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IMPERSONATE: Think Like a CMO!

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Introduction It’s a gloomy day in Herzogenaurach. As you gaze out the window from your corner office thinking about the next big Adidas collab, there is a knock on your door. Your assistant walks in, telling you “We need the CMO’s signature for closing the Reebok sale, Authentic Brands needs it by tomorrow and I have your Starbucks!”

You nod, sip your coffee, as the assistant sets the document on the table. Almost reluctantly you pick up a pen and sign it and contemplate on its implications. Many questions come to mind.

Was Reebok’s decline bound to happen?

Is the sale a good idea?

Maybe it becomes a tough competitor? and finally

What could we have done differently?

As you ponder about what was happening, an old Reebok ad on your office wall catches your glimpse and it makes you take a look back at what happened since Adidas bought Reebok.

Background Sporting goods retailers play a vital role in the industry. Additionally, it serves as one of the major distribution channels for manufacturers. In the early 2000s, the number of sporting goods retailers in the American market increased by 2.9 per cent making a total sale of around 1.7 billion USD. There were around 20,000 sporting goods retailing companies operating in the United States with combined annual revenue of $25 billion; athletic footwear and clothing are jointly accounted for 25 per cent of the said annual revenue of sporting goods retail companies.

In the year 2005, Adidas added Reebok to its name for $3.8 billion hoping that it would help the company take on Nike more effectively in the U.S. market, thanks to the company’s long-standing credibility with basketball aficionados and its then licensing deal with the National Basketball Association (NBA). At the time Reebok’s pop culture cred was also bolstered by-products like a line of shoes in partnership with rapper 50 Cent.

In terms of price, generally, Reebok offers the cheapest sports products in the market compared to Puma, Nike, and Adidas. Providing cheaper products in the market is just one of the many marketing and sales strategies of Reebok to gain a better market position in the United States.

The then Reebok CEO Paul Fireman was euphoric to find a ‘perfect strategic partner’. The deal did seem to make immense strategic sense. In 2004, Adidas had a 15.4 per cent global market share, and Reebok had 9.6 per cent. Together, they were ready to take over the formidable rival Nike which had the market crown with 33.2 per cent.

After the deal, however, nothing much happened. Adidas did not seem to take charge and Reebok’s sales slipped for years. (See Exhibit 1)

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“Easy tone” did not go easy on Reebok

In 2008, Reebok brought a new product to the market with its launch of “EasyTone”. A shoe that advertised itself to tone the wearer's body 10-20% more just by design. The company had a winning formula in its hands as the shoe was a big hit. At a $100 price tag, it was emptying shelves. Sales had skyrocketed to $1.1 billion from $350 million in the year 2009 and it seemed like the company was back on track.

This fame, however, was short-lived. In 2011, Reebok agreed to pay $25 million in refunds to consumers settling allegations by the Federal Trade Commission (FTC) that the company had made false claims about its toning shoes.

All went downhill Not much went in Reebok’s favour post the Easy tone frame. The National Football League (NFL) announced plans to split its apparel licensing rights among seven companies starting in April 2012, where the big winner was Nike, which was granted the highly-coveted — and visible — on-field uniform rights. The big loser was Reebok and parent Adidas Group, which held the on-field license since 2001 and were left out of the new deal when it commenced for the 2012 season.

Over the next several years, sales were on a rollercoaster as Reebok tried to find its footing. It grabbed hold in fitness and activities such as CrossFit, a training program quickly gaining popularity. By early 2015, it had recorded several consecutive quarters of growth. But in the US, it was still playing catch up and losing shelf space at retailers. On earnings calls, Adidas executives admitted the company had been too slow in recognizing fitness as Reebok’s strength and manoeuvring the brand accordingly.

In 2015, Adidas group lowered its sales target for Reebok to 2 billion euro from 3 billion to which Reebok reported with less than $2 billion for the first time since 1989, with 1.72 billion euro ($1.94 billion) in net sales. (See Exhibit 2)

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A possible ray of hope?

The initial Reebok campaign, “Be More Human” which celebrates women who bring positive change to the world, launched in 2015 was given a new push in 2018 which had reignited the rallying cry for people to be the best possible version of themselves physically, mentally and socially. The ad boasted many famous faces for the same. The hashtag #BeMoreHuman, caught more attention in terms of social media impressions and engagement since it was initially launched.

"Consumers have known us for other things throughout the years," said Reebok President Matt O'Toole. "We are slowly and surely reintroducing them to Reebok. A lot of it is traced to when we decided to return Reebok to its fitness roots about five years ago. Reebok started in the early '80s in its modern form as a fitness brand that was giving women, in particular, the incentive to sweat and work out. Our view is this version of fitness that we are part of today is similar in a lot of ways. Fitness is much more experiential."

The campaign showed that Reebok was not only revisiting its heritage of being a women’s- focused brand, but celebrating strong women with powerful voices, who are inspiring others to action. Reebok finally returned to profitability, and sales grew slightly at the end of 2019, including in North America, where the company has been partnering with musicians and fashion labels to appeal to young shoppers.

In 2019, Reebok also switched back over to its Vector logo and “drop-R” wordmark, which were first introduced in 1992. Eight years after switching over to its current Delta Logo in 2011, the Vector logo was reintroduced across all product categories, including footwear and apparel. Reebok’s retro Vector logo was considered much more dynamic than its triangular Delta logo, referencing movement across the fitness and sports categories in its design.

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The aftermath of the pandemic But if there was any momentum building at Reebok, the pandemic interrupted it. In the nine months through Sept. 30, Reebok’s sales plunged by 22%. At this point, Adidas felt it has done what it can to clean up Reebok and is choosing to sell rather than continue to invest. Therefore, in February 2021, it announced the divestiture of Reebok alongside its “Own the Game” strategy, with the “understanding that both Reebok and Adidas would better realize their growth potential independently of one another.”

Today, Adidas has sold Reebok to the retail conglomerate, Authentic Brands Group for around $2.5 billion. The acquisition is expected to close in the first quarter of 2022.

Your ringing cell phone brings you to the present, and you are determined to find the answer to the questions what could you have done better?

Posers:

• You are in the year 2006. Adidas has just acquired Reebok. Impersonating as the CMO of Adidas Group, tell us what would you have done differently to build the Reebok brand and make it a success?

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EXHIBIT 1

Global Athletic Footwear Market Share – By Brand

EXHIBIT 2

Reebok’s Annual Sales have been on a roller-coaster ride for years