Posted: May 25th, 2022

Managing Reebok Term Paper

Managing Reebok

History of Reebok

The company of Reebok started in England in around 1890 to provide shoes which could help athletes run faster. The cleated running shoes were developed by Joseph William Foster and he had then started a company to make hand-stitched athletic shoes for the runners of that time. The enterprise continued in that manner and started with the name of Reebok International due to the starting of a new company by the grandsons of JW Foster. The name was taken from the name of an African gazelle. The company came to USA in 1979 when Paul Fireman bought an exclusive license for distribution of Reebok in North America. From the beginning itself, the products were the most expensive, and were being sold for $60 a pair even in 1979. The sales increased over time, and became $1.3 million in 1981, and then the production capacity of the plant in UK was exceeded.

This led to a tie up with Pentland Industries, who are a British shoe distributor to establish a production facility in Korea. For $77,500 Pentland got 56% of the Reebok stock. This was also the time that aerobic dancing became popular as a fitness craze and there were no shoes available for women. The situation was taken advantage of by the company and it started a product for that market. Then it came out with the ‘Freestyle’ line of shoes and the sales of the company boomed from $3.5 million in 1982 to $3.6 billion by 1997. Then the two companies of Reebok USA and Reebok International merged into Reebok International. At this time four million shares were offered to the public, and this also permitted Pentland to become a major shareholder, though the CEO and Chairman’s position continued with Paul Fireman. The money collected was used for financing the growth of the company.

What are the industries and Reebok’s management strategies and trends for the last two years?

The company has internally viewed the present position and has outlined fourteen difficulties that they are likely to face in the future. The company’s business was viewed to be subject to the economic conditions in the major markets of the company. The conditions reflected unlimited recession, inflation, a general weakness in retail markets and downward trends in consumer purchasing powers and resultant brand preferences. This situation was accentuated by the events of 9/11 and the generally weak economic conditions have led to lower confidence among investors, a lowering of demand from consumers and thus a reduction in spending. There were hopes however that the economies of UK, Europe and Asia / Pacific regions will help in the improvement of the situation. This has made the company feel that the outlook for business was uncertain. The other point to worry was that the total market for athletic footwear and apparel was highly competitive, and the important considerations by the customers was of price, quality, design, brand name, marketing and promotion and the capacity of the company to meet delivery commitments to retailers.

Some of the competitors had more financial powers and this also hurts the company. Where the market has matured, further growth may be practically impossible to achieve. For Reebok, the sales increased by 4.5% to $2.993 billion from the previous figure of $2.865 billion. There was an adverse effect on sales due to the fact that foreign currencies weakened against dollar. At the same time, the decrease was mainly in the Asia Pacific region, as there was an increase in all other regions for the company in U.S., Europe and Latin America. Thus the sales performance of the company for 2001 can be described as being good. This becomes clearer when we see that the sales of other companies showed a downward trend. The sales of Rockport declined by 5.4% overall and the domestic sales decreased by 9.0%. The sales of Ralph Lauren decreased in 2001 by 8.8% from the previous year’s figures. Thus it is clear that there was a general decline in footwear sales in all three divisions of the company. The entire general decline had been anticipated.

What are Reebok’s and the industry’s management competencies?

One of the major problems faced by Reebok and its competitors was due to the continuous increase of the list of banned substances in consumer products. Reebok had taken aggressive action to meet these specifications. Yet, the changes had been made so rapidly that at certain points Reebok had products in distribution that were not in line with the latest directives of the EU. This sort of situations was causing some amount of disruption in sales. This had also contributed to a drop in sales, but competition was being affected similarly. The management was also aware of the rejection by direct consumers of products due to reasons of environment, health and human rights. This happens to some specific products, and the products would have to be withdrawn from the market. While the management of Reebok have been competent enough not to have such rejection of its products, yet, the management was keeping a close eye on the possibilities. The possibilities of such action against the company do not seem any more likely than that of its competitors.

