German sportswear major Adidas reported a 26 per cent decline in sales of Reebok-branded products despite group revenue growing seven per cent during the April-June quarter. Adidas attributed the fall in Reebok sales to the negative impact of the commercial irregularities in India.
Reebok’s revenue for the quarter was at Euro 336 million (Rs 2,280 crore), against Euro 427 million in the year-ago period. Flagship Adidas, on the other hand, grew 11 per cent, while TaylorMade (which is Adidas’ brand for the golf segment) grew 25 per cent during the quarter under review.
Despite Reebok’s weak performance, Adidas executives ruled out the brand’s sale, which it acquired in 2005 for $3.8 billion. “While the issue is unpleasant, we will achieve our goal and set Reebok up for a fresh start in India in 2013,” Herbert Hainer, Adidas’ global chief executive officer, said.
It was on April 30 this year that Hainer had first admitted to commercial irregularities at Reebok India, a month after the unceremonious exit of Adidas’ India managing director Subhinder Singh Prem and chief operating officer Vishnu Bhagat.
Adidas had said at that time the situation in India could result in a pre-tax impact of up to Euro 125 million, while further restructuring could cost up to Euro 70 million in 2012.
Hainer on Thursday admitted he saw no major deviation from the restructuring charges that have been set aside for dealing with the commercial irregularities in India. Of the Euro 70 million, Euro 17 million has already reflected in Adidas’ books as restructuring charges, he said.
Adidas and Reebok, incidentally, were integrated in India only in the past year. Persons in the know say the friction between the Adidas and Reebok teams followed the latter’s decision to place expatriates and old Adidas hands in key positions, following the merger. This came about after Reebok India made losses in 2010-11 after several years of profit.
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While globally Reebok ranks fourth after Adidas, Nike and Puma, in India, it is the leader in the Rs 3,500-crore sportswear market with a share of over 53 per cent. It also has some 1,000 stores in 325 towns and cities, which Adidas recently said in a global announcement that it would cut by a third.
Differences between the Reebok and Adidas teams in India arose on account of the focus on the German brand rather than the market leader in a country the Herzogenaurach and Portland, Oregon-headquartered company has identified as key. Adidas’s turnover in India in 2011 (the German giant follows a January to December accounting year) was Rs 480 crore as against Reebok’s Rs 600 crore.
The German major is also keen on seeing Adidas take the lead in India with more than 50 per cent sales coming from the latter, persons in the know say. But an Adidas India spokesperson has denied the company’s focus is on brand Adidas saying: “Adidas Group has a clear multi-brand strategy. While the Adidas brand is the multi-sport specialist, Reebok focuses on fitness and training. It is our clear intention to grow the business of both brands as part of our Route 2015 strategic business plan.”
Hainer added issues pertaining to Reebok had more to do with the lack of new product initiatives. “I don’t think it has anything to do with structure. What we were lacking in 2012 was new product initiatives,” he said.