Posted by: David Kiley on August 3, 2005
On paper, the acquisition of Reebok by Adidas looks great, and totally logical. But we know that mergers don’t get executed on paper. They get executed in real life where people can blow executions. Mercedes-Benz and Chrysler? Quaker and Snapple? HP and Compaq?
In terms of closing the gap between Adidas and Nike, this deal helps. It gives the German shoemaker about 22% of the U.S. shoe market, for example, compared with Nike’s 36%. And that’s still a pretty wide gulf.
What looks like a good plan is if the deal allows Adidas to really focus on premium product full of design and innovation—the kind of shoes people with too much money like to buy. Let Reebok fill the middle market and take care of the traditional ladies’ aerobics and jazzercise categories. By the middle market, I mean fashion shoes worn by suburban kids who don’t necessarily play sports. And Reebok has to keep up the successful hip hop strategy. Fiddy Cent’s shoes and stuff are flying off the shelves. But will Adidas’s tie-up with Missy Elliott make sense for the long term now?
But it’s far from a slam dunk that Adidas is going to encorach on 30% share in the U.S., which is what the company execs say is in their plans. Nike, BMW, Apple…these are brands that seldom make a mistake with product or image. They stay aspirational because they create mystique around their brands year after year after year.
Adidas may make some headway, but I’ve seen this movie before. They might not know where the Adidas brand ends and the Reebok brand begins, and so the two will be jockeying for the same customer. The Germans are infamous for this. Witness Volkswagen’s foray into the luxury car market with the Phaeton even though VW owns Audi, which should be taking care of that market for the company.
Like I said, successful mergers are not made on paper.