Reebok International Ltd. Business Information, Profile, and History

Company Perspectives:

Key Areas of Focus for Reebok International: Continue to develop innovative products for athletes. These products attract serious athletes and fashion trendsetters, creating market excitement. Continue to sponsor athletes and teams in major U.S. and global sports. Accelerate the expansion in soccer, the world's most popular sport. Build presence in other sports--such as badminton or wrestling--that evoke strong loyalties in certain markets. Bolster leadership in fitness and women's sports. Provide instruction, leadership and inspiration&mdash well as excellent product offerings. Continue developing world-class logistical and information systems to maximize assets, speed time to market and achieve other efficiencies. Continue to expand the apparel business, focusing on authentic sports and fitness apparel that is both functional and fashionable. Build closer, cooperative relationships with retailers. Customize services to better fit their needs. Continue improving retail presence.

History of Reebok International Ltd.

Reebok International Ltd. is one of the world's leading athletic footwear and apparel makers. The company first gained prominence by opening up a new market for athletic shoes&mdashærobic exercise shoes for women interested in fashion as well as function--and subsequently built upon that success by expanding into other sports and products and by seeking business around the world. Reebok currently sells footwear and apparel in the sports, fitness, and casual sectors, under such brands as Reebok, Weebok, Greg Norman, Rockport, Ralph Lauren, and Polo Sport. The company also operates about 150 factory direct stores, including Reebok, Rockport, and Greg Norman stores.

British Roots

Reebok began its growth into a worldwide enterprise in 1979 when Paul B. Fireman, a marketer of camping and fishing supplies, noticed the products of a small British athletic shoemaker, Reebok International, at a Chicago sporting goods show. Looking for a business opportunity, Fireman acquired the North American license for the company's products, founding Reebok U.S.A.

The British parent company, the oldest manufacturer of athletic shoes in the world, got its start in the 1890s in Bolton, England, when Joseph William Foster began handcrafting shoes with spiked soles for runners. By 1895 he was the head of J.W. Foster and Sons, Inc., providing shoes to world-class athletes, including the 1924 British Olympic running team. In 1958 two of Foster's grandsons founded Reebok, named after an African gazelle, to manufacture running shoes in Bolton, and this company eventually took over the older firm.

After Fireman acquired the right to sell Reebok products made in Britain in the United States, he introduced three top-of-the-line models of running shoes, with price tags of $60, the highest on the market. Sales topped $1.5 million in 1981, but after two years in the extremely competitive U.S. market, Fireman's enterprise was out of money, and he sold 56 percent of his fledgling company to Pentland Industries PLC, another British shoe company. Reebok used the infusion of cash to open a factory in Korea, thereby significantly lowering production costs.

1982 Debut of Aerobic Exercise Shoes

The company's fortunes began to change dramatically, however, in 1982 with the introduction of a shoe designed especially for aerobic exercise. Unlike traditional athletic shoes, which were made of unglamorous materials in drab colors, Reebok aerobics shoes were constructed of soft, pliable leather and came in a variety of bold, fashionable colors. Reebok's Freestyle aerobics shoe was the first athletic shoe designed and marketed specifically for women, and it quickly became hugely popular. By selling its shoes to women, Reebok had opened up a new market for athletic shoe sales. This market would continue to expand as women began to wear their comfortable athletic shoes on the street, for daily life. In addition, the company both contributed to and profited from the boom in popularity of aerobics in the early 1980s, sponsoring clinics to promote the sport and its shoes.

In 1983, the year following the introduction of the shoe for aerobics, Reebok sales shot to $13 million. The company had become the beneficiary of a full-fledged fad. By the following year, sales of Reebok shoes had reached $66 million, and Reebok U.S.A. and its corporate sponsor, Pentland Industries, made arrangements to buy out Reebok International, the company's British parent, for $700,000. In addition, the company expanded its offerings to include tennis shoes, although shoes for aerobics continued to make up more than half of Reebok's sales in 1984.

