Adidas is considering selling U.S. fitness brand Reebok, WSJ reports.
Why It Matters: Adidas spent roughly $3.6 billion back in 2006 to acquire Reebok, and after years of trying to revamp its business, Adidas looks ready to jump ship. Reebok, for all of its shortcomings, had visible potential back then, including a sponsorship deal with the NBA. But in the years since, all Reebok has failed to gain ground on the U.S. market and has only dragged down Adidas’ profits.
- Adidas is the “world’s second-largest sportswear maker after Nike.”
It wasn’t always this way. CEO Kasper Rorsted attempted to turn around Reebok after taking the job in 2016 using a cost cutting strategy. He shut down dozens of Reebok stores in the U.S. and tried to make the brand more independent from Adidas.
- Rorsted led Reebok to profitability in 2018, but its 2019 sales growth of 3.6% (to €1.75 billion) lagged heavily behind the Adidas brand’s 8.3% (€21.51 billion).
Times have changed though. Investors reportedly “had lost faith in a turnaround and thought a disposal would free up time for management to focus on its core brand.”
The Takeaway: A sale, which would likely be in the billions, would provide a much needed boon for Adidas. Like many other retailers, Covid-19 has ravaged the industry.
- Adidas sales fell 6.7% in the pandemic, while Reebok sales dropped 12.3%. The latter was potentially hit harder by its lack of a presence in the outdoor and running segment, which saw growth in the pandemic.
- Reebok’s U.S. exposure also “turned out a disadvantage as sales recovered there slower than in Europe this fall.”