Reebok Aims to Get Fitter in Bid to Match Adidas Profitability
Adidas AG (ADS)’s Reebok brand aims to get profitability closer to the level of its parent company in the next five years as it adds toning shoes and retro sneakers to capitalize on growth in personal-fitness spending.
Products such as $100 RealFlex running shoes will help margins at the sporting-goods maker move closer to its German owner, which it has lagged behind since being acquired in 2006, Reebok President Uli Becker said in an interview. The brand’s gross margin widened by 4 percentage points to 35.9 percent last year, compared with 47.8 percent for the Adidas group.
“We have very, very ambitious goals,” Becker said. “Five years is a time period in which a lot can happen.” Reebok will have “positive news” on margins in 2011, he said.
Reebok is counting on products such as $100 EasyTone sneakers and $75 ZigTech Lite jackets to continue a revival. The brand’s revenue increased 12 percent in 2010, ending three years of decline that followed its acquisition. Sales of toning shoes, designed to better define the wearer’s legs and buttocks, may triple to $4.6 billion industrywide in the next few years, according to data published last year by Wedbush Securities Inc.
Reebok introduced EasyTone trainers in 2009. The shoe, which has two balance pods under the sole to force the muscles to adapt and develop tone, was followed last year by ZigTech conditioning trainers. RealFlex sneakers are aimed at strengthening feet, promoting a more natural motion.
“We are at the beginning of the turnaround,” Becker said. “It is true that Adidas’s investment in Reebok was a burden in the first years. It has been seen by Adidas from the beginning as a long-term investment.” Reebok’s market share declined after the brand stopped selling discount lines in supermarkets.
Sales and margins benefited last year from the addition of EasyTone and ZigTech trainers, which are aimed at easing strain on runners’ leg muscles. A third-generation of shoes known as RealFlex go on sale in the U.S. this month and will start selling globally from next year, Becker said.
The executive said he’s “very satisfied” with orders for the latest running shoes. Reebok expects to beat last year’s sales figure of about 10 million fitness trainers, he said. Clothing will be introduced under the RealFlex label next year.
Toning-shoe sales in the U.S. totalled $17 million in 2008 and increased more than eightfold to $145 million in 2009 when Reebok and Skechers U.S.A. Inc. introduced their models, according to research from NPD Group. Nike Inc. (NKE) has disparaged the footwear, which has driven market share gains at its rivals.
“There is a definitely a risk of saturation in this new category as people will keep the shoe they have bought for a couple of years,” said Klaus Kraenzle, an analyst for the consumer goods industry at Silvia Quandt & Cie. in Frankfurt. Manufacturers such as Reebok will eventually be forced to reduce their prices, he said.
A partnership with CrossFit Inc. gyms in the U.S. will help to promote the Reebok brand, according to Becker. The agreement puts the brand alongside “the coolest and fastest-growing fitness philosophy in the U.S.,” he said. Reebok has started selling apparel through the website for the CrossFit Games and will sponsor the event, which is held in California in July.
Washington-based CrossFit has developed a training system used by about 2,000 U.S. gyms that combines weightlifting, sprinting and gymnastics. Becker declined to provide further details of the cooperation.
“It is key for fitness-product makers to start cooperation with gym operators where the brand is part of joined campaigns for existing and potential members and trainers wear their apparel,” said Niels Gronau, a consultant for the leisure industry at Deloitte & Touche LLP in Germany. “It supports the brand’s strength and justifies a higher price level.”
Reebok also cooperates with the Fitness First gym chain in Germany, which has 280,000 members in the country. Fitness First’s 4,500 German workers, including trainers, will be outfitted with Reebok gear and the gyms will organize events for its members to promote new Reebok shoes and apparel.
Reebok made its name in aerobics in the 1980s, introducing the first shoe for the fitness craze. The brand now accounts for about 16 percent of sales at Adidas, the world’s second-biggest sporting-goods maker.
Adidas is seeking to narrow the gap to larger competitor Nike by boosting sales to 17 billion euros ($24.6 billion) by 2015 from last year’s record 11.9 billion euros. Nike had sales of $19 billion in its latest fiscal year.
Rising sales of Reebok fitness shoes this year will help Adidas compensate for the absence of a sporting event the size of last year’s soccer World Cup, Adidas says. The Adidas brand boosted sales by 16 percent last year to 8.7 billion euros, led by record soccer-related revenue of more than 1.5 billion euros.
“We must activate people to get fitter,” Becker said. “The willingness is there, but the offer currently isn’t there to activate enough people. I am very optimistic with what we have in the pipeline.”
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