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Reebok and Adidas
The athletic shoe industry in the United States was an $8.25 billion market in 2003.
By 2010, industry revenue had hit $21.9 billion with sales of over 362 million shoes a
year [Ibis World]. The four largest companies (Nike, New Balance, and AdidasReebok)
controlled 70 percent of that market [Cassidy 2004]. The industry grew from
almost nothing in the early 1980s to a global powerhouse. Reebok (ticker: RBK) can
trace its history back to Joseph William Foster, who made some of the first spiked
running shoes by hand in London—in 1895. In 1958, two grandsons started a
companion company known as Reebok. But, the modern version was born in 1979
when Paul Fireman saw the shoes at an international trade show and negotiated for
North American distribution rights. At $60 a pair, the shoes were the most expensive
running shoes in America [www.reebok.com].
In 1982, Reebok helped launch the aerobic dance industry with a shoe specifically
targeted to women. With explosive growth, the company went public in 1985. Growth
con- tinued, supported by the Step Reebok program in 1989. By 1995, the company
had grown from $50 million in sales to over $3 billion in a decade. Reebok’s 1993
sales of $2.9 billion placed it second behind $4.4-billion Nike, Inc. The nearly $1
billion increase in sales from 1989 to 1993 indicates Reebok’s success in gaining
Paul Fireman, president and CEO of Reebok
Paul Fireman founded Reebok in 1979 and remains the largest shareholder. From
1986 to 1990, Fireman was one of the ten highest paid executives in the United States.
Under his control, Reebok sales grew from $1.5 million in 1980 to $1.4 billion in
1987. In 1988, Fire- man relinquished the CEO role to spend time working on other
projects, including develop- ing golf courses in Puerto Rico and Cape Cod. In the late
1980s and early 1990s, Reebok suffered from two weak marketing campaigns
(“Reeboks Let U.B.U.” and “Physics behind the Physique”). More importantly, the
aerobics fitness craze began to subside. Women aero- bics shoes were a major
component of Reebok sales, so the sales decline hit them especially hard. In 1992,
Fireman returned as CEO.
Tom Trainer, CIO
Tom Trainer joined Reebok in 1991 as the chief information officer (CIO). He noted
that his role “is to enable the kid in Reebok to stay fresh and creative while also
allowing the grown- up corporation to compete in global markets” [Pulliam and
Pereira 1995]. To accomplish these objectives, Trainer implemented
videoconferencing, computer-aided design, the In- ternet, and laptops for the sales
force. The goal was to improve communications among em- ployees, faster
development of products, and more effective sales presentations.
Before Trainer joined Reebok in 1991 as vice-president of information systems, the
information systems area was less than up-to-date, with no global information system
or way to look at data. Communications, primarily by telephone and fax, between the
manu- facturing partners and worldwide distribution network were slow. Turnaround
on new products was equally slow. This was a critical problem because Reebok is a
fashion-oriented business with three product cycles a year in footwear and five in
apparel. While sales repre- sentatives from Nike were walking in with laptops to
display their lines, reps from Reebok were walking into offices with bags of shoes.
Trainer’s early days were spent accomplishing short-term projects that got him points
with the board of directors. He fired six of eight senior staff. He kept 85 percent of the
old programming staff, retraining many of them. In addition to his IS responsibilities,
Trainer drove the re-engineering process in the company. To do so, he spent a great
deal of time on the road, building relationships with Reebok executives around the
world. He also studied Sony Corporation to learn ways that it meets customer needs.
To accomplish his re-engineering, Trainer formed five megaprocesses that streamlined
procedures for production, sales and marketing, research and development,
adminis- tration, finance, and distribution. In 1992, he presented a four-year, $75-
million strategic information systems plan to Reebok’s executive committee. The
board approved it on the condition that it give Reebok strategic advantage.
To improve its communications, Reebok installed a privately designed architecture
for voice, video, and data. Reebok communicates not only with its worldwide
distribution base but also with its ad agency and other suppliers. IT currently
developed an electronic image library to enable product shots to be distributed to
every country where Reebok does business. The system dropped the new product lead
time from six months to three, and, in some cases, 30 days.
Before the new ordering system was installed, orders were first printed out locally and
faxed to the international headquarters in London. London would take all of the faxes
and send them to the United States to be entered in the mainframe. Different standards
for shoe sizes from different countries added to the delay. Once the information was
entered in the mainframe, production and manufacturing would evaluate the orders.
