Manufacturing & Technology and Media & Marketing and Sports Business

Reebok should fit into Adidas' global plan: Indianapolis facility finds an ally in NBA after 11-year apparel deal

May 8, 2006

Adidas-Salomon AG's $3.8 billion acquisition of Reebok International is having ripple effects from Boston to Beijing. Those waves are likely to wash right through Reebok's design and manufacturing plant on Indianapolis' east side, which employs nearly 1,000.

Reebok's headquarters will remain in Canton, Mass., and Adidas will maintain its state-side headquarters in Portland, Ore., but officials for the German sporting goods giant have revealed little else about their plans for Reebok facilities.

Adidas officials have said they project saving $212 million annually through the merged operations by 2009. There have been talks among industry sources that Adidas will move to save revenue by downsizing or even shuttering the Indianapolis plant-which was the former headquarters for Logo 7 and Logo Athletic-and moving production overseas.

But Reebok recently advertised for a bevy of positions at its plant off Post Road, ranging from forklift operators to operations management, making an immediate downsizing here seem unlikely. Under Reebok, the local facility more than doubled its employee base from 400 in the mid-1990s during the Logo Athletic days.

The local plant found an unlikely ally this month when Adidas signed an 11-year deal with the National Basketball Association as its exclusive apparel provider, replacing a 10-year contract with Reebok.

NBA officials during negotiations stated their preference to continue working with the central Indiana facility, which handles design, stitching and silk-screening for official league uniforms and retail apparel.

"I've been around Champion, Nike, Starter and others, and there's simply nobody better in the business in terms of team business and retail," said Christopher Arena, NBA vice president of apparel and sporting goods. "This plant makes the league go-as far as outfitting. The people and resources at that facility are just outstanding."

NBA officials also stressed the local operation's understanding of North American sports markets.

"There's a lot of history there that is irreplaceable, and we've made Adidas aware of that," Arena said.

For now, the local Reebok plant is being called on to make NBA apparel with the trademark Adidas logo, said Eddie White, Reebok vice president of team operations.

"Right now, our role with Adidas is a work in progress," White said. "It's like we're Zsa Zsa Gabor, and we've been married for the fifth time. We were Logo 7, Logo Athletic, Puma, Reebok and now Adidas. But the work remains the same, and I'm confident we'll remain a golden jewel."

North America is only part of the reason Adidas acquired Reebok, said Bob McGee, editor of Sporting Goods Intelligence, a Pennsylvania-based trade publication.

"Ultimately, Adidas bought Reebok to take on Nike," McGee said. "And that will play out not only in the U.S., but also in Europe, Asia and other parts of the world."

Interestingly, McGee said, one of the reasons Adidas moved to supplant Reebok as official supplier of NBA uniforms is the game's global relevance.

All over the world

"Basketball is growing in popularity in places like China and parts of Europe even faster than it is in the U.S.," McGee said. "Adidas is looking to capture some of that growth."

Which means the Indianapolis plants could-at least initially-be cranking out replica uniforms that find their way across an ocean as easily as to the corner Finish Line. If the local Reebok plant plugs into Adidas' global marketing, sales and distribution channels, industry sources said, growth locally could be substantial.

"The key to selling licensed products is reacting to swiftly changing market demands," McGee said. "Players are hot one week and not the next, and when players are drafted or traded, the market changes quickly. Folks at the Indianapolis plant know how to react to those sorts of market demands."

There's also a chance, sporting goods experts said, that Adidas could push some of its tennis, soccer and other apparel through the Indianapolis facility.

"Adidas could use Reebok infrastructure to become more aggressive with some of the products [Adidas] is strong with in Europe and other parts of the world," McGee said.

White said the local staff is ready to meet demand.

But McGee said in time Adidas could seek to move production facilities closer to markets served to limit shipping expenses and time to market. In that case, managers in Indianapolis might be called upon to help set up overseas facilities-dealing with NBA and other professional leagues' apparel.

Adidas' recent repositioning has McGee wondering what the company will do with Reebok's Major League Baseball, National Football League and National Hockey League apparel contracts.

Even though Adidas recently signed a deal with the NFL's hottest draftee, Reggie Bush, Adidas Chairman Herbert Hainer said that doesn't necessarily mean Adidas will move to take over Reebok's NFL deal.

Growing share

But industry sources said Adidas is sure to use the likes of Bush and Houston Rockets star Yao Ming, who has a deal with Reebok, to boost its sales and marketing globally.

Reebok was the first company to lock up exclusive deals to supply apparel to the NBA and NFL. Adidas, sports marketers said, is clearly looking to capitalize on those leagues, which are gaining popularity overseas, and to boost its own image in the United States.

"I think this relationship can work both ways," McGee said. "The leagues can help the brands, and the brands can help the leagues. If that happens, everybody wins."

The question remains how the sports apparel and licensed league business will fit into Adidas' overall plan to take on Nike. While apparel sales pale in comparison to shoes, McGee said apparel, especially look-alike professional jerseys and caps, are an important marketing tool for sporting goods companies.

Before acquiring Reebok, Adidas had just under 10 percent of the U.S. sports shoes and apparel market, while Nike has 36 percent. With the Reebok acquisition, Adidas bumps its U.S. market share to 21 percent.

Overseas, with tennis and soccer as its pillars, the German giant is much stronger. Adidas now owns nearly 30 percent of the international market, inching it closer to Nike's 31-percent share, according to Sporting Goods Intelligence.

Adidas has surpassed Nike in several key markets, including the United Kingdom, Germany and Japan, said John Shanley, an analyst covering the sporting goods market for Pennsylvania-based Susquehanna Financial Group.

While Adidas officials are tight-lipped about how the consolidated companies might work together, Hainer is showing confidence the synergies will ratchet sales considerably in the coming years.

Hainer recently told Wall Street analysts that he is projecting sales increases of high single-digit percentages each of the next three years and double-digit-percentage profits during that same period.

CAFTA looms

A potential damper to the enthusiasm at Reebok's local plant is the Central America Free Trade Agreement, which President Bush signed in early 2005.The measure removes trade barriers between the United States and six nations in the region.

"CAFTA makes places like Honduras and the Dominican Republic look very attractive, especially to apparel manufacturers," Sporting Goods Intelligence's McGee said.

Atlanta-based Russell Athletic, which was recently purchased by Warren Buffett's Omaha-based Berkshire Hathaway Inc., recently laid off 2,000 at its plants in Alabama and opened a manufacturing plant in South America.

But White said the Indianapolis facility is well-positioned to handle Adidas licensed apparel contracts with the University of Notre Dame, UCLA, University of Tennessee and the New York Yankees, in addition to the work it handles for Reebok.

"Due to our expertise and our location in the central part of the U.S., I think we're a strong option to handle this domestic work," White said. "This building is going to be busy 12 months a year."
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