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article imageReebok and Adidas: A Never-Ending Restructuring Special

By Paula R. Chapman     Jun 16, 2009 in Business
In 2008, Reebok announced Adidas would purchase the name and sell it under its own, due to profit losses for the Reebok name.
The restructuring has been reported in the news, not always in a favorable light due to the slow nature of the process, as well as lack of product profit improvement to date.
Reebok reported two major issues as causes for profit loss:
1. Being sold inexpensively and alongside inexpensive or low-quality items at discount or wholesale stores tarnished Reebok’s brand name.
2. The worldwide economic crisis came into play.
But are the above two the only issues plaguing Reebok today? Product viability and the lag in the restructuring process have experts scratching their heads, as does the fact that the economic crisis was not made known to the consumer until October 2008.
Business restructuring, also called a “turnaround strategy”, is a common practice for companies who have a failing product. It allows a stronger company to lend its resources, which can be in the form of marketing, product analysis and product design, and to “mentor” the company in need of assistance while it catches its business breath. Basic steps include ensuring top people and their leaders are protected personally as much as possible against lawsuits; taking complete control of cash flow; identifying the money-making products within the company, known as the “core business”; and developing and carrying out a restructuring plan, which can include cutting out customers, products, services, and employees not part of the core business.
Uli Becker, chief executive of Reebok, admits to the slow process, saying he underestimated the amount of time for Reebok to be restructured. 1 But the Reebok story is being viewed as a never-ending saga. Business and marketing analysts have ceased following the situation due to continued downturns in Adidas’ profits. Reebok reported a first-quarter operating loss of €96m (roughly 50 million U.S.) ... Commerzbank (Xetra: 803200 - news) 's Christoph Dolleschal calls Reebok a "never-ending restructuring story".1
Against these odds, Reebok’s head feels Reebok will make a comeback and gain standing (currently 4th in place to Puma, who is #1, Adidas, and Nike) once the economy improves.
How can Becker guarantee that Reebok will be up and running again?
Steps:
As a typical first step in a restructuring, Adidas' first steps to get Reebok back in the saddle involved investing heavily in its products and by increasing product management, design and development, and adopting cost-saving measures.
To save costs, the company recently integrated central Adidas and Reebok functions into "joint operating models" in Asia, Europe and Latin America. As a consequence, several hundred jobs were slashed in sales, service and other areas. At Reebok, 300 people had to leave this year, reducing its workforce to 8,000.
Becker envisions a similar structure in the near future for North America, where Adidas' base is in Portland and Reebok's in Boston; starting with the “mother” market, in this case Europe, is a very typical restructuring strategy.1
Adidas’ goal in this plan is two-fold:
· To have Reebok once again become as profitable as Adidas
· To have Reebok regain its stature in the next five years and surpass at least one of the competitors (Puma at Number One, Adidas at Number Two, and Nike at Number Three)
This year positive effects of the new plan may not be seen but the hope is that the restructuring plan will be complete by year’s end.
A manager from a Syracuse, NY athletic footwear store familiar with the business transaction between the two former footwear giants said that the Adidas brand has been doing poorly for a long time, but he does not attribute his loss of Adidas and Reebok sales to the economy alone.
“Fashion is important, and neither Adidas nor Reebok has kept up with the likes of Puma, LaCoste, other retro styles.
“Technology also is an issue. I don’t even have Reebok or Adidas on my ‘high tech’ running shoe wall anymore. I usually sell more Asics, New Balance.”
The manager’s store sells 50 different brands of athletic footwear ranging in price from $30 U.S. to $160 U.S.
“In the U.S., Nike is king,” he said, asking to remain anonymous.
More about Reebok, Adidas, Restructuring, Turnaround, Sales loss
 
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