Thursday, November 24, 2005 -


SEPTEMBER 01, 2005 -- The questions outnumber the answers right now as the industry analyzes the repercussions of Adidas buying Reebok. Among the major issues are: How can the Adidas/Reebok combo position each brand to ensure that they don't cannibalize each other? How will the two organizations get along? How will they share technologies and design ideas, as well as endorsers? And what becomes of the league licenses?

Externally, some of the big questions are: Should Nike feel threatened? How does this deal impact the industry's other—suddenly smaller—footwear competitors? And will this merger fuel yet another round of consolidation on a grander scale?

SGB polled a diverse group of insiders and outsiders to get their take on the blockbuster deal.

"What this news really says to me, and the industry at large, is that consolidation will continue to take place at both the retailer and supplier level. But for us, it will be business as usual. For New Balance, this presents an opportunity to further enhance our strong retail partnerships by capitalizing on domestic manufacturing to decrease time-to-market, and providing unmatched customer service to exceed our customers' needs. From a strictly financial perspective, this news means that Nike owns 20 to 25 percent of the U.S. footwear market. Adidas, with Reebok, now holds 14 to 19 percent; and New Balance will be in the number three slot with 6 to 10 percent market share, according to NPD. New Balance's goal has always been to be the best, not the biggest."

— Jim Davis, chairman and CEO, New Balance

"One thing you have to remember is that if Nike were a person, it would be the most competitive athlete you ever met. They will not accept that this is now a two-person race. They still want to be out front. That's just the dimension of that culture. The true competitive nature of that business tends to thrive off this type of occurrence. They will feed off of this as much as this new entity will feed off the benefits of this merger. You can't help but be excited as an industry watcher...There's great symbolism in the World Cup being in Germany next year, and I think it's incredibly fascinating to watch the next two-and-a-half years leading into Beijing in 2008. Those are two battlegrounds for these two companies to go toe-to-toe in. It's like a great championship fight and there are two unification bouts on the horizon."

— Paul Swangard, managing director,

Warsaw Sports Marketing Center, University of Oregon

"Like all mergers, whether it makes sense or not is going to be determined by how they integrate and how they operate it. The more interesting question is what it means to the industry. One of the things about consolidation and a lot of M&A traffic is that everyday when you wake up, the game changes. When Quiksilver bought Rossignol and Amer bought Salomon, we had to step back in our business and ask, 'Well, what does this mean? What are they going to do? How is going to be integrated? How are they going to take it to market? And how is it going to affect us?' Everybody in the shoe business has got the same problem now...If I'm Nike or New Balance or all the rest of them, the question is 'What will it do and how is it going to affect me?' And since they're integrating to do this, I ought to be able to counter that quicker because it's going to take them longer to do stuff in the next two years. The leadership can go out there and say anything they want. But if the organization is going to fight it, it's going to be a battle. The organizations are gong to determine the integration pace. So if you're Nike or New Balance, it's a great game right now. This is when the competition throws hand grenades and tries to figure out how to throw them off their game."

— Richard Heckmann, chairman and CEO, K2 Inc.

"We believe there are three key opportunities where Adidas could improve Reebok's relative weaknesses, including, [first] branded apparel, which Reebok has been struggling with for several years, in addition to lacking leadership; [second] Europe, where Adidas could help better position the brand at retail as well as support expansion plans; and [third] China, where Reebok is well behind in relative positioning to Adidas and Nike. Still, this merger could imply some near-term opportunities for Nike. Given that Adidas' due diligence of Reebok appears to have been limited to public documents and bank/legal advisors, it could be some time before a tactical strategy is in place to face the challenges Reebok has been experiencing in its U.S. business, leaving Nike more opportunity for market share gains. In addition, longer-term, it is still unclear how Adidas can raise the execution of some of Reebok's weakest categories (such as branded apparel) without cannibalizing some of their own business. The deal could be a positive for K-Swiss, Puma or New Balance, too. We expect U.S. retailers to react more favorably to one—or all—of the above brands, in an effort to create a stronger [number] three player in the market."

— Robby Ohmes, analyst, Banc of America Securities

"When you look at the track record of these kinds of deals, they generally don't end up with a stronger entity when it's all done because one of the brands gets less attention. Instead of having two strong brands, you end up with one strong brand or one stronger brand, and one weaker brand. We lose something in that translation."

— anonymous, GMM, sporting goods chain

"From a marketing standpoint, they can combine efforts and then it's number two and number three taking on number one, as opposed to having number two and number three doing it individually. But it will be interesting to see how they synergize their efforts while keeping the brands separate. They have all these assets, but how can they blend them together and be one huge entity rather than two small entities with the problem of keeping two separate brand identities? That will be the challenge. We believe what they're going to do is a segmentation strategy, which is where they can combine efforts across the board. One example would be that they buy Tiger Woods, and he could be wearing Reebok tennis shoes and Adidas apparel. But some athletes don't work for both brands. Reebok tends to be more lifestyle oriented and they can get away with the P. Diddy thing. And Adidas tends to do more of the apparel kind of stuff with the stripes so it will be interesting where they can blend without watering down either brand's message."

