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Adidas Group has finally cleaned its hands of Reebok, selling the underperforming shoe brand at a steep loss.
U.S.-based celebrity-and-clothing licensing group Authentic Brands Group will buy Reebok for €2.1 billion ($2.5 billion)—that's $1.3 billion less than what Adidas paid for it. Never mind that. Investors sent shares in the sportswear giant 2.56% higher on Friday, the best performer on Germany's DAX.
Adidas has been seeking a new home for the Boston-based footwear brand for the better part of the past year, after acquiring Reebok in 2005 for $3.8 billion. Initially, there were high hopes Reebok could help Adidas gain an edge in the U.S. in its hot pursuit of market leader Nike. But in recent years it had become all too clear the brand was a misfit in the Adidas arsenal.
In February 2020, Adidas officially put the brand up for sale. At the time, Kasper Rorsted, CEO of Adidas, solemnly noted, “Reebok and Adidas will be able to reach their growth potential by operating independently of each other.”
Still, there's plenty of love out there for Reebok. Its Classics Club C-85 is one of the most popular sneaker brands for youths in the British Isles. It got even more street cred when Pete Doherty sang about "classic Reeboks" and fashion icon Harry Styles made it an essential part of his streetwear look.
So why couldn’t Adidas make it work?
Big in Bolton…then Boston
The brand's roots go back to Bolton, in northwest England, in 1958. Within decades, it was a breakout star abroad. That had much to do with Paul Fireman, the American businessman who saw something special in the all-white sneakers, securing the U.S. distribution rights to the company in 1979 and then buying the company outright five years later.
When fitness and aerobics came into style in the 1980s, Reebok was ahead of the curve. In 1982 Reebok released its Freestyle sneaker—the first ever fitness shoe designed specifically for women. Worn with leg warmers, wide belts, and elastic headbands, the Freestyles became the hottest shoe on the market.
The shoe became a mainstay in the closets of most women. On the back of that success, Reebok released its Classic line—the first Reebok shoes with a simple look that prioritized casual wear over sport performance.
The hype was unreal. Actress Cybill Shepherd wore a pair of salmon-colored Reebok Freestyles paired with a strapless black gown and black opera sleeves to the red carpet at the 1985 Emmy awards. By 1987, Reebok surpassed Nike in the U.S. And by 1988, Reebok was raking in $1.8 billion in annual sales, dwarfing Nike’s $1.2 billion annual earnings.
Then came the Pump.
A shoe that could pump air into the tongue to snugly fit to the wearer’s foot was popularized by Dee Brown, a rookie point guard on the Boston Celtics. Brown famously pumped his shoes before executing the “no look” slam dunk, a feat of athleticism that's still celebrated on YouTube today.
But even before the Pump, cracks in Reebok’s infrastructure began to show. By 1988, Reebok recorded its first drop in earnings. Into the 1990s and early 2000s, Reebok continued to sign a number of National Basketball League stars, including Shaquille O’Neal and Allen Iverson, as well as rappers Jay-Z and 50 Cent. But its shoes fell out relevance with the mass market.
Adidas comes to play
Adidas bought Reebok for $3.8 billion in 2005, hoping it would help the company take on Nike more effectively in the U.S. market. At the time, Reebok had long-standing credibility with basketball aficionados and still had a sweet licensing deal with the NBA.
But the company was struggling to match its rivals. It had fallen back then to fourth place globally, behind Nike, Adidas, and Puma, while also competing with new up-and-comers like Under Armour and Lululemon Athletica.
Its annual sales were also a roller-coaster ride for years. But even at its best, it became clear to Adidas that its reputation was unlikely to return to what it once was in the Dee Brown years.
More recently, the pandemic was particularly hard on Reebok. In the first nine months of 2020, Reebok’s sales plunged 22%, generating only 6.9% of Adidas’s overall revenue. In 2007, for example, Reebok contributed roughly one-quarter to Adidas's top line.
“An important milestone” for Authentic Brands
Analysts have had plenty of time to think about what went wrong.
“While Adidas did manage to bring Reebok to profitability, it was far less successful in building a brand that was able to steal share and capture the hearts and minds of consumers,” said Neil Saunders, managing director of GlobalData, a data analytics and consulting company, in an investor note.
He added part of the issue came down to Reebok's identity problem under Adidas. “It was neither seen as the go-to brand for sporting professionals nor for those looking for athleisure fashion and style,” he said.
Others pointed the blame squarely at Adidas's management of the unit. “Adidas did not do their homework on Reebok before the acquisition and then made many wrong decisions about strategy,” said Matt Powell, senior industry adviser of the NPD Group.
Adidas must be feeling a bit of an extra sting as it says goodbye to Reebook. Powell notes the Reebok business is “very good right now,” up 76% year on year.
That certainly bodes well for the buyer. New York–based Authentic Brands is part-owned by asset management giant BlackRock. Together they own a portfolio of fashion brands, including Forever 21 and Eddie Bauer, as well as the brand rights to Marilyn Monroe and Muhammad Ali.
“This is an important milestone for ABG, and we are committed to preserving Reebok’s integrity, innovation, and values—including its presence in bricks and mortar,” said Jamie Salter, the group’s founder, chair, and chief executive.
There's a bit of serendipity here for Shaq. The basketball legend's brand is also managed by ABG. He added, “As a longtime partner of Reebok and an owner of ABG, it’s a dream come true to welcome this legendary brand to the family.”
In basketball talk, that might be called Shaq dunking on the deal.
This story was originally featured on Fortune.com