Adi lost to buy Reebok | Tonishi

Introduction to Tonishi

Adidas CEO Casper Rostad said, “The acquisition of Reebok was one of the most expensive mistakes in the company's development process.”

Jin Mei | Text

Tonishi Business Review | Source

The rise and fall of Reebok is a classic story in the business world. Today, this story has made new progress.

The brand was founded in 1895, began an international journey in the late 1970s, and has continued to soar since then. Relying on a pair of white shoes in the 80s, Reebok climbed to the top of the world in just 7 years. After a short period of glory, the company took a sharp turn, began to decline steadily, and was unable to make ends meet.

In August 2005, Reebok was acquired by Adidas at a price of 3.8 billion US dollars. As the second and third in the market, the sight of a strong alliance surpassing Nike has been slow. Beginning in 2014, news of Adidas selling Reebok continued unabated. In 2016, the newly appointed Adidas CEO Casper Rostad stopped rumors about Reebok's fitness transformation and decided on the idea of Reebok's full profit by 2020.

He said he treated Adidas and Reebok like two kids and treated them equally. In 2019, Reebok certainly turned a loss into a profit. However, on October 25, 2020, Adidas suddenly decided to get rid of this bad asset. Casper Rostad also redefined Reebok: “This was one of the most expensive mistakes in the company's development.”

1

The birth story of the world's first

Reebok's success was one of the world's most sensational news events in the 1980s. It only took 7 years to become one of the top sneaker manufacturers.

In 1895, Joseph, the founder of ReebokFosterTo meet my running needs, I created the world's first pair of studded shoes. This caused a huge stir at the time. Until the end of the 19th century and the beginning of the 20th century, runners from many countries wore these “Foster running shoes” to compete. In 1896, he also created his first pair of inflatable sneakers, and established “FOSTERS”, the predecessor of Reebok, in the UK to customize shoes for athletes.

In the early 1980s, Reebok began to notice women's demand for sneakers, invested 1 million US dollars in research and development, and designed white sneakers that cost more than 80 US dollars. Through their eye-catching design, these shoes have become essential equipment for women's aerobic activities. Reebok has begun a journey of dominating the women's sports market.

In 1983, sales of these shoes reached 12.8 million US dollars, setting a world record in the history of sneaker sales. In 1986, Reebok's shoes were so popular that they were sold out in London. In just 7 years, in 1987, with the continuous introduction of new products, Reebok won the title of number one in the world and led the market for 3 years. Reebok, which has a strong foothold, has begun to expand overseas markets at an accelerated pace.

In the late 1980s, management authorities began advocating the professional manager model, and the way entrepreneurs managed their own companies began to be criticized continuously. In order to show that Reebok is evolving with the times, CEO Fahlman took a back seat. However, from the time the professional manager took office, Reebok went downhill.

In these 10 years, the president of Reebok changed 5 times like a marquee. Huge management costs, discord among senior leaders, and strategic mistakes have caused Reebok to make repeated mistakes. In 1992, a newly appointed professional manager was not content with Reebok's dominance in the women's shoe market and began constructing a more perfect business blueprint. He ventured into expanding his core business from recreational fitness shoes to the field of men's competitive shoes, squeezing into a bloody battle with Nike, Adidas, and New Ballon.

With the brand's existing advantages, Reebok has gone “smoothly with the flow”. Not only did they sign for a number of outstanding players such as O'Neill, the 1996 Summer Olympics, and 3,000 athletes were allowed to wear Reebok sneakers. However, the crisis was set off one after another in the quest for perfection. From 1991 to 1995, the company's management expenses increased from 24.4% to 32.7%. Women who were once passionate about Reebok suddenly felt that Reebok was becoming more and more alienated.

To make matters worse, Reebok abandoned high-priced sneakers that cost $100-130, betting the company's entire future on the sneaker market below $90. In the 90s, with the popularization of sports, sneakers became a symbol of identity and “coolness”. The main consumer group changed from users over the age of 25 to users aged 12-24 who were more willing to spend money on sneakers. High-priced sneakers suddenly became popular. However, at the time, the products Reebok didn't sell could only be seen as Nike making a lot of money with visible airbag sneakers, and gradually fell out of favor.

In 1995, half of Reebok's designers, sales, and development managers left the company, and Reebok's situation worsened. Sports stars that were signed in the past were not supported by popular products, making it impossible for the star effect to be converted into increased performance. Even O'Neill blamed Reebok for customizing the shoes he gave him, and there was nothing they could do to improve his performance. This also paved the way for the failure of Reebok and Nike to sign for NBA superstar James in 2003. In 1995, Nike's market share reached 37%, but Reebok fell to 20%.

In December 1999, Fahlman could no longer see Reebok's lost path and began to return to fashion, developing DMX technology with multi-cushioned airways and Traxtar sneakers that could detect children's running speed and jumping height. However, the potential energy of the past is no longer there, and there is a flood of rising stars, making it difficult for Reebok to make a comeback.