To improve this process, Trainer developed a software package called Passport.
Passport rationalizes product codes and shoe sizes. It also gives small distributors and
sub- sidiaries access to the system through personal computers. It can also function as
a module by plugging into larger systems.
Laptops were also given to the entire Reebok sales force. When orders were paper
based, replacing material in a shoe to change its price from $95 to $65 might take 30
days and mean a lost sale. With the new system, these changes could be made almost
automati- cally. Salespeople are able to check inventory and look into special orders.
They can also access two years’ catalogs with full motion video and sound clips of
Reebok’s advertise- ments. Lotus Notes is used to store the catalogs with mail links
Another Reebok initiative is to use electronic data interchange with 10-15 percent of
its retailers. This commitment enables goods to be tracked through shipping
companies, customs, and warehouses. Hoover, a data capture system to “suck in”
information from da- tabases around the world, is linked to customer databases that
track what customers have ordered and what they want.
Reebok experienced some problems implementing the new systems. Particularly difficult
was the effort to integrate the Canadian operations into the U.S. business
operation. Concentrating development and support in the United States did not take
into account the specifics of invoicing under the Canadian law. This mistake added
time and resources that had not been budgeted to the project.
Reebok early 1990s
In the early 1990s, facing continuing declines in the aerobics’ market, Fireman
changed the focus and tried to expand into other areas. To a large extent, Nike was
killing the competi- tion—largely by focusing on star athletes and spending more than
10 percent of its revenue on marketing. In the early 1990s, Fireman knew that he
would have to compete directly in the sporting world [www.reebok.com]. His
basketball market strategy copied a page from Nike, and relied on the new “Shaq
Attaq” line supported by Shaquille O’Neal from the Or- lando Magic. While sales did
increase, they did not reach the 25 percent levels predicted by Mr. Fireman—reaching
only 20 percent market share. Additionally, Fireman estimated in 1993 that the
outdoor-wear division would sell $350 million worth of shoes in 1995. Outdoor sales
fell far short of the goal, reaching about $110 million.
More importantly, expenses skyrocketed, increasing from 23.6 percent of sales in
1991 to 32.7 percent in June 1995. Experts say shoe company expenses typically
average about 27 percent of sales. Investors blamed most of the increase on the cost
of endorse- ments.
Nike Late 1990s
At the same time that Reebok was suffering, Nike reported a 55 percent jump in firstquarter
1995 earnings, with revenue increasing by 38 percent. Part of the increase was
from expanded international sales, with a 34 percent increase in orders from France
and Germany. Sales in Japan increased by 65 percent. Nike also expanded sales of
tennis shoes, partly through endorsements from tennis stars Andre Agassi and Pete
Sampras. In the first quarter of 1995, revenue from tennis shoes increased by 92
percent with a 42 percent in- crease in orders.
At the same time sales were increasing, Nike managed to decrease its expense ratio.
Selling and administrative costs dropped to 22.3 percent of revenue from 25 percent
in the prior year. Much of the improvement came from an improved distribution
system, including a new warehouse in Belgium that consolidated operations from 30
different facilities in Eu- rope.
Beginning in the late 1990s, the footwear industry lost its luster. However, Nike
revenue increased from $3.4 billion in 1998 to $9.0 billion in 2000 to $9.5 billion in
2001, to over $10 billion in 2003 [annual report]. In 2001, Nike installed a customized
retail supply chain system from i2 Technologies, Inc. The implementation, including
ties to other ERP systems, did not go well, and Nike faced a serious inventory
reduction and misplacement. Nike management was disappointed in the problems,
and Nike chairman questioned: “This is what we get for $400 million?”
Reebok Late 1990s
In 1990, Nike surpassed Reebok in footwear sales. In the year ending in August 1995,
Nike had $4.7 billion in sales compared to Reebok’s $3.37 billion. One of the largest
battle- grounds was the retail Foot Locker stores owned by Woolworth Corp. The
2,800 retail stores sell 23 percent of U.S. sport shoes, representing $1.5 billion of the
$6.5 billion U.S. market for athletic shoes. Sales at Foot Locker stores account for
almost 60 percent of the 1$ billion U.S. sales gap between Reebok and Nike.