— Trip Wheeler, VP sports marketing, Radiate Sports Group

"Adidas is particularly strong in Europe and in performance products, while Reebok's strength lies in the U.S., lifestyle and casual. The business models appear complementary enough not to cause major integration risks. What might really go wrong? We doubt that there are any major risks in the pure operating business of the enlarged group. The more balanced regional breakdown, the wider range of categories and the broader distribution and price points should make Adidas/Reebok more resilient to changes in fashion trends. We therefore believe that the key risk is that important people to the business leave the firm if the integration process is not handled well. However, this is where we have our trust in Adidas management: we believe that there is a strong culture among senior and middle management to promote diversity, so key staff [such as] designers and marketing people, should be motivated to work for a larger group, a more important group now, in the sporting goods sector."

— Bernd Janssen, analyst, UBS Investment Research

"I don't know exactly what Adidas' motivations are. I don't see a category where Reebok is so strong to really generate a lot of interest in them. They don't dominate anything with the exception of their licensing agreement with all the professional sports...Adidas is doing a better job in running than Reebok is. In tennis, they're both probably about the same. In training, Reebok is far better, but way off the pace of the stronger vendors in the category. They both do a decent job in kids. But when you get into team sports, neither company is doing a good job right now. Their products are behind, and their stylings are off. Just the way they're operating their team business is confusing at best. So you basically have now joined two entities where neither one of them knew what they were doing alone."

— anonymous, Footwear Buyer, sporting goods chain

"This just can't be about the deal. It's what's the vision is going to be in five years and out. And you're going to be doing that with two competing brands. That's going to be the challenge. They wouldn't have launched into this without all those things thought through, but clearly they can't take their eye off the consumer or the retailer because that is where Nike can make serious progress. This is a world that requires scale, and this industry requires scale to both purchase cheaper and deal with retailers better. So I would say that for the small—half-billion, $1 billion, $1.5 billion, or even $2 billion—companies, if they're healthy and they're strategically sound, being part of a larger organization can be very beneficial."

— Todd Lavieri, CEO, Archstone Consulting

"I don't think it bodes well for some of the smaller companies like Brooks or Saucony because the combined Adidas/Reebok will potentially result in more leverage with retailers. It could affect the power-dependence type balance, and then you're going to have more selection at retail from the combined brands than you would if they were kept separate. That could totally squeeze some of the smaller suppliers, and also exert some pressure on Nike. I don't think it's a bad thing that they still remain competitive and distinct entities. If Reebok doesn't cannibalize Adidas, then Nike will."

— Andrew Rohm, marketing professor, Northeastern University (former Reebok employee)

"It's just a trend in the industry where you have the larger companies consolidating and trying to become larger by acquisition to have enough muscle to deal with the store chains that are also consolidating and becoming larger. That helps them basically in being able to balance out the chargebacks and all that sort of stuff that the larger retailers inflict on brands. Adidas did pay a premium, so they have to show how they're going to get some economies of scale and they've got to generate more profit out of this deal to prove to their shareholders that this deal was worth it. Bigger might not always be better, so they've got to prove to the world that bigger makes it more efficient and [that] the combined entity will make more money than the two individual companies separately."

— Killick Datta, CEO, Global Brand Marketing Inc.

"We believe that this deal is more positive for Reebok than it is for Adidas. In particular, we consider the purchase price to be somewhat high, especially since the company will most likely not generate significant cost savings from this acquisition. In addition, we would note that Reebok's important Classics category is experiencing some difficulties in the U.S. marketplace, which we attribute largely to styling issues. Thus, Adidas may ultimately face an uphill battle in improving Reebok's Classics business."

— John Shanley, analyst, Susquehanna Financial Group

"Over time, a combined Adidas/Reebok has the potential to represent a greater competitive threat to Nike, though this is certainly not imminent. U.S. retailers in particular want an alternative to Nike, and there are just not that many brands to turn to, especially in the performance segments. As one retailer said to us, because of this dynamic, Reebok will always have a seat at the table. The merger of Adidas and Reebok is another sign of a potential shift in leverage from retailers to vendors. Several industry contacts have said vendors are likely to raise wholesale prices, given moderating hedge rate benefits and higher costs out of Asia, after years of higher initial markups. And with this deal, instead of one 800 pound gorilla in Nike, retailers will be dealing with two big apes."

— Virginia Genereux, analyst, Merrill Lynch

"We've all got our strengths and weaknesses. If they can capitalize on each others' strengths, it may make them a lot better. If they don't run them separately, I think that could be a negative. It remains to be seen how it's going to affect the industry. Hopefully, it will be for the good."

— Mickey Newsome, CEO and chairman,

Hibbett Sporting Goods

NOVEMBER 04, 2005 -- Fila Appoints Europe Managing Director; Saucony's John Fisher To Ring NASDAQ Opening Bell; Adidas To Advertise Across Yahoo! Avatars; Hi-Tec Sports Appoints VP/Sales; Puma Partners On Video Game Marketing Campaign; Finish Line CEO Headed To NSGA Hall Of Fame;

ASICS Adds New Dimension To Female-Specific Footwear
NOVEMBER 02, 2005 -- ASICS' biomechanical research discovered some startling differences in the movement patterns of male and female runners.

OCTOBER 28, 2005 -- Runner's World Holds Shoe Summit; NSGA; Brooks Renews WIAA Sponsorship; Devine Racing Elevates Steve Miller To CEO; Runner's World ING New York City Marathon Podcast presented by ASICS Online Now; Ralph Lauren Sale Boosts Reebok 3Q Results.

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