Image: ShutterstockHerzogenaurach (Germany) 2005 The big news of the year was the big acquisition. German sportswear major Adidas, second biggest in the world, was scooping up American rival Reebok, third in the global pecking order, in a $3.8-billion deal announced in August. The then Reebok chief executive officer Paul Fireman was elated to find a ‘perfect strategic partner’. Adidas too hailed the move as a strategic milestone. Herbert Hainer, the then chairman of Adidas-Salomon, billed the buyout as a “once in a lifetime opportunity to combine two of the most respected and well-known companies in the worldwide sporting goods industry”. The deal indeed seemed to make immense strategic sense. In 2004, Adidas had 15.4 percent global market share, and Reebok some 9.6 percent. Together, they were better placed to take on formidable rival Nike which had the crown with 33.2 percent. “The message from this deal,” marketing professor and former Coca-Cola executive Peter Sealey then reportedly remarked, “is get big or get out.” Getting big was the game plan of Adidas, which languished in the lucrative US market—which accounted for 44 percent of the $20.4 billion global branded athletic shoe pie—in 2005. Fashion-savvy Reebok had raced ahead of Adidas in the US. Post-acquisition—the deal was completed in 2006—the combined entity had some 20 percent of the US market, and a far better chance of taking on Nike. Back in India in 2006, a dramatically different kind of dynamic was playing out. Reebok was the Big Brother. With a revenue of Rs354 crore, the American giant was almost double the size of Adidas, which had posted sales of Rs186 crore. Global leader Nike was third at Rs99 crore. Puma, the youngest player, which entered India a decade after Adidas and Reebok, had managed Rs22 crore in 2006. For the Reebok team in India, the global partnership came as a bolt from the blue. “We were shocked,” recalls a marketing honcho who was part of the Reebok India sales team in 2006. “We didn’t know whether the news called for celebration or mourning,” he says, requesting anonymity. The relationship, he lets on, was discomforting for both the partners. There was a cultural misfit. While Reebok has always been hyper aggressive, Adidas was known for its sedate growth. “We did have a superiority complex, and bragging rights,” he adds. Nothing changed over the next five years. The power equation was still loaded in favour of Reebok. It remained the bigger partner with Rs783-crore revenue in 2010; Adidas continued to play second fiddle with Rs456 crore in 2010. What also didn’t change was the rivalry between the sales and marketing teams of both brands, which had maintained distinct identities, structures and loyalties. “There were no synergies, no common ground, and no brotherly love,” recounts a senior sales official at a top telecom firm, who started his professional career with Adidas a decade back. “Our arrogance stemmed from our global clout,” he says, adding another big plus for Adidas in India. “The corporate headquarters in Germany wanted a bigger role for the parent brand,” he claims. A tacit push for brand Adidas began to play out, which further strained the relationship. The rivalry also provided Puma with an opportunity to play catch-up; by 2010, it had overtaken Nike to become the third biggest in India by posting Rs249 crore revenue. Then came the Reebok financial scandal of 2012. The magnitude of alleged financial irregularities unearthed by Adidas in Reebok’s India operations in 2012—some put it at Rs 870 crore—proved to be a turning point in the relationship between the two siblings in India. Adidas was set to become the Big Brother, and Reebok suddenly became a big bother. In three years, the writing was on the wall for Reebok, which got marginalised in play, scale and size. For FY15, the shoe maker reportedly posted a revenue of Rs333 crore. Contrast it with Adidas, which was now more than twice of its acquired sibling at Rs805.13 crore. Reebok’s retail footprint too shrunk from over 800 stores in 2013-14 to over 250 stores in 2015-16. Over the next few years, income from operations grew at a modest pace: Rs388 crore, Rs400 crore and Rs429 crore in FY18, FY19 and FY20, respectively. Though Adidas has grown bigger than Reebok, growth in the past couple of years has been sluggish. Income from operations stagnated at Rs1,198 crore in FY20 from Rs1,221 crore a year earlier, according to financial data accessed by business intelligence platform Tofler. On the global front, too, Reebok has been staring at an uncertain future. Last year, Adidas announced a thorough assessment of strategic alternatives for Reebok as part of the development of the group’s new five-year strategy. “After careful consideration, we have come to the conclusion that Reebok and Adidas will be able to significantly better realise their growth potential independently of each other, especially, since the long-term growth opportunities