Reebok International, Ltd.

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Reebok International, Ltd.

founded: 1895, 1979 as reebok usa

Contact Information:

headquarters: 100 technology center dr.
stoughton, ma 02072 phone: (781)401-5000 fax: (718)341-7402 url: http://www.reebok.com

OVERVIEW

Reebok International, Ltd. designs, manufactures, and sells athletic and casual shoes and clothing under several trademark names, including Reebok, Greg Norman, Rockport, Ralph Lauren, and Polo Sport. Reebok is the second largest athletic shoe manufacturer in the world behind Nike. Reebok International, Ltd. also licenses its name to manufacturers of sporting goods.

Reebok International rose to the top of the market on the crest of the aerobics exercise craze of the mid-1980s. The company developed shoes designed for performance that were also fashionable. Since then the company has had management problems that have led to a new focus every few months; disjointed advertising and market focus have created confusion in the minds of U.S. consumers.

Stagnant sales resulting from management turnover, a strong U.S. dollar affecting Reebok's robust international market, and a saturation of the athletic shoe market led to Paul Fireman's taking over the top three executive positions in the company. While Reebok has had problems defining itself and creating a niche, Fireman vowed in the late 1990s to focus on the product and not on the athlete celebrity endorser.

COMPANY FINANCES

Reebok International, Ltd. sells athletic and casual footwear and apparel to consumers worldwide. Sales over a three-year period remained relatively flat, with the company reporting $3.5 billion in sales in 1995, $3.5 billion in 1996, and $3.6 billion in 1997. Dividends fell during this same three-year period, from $.30 in 1995 to $.23 in 1996 to zero in 1997. Profits also fell, with the company reporting $165 million in profits in 1995, $139 million in 1996, and $135 million in 1997. Falling profits were partly caused by increased costs associated with developing new technologies. Expenses charged to research, development, and design rose 27 percent from 1996 to 1997.

Reebok International, Ltd. did not expect to report increased sales for 1998 because of a strong dollar and saturation in the athletic shoe market. In the first quarter of 1998, the company reported a 12.2-percent drop in sales from the first quarter of 1997—$294 million for the first quarter of 1998 versus $335 million for the first quarter of 1997. During fiscal 1997, Reebok International, Ltd.'s stock sold for a high of $52 and a low of $27.

ANALYSTS' OPINIONS

Management-related troubles came to the forefront in August 1989 when two top executives with extensive experience in multibillion-dollar operations and marketing and advertising management resigned. Paul Fireman then took on the positions of CEO, president, and chairman. Some critics attribute high management turnover, executive-level combat, and strategic mistakes to Reebok's struggles in 1995, when the company's market share dropped 2 points. Reebok's sales rose just 6 percent that year to $3.5 billion, while Nike's sales for that year rose 24 percent to $5.9 billion.

Many analysts believe Reebok's biggest problem is defining itself to the American consumer. In Europe, consumers feel Reebok is an upscale brand, an image the company successfully reinforces. Competitor Nike's successful marketing has staked a claim on almost every desirable position in the athletic footwear and apparel industry, making it hard for competitors to create a radically different image. Other analysts believe Reebok's biggest problem is its ongoing management problems. Fireman was an entrepreneur when he created Reebok USA, and the company's management never became more formalized. Some observers also believe that the company isn't critical enough of itself.

HISTORY

In the 1890s English runner Joseph Foster invented a spiked running shoe, which he successfully sold internationally under the name JW Foster and Sons. Two of his grandsons eventually started a companion company in 1958 that was named Reebok after a speedy African gazelle. In 1979 American Paul B. Fireman saw the shoes at a trade show and liked them so much that he sought licensing to sell Reebok shoes in the United States. In the first year, Fireman introduced three styles of running shoes. They were the most expensive athletic shoes to date, retailing at $60.

Noticing the number of women in sports and the popularity of aerobics, Reebok shifted its focus to women's athletic shoes. The company developed the Freestyle aerobic shoe in 1982 and introduced a new line of men's fitness shoes the following year. Reebok's sales soared to $919 million in 1986, placing the company ahead of Nike as the leader in the athletic shoe industry.

In 1985 Reebok USA gained ownership of the British company Reebok. It went public the same year and obtained Rockport, Avia, Frye (sold in 1989), and Boston Whaler. During the late 1980s sales continued to soar due to aggressive oversees marketing. As of the late 1990s Reebok International, Ltd.'s brands were sold in over 160 countries.