By 1985 Reeboks had gained a large following of trendy young consumers, and the shoe's standing as a fashion item was solidified by the appearance of actress Cybill Shepherd wearing a bright orange pair of Reeboks under her formal black gown at the presentation of the Emmy awards. Such celebrity endorsements, as well as an advertising budget of $5 million, helped to push the company's 1985 sales to more than $300 million, with profits of nearly $90 million. Fireman, Reebok's founder, set up an office in California to help the company stay on top of trends and maintain its shoe's popularity.

In July 1985 Reebok International stock was offered publicly for the first time, selling over the counter at $17 a share. By this time international sales of Reebok shoes were contributing 10 percent of revenues. By September the company was unable to meet the continuing high demand for its products and was forced to restrict the number of shoes available to individual stores until it could expand production at its South Korean factories.

Consumers who were able to purchase Reebok shoes were finding that their high price tag did not guarantee high quality, as the shoes' soft leather uppers sometimes fell apart within months. Reebok launched an attempt to improve quality control in 1986, increasing its number of onsite factory inspectors from 7 to 27. Although the company's production reached four million pairs a month by mid-1986, a backlog of $400 million in orders existed, and plans were made for further expansion of production capacity. In keeping with this gain, Reebok's advertising budget grew to $11 million, and the company began advertising on television for the first time.

Diversification in the Mid-1980s

Anticipating an inevitable decline in the popularity of its aerobics shoes--which contributed 42 percent of the company's sales in 1985&mdash the aerobics trend peaked and slacked off, Reebok moved to further protect its sales position in 1986 by diversifying its product offering. The company began by introducing sports clothing and accessories, limiting sales to $20 million so that growth could be controlled. In addition, the company inaugurated a line of children's athletic shoes, called Weeboks, at the end of 1986. Perhaps the most significant innovation was the introduction of a basketball shoe. In entering this market, Reebok was stepping up its competition with rival athletic shoemakers Nike and Converse, which controlled a large part of the lucrative basketball shoe market. By the end of 1986, revenues from basketball shoes totaled $72 million and made up 8.6 percent of Reebok's total sales.

In June 1986, Reebok was rebuffed in its first attempt to expand through the acquisition of other companies, when Stride Rite Corp., another shoe manufacturer, rejected Reebok's offer. Reebok was successful, however, in its negotiations for the purchase of Rockport Company, a leading maker of walking shoes with sales of around $100 million that had gotten its start in the early 1970s. Rather than integrate the new company's operations closely with its own, Reebok maintained a separation between the two, even to the extent of allowing the companies' products to compete with each other.

Later that year, in an effort to better manage its growth, the company was restructured into three areas: footwear, apparel, and international products. Sales tripled in 1986 to reach $919 million, and the company's stock began trading on the New York Stock Exchange at the end of the year.

By the start of 1987, Reebok's backlog of orders for all its lines of shoes had grown to $445 million, indicating that demand for its products continued to be strong. With Fireman, as chairman, receiving record compensation tied to the company's profits, Reebok's growth continued unabated, and the company embarked on a string of purchases of other shoe companies. In March 1987 Reebok made arrangements to buy Avia Group International, Inc., another maker of aerobic shoes, for $180 million. Following this move, the company sold $6 million worth of stock to raise money to help offset the cost of its acquisition, reducing Pentland Industries' interest in the company from 41 to 37 percent. The company's pace in buying other footwear manufacturers did not slow, as Reebok-owned Rockport acquired a bootmaker, the John A. Frye Company, in May 1987. This 125-year-old company, which also marketed hand-sewn shoes, had yearly sales of about $20 million. One month later, after forming a Canadian subsidiary, Reebok Canada Inc., Reebok used it to purchase the ESE Sports Company, Ltd. Reebok closed out 1987 by finalizing plans to acquire the U.S. division and the U.S. and Canadian rights to the trademark of an Italian apparel company, Ellesse International S.p.A., for $25 million, a more modest version of an earlier plan to acquire the entire company.

