Oct 1, 2013
Adidas calls in fitness experts to revive Reebok
Oct 1, 2013
FRANKFURT, Germany - Reebok is turning to sponsorship deals with prominent fitness groups to try to revive a venerable name that has faded since it became part of Germany's Adidas sportswear group eight years ago.
The sports shoe and clothing brand is winning converts among hardcore sports enthusiasts and aims to build on this support to make up ground it has lost to rivals such as global market leader Nike.
"They had a sticky patch, but now the shoes and gear are good," said former triathlete Steve Antcliff who runs a gym in the German city of Frankfurt offering CrossFit classes, for which Reebok produces training shorts, shoes and shirts.
The CrossFit regime of squats, lifts and rope-climbing has been imported from the United States and is attracting devotees in Europe.
Adidas hopes to revive Reebok after paying $3.8 billion for the company in 2005 in order to take a larger slice of business in the United States, the world's largest sportswear market with sales of $80 billion.
The deal instantly doubled Adidas' U.S. sales, and taking over Reebok's basketball and baseball contracts gave the German company's famous three-stripes brand more exposure there.
But U.S.-headquartered Reebok has struggled. It lost a contract to supply the U.S. National Football League and was hit by a lockout at the National Hockey League. Its toning shoes (intended to tone the body as you walk) fell out of favor, and it was the victim of fraud in India.
After cutting the brand's 2015 sales target by a third last year, Adidas also took a 265 million euro ($358 million) writedown on its fourth quarter 2012 results.
Now it is promoting Reebok as a fitness brand via a range of sponsorship deals and shoe launches. The strategy is not unlike a renewed emphasis on soccer deals, team sports and running products now underway at rival Puma.
For Reebok, the effort appears to be paying off. When Adidas warned on its profit last month, analysts were quick to note that Reebok was, for once, not cited as a problem.
"It's confirmation that Reebok is doing better," Cedric Lecasble, an analyst at investment group Raymond James, told Reuters. "While it's not really impressive yet, the strategy is more focused and I expect Reebok will be the strongest brand in terms of sales growth in the third quarter."
Adidas CEO Herbert Hainer has predicted growth in coming years.
"We're getting more and more confident about what we're doing. Slowly but surely it's starting to pay off, as we can see in sales at our stores and in the acceptance of our collections from wholesalers around the world," he said when Adidas announced its results in August.
FITNESS AND FASHION
Adidas says it needs several brands to cover the whole of the global sportswear market. The Adidas brand is big in soccer and basketball, while Reebok is focussed on fitness and fashion.
Following the CrossFit sponsorship deal, Reebok has linked with fitness group Les Mills - known for its Bodypump and Bodycombat classes - and the Spartan Race series of obstacle course races.
Such tie-ups have a longer life cycle than other marketing strategies, such as television or print advertisements, Nomura analyst Christopher Walker told Reuters.
"You do notice these things as a gym goer. You probably get a better return on those investments than you do for an advert that appears on television for a month and is then forgotten."
Sector experts also applaud Adidas for stepping back from growing sales at all costs in order to improve Reebok's gross profit margin - a key measure of profitability in the sector.
After second quarter sales rose 11 percent and Reebok's gross margin improved by 4.1 percentage points to 39.4 percent in the first half, more is expected for the third quarter.
While that's the highest gross margin for the period that Reebok has achieved since it was bought by Adidas, it's a long way off the 50.1 percent for the group as a whole in the first half. Nike's rose 1.2 percent to 44.9 percent in its first quarter.
Reebok accounts for around 10 percent of Adidas sales, while Reebok's share of the global $245 bln sportswear market has slipped to 1.8 percent in 2012 from 2.1 percent in 2007, according to Euromonitor. Adidas is the world number two with a 9.5 percent market share, behind Nike on 13.6 percent.
SHOES STAND OUT
Like its rivals, Reebok is shifting to higher priced products that offer more performance elements to boost profitability.
The average men's running shoe in the United States cost $69 in 2012, a 6 percent increase on 2011, and year to date it's also up 6 percent, said Matt Powell, an analyst from research group SportsOneSource.
Since the 1980s, when its all-white 'Princess' sneakers were top sellers in the United States, Reebok has been losing ground. In 2005, it was still second in the running market with a 12 percent share behind Nike. Now it is the No. 5 behind Nike, Brooks, Asics and New Balance.
Trying to stand out in a crowded market, Reebok launched the ATV 19+ all-terrain running shoe, at around $140 a pair.
Its knobbly sole led reviewers to call the shoe bizarre and ridiculous but the attention could help to secure shelf space in the big U.S. chains.
The aim is get Reebok on consumers' minds again with a steady stream of product launches.
"Ideally they will then buy other Reebok products - sneakers for the weekend or yoga pants," Reebok boss Matt O'Toole said in an interview with Handelsblatt newspaper last week.
© Thomson Reuters 2022 All rights reserved.