Insiders note that the problems between Reebok and Foot Locker go back to the days
when Reebok shoes were selling rapidly. Foot Locker wanted concessions on price
and wanted Reebok to make some styles exclusively for them. Reebok was busy
selling to other outlets and was unwilling or unable to alter its production and
distribution systems. Nike was eager to build custom products for Foot Locker and
offered a dozen products exclusively at the chain. Ex-employees at Reebok note that
the company had additional problems providing samples and design plans to Foot
Locker, claiming that “Sometimes the samples would come in late and sometimes not
at all—which got Foot Locker mad. . . . Sometimes, fashions last less than six weeks;
if you don’t get it in right then, there goes a major sale.”
Mr. Fireman responded by trying to improve relations with Foot Locker. He also offered
to begin building exclusive styles for Foot Locker, but the introduction of the
products was uncertain. He also noted that Reebok was working hard to cut costs and
improve its order and information tracking system. One problem that remained was
that the clerks at Foot Locker stores tended to push the Nike brands harder.
By September of 1995, major shareholders were getting upset with Reebok management.
One of the leading outsider shareholders, Glenn Greenberg of Chieftain
Capital Management, noted that “The major shareholders have no confidence in the
management of this company. If it was up to us, they would have changed horses or
sold the company a long time ago.”
Reebok and The Internet
Like other shoe manufacturers, Reebok relies heavily on celebrity endorsements.
Signing Alan Iverson (NBA rookie of the year in 1996) and Venus Williams (tennis
sensation) gave Reebok greater visibility in 2000. In 2000, Reebok also increased its
visibility by sponsoring the Survivor television show with humorous ads. Their Web
site followed these themes. In 1997, Reebok installed Radnet Inc.’s WebShare
groupware system to maintain its Web site. The system has tools for e-mail,
discussion groups, and bulletin boards. The goal was to add interactivity to the site
and build a community of users. Marvin Chow, Reebok’s director of interactive
marketing noted that “If you just try and use the Web to sell them products,
something is missing” [Cole-Gomolski 1998]. More importantly, the system makes it
easy for Reebok’s managers to add content. They can add data and pass it to
salespeople and re- tailers automatically using a workflow engine.
The company used QuickTime from Apple to create CDs for its salespeople. Using
Macromedia on its Internet site, the company was able to update pricing, styles, and
even new photos and displays on the fly. The data was downloaded directly to the
sales laptops [Dillon 1998].
Interestingly, the Web site is largely independent from the IT department. Roger
Wood, vice president of electronic commerce at Reebok reports directly to the CEO
and con- trols his own technology budget. He observes that “I am able to take down
and build up fea- tures (of the Web site) without some IT overlord telling me what is
good or bad” [Cole- Gomolski 1999].
In 2000, Reebok stopped selling shoes direct from its Web site. It was concerned
about competing with the traditional retail outlets. So now the site focuses on image,
tech- nical information about products, and then directs consumers to the retail
Enterprise Systems From SAP
Facing weak sales, Reebok began focusing on reducing costs in the late 1990s. Net
sales dropped from $3.6 billion in 1997 to $2.9 bil- lion in 1999 to about $2.8
billion in 2000. Worse yet, from 1999 to 2000, gross margin declined from 38.5
percent to 37.9 percent.
Income (Million $)
Year 2003 2002 2001 2000 1999
Revenue 3,485 3,128 2,993 2,865 2,900
Net Income 157 126 102 81 11
In 1995, Trainer went to Eli Lilly [Information Week 1995]. The company ultimately
replaced him with Peter Burrows as chief technology officer (CTO). Burrows knew
that he needed to replace the aging, custom software that was being used to run the
company. The problem was that nothing existed. In late 1995, he sent a dozen Reebok
workers to an SAP R/3 course—the goal was to show SAP that its system could not
handle the complex details of the apparel industry. Most products are created by
hundreds of contract suppliers, gen- erally in Southeast Asia. Product designs change
constantly, and the company has to coor- dinate shipments to thousands of customers.
Ultimately, Burrows convinced SAP to develop a custom add-on system called the
Apparel Footware Solution (AFS) module. To convince the company to spend the
money, VF Corp., the company that makes Lee and Wrangler jeans, also signed on to
the project. The two companies helped design the specifications for the new software.
