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What happened to Reebok?

For a brief period in the 1980s, Reebok was metaphorically the MVP of the all-star team of sneaker brands. It had designed the highly popular first fitness shoe targeted solely at women, the Freestyle Sneaker; it was repped by cultural icons like 50 Cent, David Bowie, Jane Fonda and Shaquille O’Neal. By 2001, it had become the exclusive apparel supplier to 29 NBA teams. Fast forward to August 2021, after its acquisition in 2005, Reebok is being sold at a net loss of around 325m euros from Adidas to Authentic Brands Group. Reebok’s fall from the stars, from its proclaimed ‘Nike killer’ title in the 1980s begs the question: where did it all go wrong?

The original acquisition

In 2005, Adidas bought Reebok for $3.8bn. Adidas hoped Reebok’s history with the basketball community, together with the company’s recent partnerships with the NFL, pop stars like Jay-Z and 50 Cent, and its 17% market share in the US (compared to Adidas’ European presence) would enable Adidas to compete with Nike more effectively. Adidas had strengths in football, whilst Reebok in music and US sports. Adidas viewed the $3.8bn price tag as discounted, given that the Reebok of the early 2000s had fallen from its grace of the 1980s. 

Reebok peaked relative to competitors in 1988: its sales volume had quintupled in the span of 5 years and Reebok established a lead of $600mn in annual sales over Nike. Yet by 1997, Nike had grown to $9.2bn in sales, aided by Michael Jordan’s stardom, whilst Reebok only earnt $3.6bn. Despite its slower growth, Reebok’s history, together with the synergies it offered Adidas, made the $3.8bn price tag highly attractive. 

What happened next?

The two leadership teams talked for months as to how to best manage the merger. It was agreed that the two companies would operate as separate entities. However, in the view of Paul Fireman, CEO of Reebok at the time of the acquisition, early plans made by the leadership teams were soon forgotten. In his words, Adidas “paid $4bn to destroy it [Reebok]”. Despite agreements to operate the companies separately, Fireman claims new directors “wanted to reserve Adidas for sport” and to “push Reebok into physical fitness”. Reebok’s licences with the NHL and NFL were eventually sold whilst Adidas took over Reebok’s licence with the NBA despite Reebok’s fairly successful history with the NBA. The loss of key sports licences meant the loss of key areas for brand visibility. 

Competition with Adidas

Reebok soon began to compete directly with Adidas. Although management initially saw direct competition as potential to push each company to constantly innovate and improve, referring to the relationship as “brother vs brother”, the outcome was soon one-sided in Adidas’ favour. Matt Powell, a senior industry adviser for sports with the NPD Group thinks “the real reason for the demise of Reebok was that every decision was made in favor of Adidas and that prevented Reebok from growing.” Competing over the same consumers was a “zero-sum game” in Powell’s words: in order for Adidas to benefit, Reebok had to suffer. Reebok was forced into the struggling fitness sector so Adidas could focus on the more lucrative and growing sports sector, as well as holding out of the retro market where Adidas was a leader.

However, Adidas alone cannot be blamed. Adidas had paid $4bn for Reebok and they were free to use it in whatever way they thought may advance Adidas, even if this was at Reebok’s expense. Even before Reebok came under Adidas ownership, it had its own problems:

Lack of an identity

The company frequently changed shoe designs and even its own logo, and as a result Reebok lacked a strong brand identity. It did not have the consistent talisman shoes like Adidas and Nike did. 

Brand representatives

Reebok’s path could have taken a very different turn if different basketball players were chosen as frontmen for the brand. Reebok signed Shaquille O’Neal, whilst Nike signed Michael Jordan. Whilst a successful athlete, O’Neal’s size and nature of play hampered Reebok’s ability to market shoes around him. Michael Jordan on the other hand was such a hit for Nike that shoes under his name, despite his retirement 18 years ago, are still best sellers. 

Supply & demand

Finally, when shoes were successful, Reebok’s management of supply and demand was incredibly impeding. Whilst Nike has always ensured popular shoes would sell out, thus retaining their mystique and allure, Reebok would flood the market with supply for popular shoes, undermining the exclusivity of popular designs.

Amongst a plethora of other reasons, these provide a brief summary of Reebok’s failures.

What now?

Adidas’ decision to finally sell Reebok will benefit both companies. After a series of restructuring plans for Reebok, Adidas will drop what is largely a distraction from its main business and the financial losses associated with Reebok in recent years. For all its wrongdoings, Reebok generated around 25% of Adidas’ revenue in 2007. For the first nine months of 2020 Reebok only accounted for 6.7% of sales. Whilst Adidas and Nike have basically identical market shares in Europe and China, Nike is almost three times as large in North America. Adidas’ management needs to focus on its own core business in order to close this deficit, whilst remaining aware of other new competitors like Under Armour. 

Reebok’s new owner will be the American brand management company Authentic Brands, which is part-owned by BlackRock and owns the rights to celebrities like Marilyn Monroe and Muhammad Ali. Reebok, free from direct competition with its owner, has a number of possibilities to progress the business, however it must ensure that action this time round is consistent, and helps build a clearer brand image. Reebok could look to the comebacks and remodels of Vans and Champion as models to follow. 

Regardless of what might be next for Adidas and Reebok, one thing remains clear: there is a big mountain to climb to compete with the ubiquitous nature of Nike, whose sights are now set on $50bn in revenue for 2022.


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