March 05, 2008 – Business Management Article
Adidas plus Reebok is equal to better competition with giant Nike
In 2006, Adidas (the German athletic apparel and the world’s second-biggest sports goods maker after Nike) acquired Reebok in a US$3.1 billion deal. The merger was aimed at helping Adidas increase its share in the U.S. market and better compete with market leader Nike Inc. and fourth ranked Puma AG. At the time experts felt that the merger made sense. But the key challenge was to unite Adidas’s German culture of control, engineering, and production and Reebok’s U.S. marketing- driven culture.
The Reebok acquisition was seen as a key factor in growing the Adidas brand in developing and fashion-oriented markets of Asia like China, Korea, and Malaysia. Moreover, Reebok already had marketing tie-ups in China (with Yao Ming) and Adidas did not have to cover all China segments. Read a blog post Adidas and Reebok Merger Case Study
Adidas – Fourth Quarter 2007 performance
Adidas AG reported its fourth quarter results for 2007 (October-December, 2007). The results were helped by lower purchasing costs resulting from its acquisition of Reebok and improved sales.
Its net income rose to €21 million (US$31.9 million) from €13 million a year earlier. Sales increased to €2.4 billion (US$3.7 billion) compared with nearly €2.3 billion in 2006. In 2007, total yearly earnings were €551 million (US$837.9 million), up 14 percent from €483 million in 2006. Sales for the year rose marginally to €10.3 billion (US$15.6 billion) from €10 billion in 2006.
Adidas vs. Reebok unit performance
The Adidas brand had sales worth €7.1 billion (US$10.8 billion) while Reebok had sales worth €2.3 billion (US$3.5 billion). Last year, in 2006 the Adidas brand had sales worth €6.6 billion to Reebok’s €2.5 billion.
Year-end order backlog represents firm future revenues from contracts signed up to that date. Order backlog is a key indicator of future sales for retailers and Reebok’s lower order backlog remains the key question mark. Order backlog of brand Adidas was excellent up 17 percent which can be partly attributed to the Euro 2008 soccer championship and Beijing Olympics this year. However, Reebok’s order backlog was down 8 percent (down 20 percent in North America). Nike reported worldwide futures orders for athletic footwear and apparel (scheduled for delivery from December 2007 through April 2008) totaling $6.5 billion, 13 percent higher than such orders reported for the same period last year.
Meanwhile, Nike announced (Mar 3, 2008) that it has completed its acquisition of Umbro Plc. Nike’s Umbro takeover is an effort to consolidate its position in the football market where Adidas has performed well. Last year, Nike’s CEO Mark Parker outlined a brave plan to increase the company’s business to $23 billion in revenue by 2011. Will Nike do it or will the Adidas-Reebok merger spoil its plans, still remains to be seen.