Reebok gives Aditya Birla Fashion a quick entry into sportswear race

Once a market leader, now a sluggish but profitable and well-known shoe brand. That’s Reebok – apparel giant Aditya Birla Fashion and Retail Limited’s (ABFRL) tool of choice to enter the fast-growing $10 billion sportswear race in India as it fills a key gap in its expanding portfolio of fashion and lifestyle brands.  

The fashion and retail wing of conglomerate Aditya Birla Group on Tuesday announced plans to acquire the Rs 430-crore India business of Reebok, the fourth largest sportwear brand in the country, for around Rs 80 crore-Rs 100 crore. The rights will allow it to distribute and sell Reebok shoes and other sportwear and athleisure products in India and ASEAN countries. 

Reebok ranks fourth after Puma, Adidas and Nike, which earned Rs 1,400 crore, Rs 1,200 crore and Rs 800 crore revenues, respectively in India during FY20. But that wasn’t the case always. In fact, Reebok -- which has been present in India since 1995 -- was the market leader in 2006 when Adidas took over the brand globally. 

Experts argue that mismanagement in the form of a Rs 870-crore scam and poor market positioning pushed this once-dominant player to the bottom of the barrel over the past decade. 

“The kind of dominance Reebok had at its peak, none of the brands, whether Nike or Adidas, has had because after that it was a market share game,” retail expert and Wazir Advisors Founder & MD Harminder Sahni told Business Today. 

Reebok made a revenue of Rs 321 crore and a profit of Rs 4.9 crore in FY21, the full financial year hit by COVID-19.  

“Reebok has been a laggard brand in India since the last decade. But it has decent customer recall, and before its acquisition and internal issues, it was the largest sportswear brand,” argued a note from Edelweiss. 

Eventually, in August 2021, Adidas got into an agreement to sell the global Reebok business for $2.5 billion to US-based Authentic Brand Group (ABG), from whom ABRFL will be acquiring the India and ASEAN rights. The India transaction becomes effective after Reebok’s global ownership is transferred from Adidas to Authentic Brands Group, which is expected to close during the January-March 2022 quarter. 

Given the price paid for a brand that generated an average of Rs 50 crore profit from FY18-20, the retail muscle of its Pantaloons chain of stores to bank on and the growing sports and athleisure market, experts said ABFRL has got itself a sweet deal. 

“If someone had to get into the footwear market in India, it is better to do something like this than build a new brand. It’s a new category for them where the product side is already taken care of. This completely changes the orbit for ABFRL because so many possibilities open up now,” said Sahni. 

“Earlier, Nike and Reebok used to be just sports shoes worn only on the weekends with jeans or while playing or walking. Now, these brands and shoes are being worn everywhere. It has gone from being a sports market to a footwear market, which is a much, much bigger opportunity than it was 10 years ago simply because these brands are in every segment,” he added. 

For ABFRL, which is one of the largest branded clothing players, Reebok also fits well into its portfolio of top- and mid-tier apparel brands like Louis Philippe, Van Heusen, Allen Solly and Peter England. It has also ventured into fast fashion via Forever 21, again through a partnership with ABG, and innerwear under the Van Heusen brand. So, sportwear is a good fit, especially given that the sports segment is estimated at $10 billion as of FY22 and expected to grow into a $14 billion industry by 2024 at a roughly 14 per cent CAGR, according to a note from Emkay Global. 

“A successful revival can add significant value in the backdrop of sector tailwinds for the sports/athleisure category. The key aspect to evaluate is the focus and team that ABFRL can put in place to drive the turnaround,” said the Edelweiss note. 

“ABFRL will need to invest in the brand for growth, but its strong online and physical retail presence through Pantaloons and Multi-Brand Outlets should help expand the brand’s distribution significantly,” added Emkay Global.

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