In addition to purchases of other shoemakers and apparel companies, Reebok continued to expand its own offerings in 1987, as part of an effort to maintain and protect its market share by providing a wide variety of products. The company introduced shoes designed specifically for walking, in hopes of establishing a presence in a field that Reebok chairman Fireman believed would be the next fad in fitness, and also began offering volleyball shoes and dressier styles for women. This trend continued in the next year with the introduction of shoes for golf.

In an attempt to shed its reputation as a company noted for fashion products, as opposed to serious high-performance athletic shoes, Reebok entered the fray of high-tech design innovations, an area previously dominated by its competitor Nike, with the introduction of energy return system shoes. At the end of 1987, Reebok held a quarter of the market for basketball shoes and dominated the field in aerobics, tennis, and walking shoes.

Late 1980s Doldrums

In 1988 Reebok's long and meteoric rise began to show signs of flagging as the company's historically high profit margins went into a slump. Reebok's strength in the youth market, focused primarily on basketball shoes, was shaken by a massive advertising campaign by competitor Nike, which spent $7 million in advertising in the first quarter of 1988 when Reebok spent only $1.7 million.

In an effort to regain lost ground, Reebok went on the offensive, publicizing its products in several ways. The company gave away shoes to young people known as style makers and renovated urban playgrounds. In addition, Reebok sponsored a series of rock concerts to raise money for human rights groups and inaugurated a Reebok Human Rights Award. Starting in August 1988, Reebok also devoted a portion of its $80 million advertising budget to an innovative and esoteric television and print campaign, built around the theme "Reeboks let U.B.U.," which featured people expressing their personalities in unique ways while wearing Reeboks. The campaign was unsuccessful, however, and by the end of 1988 earnings had fallen by one-fifth on sales of $1.79 billion.

In March 1989 the company unveiled a new $30 million advertising campaign entitled "The Physics Behind the Physique." This push was focused on women, traditionally Reebok's strongest customer base, and connected sweaty physical exertion with sex and narcissism. These relatively rapid shifts in emphasis from performance to fashion and back again began to muddle the consumer's idea of what the company stood for, and Reebok continued to see its portion of the market slip as its sales growth waned. Commentators observed that the company appeared to have lost its focus.

Reebok also underwent a period of turmoil in its administrative and executive structure during this time. In August 1989 the company's head of marketing, Mark Goldston, left after less than a year with the company, and two months later, its president, C. Joseph LaBonte, brought in by Fireman only two years earlier, resigned as well. In addition to these changes at home, Reebok moved to strengthen its international management team at this time.

Reebok sold its Frye boot subsidiary in 1989. The company then made its only purchase outside the footwear and sportswear industries, buying a manufacturer of recreational boats, Boston Whaler, Inc., for $42 million in 1989.

The Pump Introduced in 1989

Although Reebok's market share had fallen behind Nike's, to 22 percent by the end of 1989, the seeds of Reebok's resurgence were sown in mid-November with the introduction of "The Pump," a basketball shoe with an inflatable collar around the ankle to provide extra support. Although the expensive shoes made up only a small portion of Reebok's overall sales, the popularity of the new technology lent a sorely missed air of excitement to the company's brand name.

Reacting to its previous difficulties and continuing challenges in both the fashion and performance shoe markets, Reebok rearranged its corporate structure at the beginning of 1990, splitting its domestic division into two areas, one focusing on performance products and the other on fashion products. A month later, the company further restructured by merging its international and U.S. units into one global business.

Reebok split with its ad agency, Chiat/Day/Mojo, in an effort to regain lost market share. To do so, the company built on its recent success with The Pump technology by expanding The Pump to other lines of footwear, including aerobics, cross-training, running, tennis, walking, and children's shoes. In addition, facing a relatively mature and highly competitive U.S. market for athletic shoes, Reebok looked to foreign markets, which made up a quarter of the company's sales, for further growth.