By the early 1990s Reebok's athletic shoe technology brought about such inventions as the Pump, Energy Return System (ERS), Hexalite, Energaire, and Avia's cantilever sole. In 1992 Reebok obtained a patent for the Pump and quickly filed a lawsuit against L.A. Gear, which also claimed ownership of the concept. Settling out of court, L.A. Gear agreed to pay Reebok $1 million.

Reebok introduced a new line of cleated sports shoes in 1992. It also launched Boks, a casual shoe line, and purchased clothing brands Above the Rim and Tinley to enhance its apparel lines. It sold subsidiaries Ellesse (clothing and footwear) and Boston Whaler in 1993.

STRATEGY

Looking to the future, Reebok International, Ltd. began returning to past successes. Reebok became famous for aerobic footwear and in 1993 created Reebok University to train fitness professionals. In addition, the company sells Reebok fitness instructional videos. The company is reducing its line of women's dress shoes, concentrating instead on outdoor, adventure, and travel footwear for women.

In addition to its presence in basketball, Reebok also began to focus on baseball, football, and soccer, which had no major footwear company representation as of 1992. In 1995, Reebok signed agreements with both the National Football League and the National Basketball Association to produce officially licensed apparel. Reebok supplies game uniforms and sideline clothing to a number of NFL teams.

Soccer is the world's most popular sport, and Reebok plans to continue expanding into this market. The company sponsors several teams and individual stars, and in 1996 sponsored the Liverpool (England) Football Club, a team with a worldwide following. In addition, Reebok sponsors the New England Revolution, a major league soccer team.

Reebok International, Ltd. wants to attract serious athletes as well as fashion wearers of athletic shoes with its innovations. It wants to be a major player in so-called minor sports, such as badminton or wrestling, in order to build brand loyalty among fans. Expansion of the apparel business with athletic wear that is both functional and fashionable is also important, and Reebok is also working to get its innovative products to the market as fast as possible.

INFLUENCES

Several of Reebok's strategies have proved successful over the years. Plans for horizontal growth have allowed the company to diversify into many other markets, both eliminating some potential competition and adding competition for its expanded product lines. Such expansion proved to be an asset during times of financial loss when successful markets were able to balance unsuccessful ones.

While expanding Reebok's reach, Paul Fireman turned from Reebok's core success with women's athletic wear to focus on developing men's performance footwear signing on famous spokesmen such as NBA star Shaquille O'Neal and NFL running back Emmitt Smith. Its market in soccer shoes created international success for the company as well. However successful these strategic moves were, they were also expensive—sales, general, and administrative expenses rose from 24.4 percent in 1991 to 32.7 percent by the second quarter of 1995.

FAST FACTS: About Reebok International, Ltd.

Ownership: Reebok International, Ltd. is a publicly owned company traded on the New York Stock Exchange.

Ticker symbol: RBK

Officers: Paul B. Fireman, Chmn., CEO, & Pres., $1,600,974; Robert Meers, Exec. VP, Pres., & CEO of the Reebok Division, $1,134,852; Angel R. Martinez, Exec. VP, Pres., & CEO of The Rockport Company, $792,406

Employees: 6,948

Principal Subsidiary Companies: Reebok International, Ltd.'s subsidiaries include: Reebok Division, Rockport Company, and Greg Norman Collection.

Chief Competitors: Reebok competes against athletic and casual footwear manufacturers including: Nike; Adidas; and Fila.

That same year 50 percent of Reebok's design staff resigned due to internal conflict with top executive Roberto Muller. His strategy was to make a quality sneaker for less than $90, but this move proved unsuccessful when the demand for top-dollar sport shoes surfaced in 1994. Reebok scrambled to acquire big names to endorse their shoes, but it lacked competitive products for that market. Mass production of shoes with big name endorsers only led to average shoes that lacked appeal. To add to the turmoil, Shaquille O'Neal's relationship with Reebok soured, and he threatened to look for a new contract after being dissatisfied with a shoe Reebok had made for him.

In expanding to every possible market, Reebok diluted its identity in the minds of consumers. Fireman decided to focus on an image of sports and performance rather than of fashion, with a concentration on the product rather than the celebrity endorser. Fireman said, "We kind of forgot one of the key ingredients of our success—that the product is more important than the celebrity athlete." Reducing its emphasis on famous endorsers also helped Reebok to cut expenses.

CURRENT TRENDS

Reebok plans to revamp its advertising with a big campaign in the second quarter of 1998 whose slogan will be "Anything is Possible with Reebok." Some analysts believe the campaign will cost most of Reebok's $400.0-million marketing budget. Advertising expenses for 1995, 1996, and 1997 were $157.5 million, $201.5 million, and $165.0 million, respectively.