2

Hand in hand: the dream of a strong union

Since its establishment in 1948, Adidas has dominated the world sporting goods market for decades. However, by the 1970s, Adidas was complacent in the “professional” identity it had created, unaware that the casual fashion trend had arrived. As a result, in the late 1970s, Adidas's “boss” throne was taken away by Nike, which had been established less than ten years ago. The “strict professionalism” of the Germans lost to the “flexible development” of the Americans. Since then, Adidas has not been able to catch up with Nike.

In 2005, Nike's market share was 36.6%, and Adidas's market share was 22.2%. Adidas's market share in the US even ranked fourth at one point. The huge gap ignited Adidas' fighting spirit. In order to save the market and maintain its position, in 2005, Adidas took a hard line and announced a merger and acquisition of Reebok, the third in the world, at a price of 3.8 billion US dollars, and strongly penetrated the field of basketball from soccer to Nike. After all, Reebok once surpassed Nike and was number one in the world for three years.

At the time, the acquisition was not good news on Wall Street. Although mergers and acquisitions did make the enterprise larger, the difficulty of integration after the acquisition often made the chances of success very low. HP and Compaq also hope to successfully stop their common enemy through mergers and acquisitions — Dell, the new giant that has risen in the PC industry, but no one can deny that the acquisition was a failure. Coincidentally, Adidas has just finished the lesson of a failed integration, selling Salomon, a French ski and golf equipment manufacturer bought for 1.4 billion US dollars in 1997 for 625 million US dollars.

Although the success rate is low, every M&A operator thinks they will be an exception. They are convinced that the synergies brought about by their own mergers and acquisitions will far outweigh 1+1 than 2. What's more, Reebok's merger and acquisition was a perfect decision. After joining forces with Reebok, Adidas once again had the possibility of hitting number one in the world. Adidas, which has a mediocre performance in the North American market, can use Reebok to penetrate Nike's hinterland and avenge Nike's “feud” of being close to its base camp. The advertising effect brought about by the purchase price of 3.8 billion US dollars also made Nike extremely jealous, but limited to the anti-monopoly regulations in the US market, Nike had no right to join the race against Reebok.

More importantly, whether it's Nike, Adidas, or Reebok, they are aware of the strategic importance of the Chinese market. The European and American markets are almost saturated. No matter how they compete, the main thing that changes is only share. In contrast, opening up the Asian market, especially the Chinese market, which has endless potential, has increased, but it is a real market.

Nike made a big profit by relying on Jordan's personal influence back then. Since then, many high quality celebrities have already been taken aback ahead of schedule. Nike relied on discovering the layout of a rising star and successfully signed a contract — 110-meter hurdles champion Liu Xiang, who won a good name in the Chinese market. Adidas hasn't made any headway in the Chinese market, but Reebok has a powerful market tool in China that even Nike is amazed at — Yao Ming. The two parties signed a lifetime sponsorship contract in 2003. There has never been a single athlete in China who has as much commercial potential as Yao Ming.

After Adidas buys Reebok, it can get “protection” from the three major league contracts of the NBA, NFL (National Football League), and NHL (National Hockey League), and use the super NBA superstars they signed, such as Yao Ming and Iverson, as their own. This is of great significance to Adidas. After experiencing a brief painful period of merger, Adidas began a strong rebound in the market, and annual earnings rose sharply. In 2008, Adidas won the title for the Beijing Olympics. Adidas, which is proud of the spring breeze, had a share of more than 1% of Nike in the Chinese market, making it the boss.

In 2008, Adidas's largest retail store in the world, the Adidas Brand Center Store in Sanlitun, Beijing, was completed, leading to the merger of Adidas Global CEO Herbert Hainer to China. He was supposed to stand up for Adidas, but he is trying to sell to Reebok. Behind him is the huge Reebok logo, Yao Ming's photograph, and basketball shoes specially designed for him, showing his determination to support Reebok in the Chinese market.

There is also unavoidable frustration behind the support that has gone out of their way. Since leading the merger between Adidas and Reebok, Herbert Heiner has had to face questions from analysts and the market every quarter — when will he see the benefits of the merger? Every time, he resolutely answered: We are moving in the right direction and hope to reap the benefits next quarter, or next year.

But the truth is that Reebok insists on using negative growth to drag down the entire Adidas Group.

3

Reebok: send someone under the fence

For the merger, in addition to the purchase price of 3.8 billion US dollars, Adidas will have to pay more than 550 million US dollars of debt for Reebok. The investment of more than 4 billion US dollars has greatly hampered Adidas' possibilities in the market. Although Adidas has already laid off employees on Reebok, the number of orders that continue to decline and the company continues to lose money is quite a mess for Adidas.

The 15 years since the merger proved that things did not progress according to the original plan, and that Reebok did not bring the desired benefits to the company. However, as Reebok's “stepson,” it is difficult for Adidas to treat it as its own; even Adidas may not have wanted to raise it as a son at all. Almost as soon as the acquisition ended, Adidas squeezed out Reebok, which monopolized the NBA market, and signed an 11-year, $400 million contract with the league.

