Managers of Reebok faced tough questions at an investors’ day last week, after it emerged that they were not expecting any sales increases until 2009 either in the USA or in the UK. Company executives justified the expected downturn with ongoing efforts to clean up the distribution in these two big markets, but said that growth in other markets should still allow Reebok’s overall sales to pick up this year and to begin a more convincing recovery next year.
Reebok’s ongoing problems in the U.S. market were highlighted by poor sell-through and discounts on its products at Foot Locker. They have prompted the company to quit taking forward orders from the largest athletic account in the USA and to honor instead only its at-once orders for the next 6-9 months.
This and other moves have led Reebok to reduce its inventories in the USA while raising the proportion of sales to sporting goods retailers from about 10 percent to 17 percent over the last two years. So-called “directional accounts” now account for about 18 percent of the brand’s U.S. sales, compared with 10 percent in 2005.
While Reebok’s margins may benefit from this new policy, it has led to an obvious decline in market share. Quoting NPD and Sports Scan, a reputed financial analyst, John Shanley, pointed out that the combined share of Adidas and Reebok has dropped by about 4 percentage points to 15 percent since Adidas’ takeover of Reebok in 2005.
The picture is similar in the UK market. In the meantime, Reebok has had more joy in emerging European countries such as Poland and Russia. At the same time it has rebounded in some more mature and sports-oriented markets like the Nordics, where it saw a sales rise of about 15 percent this year. It expects about the same score for 2008.
Just as in Europe, where Reebok poached Nigel Griffiths from Nike to run its operations in the region, wide-ranging opportunities in Asia are to be exploited by new managers. John Chappell, former head of Reebok Asia Pacific, left the company in February to be replaced by Dave Mischler, Reebok’s former head of global planning and supply chain integration.
Uli Becker, Reebok’s chief marketing officer, detailed a global strategy intended to position Reebok as “the brand that fits me.” Under this concept Reebok should retain its individualistic touch but move beyond inner city icons and consumers. Product innovation also revolves around the concept of “fit”: Reebok’s most striking new footwear range, called Smoothfit, is built around a seamless inside and has no overlays on the outside either. It will be launched on a small scale in the Spring of 2008.
The global marketing strategy calls for Reebok to focus on just two categories, running and women’s products, adding regional priorities like U.S. team sports in North America and soccer in Europe. The plan calls for investments in apparel, emphasis on digital marketing and a harmonized brand identity, featuring the word Reebok - instead of Rbk - in a rounded font and light blue lettering. It has already been placed on shop fronts and will be used in all marketing campaigns next year and on all products from 2009. Reebok’s marketing spend should remain in the range of 10 to 11 percent of sales but the investments will be more focused, with the bulk of spending going to just one or two annual campaigns.
Rick Paterno, chief executive of Rockport, was almost ecstatic about the most recent results of its cooperation with Adidas under the new ownership. Rockport has received orders for about 200,000 pairs of Rockport footwear with Torsion technology by Adidas, about 65 percent of them outside the USA. The group has just begun to sell the brand to Foot Locker for the U.S. market, while the international presence of Adidas has enabled it to penetrate many new markets. Paterno predicts that Rockport’s sales outside the USA will grow from 35 to 50 percent of total sales by 2010.
Managers of the Adidas Group continued to be most upbeat about the prospects of the Adidas brand, forecasting growth in all product categories for next year. Adidas has sold two million pairs of Bounce running shoes. While starting from a relatively low level, running is enjoying double-digit sales growth this year and the trend looks set to continue in 2008. The larger training category is seeking growth through the extension of the Stella McCartney range and through TechFit, a range of compression apparel.
Adidas’ sales of basketball products have been declining this year as related footwear styles have gone out of fashion in the U.S. market, but the company expects that this drop will be offset by fast growth in other markets from 2008 onward. By 2010, Adidas’ basketball sales outside the USA are expected to reach the same level as in the USA. The brand’s deal with the NBA has yielded a 30 percent rise in licensed product sales so far this year. About 30 percent of these sales were not in the USA and Adidas is expanding this share fast, for example by opening its first NBA concept store later this year in Istanbul.
Adidas has already sold 200,000 L.A. Galaxy jerseys named after its star player, David Beckham, who is creating new excitement around soccer in the USA. Adidas’ sales of football boots should reach a new record next year on the back of the 2008 European Championships as well as line extensions. Next year will see the introduction of a third range of soccer boots, along with the Predator and F50. To be called “Pure,” this line is targeted at the style-minded football player who wants an updated classic design. Originals will have their own line extension next summer with the introduction of Sports Casuals, a range of style-oriented garments at entry-level price points, with a new boxy logo.
Emerging markets will help drive group sales under all its brands. Eastern Europe is set to grow from 20 to 30 percent of sales in the Europe, Middle East and Africa region by 2010. Russia, where it now has 600 stores, will become the biggest European market for the group by then.
While reiterating his widely reported sales targets in Asia, Herbert Hainer, the group’s chairman and chief executive, drew attention to its even faster expansion in Latin America. Opportunities abound for Reebok in the region as several distribution deals are about to expire. The group is targeting market leadership for Latin America as a whole by 2010.
The increasing weight of the group’s own stores in the overall turnover will continue to boost international growth. For the group as a whole, the Adidas Group is targeting an increase in the proportion of sales generated by company-owned stores, franchises and shop-in-shops to about 30 percent of sales from less than 20 percent at present.
Meanwhile TaylorMade has continued to grab market shares in metalwoods, following the launch of two new models earlier this year. It is currently estimated at 29 percent for this category in the USA and at just under 24 percent worldwide – about 10 percentage points ahead of its closest competitor. The next target is to attain a global market share of 30 percent by 2010.
TaylorMade has been performing just as strongly with irons, snatching market share chiefly from Callaway Golf in this category over the last 18 months. Mark King, chief executive of TaylorMade-Adidas Golf, claims that Adidas is the global leader in functional golf apparel and the fastest-growing brand in this category, and that it is the second-largest brand in golf footwear, with a global market share of about 20 percent.