In 1996 Reebok launched an educational and marketing program, the Versa Training Program, to teach people how to achieve fitness goals such as losing weight. Emphasizing cardiovascular workout, strength training, and stretching, the program follows a trend to use a variety of activities for physical fitness rather than a single method. Versa Training equipment, clothing, shoes, and videos were produced as well.

To improve Reebok's brand image and persuade consumers to try the product, the company planned a "Try On the Future Tour" for early 1998. Kiosks featuring Reebok products will be installed in malls, and vans filled with Reebok's products will travel cross-country, stopping at festivals and sporting events to encourage people to try on Reebok products and test the new technologies for themselves. The company is projecting over a million try-ons through this promotion.

PRODUCTS

Freestyle, the women's aerobic shoe that launched the trend toward women's aerobic footwear in 1982, became one of the best-selling shoes in history. Following that success, Reebok ventured into walking shoes and casual footwear, out of which came Rockport, where profits continued to be high.

Looking forward, Reebok anticipates a fading of urban culture and a return to the clean-cut, All-American look. Low-cut classic styles are popular as well as casual, comfortable brown shoes in the Rockport mold. Reebok plans to manufacture shoes with the DMX and 3D Ultralight technologies and to continue emphasizing performance over flash.

CORPORATE CITIZENSHIP

Reebok donates sizable funds to human rights efforts. It donated $10 million to the Amnesty International Human Rights Now! World Concert and provides funding to Amnesty International for young human rights activists. A $25,000 contribution is made to winners of the Reebok Human Rights Award. The Reebok Foundation offers other grants to human rights organizations as well.

CHRONOLOGY: Key Dates for Reebok International, Ltd.

1958:: Reebok is founded, named after an African gazelle known for its speed
1979:: Paul B. Fireman gains licensing rights to sell Reeboks in the United States
1983:: Pentland Industries PLC buys 56 percent of Reebok
1985:: Reebok goes public
1992:: Reebok sues L.A. Gear for patent infringement of its pump
1993:: Creates Reebok University to train fitness professionals
1995:: Signs agreements with the NFL and NBA to produce licensed sports apparel
1998:: Launches the Try On the Future Tour

A 1995 report accused Reebok and other companies of allowing products to be made by children and alleged that 80 percent of soccer balls sold in the United States are made by child labor in Pakistan. Following this report, Reebok announced new labeling for its soccer balls to reassure consumers that they were not made by child labor. Reebok committed $1 million from the sale of soccer balls for Reebok Educational Assistance to Pakistan. In the first of many planned programs, that fund, together with the Society for the Advancement of Education, a Pakistani group, opened a school for former child workers.

GLOBAL PRESENCE

Reebok is among the five international market leaders in the sport shoe industry. Shoe manufacturers favor overseas production because wages are lower in undeveloped countries, and developing countries welcome manufacturers because they produce jobs, earn money, and establish a manufacturing base. Reebok capitalized on this market early on, producing 85 percent of its shoes in South Korea by the mid-1980s. Due to labor disturbances in Korea during the late 1980s, large sports shoe manufactures were forced to find a new production home abroad. Reebok later produced only 9 percent of its sport shoes in South Korea and the remaining balance in Indonesia (28 percent), China (29 percent), Thailand (14 percent), the Philippines (10 percent), Vietnam, and India.

Although Asia is no longer the production site for major sports shoe companies like Reebok, almost 90 percent of production in other countries is governed or owned by Taiwanese or South Koreans who have established contract factories in China, Indonesia, and other countries. Even though competition for market share in matured countries remained keen, sports shoe companies often shared a production site, allowing Reebok, like most other sports shoe companies, to concentrate on design, distribution, and marketing in the United States.

WHO SEWED YOUR SOCCER BALL?

Reebok, like its arch-rival Nike, has come under fire for the extent to which workers from Third World countries are exploited in the production of their shoes and other sports equipment. With this in mind, in November 1996, Reebok took the step of labeling its soccer balls with a guarantee that the balls were made without child labor. The majority of the world's soccer balls are produced in the Sialkot region of Pakistan, and Reebok has committed $1 million from the sales of soccer balls toward the educational needs of children in that region.

Reebok established itself in Europe with a good quality soccer cleat and paid famous soccer figures such as Jurgen Klinsmann to endorse the product. This strategic move was favored by young athletes in Europe and made Reebok recognizable to those buying a shoe for its name. Reebok retained a strong presence in the competition for market share in western Europe and established itself well in an immature market in central and eastern Europe.

SOURCES OF INFORMATION

Bibliography

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For an annual report:

on the internet at: http://www.reebok.comor write: office of investor relations, reebok international, ltd., 100 technology center dr., stoughton, ma 02072