What are Reebok’s and the industry’s strategies for labor relations?

The company has not faced a labor relations problem, though as of 31st December 2002, the company has 6,700 employees. None of these employees have a union except 200 employees in France who have a worker’s committee. Till date the organization has not suffered a major interruption of business due to labor disputes and it has considered its labor relations to be good. The situation is however different in the factories abroad where most of the products are manufactured. This has caused some difficulties to Indonesia, where the footwear exports have come down to $1.5 billion from the previous year’s figure of $2.2 billion. This country had been producing 38% of the footwear for Nike, which is the leader of the market in USA. As in the case of Nike, Reebok had also stopped supplies from that country and this had stopped 5,400 workers from their jobs. When compared to 6,700 employees this is a large number. The image of the company is however of being a supporter of human rights and this has been so since 1988 when Amnesty International asked for sponsorship from Reebok for its Human Rights Now World Tour. This program was seen by millions of people in 23 cities in four continents. The tour also featured artists Peter Gabriel, Bruce Springsteen, Sting, Tracy Chapman and Youssou N’Dour. Thus Human Rights are good publicity for the company.

What are Reebok’s and the industry’s strategies for social responsibility?

The definition of social responsibility is probably observed in the insistence by the company to compel its agents and manufacturers of Reebok products to observe the Reebok Human Rights Standards. This sets down certain acceptable factory policies and procedures about the conditions in the workplace. The company has a global monitoring system to check whether these are being observed or not. They also have a program to provide technical assistance for improving air quality in factories producing its footwear. There was also an effort to implement worker communication system so that conflicts in the factory could be resolved. Another incidence was in Pakistan, where Reebok insisted on stopping the use of child labor through production at a central point under proper supervision. This permitted the Reebok soccer balls to be sold with a guarantee that they were free of child labor. The company has also set up a child care center near its world headquarters with a total capacity for 72 children. Is this a strategy for social responsibility?

How do Reebok and the industry compare and contrast in the areas mentioned above?

Well that is very difficult to say as there are no clear incidences about the competitors except one, Nike. There is a clear mention that the share of Indonesia in manufacturing of Nike products has come down from 39% to 30%, whereas the share of production of Vietnam has gone up to 15% from 2%. This is viewed as the ‘flying geese’ theory of development which says that less developed countries gradually go up the production hierarchy when they industrialize. Yet the situation of Reebok in Indonesia was not much better, and the Reebok factory was also closed. There were public comments that the workers in Reebok factory earn less than $1.5 a day. One would just like to say that probably the situation in all factories of the industry is the same, and there is not much care about human relations in this industry.

What is the significance of the comparisons made?

The comparisons made above are based on facts, and that is quoted here, so one can say that it is the truth. The problem is that the companies concerned have to realize the implications of the steps that they take. There is no doubt that United States is the richest country right now, but at the same time, all human beings are the same and have the same basic requirements. This makes it imperative that the leading companies situated in the United States have to ensure that all human beings are treated properly. It is the responsibility of a leader. The competition in this industry seems to be very acute, and there seems to be a desperate effort to cut costs and maintain leadership, basically by outsourcing production at very low rates. To an extent this is happening because these companies have had a very short period of existence, and probably an even shorter period of prosperity. It is difficult for the management of these companies to devise methods to maintain their prosperity through changes of methods, rather than oppressing the already oppressed.

If you were the CEO for Reebok what would be your strategy for leading this firm? Why?

It is clear that nobody else will ever be the CEO of Reebok apart from Mr. Paul Fireman and at a later date, may be his nominee. He is also engaged in buying up the outside share holding of the company. However the hypothetical and improbable question has been asked and has to be answered. The strategy for leading such a firm is to understand that this is a fashion-based product that the company is making. The shoes which are in style today will not be in style tomorrow, and the advanced countries will not be using them as also the ‘sophisticated’ customers. Yet, all shoes are essentially made with the same material, and there are still customers who would not be able to pay the first line prices, but would still like to get good shoes. That is why you get imitations of such products in the Far East. It would be better if the newest designs are made by the manufacturers for some time, may be one season. Then they may be given the design and they may be permitted to make them and sell the shoes in the backward countries. They would be able to make their money from that, and Reebok should concentrate on making their money from the first class markets. This may require the brands to be marked in some way with the year of manufacture.

