ADIDAS: All Day I Dream About Stocks
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Depending on how you look at it, being typecast can be a blessing or a curse. Some might even call it "great branding" or "owning the space." But should that space you own fall out of favor or become obsolete you might find yourself homeless overnight.
In the '80s Rebook positioned itself as the official brand of the aerobics craze that had taken hold of women who were starting to enter the gym and fitness scene in greater numbers. So successful was Reebok at calcifying their brand that when the aerobics craze turned into a fad and then faded away, it took Reebok with it.
Since being acquired by Adidas (NASDAQOTH: ADDYY) in 2006 for $3.7 billion, Reebok has posted declining sales for three out of five full years. Adidas has struggled to find a story to tell about Reebok that would help change the public perception that their products are for housewives in bright neon tights with big hair.
Toned Deaf
Despite some short-lived success with its “toning shoes,” Reebok has continued to post declines in revenue. A scandal in India involving fraud accusations and the loss of a major NFL contract were followed by a settlement with the U.S. Federal Trade Commission requiring Reebok to pay $25 million in refunds for deceptive claims regarding the health benefits of its products. It is estimated that Reebok will miss its 2012 revenue target.
Adidas arch-rival Nike (NYSE: NKE) was the beneficiary of the NFL fumble, picking up the contract Reebok lost after ten years. This is just more salt in the wound for Adidas as Nike continues its domination of the sports and fitness segment. Nike scores big with its branding campaigns, which feature a pantheon of celebrity athletes and strong, empowering themes that have consistently struck the right chord with consumers. Nike’s brilliance is in the aspirational quality of its message, appealing to consumers’ desire to associate with the best.
Go for the Sold
Adidas, Nike and third place contender Puma all have their eyes firmly on the prize at this month’s summer Olympics in London, outfitting athletes and draping teams in branded gear to generate a boost in brand awareness and new sales. Adidas forecasts that the interest generated by the games will boost sales by an extra $157 million in the UK, pushing Adidas closer to dominating Nike in that market, just as it did in China in 2008. Adidas already has an eye on Rio 2016.
Survival of the Fitness
Reebok has now pinned its hopes on a two-year-old partnership with CrossFit, seeking to boost its fitness cred and find a new niche to occupy. As part of the arrangement, Reebok branding is featured heavily throughout CrossFit locations. Despite their best efforts, Reebok sales declined by more than 5% in the first quarter.
Publicly Adidas CEO Herbert Heiner remains upbeat, saying that “toning footwear was a key driver of Reebok’s global growth, and despite double-digit declines in the U.S., global sales in that category are up double-digit year-to-date.” Reebok intends to double down on the toning theme, as well as expand its message positioning it as a leader in the fitness and healthy living space.
Analyst Sebastian Frericks of Bankhaus Metzler in Frankfurt takes a different view, speculating that Adidas may have fumbled with the acquisition of Reebok and saying that the company may have lost as much as 50% of its value since 2006.
PeterPham8 has no positions in the stocks mentioned above. The Motley Fool owns shares of Lululemon Athletica. Motley Fool newsletter services recommend Lululemon Athletica and Nike. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.
