The sportswear giant is targeting a bigger share of both the lower and upper ends of the market. Has it got the balance right?
Reebok had some time back hired an international agency to help it identify locations for its stores on the basis of income pockets. The agency devised a plan that looked good on paper: Divide each city according to the postal codes.
The assumption was that people covered by one post office would have somewhat similar incomes. Within no time it was proved that the formula will not work. The Greater Kailash post office in New Delhi, for instance, is a high-income neighbourhood but also includes the mid-income locality of Zamroodpur. Should Reebok then put up a store there or not? What products should it stock?
For Reebok, the country’s largest seller of sportswear and apparel, this is a challenge it has to wrestle with every day. It wants to become a mass-market brand, and the location of stores holds the key to that. This, mind you, is not the first time that its market research and assumptions have gone awry.
When it first entered India in the early-1990s, it had assumed that every car owner could be a potential buyer for expensive Reebok sneakers. It proved to be a gross overestimation of the market’s potential. Little did it realise that cars were bought on installments here, and a large number of drivers didn’t own the cars — these were provided by the office!
But it has got over the initial hiccups. Though fourth in the global sweepstakes after Adidas, Nike and Puma, it leads the pack in India with a 53 per cent share of the branded sports footwear market (estimated size: Rs 3,500 crore per annum).
In fact, India is the only market in the world where Reebok has such dominance in the market place. So much so, two of its Indian honchos — Muktesh Pant and Sidharth Verma — were given prestigious assignments abroad. Though the brand is owned by Adidas, it was decided to let it run as an independent entity in India, lest the momentum be lost.
No guts, no glory
Reebok enjoys almost total brand recall in the country. And its lowest price point is below Rs 1,000 — Rs 990 for a pair of jogging shoes, to be precise. The two basic requirements for going mass-market have thus been fulfilled. The task in hand is to reach its shoes to consumers all over India.
The choices are clearly defined: You can tread slowly, open a few stores in the top metros and grow cautiously, which is what most of Reebok’s rivals have done; or you can go by your gut feel and move fast to touch the consumer. The second option is riskier, but the rewards, if it succeeds, are higher too. And this is what Reebok has done.
It has over 1,000 stores in over 325 cities and towns across the country, which is more than double of any of its rivals, and the numbers continue to add every day. About one-third of its stores (over 300 outlets) cater to the lower end of the market. And it offers over 80 stock-keeping units (SKUs) under Rs 2,590, which form the bulk of its sales.
About 70 per cent of its sale volumes come from low-end products, though in terms of value they constitute 50 per cent of the revenue. And to keep costs down, over 80 per cent of the footwear is manufactured in the country.
“This business is less about strategy, more about intent and marketing courage,” says Reebok India Managing Director Subhinder Singh Prem. “India is changing every three years. Today, we have 300 million consumers. Our aim is to cater to at least one billion Indians and become both a prestigious and a mass brand.”
Prem admits that it is difficult to identify where to locate a Reebok store, as demographic and psychographic data available in the country is scanty. He says the division of cities, towns and rural locations based on socio-economic data is imperfect because in reality you can never know when a city has ended and rural area has started. The census data of 2001 is too old, and everyone has to add in some multiple to get to the real numbers of a town or city.
“You cannot wait for the data to come; it will be too late and you will miss the market opportunity. So you must go to the consumers,” says Prem. In other words, use your instincts.
That’s not to say there is no method in the madness. The company has developed its own yardstick: It believes any location which has a population of 10,000 to 15,000 can sustain a Reebok store, especially if it is a service hub. So the whole idea is to go ahead, put in a store and see if it works. The option to pull out is always there. Says Prem: “The good thing is that 95 per cent of the time we are successful, which could be because we are not taking enough risks.”
Of course, Reebok has to ensure that the franchisee doesn’t lose too much money if the store does not work. So Prem says the exit costs have been kept low and even the lock-in for the franchisee is short.
Rivals in the business say that the cost of opening a Reebok store in a semi-urban market is not more than Rs 2 lakh. “There are basic fixtures in these stores. The person who runs the store also owns the place; so there is no rental to give. Even if he sells three or four pairs a day, he will make a profit of Rs 30,000 to Rs 40,000 a month which is good,” says a rival.
“The other advantage is that the company gives the shoes on a consignment basis, so you pay the company only when you sell.” The flip side is that Reebok’s cash flow can get stuck if a store does badly. The company’s revenue would always be lower than the number of shoes dispatched from its factories.