The project was far more complex than SAP anticipated, and the initial version was
three months late. Leroy Allen, the CIO at VF commented that “I think SAP
underestimated the amount of change that had to be made to standard R/3” [Steadman
Burrows was counting on the system to handle the major transactions at Reebok, so
he could avoid the necessity of rewriting the old applications to become Y2K
compliant. By May, 1999, the system was still not fully operational. Among other
problems and bugs, the system was too slow to check product inventories and raw
material stocks when retailers and distributors placed orders. Burrows noted that
“We’re not out of the woods, but SAP is responding. It’s not something we’re taking
lightly, and neither are they” [Steadman May 1999]. In the meantime, another 60
apparel and footwear makers had purchased the sys- tem by early 1999.
By 2000, Reebok was running the system in only a couple of divisions, such as golf
shoes. The company deferred implementation of the full system until at least mid-
2001. Burrows noted that he was waiting for additional functionality scheduled for
Release 2.5 [Steadman 2000]. Despite the problems in getting the software developed,
apparel manu- facturers had few other choices.
By 2001, Reebok had 115 retail stores running the AFS system. Burrows was pleased
with the ability of the system to maintain accurate inventory records for the stores
[Mearian and Songini 2001].
In January 2002, SAP shipped Release 3.0 of AFS. With the bug fixes and new features,
Reebok continued to rollout the system in its divisions. Burrows planned to
gradually implement Release 3.0 over a few years. Burrows continues to push for new
features such as a Web-based system to handle business-to-business transactions with
suppliers. In 2002, competitor Nike completed rolling out AFS 2.5 to its 5,000 end
users [Songini 2002].
Competition and the Future
There is no question that the shoe industry is competitive. There is also no question
that it is still dominated by Nike. Yet, Reebok has made gains in the mid-2000s. The
retro-trend bolstered sales for Reebok when it re-released older models. (It also
convinced Nike to buy Converse.) Competition to sign new stars is also intense. Most
observers believe Alan Iver- son has significantly boosted Reebok sales. In 2004,
Reebok struck a huge note in the inter- national market by signing Yao Ming to
market a line of shoes in China. Reebok will also market a line of Yao Ming shoes in
the United States [Marcial 2004].
Somewhat surprisingly, Reebok did well in 2003 selling a line of shoes endorsed by
Rap stars (Jay-Z and 50 Cent). The shoes were also popular in England [Thomaselli
2004]. On the other hand, Reebok’s 2003 sales gain was also attributed to the feud
between Nike and Foot Locker. In 2002, Nike pulled its top products from Foot
Locker—trying to negotiate better prices. In November 2003, the companies resolved
their problems and Foot Locker again began carrying more Nike shoes. Foot Locker’s
clout grew even more in 2004 when it purchased 353 Footaction stores from
bankruptcy [Cassidy 2004].
Although Nike is still the strongest seller in the U.S. market, it has struggled to find a
management team. In 2006, William D. Perez stepped down after only 13 months as
CEO. Reportedly, Perez often clashed with Nike co-founder Philip Knight. Knight
promoted Mark G. Parker to the CEO position. The change reminded observers of the
situation in 2000 when Mr. Knight returned to the CEO position to replace Tom
Clarke as sales fell from 1994 to 2000 [Lublin and Kang 2006].
In 2005, Adidas-Salomon AG in Germany agreed to purchase Reebok for $3.8 billion.
The price represented a 34 percent premium over the existing stock valuation. The
sale was closed in 2006. Adidas, a pioneer in the shoe and sporting-goods industries
had been strug- gling in the U.S. trying to find a way to compete with Nike. Adidas
was largely considered the engineering leader and produced some of the technically
best shoes on the market—but it lacked the marketing flash appeal of Nike. For
example, the company introduced a $250 running shoe containing a sensor and small
motor that enabled it to adjust the tension and support based on the terrain. Shortly
after the acquisition was closed in 2006, Paul Fire- man left Reebok [Reebok Web
A key element in the decision was Reebok’s appeal in the urban market—due to its
embrace of 50 Cent and Jay-Z rappers. Herbert Hainer, CEO of Adidas noted that “we
will expand our geographic reach, particularly in North America, and create a
footwear, apparel and hardware offering that addresses a broader spectrum of
consumers and demographics.” The global market for athletic shoes is about $33
billion and about half of that total comes from America. In 2004 combined, Reebok
and Adidas had about 20 percent of the U.S. mar- ket compared to Nike’s 35 percent
[Karnitschnig and Kang 2005].
Adidas was formed by Adi Dassler after World War II. It gained attention by creating
soccer cleats that helped Germany win the 1954 World Cup
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