After being acquired by Adidas, Reebok blurred its personality, and the brand gradually declined. Despite Yao Ming's outstanding performance in the Chinese market, Reebok's performance was mediocre. With the exception of the 2008 Olympics, Reebok and Yao Ming combined for a short time, after the Olympics, it was rare to see more marketing activities targeting Yao Ming. The well-designed Yao Ming shoes were only at the concept stage; users simply had no place to buy them.

Reebok mainly uses Adidas's existing channel system in the Chinese market, and there are few signs that it has made any progress in channel expansion. The status quo of “not being able to buy Yao Ming shoes” has been maintained for many years. It's hard for consumers to even remember where they can buy Reebok products, and it's even rarer to see exciting new products. In the Chinese market, Reebok has become a niche brand, lacking clear product differences and brand personality. Local sporting goods companies in China didn't even include Reebok in their competitor list.

Since 2010, the global sneaker market has been growing at a rate of about 5% to 9% per year, but Reebok's revenue has declined year by year during the same time period. In 2010, as its market share shrank and trend declined, Reebok was unable to hold on to its NFL contract and was later taken over by Nike. As they left the three major leagues, the sponsored players gradually retired, and Reebok was completely abandoned from the arena.

Reebok's decline was not limited to China; its share in the North American market also shrunk significantly, and there was even news that Reebok would be sold — in 2014, the Wall Street Journal claimed that a consortium formed by investors from Hong Kong and Abu Dhabi proposed to Adidas Group to buy Reebok for $2.2 billion. In 2014, in order to regain consumers and stop fighting with other brands within the group, Adidas redesigned its brand strategy for Reebok: focus on the fitness market.

In 2016, Adidas's new CEO Casper Rostad took office. He set a goal to restore Reebok's profitability in 2020, and said he treated Adidas and Reebok the same as two children. Reebok launched a new logo and positioned itself in the fitness ranks. Finally, in early 2019, Reebok regained profit, and its performance grew slowly. But it wasn't until Reebok got back on its feet; the story took another turn.

On October 25, 2020, according to German media reports, Adidas is considering selling Reebok in the next few months, which is expected to be completed by March 2021. Including Anta Sports and Weifu of the US, which owns Timderland and North Face, are potential buyers. Rostad hopes to get 2 billion euros by selling Reebok, but now he will accept it even if the transaction amount is less than this amount. It was bought for 3.8 billion US dollars (about 25.5 billion yuan), sold for 2 billion euros (about 15.8 billion yuan), and Adi cut meat for 9.7 billion yuan was also forced into desperation.

In the past two years, Nike has launched popular products such as the Jordan and Air Force One series, which have continued to be hyped up, but Adidas has only supported the scene with the coconut shoe Yeezy for a short time, and is clearly unable to do its best in technology research and development and iteration. Coupled with the impact of the pandemic, Adidas's net profit fell 96% in the first quarter of 2020, and more than 70% of stores worldwide were forced to close. This also brought greater pressure on inventories, which increased by 32% to US$5.116 billion. In the second quarter, Adidas's net sales fell 35% to 4,225 million US dollars, with a net loss of 348 million US dollars, while it achieved profit of 627 million US dollars in the same period last year.

In the midst of market cries, China became a lifesaver for international brands. However, since Reebok's main market is still in the US and international business is weak, Reebok has been more seriously affected than Adidas. According to official data provided by Adidas, Reebok's market value in 2019 was 995 million US dollars, 50% of 2018. Under the pandemic, Reebok's sales fell 44% in the second quarter of 2020, and the amount of depreciation and loss that Adidas must bear will rise further.

Cutting off the burden of Reebok in order to preserve physical strength is probably the best option for Adidas. After the news was released, Adidas's stock price rose 3.5%. It can be seen that the market is also abandoning Reebok's “oil bottle.” Adidas CEO Casper Rostad said, “This is one of the most expensive mistakes in the company's development process.”

4

epilogue

A British management guru, Lyles Rubin, once said: In the process of making perfect decisions, people tend to put aside the most rational decisions.

From professional managers taking turns to expand from recreational fitness shoes to the field of competitive shoes for men, these are all important steps to advance towards “perfection.” However, these two acts of building tall buildings on flat ground all came from deliberate grafting under idealistic demands, not from the natural growth of business development, thus losing the foundation of their rationality. Leaving Reebok fall from the number one throne in the world, stumped, and couldn't even make ends meet.

In 2005, the original purpose of the $3.8 billion merger and acquisition was called Nike's “perfect dream.” Reebok should have used the top resource at its fingertips — Yao Ming — to enter the Chinese market. However, after being acquired, Reebok became an embarrassing “stepson”, and in the “dream” of dominating the world with Adidas, it no longer had its original light. The huge capital and opportunity costs of Adidas's acquisition and integration of Reebok have also caused the company to lose rich soil to thrive. This can be seen from its weak market performance.

The way to climb the peak came out one step at a time. From the business changes of Tencent, Ali, and Meituan, it's not hard to see that those great innovations and businesses often grow within the company, rather than being guided by perfect dreams. A perfect decision is just an unattainable dream that can even bring down a business. The development of an enterprise must not be taken in the slightest. The most reasonable decisions that grow in business are the ones that are really worth taking action. However, the passion for dreams has inevitably led to one astonishing mistake after another in the course of history.