 500 crore for the premium segment. I have no way to validate that. But if you take the apparel market, it's a little bit more tough to say how big or how small the market is. In apparel, we are also transgressing into the lifestyle segment. So, the number of competitors is a lot bigger that is competing for the same customer and same product. Apparel is even more difficult to establish market size.

Brands like Adidas, Nike and Reebok have transcended sport to get into lifestyle. Do you see that happening in India?

Before the '80s, it was really not important how the shoe looked, functionality was the key. And Adidas dominated the world market, probably with a 70 per cent market share. Then all of a sudden, sport changed. The new entrants, Reebok and Nike, changed the fundamentals of business. It became also important how you look when you are at sport. So, fashion became an integral part of sports. And that changed the industry in the mid-'80s and '90s. And you can't separate it anymore. But what is very important for us as a company is: yes, we acknowledge that the fashionable aspect of business is very important but everything we do stems from sports and sports performance.

What would be your positioning in the Indian market?

Our positioning clearly is a performance sports brand. That doesn't mean we can't have fashionable products. But our main focus, our communication and, therefore, our positioning is centred around sports and sports performance.

So, apart from Sachin would you get involved with cricket in a larger way?

There are actually very strong developments in our global organisation regarding cricket. Cricket has been an unknown factor in the past. Now, recently we are getting a lot of support globally in terms of cricket development. In India, we are also involved with Sehwag, Nehra and Zaheer Khan. We also recently signed up with Team Australia. It will be equipped by Adidas from September 2005 (till now it has been Fila.). Australia is acknowledged as the strongest team in the world, so it will be boost for our cricket credibility.

And we have a very interesting cricket shoe project coming up. Coinciding with the launch of the relationship with the Australian cricket team, we will make the world's leading cricket shoe available (in terms of technology and features). I have seen the concept studies and product brief, I think it's going to be a defining product for the industry.

What's your plan for Adidas 1?

Though we launched it last year, the actual retail introduction will be in March this year. Adidas 1 is the world's first intelligent shoe. It has a microchip and it's constantly adjusting the cushioning constellation according to the ground conditions. Also, it can recognise if the athlete gets tired and adjust the cushioning properties accordingly. We haven't established the Indian retail price yet but initial indications are that the international retail price would be around $270.

You had planned to use Sachin as a global ambassador. Is that happening?

We have done that already via the inclusion of the `Impossible is Nothing' campaign, which we saw in August-September last year. We have to continuously look for opportunities in campaigns where a multitude of athletes are being utilised, and look if he fits in. Whenever an opportunity comes along, he will be one of the hot contenders.

Would you be using him only in cricket-playing countries?

Not necessarily. But he is of more relevance in cricket-playing countries. As a brand ambassador, you have overall importance. Another area where Sachin will help us is the promotion of the Premier Hockey League.

What's going to happen to your media campaign this year? Will it be television-led ... ?

Our campaigns typically try to address all levels that we have. We cannot centre our campaign only around TV anymore. Most campaigns try to address everything from TV, print, Internet and direct communication, which involves our contact with the consumer at the store. So, we are trying to address all touch-points. But the weightage for each might change depending on the campaign.

You invest so much in creating a brand imagery. The next thing you know is that the same product is on sale. So, what happens to the brand imagery?

No business, even the luxury goods business, can live without clearance sales. Especially in a business where there's a size issue, you will always end up with broken sizes. You have changes of season coming up, so you need the fresh stock to move in and aged product to move out. It's a natural part of doing business. The question is: how much, in terms of portion, is it on your total business? And how do you do it — there are more elegant and less elegant ways of clearing your product. If the proportion is right and you are taking the correct channels to sell, then your consumer understands very well that if he/she wants the latest and the best product then he/she should go to the franchise outlet. But if the budget is lower, then the consumer goes to the factory outlet. The consumer is still happy to be part of the brand — he/she hasn't spent a lot of money but it's also not the latest product. So, the consumer will probably not show it off to friends but the product still gives the same function.

How many factory outlets do you have?

Across the country, we have 17 or 18.

What percentage of sales do they account for?

In terms of percentage of sales, it's luckily below 10 per cent of our business, which I consider acceptable and not overshadowing. It's a typical sign of a rapidly growing market that clearance sales are not that much needed as in a more stagnant market environment.

What about your manufacturing set-up here?

Eighty to Eighty-five per cent of the products that we sell here are also manufactured in India but not done by ourselves but through contract manufacturing.

So, it's really the high-end products that you source from abroad?

Practically, it's the products with a high technical complexity and of course shoes with a smaller production run — if you only sell 200-300 pairs of one shoe, no local factory will be able to produce (in a commercially viable way) those volumes. They are all imported.

But are the components imported?

Not necessarily. Some raw materials have to be imported but that holds true for any market. I mean, some of the raw materials that you need for apparel or shoe manufacturing can be only found in Taiwan. So, no matter if you produce in Germany or in India, you have to import from Taiwan.

But I guess with the development of the Indian market, there's a possibility of more and more of these raw materials to be available in India.

You had talked of trying to revamp distribution. What steps have you taken?

A two-pronged approach, basically. Our internal organisation hasn't been focused on distribution. Distribution was always a part everybody was not only involved but felt responsible for it. We created a department with a managerial position, which is only taking care of distribution because it works according to different rules and timelines as a franchise business, for example. And that department will come up with specific programmes and in terms of product and marketing support for our 40 distributors.

And the other perspective is that we have to seriously re-evaluate our distributors that we are working with. We need people who share the same vision and aggressiveness and that hasn't been the case in all our partners in distribution. Re-evaluation will identify those distributors who don't fit in with our requirements.

You also plan to expand your retail presence?

Franchise shops are one of the most significant ways of reaching out to customers. Now we have 74. The expansion plan depends on factors like how many malls will come up this year. It can be anywhere between 20 and 40 shops this year, including in new cities.

It can also be smaller towns. We did a very successful pilot study on how to reach out to cities with population below two lakh people with a franchise model. Products could be entry level but we can't underestimate purchasing power and knowledge. India is slightly different from South-East Asia and even China, considering these factors. But naturally the product mix will be skewed more in favour of entry-level products in smaller cities.

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