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Sports Apparel Market Expects Uptick From World Cup

Much like the players on the pitch, Adidas, Nike and Puma will be flexing their marketing muscles and competing for excellence and visibility.

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RIO DE JANEIRO — Coincidence or not — when the soccer World Cup kicks off today at 5 p.m. São Paulo local time, it will happen in a market that bears enormous potential for international sports brands.

This story first appeared in the June 12, 2014 issue of WWD.  Subscribe Today.

Much like the players on the pitch, Adidas, Nike and Puma will be flexing their marketing muscles and competing for excellence and visibility, each in their own way. “Brazil is an $11 billion [sports apparel] market, the fourth largest in the world, following the U.S., China and Japan,” said Alexis Frick, a researcher with Euromonitor International, adding that over the past few years the country has experienced a growth rate of 14 percent, “something developed countries can only dream of.” No surprise then that for global sports brands, Brazil, with an estimated population of 200 million, is a strategic battleground, “and football presents the largest opportunity.”

Historically, Adidas, the German titan that considers soccer part of its DNA, has been ahead of the game. Since the brand’s ambitious founder, Adi Dassler, produced his first soccer boot — it featured nailed leather studs — in a little laundry room in Herzogenaurach in 1924, the brand has come a long way, offering one innovative product after the other, ranging from Adizero F50, at 165 grams, one of the lightest shoes on the market and worn by Argentinian captain Lionel Messi, to the world’s first knitted soccer boot, the so-called Samba Primeknit.

Innovation and functionality have paid off for the brand. In 2010, its soccer business stood at 1.5 billion euros, or $1.9 billion; in 2012 it was up to 1.7 billion euros, or $2.18 billion, “and 2014 will be another record year,” a spokesman for the brand told WWD. “We expect to achieve sales of 2 billion euros [or $2.72 billion at current exchange]. In doing so, Adidas will be the first brand to break through this 2 billion euro mark, with football [soccer] performance products alone.”

Adidas has a lot riding on the World Cup — it is banking on the event to jump-start its lackluster sales, which fell 34 percent in the first quarter.

Nike, whose heritage lies in traditionally American sports such as baseball and basketball, is close on Adidas’ heels, profiting from a large home market, where soccer is slowly, but surely gaining ground. According to Nike brands president Trevor Edwards, its soccer business has grown to about $2 billion since the company entered the arena in 1994, when the World Cup was held on its home turf.

A Nike spokesperson said the company “invests a lot of energy into the World Cup, outfitting teams and players and creating a commercial collection,” and will be offering product specifically for the event such as the Nike Mercurial boot, which “redefined football boots when it launched in 1998.” For this year’s tournament, Nike is sponsoring 10 federations, according to Martin Lotti, global creative director for Nike football, and created kits with high-tech features that are unique to each country. In addition, it has created off-pitch lifestyle pieces linked to each federation and targeted to the soccer enthusiast. There will even be a collaboration with a Brazilian graffiti artist for special jerseys for both the host country as well as the U.S.

According to the Nike spokesperson, soccer continues to gain in popularity in the U.S., but the firm sees itself as a global brand: “When we talk to young football players in Europe, they don’t think of us as an American brand, they think of us as a football brand.”

In Brazil, for example, Nike has outrun Adidas, amassing a market share of 12 percent versus 5.5 percent for Adidas, Euromonitor estimates, and Frick added: “Brazil is soon expected to surpass Japan and become Nike’s third largest market, which will be largely due to World Cup associated sales.”

Peter Rohlmann, a German marketing consultant who has been strategically advising various brands since the mid-Nineties, said: “The battle is on, you can’t deny it.” But getting to the end-consumer is a costly and at times tricky adventure.

Though no brand would disclose its World Cup marketing spending, it is known that Nike and Adidas will put 2.3 billion euros, or $3.04 billion, and 1.8 billion euros, or $2.38 billion, on the table, respectively, to finance their total marketing offensives this year, including soccer. “We know that in non-tournament years the brands allocate 10 percent of their total annual profits to marketing,” said Rohlmann. “In years featuring a major event like this one, this number increases by an additional 20 to 30 percent.”

The figures are getting higher with every four-year cycle. According to Rohlmann, all eight brands that sponsor the 32 soccer teams participating in this year’s tournament — including Joma, Burrda Sport, Marathon, Lotto and Uhlsport — will spend 290 million euros, or $395 million, on the teams alone, with Adidas, Nike and Puma accounting for the lion’s share. “This is 40 percent more than four years ago in South Africa, where the number of participating teams was also 32,” said Rohlmann.