Price barriers
Some others say that Reebok’s prices aren’t low enough for the bottom of the pyramid. “We sell well as compared to Reebok. With similar specifications, our shoes would be priced at a third of Reebok’s. There are always people who do not have that kind of disposable income, and they come to us,” says Liberty Retail Managing Director Anupam Bansal.
Can Reebok produce quality products at even lower prices and break the existing price barrier? This is necessary if Prem wants to hit his target of one billion customers. There is hope. The company has, after all, brought down its entry level price from around Rs 1,390 a few years ago to Rs 990 now. And, of course, Reebok’s research and development centres abroad are working to break new price barriers.
Says Prem: “On one hand we expect to offer more lower-priced shoes to expand the market, on the other we expect more people will see a rise in their incomes (so that they can afford the shoes). And we will reach somewhere midway.”
Does Reebok run the danger of ignoring the well-heeled urban buyers in its quest to reach the masses? For that, Prem is also experimenting with new mediums which will supplement his already large advertising budgets. The focus now is to leverage social websites and offer consumers knowledge about its products.
“What makes this medium powerful is that it is a two-way dialogue and there is credibility of information,” says Prem. One idea which has been floated is to set up Reebok Clubs across websites were people can exchange notes on fitness and Reebok products, and give their independent opinion. The company feels it can extract more value this way than from an advertising campaign.
But different markets and segments have different requirements and aspirations from a sportswear or lifestyle brand. So how does Reebok cater to the varying choices? Data shows that consumers are changing their old pair of shoes much faster than before. Middle-class buyers now change their footwear every three months, down from eight to 12 months earlier. And at the lower end of the market, consumers are changing once in every 15 months compared to three years earlier. This, Prem says, offers an amazing opportunity for Reebok.
“The customer who buys entry-level Rs-990 shoe upgrades to the next level just like you upgrade your car. And as he is already hooked on to Reebok; so, his next shoe will also be the same brand, provided of course we offer him wide variety and a new offering at every level and price point,” says he. So Reebok launches over 42 SKUs every month and at least a new footwear technology every two months.
Mass vs class
Detractors and competitors, however, say that the company’s strategy may take the sheen off the brand. “You can’t be a prestigious brand and at the same time sell it for under Rs 1,000. Also you will compromise on quality and these shoes are known for their performance. You can’t be both a mass as well as a class brand,” says a rival.
Indeed, apart from airlines like Virgin and Kingfisher, there aren’t too many brands that straddle all ends of the market. Remember, Toyota had to come out with Lexus to tap the top-end of the car market.
Reebok, of course, is aware of the challenge. One way to overcome it is to segment the market, and have sub-brands for each segment. For instance, Reebok has created a segment for health- and figure-conscious women. It has launched Easytone footwear which promises to help tone the legs and butt. These are, of course, global products launched recently and available at a stiff price starting from Rs 4,999. Says Prem: “It’s a challenge to segment the market, but we need to do that to grow and address the specific needs of customers.”
Similarly, to cater to the fashion-conscious, Reebok has tied up with designer Manish Arora for the Fish Fry range. It’s a small market but if offers a style statement and that gives the brand an extra dimension.
Reebok recently found that people above the age of 60 prefer to use sandals in their morning walk with friends. Prem caught on to the potential when he saw his father and his friends not using sports shoes while walking in the morning.
“The challenge here was to encourage them to sample our Rs 990 shoe so they could understand the superiority of the product,” says Prem. So, it has taken steps to reach such prospective customers. For instance, it has done a promotion with Mail Today under which it offers free Reebok shoes with an annual subscription. “The whole idea is that when the above-60 consumer uses the shoe, the next shoe he will buy also will be Reebok” says Prem.
For the mass market, Reebok has bonded well with cricket. It has set up exclusive cricket stores which stock pads, wickets and other cricketing gear. It has extended its sponsorship with Kolkata Knight Riders by opening an exclusive store in Kolkata which sells KKR merchandise. As many as nine players in the Indian cricket team use a Reebok bat. It has benefitted from tying up with cricketers much before they become stars.
For instance, Yuvraj Singh was taken on board nearly nine years ago. Will Prem’s gamble pay off? Coca-Cola, for instance, some years ago decided to go mass with packs priced at Rs 5. It did get volumes but its profit & loss sheet began to bleed. Prem needs to avoid that trap.
