Paul Harrington, Reebok’s president and chief executive, is leaving the company to be replaced by Uli Becker, chief marketing officer, as the brand continues to suffer declining sales as well as orders, in spite of better margins. Adidas has already replaced all of the American company’s regional executives, plus the chief executive of Rockport, and Harrington’s departure rounds off the management shake-up. While Harrington efficiently implemented the integration between Adidas and Reebok, Becker is expected to inject some much-needed marketing zest.
Becker joined Adidas in 1990 as one of the youthful business unit managers who helped to revive the Three Stripes under the leadership of the late Rob Strasser. Becker then hopped from marketing to product and business development, and from Herzogenaurach to Portland, Oregon.
From 2002, Becker acted as the managing director of Adidas International in Amsterdam, and he was behind the much-lauded “Impossible Is Nothing” campaign. He moved back to the USA to become chief marketing officer at Reebok in May 2006. Becker, 44, will take over the hot seat at Reebok at the beginning of April, while Harrington will move to California to become chief executive of Easton-Bell, the sports equipment company, replacing Tony Palma.
The switch comes as Reebok’s sales continue to dwindle. While the Adidas group initially expected Reebok’s sales to show some improvement in the second half of 2007, the numbers again declined by 5 percent for the last quarter in constant currencies, or by 12 percent in reported terms, to €567 million.
The downturn was particularly painful in Europe, where Reebok’s sales were down by 23 percent in euros to €165 million for the quarter. The brand was up against large volumes of sales in the UK at the same time the previous year, when it gave up cheap inventories. Reebok’s sales in North America were down by 15 percent in reported terms for the quarter to €296 million.
For the full year, Reebok’s sales were stable in constant currencies, but this was because the figure for 2006 covered just 11 months. On a comparable basis, Reebok’s sales dropped by 5 percent (in constant currencies, excluding the effects of the transfer of sponsorship deals with the NBA and Liverpool to Adidas, but including retail sales of the Greg Norman brand in stores owned by Reebok, which were previously attributed to the TaylorMade Adidas Golf segment). In plain euros, the Reebok group’s sales fell by 5.7 percent to €2,333 million for the year.
The situation for the Reebok brand itself is even less uplifting. While Rockport’s sales grew by 7 percent and Reebok-CCM Hockey by 9 percent for the year in constant currencies, the Reebok brand saw its sales decline by 7 percent on a comparable basis (again removing the effect of the longer year in 2007 and the transfer of the NBA and Liverpool deals), or by 2 percent in reported terms. It suffered declines in sales of lifestyle products and nearly all major sports categories, with the exception of running.
The sluggishness of the US market and Reebok’s ongoing clean-up of its distribution in the UK were blamed for the fall and the delayed turnaround. In Europe, the Reebok group’s sales dipped by 1 percent in constant currencies, as growth in the emerging markets could not make up for the rough situation in the UK. In North America, the brand’s revenues were down by 5 percent for the year, which could not be offset by double-digit sales increases in Latin America and Asia.
On the other hand, the Reebok group’s gross margin has progressed by 3.7 percentage points to 38.7 percent in 2007. This is partly due to the negative impact of purchase price allocation in 2006, but it also includes cost synergies from the integration of Adidas and Reebok sourcing. Furthermore, Reebok enjoyed a rise of 31 percent in sales at its own stores, up by 22 percent in euros to €371 million. Reebok’s gross profit ended at €902 million, up by 4 percent.
The US-based group’s operating margin gained 1.2 percentage points but remains very low at just 4.7 percent. The improvement in the gross margin was diminished to some extent by higher operating expenses, as Reebok launched two large-scale advertising campaigns, "Run Easy" and "Your Move."
Reebok’s orders don’t show any signs of improvement so far. In constant currencies, they declined by 1 percent in Europe and by 20 percent in North America. Only Asia managed an increase, rising by 12 percent, for a total decrease of 8 percent in the Reebok group’s order backlogs in constant currencies.
However, the Adidas group’s chief executive, Herbert Hainer, insisted that the order backlogs poorly reflected the situation. He expects that Reebok’s sales would continue to drop at a low single-digit rate in North America in 2008, but he was certain that the brand’s overall sales would grow at a low to mid single-digit rate for the current year, because of higher sales in Europe and Asia.
Although sales are so far failing to come through in Reebok’s largest markets, Hainer was satisfied that the brand had already achieved a shift in its distribution. At the time of the acquisition, almost none of Reebok’s sales came from sporting goods stores, but in 2007 the specialist stores accounted for about 15 percent of Reebok’s turnover in the USA, and about half of Reebok’s sales were generated by sports products as opposed to lifestyle gear.
Among the many initiatives planned to make Reebok more visible in the right places, the company intends to open about 500 corners in North American stores by the end of 2008. It has virtually no such corners for the time being, apparently prompting some consumers to complain that they can’t find the right Reebok products.
In Europe, Becker will support a new push to break through in some influential accounts with performance as well as lifestyle products. For example, Hainer stated that Reebok had secured orders from 150 new accounts through its presence at the latest Bread & Butter show in Barcelona.