If you were the CEO for Reebok how will you increase profits?

The only way of increasing profits is through the difference between the cost of manufacture and the price from sales. The price from sales can be increased to a certain extent as the consumer is paying for an image that he hopes to get through the use of Reebok, and not for any intrinsic value. The price of such products depends on the fashion ability of their products as seen by the promoters. It is clear that Reebok footwear products are designed for use of specific types of consumers, image and fashion conscious athletes, sports and fitness enthusiasts and casual athletic shoe buyers. The company has already realigned the creators of the products to meet these aims and also focus on the consumers and distribution channels to reach these customers. The company has tried to help the sales of cross-training cleated baseball and football shoes during 2001 through sponsorship arrangements with the NFL Pro-Bowl players Edgerrin James and Jevon Kearse; as well as the baseball stars in the major league Andy Petite, Kevin Brown and Roger Clemens; and the college football programs at Boston College and the Air Force Academy.

They have also sponsored many individuals and teams for soccer and they include Julie Foudy of the U.S. national team, Ryan Giggs from the English team of Manchester United, Iker Castillas who is the goalkeeper with real Madrid and Spain, Liverpool FC, Bolton Wanderers along with renaming their stadium as the Reebok stadium and the Colombian national team. For the promotion of the running and tennis products there are agreements with runners Abel Anton and Christine Arron and professional tennis players Patrick Rafter and Andy Roddick. It is the Image of these stars that help the sale of Reebok products, and the only problem is with the popularity of the star during certain periods after they are sponsored. As a major promoter, I am sure that the company has sought the required advice and expertise of the best possible people.

What do you project of the future of the company?

Fashion is like the sands of time and it passes without most people realizing that it is moving, and Reebok has trained all its guns on fashion. Even the newest division is only trying to sell fashionable clothes. It is probably better for the company to diversify into other types of products which do not depend on fashion. Items of this nature should not be apparels or clothes. One of the other trends is now food, and they may think in terms of special foods for occupational problems that are connected with the information technology industry. The industry is growing and along with it is growing certain types of problems. Specialized food may be able to help these problems and Reebok may concentrate on that. The problems arise mainly due to lack of exercise, and thus the link with Reebok should not be difficult to build up.

What are the industries and Reebok’s financial strategies and trends for the last two years?

The financial strategy for generation of money cannot be understood from balance sheets, but one thing is clear, and that is none of the big companies in the industry are making much money. They are even cutting down the ‘research’ they do or are shifting it to low cost centers. The greatest expenditure by them is on sponsorships. There is Michael Jordan, Tiger woods and Mia Hamm for Nike; Allen Iverson for Reebok and Kobe Bryant for Adidas. The total expenditure from these athletic footwear manufacturers on advertising and endorsement by celebrities has been more than $5.9 billion during 2001. Yet the greatest amount of brand loyalty has not come to any of them, but gone to a New England company called ‘New Balance’ and this had no sponsorships. This brand has now got the greatest number of loyal customers and replaced Nike in that regard. Does this mean that the consumer does not believe the celebrity announcements any more, or is it being over done?

What are Reebok’s and the industry’s strategies for ROA/ROI/ROE?

As per the books of accounts, the company has profits, but a lot of it is being spent to buy back shares. There are no dividends being issued and thus the entire concept of return is probably a misnomer as the shareholder can only trade his share at the price of the share. The face value of each share is a very low 1 cent, while the fair market value is $26.50 per share, and due to this, probably the objective cannot be to get a dividend. It is thus not an investment for returns, but probably more of a speculative investment. Since there are no balance sheets for other companies, it is difficult to judge their strategies.

