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Why Adidas Is Selling Reebok

The German sportswear giant has more urgent priorities as it navigates out of the pandemic, and Reebok’s rich sneaker archive could be appealing to a range of buyers.
Reebok. (Shutterstock)

Adidas is putting Reebok up for sale, the company said Tuesday, likely at a steep discount to the $3.8 billion it spent 16 years ago to acquire the Boston-based brand, best known for its retro styles.

The deal is expected to close quickly, as Adidas said it plans to remove the brand from its reporting as of the first quarter of 2021. Before the pandemic, chief executive Kaspar Rørsted was seeking €2 billion (about $2.4 billion) for the brand, according to the German business publication Manager Magazin. But analysts now expect the price could end up being about half that, according to Reuters. Adidas wrote down Reebok’s value to €842 million (about $1 billion) last year. In the first nine months of 2020, Reebok generated €1 billion (about $1.2 billion) in revenue, down 22 percent year-over-year, while the Adidas brand generated €13 billion (about $16 billion), down 20 percent year-over-year.

Adidas said it will have more to share on its plans for Reebok during an investor presentation on March 10, when it will present a five-year strategic plan. Analysts said Adidas will benefit from focusing only on its core brand and without Reebok on its balance sheet.

Prospective buyers are said to include Chinese sportswear giant Anta and VF Corp., which recently acquired Supreme. Private equity firms Permira and Triton were interested as of last November, according to the Financial Times. Other options include Percy Robert Miller, the rapper and entrepreneur known as Master P, with former professional basketball player and investor Baron Davis, as well as licensing giant Authentic Brands Group.

Reebok’s Adidas era has been a challenging one. Its annual revenue shrunk by $2 billion in the eight years after the acquisition, as Reebok’s sports partnerships expired and Nike and Adidas competed aggressively to gain market share in the US. Since the acquisition, Reebok closed about half of its North American stores and struggled with an identity crisis as it got further away from its history as a favourite among professional athletes of the ’80s, ’90s and early 2000s.

Selling Reebok will help Adidas as it aims to recover from the coronavirus crisis. In the third quarter of 2020, many analysts were disappointed to see sales in China declined by 5 percent, as the region has been a growth driver for rival Nike as the pandemic depresses sales in other regions.

Bernstein analyst Jamie Merriman said in a research note she expects the Reebok divestment will be welcomed by Wall Street because it “allows management to focus more fully on Adidas and removes a lower margin business from the group.”

Reebok is a stronger business than it was when Adidas chief executive officer Kasper Rorsted joined the company in 2016. A turnaround plan brought the brand back to profitability in 2018 as the company capitalized on its sneaker archive, updating styles like the DMX and Freestyle for a new athleisure-obsessed generation.

Instead of collaborating with professional athletes, who are no longer seen as sure-bets in activewear marketing, Reebok partnered with entertainers and pop culture figures, including Cardi B and Victoria Beckham, to grow the women’s category.

And Reebok has cultivated credibility in the fashion world by partnering with New York designer Kerby Jean-Raymond on a footwear line since 2017. The relationship has grown over time and included more product lines and oversight for new projects. Raymond became the brand’s vice president of creative direction last year.

While sales growth slowed in 2019 and shrunk in 2020, its sales increased around 20 percent in both December and January, according to Matt Powell of the NPD Group, which tracks wholesale transactions in the US.

“I think Reebok will do well after getting out from underneath Adidas,” said Powell. “The value really sits in the retro product; Reebok has an extremely strong value of ’80s and ’90s product.”

Powell sees private equity firms, “if they are patient,” or footwear companies who want to tap the retro trend as the potential buyers best poised to grow the brand. Retailers looking for a strong in-house label could be interested.

The brand is also piquing the interest of other buyers who have gone public with their interest. Master P and Baron Davis spoke to CNBC in December about their desire to jointly buy the brand and “make it cool, make it Black.” They highlighted Reebok’s popularity with Black consumers and saw opportunities for collaborations if the brand became Black-owned.

Authentic Brands Group has also expressed interest in acquiring Reebok before the pandemic. The licensing giant, which recently acquired Brooks Brothers and Barneys New York, has a partnership with Shaquille O’Neal. Reebok’s 1990s endorsement deal with O’Neal was one of the first of its kind in the sports world and is still a famous shoe line within the brand’s archive. O’Neal has also spoken publicly about wanting to buy the brand and return it to its basketball roots.

Related Articles:

Adidas’ Plan to Resurrect Reebok

Reebok Deepens Ties With Pyer Moss

Adidas Reviews Strategic Options for Reebok

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