Results were immediate--overall European sales grew 86 percent in 1991 alone. By 1992 Reebok products were available in approximately 140 countries outside the United States, holding a number one ranking in sales for nine of those countries, including the United Kingdom, Canada, and Australia. U.S. growth stood at less than 10 percent. The company needed to project its image as a leader in innovative athletic apparel through products in other sports categories that would display the latest in Reebok technology.

Reebok premiered football and baseball shoes in 1992, and more than 100 players in the major leagues donned the company's footwear. Marketing momentum increased as Notre Dame's Fighting Irish captured the Cotton Bowl championship on New Year's Day, 1993, sporting the Reebok football shoes supplied them throughout the season. The development of a shoe for basketball players on playground courts--branded the Blacktop--became very successful in 1991. Reebok acquired two other sports apparel manufacturers, consolidating their products with Reebok's own line of clothing and accessories; sold subsidiaries Boston Whaler and Ellesse; and positioned Reebok, Rockport, and Avia to be the principal operating units of the future. In early 1993 Reebok struck an agreement with golf legend Jack Nicklaus to create a unique line of golf shoes. Reebok also generated tremendous sales with its debut of a casual, non-athletic footwear line called Boks during the fall of 1992.

Reebok took steps to enhance its reputation through sponsorship of targeted sporting events and support of human-rights programs. The company became the sponsor of the Russian Olympic Committee through 1996 and the International Hockey Federation Olympic Winter Games for 1994. Reebok's commitment to human rights led to the establishment of the Witness and Volunteer Programs in 1992. In 1993 Reebok increased its budget for a global publicity campaign, estimated at $115 million. During the 1993 SuperBowl, the company aired a 60-second commercial premiering "Planet Reebok," a campaign associating Reebok products with intense competition and high performance. Reebok renewed relations with Chiat/Day/Mojo to promote individual products and began a weekly Top 30 countdown radio program based on the "Planet Reebok" theme.

1990s Struggles

The repositioning of Reebok away from fitness/fashion toward an emphasis on high-end performance sneakers, which began in 1992, proved troublesome. The company signed up several high-profile athletes to endorsement contracts. Most notable among these was emerging basketball superstar Shaquille O'Neal, but the subsequently launched "Shaq Attaq" sneaker--a white sneaker when black shoes were the hot commodity at a hefty $130 price tag--failed miserably. Instead of catching up to Nike, Reebok was now falling further behind, its market share declining to 20 percent by 1995. That year institutional shareholders, irked by several years of flat profits, pressured Reebok to bring in an outsider to run the company but Fireman retained his position as chairman, CEO, and president.

The company found some success with the 1996-debuted Shaqnosis basketball shoe, but generally flat sales of athletic shoes in the mid-1990s exacerbated Reebok's problems. The push into performance sneakers also translated into large increases in expenses, resulting in decreasing net income, from $254.5 million in 1994 to $164.8 million in 1995 to $139 million in 1996. In June 1996 Reebok sold Avia to American Sporting Goods. The company in October 1996 pulled the plug on the Boks brand, after earlier in the year gaining the rights to design, develop, manufacture, and distribute men's, women's, and children's footwear under the Ralph Lauren label.

In February 1997 Reebok suffered much embarrassment when it was forced to apologize for naming a women's running shoe the "Incubus." Unbeknownst to the shoe's designers, an incubus is an evil spirit that in medieval times was believed to have sex with sleeping women. The outlook for the company brightened some with the development of successful products utilizing new shoe technology. In April 1997 the DMX series made their debut following three years in development. The DMX shoe&mdash…ailable in running, walking, and basketball models--featured air that moved underfoot to provide better cushioning, and was an attempt by Reebok to take on Nike's blockbuster "Air" line. Also introduced in 1997 were running, walking, basketball, and women's fitness shoes featuring 3D Ultralite technology, Reebok's entry into the lightweight performance footwear sector.