in our industry are highly attractive, particularly for iconic sports brands,” Claudia Lange, head of Media Relations for Adidas, said in an email response. “Consequently, Adidas has now decided to begin a formal process aimed at divesting Reebok,” Lange adds from the global press release issued earlier this month, in which Adidas outlined the need to focus on a solo journey. Going forward, the German parent company underlined in the statement, Adidas intends to focus its efforts on further strengthening the leading position of the Adidas brand in the global sporting goods market. Accordingly, Adidas is going to report Reebok as discontinued operations from the first quarter 2021 onwards, the release pointed out. Adidas, which completed the acquisition of Reebok in 2006, rolled out a turnaround plan for Reebok called Muscle Up in 2016. The strategy was able to significantly improve its growth and profitability prospects, laying the foundation to unleash its full potential in the highly attractive global sporting goods market, the media statement highlighted. While taking the call to part ways, Adidas CEO Kasper Rorsted pointed out that “long-term growth opportunities are highly attractive, particularly for iconic sports brands.” Neither Adidas global and India nor Reebok India replied to a detailed set of questions sent by Forbes India. Back in India, one big takeaway after 15 years of the acquisition, reckon marketing and branding experts, is that the two-brand play has been a disaster for both the siblings. While Adidas lost focus, Reebok lost India. And the reasons are not only cultural mismatch, sibling rivalry and the financial scandal. Jessie Paul starts from the root of the problem: Rewiring after acquisition. Adidas bought Reebok to address the North American market. It then went ahead and replaced Reebok as the official brand for the NBA. Reebok was viewed as an athletic brand, as was Adidas. So from a brand perspective there was no real distinction. “By removing a key brand association, Adidas weakened Reebok,” explains Paul, chief executive officer of Paul Writer, a marketing advisory firm. Globally, over the years, Reebok lost more ground even as Adidas grew at a relatively healthier pace, though not anywhere close to its rival Nike. “While Nike could focus on its core brand, Adidas had to divide the management bandwidth and brand spends between itself and Reebok,” she points out. In India, there was a different problem, though. Adidas did not play the niche game. FMCG firms with multiple brands in their armoury, points out Paul, enter the market with a clear idea of which brand will be the dominant one, and they use the acquired brands to increase their overall market share. Take, for instance, Wipro Consumer. While it has Santoor as its flagship soap brand, it acquired Chandrika to build the herbal benefit platform, bought Yardley for an international brand and premium positioning, and added the Enchanteur portfolio for the Middle and Far-East markets as well as the premium Indian consumer. “Each brand is developed as a profit center,” she adds. Multiple brands make business sense only if they are distinctive, have a well carved out target audience, and are treated as an independent unit. Take, for instance, China’s BBK Group, which has Vivo, Oppo, Realme and OnePlus smartphone brands. The beauty of the business structure is that while all the brands fight against each other, none talk about or point to any relationship with the parent company. The challenge for Reebok was that it remained tied to Adidas, and did not have a distinctive niche. A brand that once had MS Dhoni and Yuvraj Singh as endorsers was suddenly forced to dump cricket, and even Bollywood celebs to a large extent. “In a game of brands, you need to have a substantial difference between two brands,” says VS Kannan Sitaram, venture partner at Fireside Ventures, a VC firm. Let’s look at Nike. It’s a performance brand, and everybody knows what it stands for. Now let’s look at Dove and Lux. Both the soap brands are owned by one parent company (Hindustan Unilever) and there has been no problem. Reason: They serve different sets of consumers. “Can you tell me a buyer of Reebok is not a buyer of Adidas?” he asks. “Where is the differentiation? And if there is none, then why keep both together under the same umbrella,” he adds. Reebok had one more problem in India. From a running-shoe brand, it was repositioned as a fitness brand for women. Though globally such a differentiation pays, in India it bombed for two reasons. First, rival Puma had already strongly occupied the positioning of a lifestyle brand catering to millennials and appealing to women. Second, the women’s shoe market is still confined to the top cities. Over the last few years, the perception of Reebok being a ‘discounted brand’ made matters worse for the brand which never got its act right post-acquisition. End result? The shoe began to pinch for both brands.