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How sneakers are driving Adidas’ comeback in America

Daniel Roberts

Kasper Rorsted, who took the reins as CEO of German sportswear giant Adidas Group this month, is a very different executive from the company’s previous CEO. And based on new market share data out Tuesday, he has inherited a much healthier company than the one that was flailing in America just two years ago.

The prior CEO, Herbert Hainer, was an Adidas lifer who first went to work for the company in 1987 in its sales department. He became CEO in 2001 and held the role for 15 years. Rorsted is an industry outsider, new to sports apparel. But he has a “cult-like following” among investors thanks to his eight years running Henkel, the German beauty-care company that makes Dial soap. (No wonder: Henkel’s market cap quadrupled under his watch.)

Adidas stock jumped double digits back in January when the company announced Rorsted as successor to Hainer. And the stock is up 78% this year, compared to Nike, which is down 17%, and Under Armour, down 5%.

Adidas vs Nike vs UA stock in 2016
Adidas vs Nike vs UA stock in 2016

Adidas has leapfrogged Skechers and made gains on Nike

At the time of the Rorsted announcement, investors were starved for any good news about the company, which was just starting to climb out of a hole in the crucial US market. Morningstar analyst Paul Swinand commented at the time, “Is Rorsted really going to move the needle in the next year? He probably has to fire 20% of the people just to get rid of the institutional inertia.”

But Adidas has changed since January, and the outlook for the German giant in America is suddenly much sunnier. In 2014, Under Armour surpassed Adidas to take the No. 2 spot in US sports apparel. This year, Adidas quietly got revenge of sorts, recapturing the No. 2 spot from Skechers in US athletic footwear. And it’s the footwear market that matters most, analysts say, for a sports brand—if a brand’s shoes are hot, kids will gravitate toward the apparel next.

From January through September of last year, Adidas had an average monthly market share of 4.3% in US athletic footwear, according to NPD Group. Nike’s was 41%. For the same nine-month period this year, Adidas’s average share shot up to 7.1%, while Nike’s fell to 38%. In other words: Nike is still much bigger (and that market share figure doesn’t include Jordan Brand and Converse, which it owns) but Adidas is growing fast, and eating up share from Nike.

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What’s driving the Adidas comeback in America?

It all comes down to product. In sneakers, Adidas has wisely blended the old and the new. The company’s top five sellers for this year’s back-to-school season, a key indicator, were: Superstars; Stan Smiths; NMD; ZX Flux; and Boost. The first two of those are old classics (Adidas houses them under its “Originals” category) that have been relaunched with an updated look, without departing too much from the vintage model. The latter three are new shoe designs; Adidas launched Boost in 2013, Flux in 2014, and NMD in 2015.

“If you really look at the two hot categories in the US sneaker market today, it’s about retro footwear, and it’s about lifestyle running shoes,” says NPD Group sneaker analyst Matt Powell. “While the product was designed for performance, it’s being sold and worn as a fashion item. I would put NMD, Flux, and Boost all in that category.”

Adidas NMD
Adidas NMD

Powell adds that when he talked to sneaker retailers over the last few years and asked what was wrong with Adidas in the States, “They said they just don’t have the product our customers want. More so for footwear than apparel.” Footwear is the key—fix that, and apparel sales tend to follow.

Adidas fixed it. Beginning two years ago, it began a massive reorganization that involved moving 200 employees from its global headquarters in Herzogenaurach, Germany, to its US headquarters in Portland. The transplanted workers included its chief of design; the goal was to better mesh the two home bases, which had too often operated independently. Global brand chief Eric Liedtke, who has done long stints at both headquarters, told Fortune last year that there was often a “huge divide” between the two. The reorganization has sought to bridge it.

“We like to say it’s American-led insights, backed by the German innovation machine,” he said. “And when we get that right, Baltimore and Beaverton better be scared.”

Powell believes it is the re-organization that sparked the US comeback and refreshed the product pipeline. “They challenged the German people [who moved to Portland] to immerse themselves in the US market and figure out what the US consumer wanted,” he says. “That product delivered late last year, and from that period of time, the business has taken off.”

Adidas has also done a lot more in the last year with athlete endorsements and celebrity partnerships. During the first week of the NFL season, it rolled out a glitzy new “Creators” ad showing off its stars across all the major sports: Von Miller and Aaron Rodgers in football; James Harden, Jaylen Brown, Brandon Ingram, Jamal Murray, and Moriah Jefferson in basketball; Kris Bryant in baseball; and Paul Pogba in soccer. It also extended Kanye West to a longer design contract that will involve brick-and-mortar Yeezy stores.

These signings are important for generating buzz, but don’t typically move the needle for sales, Powell argues. The deal with West, in particular, is often credited for Adidas’ recent success in the States, but Powell says, “Collaborations with artists are by definition tiny. Think of it this way: Adidas sold 300 million pairs of shoes last year, and I’d be surprised if they made even 50,000 pairs of Kanye West shoes.” (Adidas does not share how many pairs of the Yeezy Boost it has manufactured or sold.)

In other words, the company’s success is more attributable to the product than the celebrity. And the product is hot right now.

Daniel Roberts is a writer at Yahoo Finance, covering sports business and technology. Follow him on Twitter at @readDanwrite.

Read more:

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