Adidas-Reebok to Take Swipe at Nike’s Swoosh
By George Anderson
The announcement that Adidas plans to buy Reebok for $3.8 billion creates an interesting power play in the athletic-shoe and sportswear category.
The deal, which requires shareholder and regulator approval, would give the combined Adidas-Reebok 26 percent of the global athletic-shoe market compared to Nike’s 32 percent.
“Nike will have someone nipping at its heels,” said Marshal Cohen, senior industry analyst at NPD Group.
While many do not expect to see any changes in athletic-shoe pricing to consumers as a result of the deal, Thomas Doyle, vice president of information and research at the National Sporting Goods Association, believes prices could come down in the future as the combined company realizes efficiencies through merged operations.
“A retailer can more easily negotiate with one company,” said Mr. Doyle.
According to a report by the Chicago Sun-Times‘ Sandra Guy, Sears sees the combination of Adidas and Reebok as an opportunity for its business. Sears company spokesperson said it could lead to more streamlined buying and provide shoppers with more athletic-shoe options.
Sears sells both Reebok and Adidas brands but will no longer sell Nike after the brand decided to pull its products out of the retailer after it merged with Kmart.
Moderator’s Comment: What will the Adidas-Reebok deal mean for the athletic wear category and retailers if approved
by shareholders and regulators?
The companies expect to close the transaction in the first half of next year.
– George Anderson – Moderator
The proposed Adidas-Reebok merger will create a revitalization in the US athletic apparel and shoe industry that has been dominated by Nike for years. In the current market conditions, companies are looking to consolidate efforts to become, not only a key market player in their respective field, but a “better” business contender in their field. I believe the Adidas-Reebok merger will lead to a lot of great product and marketing for consumers and retailers to enjoy. Nike, who has offered such powerful product and placement, will be made to step up their game. The athletic market is in for an interesting ride!
Ever the contrarian I guess — but my vote is “not much.” The brands are still Adidas and Reebok in the consumer’s mind. There is not much evidence that consumers can be switched from one to the other to provide increased market strength for the remaining brand. There is little evidence of compelling synergy between the two brands at the consumer level. In short, what will an “Adidabok” company (or shoe) do to displace Nike? Better R&D due to bigger budgets? Maybe. Better clout at retail due to controlling 26% share? Hardly. How much “clout” do close number two competitors have in any market today? Retailers will not feel compelled to do anything for the individual Adidas and Reebok brands that they do not already. The best they can hope for is a profitability increase due to reduced overhead.
There may also be an increased opportunity for smaller manufacturers in niche areas, such as running shoes. As Nike and Adidas-Reebok continue to drift away from segments that are more driven by performance/value than perception, Brooks, Saucony, New Balance, etc. could grab some share.
The combined company will have increased market power to raise prices and/or force retailers to devote more shelf space to its products.
A price war would not enhance profits, since lower prices can be easily matched by other manufacturers.
Tongues will be wagging as this newly-merged company goes, as Jay Gordon described, “toe-to-toe with Nike.” It’s heartening to see the former down-at-the-heels Reebok company rising in value to be purchased by their former arch enemy, and that their now sole competitor has a significant challenger. Remember when these two newly-partnered companies used to lace into each other in their advertising? Let’s hope this is a marriage meant to last.
Adidas-Salomon-Reebok would be a global house of brands, versus the Nike global brand. While nearly matched in volume, the two companies have different fundamental proposition with consumers.
Since we already see Adidas soccer, running shoes and Salomon ski boots and hiking shoes distributed in American stores, I’m not sure how this merger will cause any perceptible changes from the consumer perspective. Perhaps the payoff will come in the form of greater distribution of the Reebok brand in Europe? (I’m much less familiar with that brand’s status over there.)
The Adidas-Salomon-Reebok link-up would allow the company to cover several price points and present a greater perceived variety for chain merchants like Sports Authority and DSW. Would this press Nike to deal a little sharper? Remains to be seen.
I’d line up with Ben on this one. Seems to me, in this market the name is the name – period. It’s really not about the shoes or the clothing. In this case it’s purely about the ‘swoosh’. It’s cool. It’s hot. It’s the demand of the market because of those things alone. Getting someone to switch in that environment takes a trend created by activity in the culture. Marketing might work if there was a budge in that regard. However, the merger isn’t likely to have any impact whatsoever.
It will be interesting to see if this merger of brands works. Much like the Sears/Kmart deal, there will be some advantages but at the same time I foresee a major challenge to grow these brands as a result of the merger. More importantly, though, will this merger result in a more profitable Adidas operation? Time will tell. Nike is a force to be reckoned with and there will not be many if any retailers willing to give up Nike wall space to add Reebok styles. At the specialty store level, Reebok has faded and it is doubtful that this will change.
My sense is that Adidas is one of (if not the only) manufacturer that can go toe-to-toe with Nike on the global stage. The acquisition of Reebok should give Adidas the resources and efficiencies it needs to give the swoosh all it can handle.
I don’t see how a decrease in the number of competitors in an already tightly-controlled market would lead to lower prices. The effect of greater concentration in an industry is generally higher prices, and the athletic shoe market just became much more concentrated.