BERLIN (Reuters) - German sportswear firm Adidas is underlining its commitment to struggling U.S. brand Reebok by stepping up a major marketing campaign that returns it to its roots in the personal fitness business.
Reebok, which had its heyday as the most popular U.S. sneaker brand in the 1980s when aerobics was booming, has suffered a steady decline that continued after it was bought by Adidas in 2005 for $3.8 billion.
That has prompted calls from investors for Adidas to sell Reebok, which has failed to help dent Nike’s dominance of the U.S. market. Reebok’s sales have shrunk by more than a third since the acquisition to 1.6 billion euros ($1.80 billion)in 2014, just under 11 percent of Adidas group sales.
However, a move to focus Reebok back on its fitness heritage and away from team sports has started to work, helped by “Be More Human” ads launched in the United States in February featuring fitness fanatics dripping with sweat and mud.
Questions remain about Reebok’s weaker profitability than the core Adidas brand, but Chief Executive Herbert Hainer, the architect of the Reebok deal, has said it would be wrong to sell it now, especially given the booming fitness market.
Reebok is rolling out the “Be More Human” slogan this week in Germany in its biggest brand-building campaign in the country, plastering billboards and running ads in dozens of gyms as well as inviting passers-by to try to flip a giant tire, the campaign’s symbol.
“It is exactly the right time for such a marketing campaign after we have rebuilt the brand,” said Katja Erbe, brand director for Reebok in central Europe. “We have brought Reebok back into the minds of the fit generation.”
“Be More Human” underlines Reebok’s shift in the last couple of years to tap into new fitness trends that are more group orientated than a solitary session on the treadmill.
It has signed partnerships with the likes of CrossFit, licensor of a multiple exercise regime, Les Mills, known for its Bodypump and Bodycombat classes, and the Spartan Race series of obstacle course races.
“Reebok is on the right track with the emphasis on training. It reflects the movement towards social fitness in the United States ... people are now dressing for the gym,” said Matt Powell, a sports analyst for market research firm NPD Group.
Currency-neutral sales rose 8 percent in the first half of 2015, helped by training, studio sport and running, although double-digit growth in western Europe, China and Latin America was offset by a continued decline in North America.
Adidas blames the fall - another 9 percent in the last quarter - on a policy of closing factory outlet stores as the brand seeks to shift more upmarket and says the “Be More Human” campaign has been very well received on social media.
But many observers believe Adidas should call time on Reebok and focus instead on strengthening its core brand for the fight with Nike. Last month the firm said it was considering the possible sale of its struggling golf brands.
“Doesn’t Reebok only serve niches in the fitness area which can never become as strong as the areas which Adidas already covers?” said Daniela Bergdolt, vice president of Germany’s largest association for private investors, the DSW, at the firm’s annual meeting in May.
And CrossFit creator Greg Glassman has called for Adidas to sell Reebok to “someone young, fresh”, but the prospect of a potential $2.2 billion bid for Reebok which was reported last year has yet to materialize.
However, one former Adidas manager said Adidas was unlikely to sell Reebok as long as Hainer was still in charge. The Adidas board is looking for a successor to Hainer, whose contract runs until 2017.
Meanwhile Hainer has predicted that the “robust” momentum of Adidas and Reebok will continue throughout the second half of the year.
But Berenberg analyst Zuzanna Pusz, who rates Adidas shares a “sell”, notes the firm is now spending about 14 percent of sales on marketing compared with about 10-11 percent for its main rivals.
“It would be surprising if they didn’t have momentum, but the question still remains whether Reebok can close the profitability gap with Adidas,” she said. Reebok’s first-half gross margin was 39.6 percent, compared with 48 percent for the Adidas brand.
(The story was refiled to add the missing words ‘that’ and ‘it’ in the first sentence)
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Editing by Greg Mahlich