Why? “Because there is no other event like the World Cup. It’s unique in terms of exclusivity and worldwide exposure,” he said, pointing to the 3.4 billion people expected to tune in to the event.

Adidas is said to be paying an additional 350 million euros, or $464.7 million, to call itself official FIFA sponsor; the brand has had that title since 1970 and this year signed up for another 16 years, a move seen as a defensive move against rival Nike from marketing its product under the coveted logo. “Coca-Cola has been doing the same with Pepsi for the last 30-some years,” said Rohlmann, while MasterCard’s battle to retain the title ended in court, with FIFA paying $90 million in damages to the ousted sponsor, favoring Visa. “It just pays off,” said the marketing expert.

However, as this year’s tournament has been overshadowed by violent protests in the Cup’s hosting country, the long-term economic impact of the four-week tournament is difficult to predict.

Long gone are the happy days when the country erupted in wild celebration after scoring the winning bid to host the 2014 event. Back in 2007, hundreds of thousands of people poured to the streets to party, and a countdown to what has been dubbed “The Cup of All Cups’’ began.

The mood turned sour as the event’s $11 billion price tag and corruption allegations related to World Cup infrastructure projects turned joyous celebration into disillusionment. Almost every one of the 12 stadiums that were built or renovated for the event cost more than originally planned, while urban mobility projects that were promised as the legacy of the Cup for the people have been scrapped.

Even the most soccer-loving fans don’t see the point of lavish spending on stadiums while basic infrastructure such as treated water, hospitals and schools are in precarious shape. According to statistics agency IBGE, 34 million Brazilians have no access to treated water; more than 13 million Brazilians aged 15 or more are illiterate, while Brazilian teenagers are also near the bottom of global rankings in reading because of a lack of investment and inefficient management of schools.

Separately, anger over public transit fare increases in several Brazilian cities mushroomed into the largest wave of protests the country had seen in more than 20 years.

The government has responded to criticism by saying investment in the World Cup isn’t taking funds away from social programs. President Dilma Rousseff said her government invested 100 times more on health and education than the 8 billion real, or $3.56 billion, it devoted to the 12 stadiums, which former president Luiz Inácio Lula da Silva said wouldn’t cost taxpayers a cent. Total government spending for the tournament, including urban infrastructure projects, reached about 22 billion real, or $9.8 billion, making Brazil’s World Cup the most expensive ever.

Some Brazilians decided to root against their national team, an attitude that was unthinkable until not too long ago. Soccer and the national team are a central part of Brazilians’ identity, said Arnaldo Jabor, a prominent columnist and filmmaker. Now, “Brazil is unrecognizable. There is an historic mutation under way,’’ as Brazilians have awakened and finally see themselves as citizens.

At the core of this awakening are the country’s new taxpayers: 40 million of whom rose from poverty into the new middle class over the past 12 years and recently realized they are getting underdeveloped services in return for the rich-nation taxes they pay. Most Brazilians now spend almost 40 percent of their gross earnings paying duties.

Euromonitor said the muted enthusiasm diminished pre-World Cup sales “significantly,” by half of what they were in 2010, according to some sports retailers queried. But the research company still forecasts a 12.4 percent growth in 2014 in the country.

“A significant proportion of domestic sales will be generated post-World Cup to coincide with the back-to-school season,” explained Magdalena Kondej, Euromonitor’s head of apparel and footwear. Kondej said the tournament remains “a fantastic opportunity for the sports brands to introduce their latest product innovations, especially in the footwear area [performance footwear being the largest category, accounting for 28 percent of sales, followed by performance apparel at 21 percent] and then commercialize these on the mass market once the event is over. Double-digit growth rates are very likely and a spike in growth is expected during August and September.”

Puma, which ahead of the event reported an increase of 3 percent in first-quarter apparel sales, largely due to the launch of soccer jerseys, said it heavily relies on the back-to-school season to boost its business. As reported, the German company is avoiding the hubbub of the World Cup tournament itself and is slated to launch its “Forever Faster” campaign in late summer “when retail is at its highest point in our industry and when we expect a major push,” said Puma’s chief executive officer Björn Gulden, adding it would be a waste of money to do it sooner and in tandem with everyone else.

The brand should nevertheless generate a great deal of buzz via its new EvoPower Tricks boot, featuring a pink right and a blue left boot — a “clever move” expected to increase the brand’s visibility on the pitch, according to Rohlmann. “Puma is of course way behind the big two, but it has always had a predilection for innovations with a twist and it’s concentrating its efforts on football again.”

