How Adidas Is Whipping Reebok Into Shape
At a CrossFit gym in Nuremberg, Germany, customers sweat through a workout called “Fight Gone Bad.” The same could be said for Adidas’s (ADS) effort to turn around the foundering Reebok, the shoemaker it bought in 2006. The workouts require people “to keep up the intensity, each and every time,” says Ginger Sladky, 40, who set up the gym in March with support from Reebok, which sponsors CrossFit worldwide.
Adidas hopes sponsoring CrossFit, an exercise routine done in gyms called “boxes,” will restore Reebok’s intensity. The brand that helped make step aerobics a staple around the world two decades ago has posted sales declines for three of the five full years since Adidas bought it for $3.7 billion. The company, which won’t say how much it’s paying for the sponsorship, has designed clothing and shoes for the routine and splashed the Reebok name across 70 gyms in 30 countries affiliated with CrossFit, a Washington, D.C., licensing company.
Reebok is cooperating with an Indian government investigation of alleged fraud by two former executives there. And in April it lost a contract to outfit the U.S. National Football League, which may cost Adidas more than €200 million ($250 million) annually in lost revenue. After a brief sales bounce due to its “toning” shoes, which the company claimed help strengthen leg and butt muscles, Reebok has forecast another drop in revenue this year. In September, Reebok agreed to a $25 million settlement to pay for consumer refunds after the U.S. Federal Trade Commission accused the company of deceptive health claims about its toning footwear. Reebok said at the time that it disagreed with the FTC’s allegations.
Given the bad news, Reebok will post revenue of €2.6 billion in 2015, according to analysts surveyed by Bloomberg—short of the €3 billion Reebok pledged to investors. Despite losing the NFL contract, Adidas says it stands by its goal and expects its two-year-old deal with CrossFit to close the gap. “We want to change the way the world perceives and experiences fitness,” says Chris Froio, Reebok’s global head of fitness.
CrossFit, with more than 3,000 gyms worldwide, promises a complete workout in less than 20 minutes. Routines sporting names like “Nasty Girls” and “Bad Karma” include push-ups, “sumo deadlift highpulls,” and “glute-ham developer hip extensions.” CrossFit’s popularity has swelled as people get hooked on both its speed and the ability to challenge other participants via Facebook (FB) and Twitter. “It’s an excellent fit for Reebok, which has been in the woods for a while as it’s struggled to decide what it wants to be,” says John Birnsteel, head of strategy at FutureBrand, a branding consultancy. “It was appearing to box itself in as a very female-oriented fitness brand.”
It may be tough for the CrossFit partnership to offset the lost NFL contract, which went to rival Nike (NKE) after Reebok had held it for more than a decade. “I would see [CrossFit] more as a long-term strategy for growth rather than a switch-and-swap revenue tactic,” says Manfred Abraham of marketing consultancy Interbrand. Sales for Reebok dropped 5.5 percent in the first quarter, vs. a 17 percent increase for the Adidas brand. Given all the turmoil, Reebok’s value may have dropped by as much as half since Adidas bought it, says Sebastian Frericks, an analyst at Bankhaus Metzler in Frankfurt. “Reebok,” he says, “was probably not a good investment and will never be.”
http://www.businessweek.com/articles/2012-06-21/how-adidas-is-whipping-reebok-into-shape