What are Reebok’s and the industry’s merger strategies?

The strategy of growth of Reebok has been around line extensions and acquisitions. In 1986 it had acquired the Rockport Company for $118.5 million cash, and in 1987 it had bought all the outstanding shares of Avia group for cash $181 million and 194,000 common shares of Reebok. It has acquired ESE Sports for $18 million cash and John A. Frye Co. For $10 million. Ellesse USA with cash of $25 million as also Boston Whaler were purchased in 1988 and 1989, which were later sold out in 1993. This purchasing trend has stopped in Reebok, but continues in Nike which has bought North Face for $240 million in 2001. This sort of purchases has made it difficult for outside talent to prosper in the companies.

What are Reebok’s and the industry’s strategies for retained earnings?

The retained earnings have been used by Reebok to buy up their own shares as this helps them in pushing up the prices of the shares. This is clear from the purchase of roughly 39 million shares for 660 million dollars in 2001 and 38.7 million shares in 2000 at 653 million dollars by the company as reflected in the balance sheet. The balance sheets of the other companies are not available and one cannot comment about them.

What are the industries and Reebok’s marketing strategies and trends for the last two years?

The trend of the market has changed after the events of 2001, and other international crisis. In general, the market shares of all companies have dropped, and that includes the leader of the market Nike. Even the sales have dropped for the other companies of Reebok which are selling under different brand names. The increase in dollar sales has only taken place for Reebok and New Balance. It is interesting to note however that the marketing strategy for the two companies is different and this has already been discussed.

What are Reebok’s and industry’s domestic marketing strategies?

Reebok’s U.S. operations unit is responsible for sales of all Reebok footwear and apparel products that are sold in U.S.. The total sales grew in 2001 to roughly $930.5 million as compared to $925.5 million in 2000. The sales of apparels under Reebok brand and including the sales of apparels under The Greg Norman Collection was about $395.1 million in 2001 as compared to $235 million in 2000. The strategy followed for this sale was through celebrity advertising, and the same strategy was followed by the competitors except New Balance. The growth in terms of market share was the highest for New Balance during 2001 from about 3% to 9% of the total market, and the greatest loss was that of Nike. This is the most important feature of marketing to be noted.

What are Reebok’s and the industry’s international marketing strategies?

The international sales of Reebok were organized from the corporate office in Canton, and this office directly controlled sales in Latin America. The operations in Europe were controlled from the offices in Lancaster and London in England, as also the sales in the Middle East and Africa. There were wholly owned subsidiaries for marketing the Reebok branded products in Austria, Belgium, France, Germany, Ireland, The Netherlands, Italy, Poland, Portugal, Sweden, United Kingdom, Japan and South Korea. There were also majority owned subsidiaries for India, Mexico, and Spain. There were also 26 independent distributors and two joint ventures in which the company had minority interest. The entire effort marketed Reebok products in 170 countries and territories. During 2001, the total sales from international operations reduced to $1.170 billions from the previous year’s figure of $1.176 billions. This was mainly due to weakening of the currencies against the dollar.

What are Reebok’s and the industry’s advertising and public relations strategies?

It has been stated earlier that the main strategy for all American sports footwear company has been to depend on celebrity endorsements, apart from New Balance. Even they had tried it initially. New Balance advertising featured unknown athletes and was generally released in special magazines like Outside, New England Runner and prevention as also on cable TV channels like CNN, the Golf Channel and A&E. The main slogan of the company is ‘Achieve New Balance’ and the slogan has not changed in five years. The headlines for the advertising are also different and like ‘Life sucks go for a run’. The media strategy is clearly targeted at older people. This is the reason for Reebok to worry as the main buyers for Reebok are older people and kids who cannot spend $80 to $90 for a pair of shoes. Will New Balance finally upset the Reebok balance?

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