Adidas, meanwhile, dubbed the 2014 World Cup a “key driver” of its “exceptional growth” in Latin America in the past decade, during which the company’s sales soared from 179 million euros, or $202.5 million, to 1.58 billion euros, or $2.1 billion, in 2013. An Adidas spokesman told WWD: “While a football World Cup is obviously a global event and will affect our football sales around the world, we are mainly growing in the emerging markets like Asia or Latin America, with Brazil as one of the driving forces.”

He added that once the tournament commences it would create “another strong push” for the brand, which expects “ongoing and solid double-digit sales growth in the years to come,” also driven by the 2016 Olympic Games to take place in Rio de Janeiro.

Adidas is leaving no stone unturned. In October 2012, the company opened a new creation center in São Paulo. “Brazil is obviously a very trendy and lifestyle-orientated market, and Brazilian design will definitely influence the global trends in the years to come,” as the world discovers Brazil’s “very special look and feel,” the brand’s spokesman said. He added that it expects to leverage these Brazilian design trends globally via the creation center, which it says will also play “a major role in helping us to reach our growth objectives of the Spanish-speaking markets in Latin America.”

“There is a fashion aspect combined with an ostentation factor that contributes” to football sales, Frick said. “There is a famous saying ‘Cleats are my fashion, soccer is my passion.’ Football lovers are very much into that kind of product, always looking for the latest cleats which the famous players use.” And while these can be very expensive in Brazil, this is “not necessarily a negative factor,” the researcher said. “Ostentation is something important for the Brazilian consumer. Brands like Mizuno, which ranks second in sports footwear in Brazil following Nike and ahead of Adidas, benefit from a portfolio with running shoes that are priced up to $500. And people buy those, not only rich people, but middle-class people,” said Frick, citing 12-time-installment plans as a common option.

Nike, meanwhile, which is sponsoring Brazil’s national team, is currently undergoing an expansion plan called “Twenty Twenty,” which the brand launched in 2012 with the goal of doubling its operations in Brazil by 2020. In 2012, the company opened a brand experience store in Rio de Janeiro’s Ipanema district, and in April it set up its first soccer-only store in the Copacabana neighborhood. “Nike’s innovative stores are aimed not only at generating sales but they are also used as a marketing tool and play a major role in establishing connection with consumers,” said Kondej.

But overall the retail sector, which was expected to gain significantly from sales of Brazil-related merchandise during the tournament, has been on the losing end thus far.

“What’s happening with fashion retailers is a reflection of society as a whole: People are disenchanted with high taxes, the lack of infrastructure, overspending, corruption,’’ said Carlos Ferreirinha, president of MCF Consultoria & Conhecimento, a retail and luxury consulting company in São Paulo. “There is sadness, and anger, and lack of confidence in the air, so from a business perspective, it’s not a happy time, and definitely not a time to make any special investment.

“Fashion and luxury brands thought twice about mobilizing to create products or collections for the tournament,” Ferreirinha explained. “Costs are simply too high. In apparel, for example, the finished products that are made in Brazil are very expensive. Tourists that are coming for the World Cup, already burdened by the high costs of lodging and transportation, won’t spend money on Brazilian fashion, he added.

Most brands simply don’t want to have their names associated with the World Cup because of its negative connotation, added Amnon Armoni, a professor at the M.B.A. course in Luxury Management at São Paulo’s FAAP university. To millions of Brazilians, the tournament became synonymous with inefficiency, overspending and corruption, so it would be risky to peg a campaign or new product line to the theme, he explained.

Sports brands that have soccer as their core business, however, remain largely optimistic. “The current criticism is largely spurred by frustration about the lagging economic development in the country. We hope that the government of Brazil will continue a constructive dialogue with its people and implement improvements for the citizens, as it said it would,” an Adidas spokesman told WWD. “But let’s not forget that millions of Brazilians staged jubilation parties when Brazil was elected host in 2007, and previous sports events have shown one thing: Once the first match kicks off, global focus and enthusiasm shifts to the pitch. We are looking forward to this World Cup and many more encounters in this aspiring country.”

Rohlmann suggested that the most pressure will rest on the Seleção’s shoulders. “We know that the hosting country largely spurs the spending. How the economy does will depend on how long the Brazilian team stays in the tournament. Brazilians are a football-crazy nation. If their team plays well, it will push aside their daily worries. If not, I’m afraid that social unrest will increase. It will be crucial to all business for Brazil to stay in the tournament as long as possible.”

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