Despite the apparently resurgent new-product development activity at Reebok, a company turnaround was far from complete. During the early months of 1998 the company had to contend with a marketplace flooded with athletic footwear, leading to inventory surpluses and price cuts. In response, Reebok took a restructuring charge of $23.7 million in the first quarter of 1998 for costs related to eliminating management layers, combining business units, and cutting its workforce by 500, or 10 percent. At the same time the company was in the process of severely trimming its roster of costly celebrity-athlete endorsements, aiming to reduce the number to about 20. In June 1998 Reebok terminated its contract with O'Neal, who had already been shopping around for another sponsor, one that would pay him more than the $3 million he had been receiving each year from Reebok. By this time, Allen Iverson had replaced O'Neal as Reebok's top basketball endorser, through a deal estimated at $5 million per year. August 1998 brought another management change as Carl Yankowski was brought in as president and chief executive of the Reebok brand. The fourth person to hold that position in the last decade, Yankowski had previously spent time as an executive at PepsiCo Inc., Polaroid Corp., and Sony Electronics Inc. It remained to be seen whether Yankowski would be able to reverse the fortunes of the struggling shoe manufacturer.

Principal Subsidiaries: Ralph Lauren Footwear Co., Inc.; RBK Thailand, Inc.; Reebok Aviation, Inc.; Reebok CHC, Inc.; Reebok Eastern Territories, Inc.; Reebok Foundation, Inc.; Reebok International Securities Corp.; Reebok Securities Holdings Corp.; The Reebok Worldwide Trading Company, Ltd.; The Rockport Company, Inc.; Avintco, Inc.; RFC, Inc.; Reebok Austria GmbH; Rockport Gmbh (Austria); Reebok Belgium SA; Reebok Do Brasil Servicos a Participacoes Ltda (Brazil); Rockport do Brasil - Comercio, Servicos e Participacoes Ltda. (Brazil); R.C. Investments Ltd. (Canada); Reebok Canada Inc.; Reebok France S.A.; Rockport France S.a.r.L.; American Sports and Leisure Vertriebs GMBH (Germany); Reebok Deutschland GmbH (Germany); Reebok (China) Services Limited (Hong Kong); Reebok Far East Ltd. (Hong Kong); Reebok Trading (FAR EAST) Limited (Hong Kong); Reebok India Company; Reebok Technical Services Private Limited (India); Reebok Ireland Limited; Reebok Italia S.r.l. (Italy); Rockport International Trading Co. Italy S.r.l.; Reebok Japan Inc.; Rockport Japan Inc.; Reebok Korea Limited; Reebok Korea Technical Services Company, Ltd.; Reebok (Mauritius) Company Limited; Rockport Mexico S.A. DE C.V.; Reebok Distribution B.V. (Netherlands); Reebok (Europe) B.V. (Netherlands); Reebok International Finance B.V. (Netherlands); Reebok Nederland B.V. (Netherlands); Rockport (Europe) B.V. (Netherlands); Rockport (Nederland) B.V. (Netherlands); Reebok (Philippines) Services Co., Inc.; Reebok Poland SA; Reebok Portugal Artigos Desportives Lda; Reebok Russia (Retail), Inc.; Reebok Leisure SA (Spain); Reebok (South Africa) (Proprietary) Limited; Reebok (Switzerland) Ltd.; Reebok (Taiwan) Services Company; Subsidiary enterprise Reebok Ukraine; J.W. Foster & Sons (Athletic Shoes) Limited (U.K.); RBK Holdings plc (U.K.); Reebok Eastern Trading Limited (U.K.); Reebok International Limited (U.K.); Reebok Sports Limited (U.K.); Reebok UK Limited; The Rockport Company Limited (U.K.); Rockport International Limited (U.K.).

Principal Operating Units: The Reebok Division; The Rockport Company; Greg Norman Division.