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Category: Business

Autor: reviewessays 15 February 2011

Words: 3955 | Pages: 16

Current Situation

Overall, the current situation of Reebok International is satisfactory. Reebok reports improved third quarter 2002 earnings, which have given the company encouragement to proceed with their long-term planning for 2003. Reebok currently maintains a position in the top three athletic shoe brands, and plans to continue expanding its product line and improving its brand image. Accounts receivable at December 31, 2002, increased by $38.4 million December 31, 2001, an increase of 10.0% as a result of increased sales in the fourth quarter of 2002 as compared to 2001, however days sales outstanding in accounts receivable decreased by 5 days. Despite the current economic situation domestically and abroad, Reebok expects to see improvements in 2003 through strategic marketing, financial assessment, and increased social responsibility.

Financial Performance

The company’s overall gross margin was 36.7% of sales for 2002, as compared to 37.9% for 2000, a decrease of 120 basis points. U.S. apparel sales of the Reebok Brand increased by 37.8% to 461.2 million from $334.7 million in 2001. For the year ended December 31, 2002, total marketing expenses for the Reebok Brand approximated 10.7% of net sales, as compared to 10.5% during 2001. Sales of the other brands were $112.4 million in the first nine months of 2002, a decrease of 8.4% from sales of 122.7 million in the first nine months of 2001. However, selling, general, and administrative expenses for the first nine months of 2002 were $708.8 million, a 2.4% increase when compared to $692.2 million the previous year.

Strategic Posture

Developed in 1995, the Reebok Charter establishes the mission of the company and clearly states the company’s philosophy of doing business and its core values. For over a century, Reebok International has been one of the most productive footwear companies. “Reebok is a global sports and fitness company with a heritage dating back to 1895. We are a leader in the design and development of authentic products and services, and we influence the athletic lifestyle trends of the world. Reebok is a true partner with its customers and is relentlessly committed to their success. Built on a foundation of trust, listening and innovation, we are their customers' most valued resource for quality products and information and the leading authority in sports and fitness.” Reebok’s objective is to ignite a passion for winning, to do the extraordinary, and to capture the customer’s heart and mind.

Reebok is committed to excellence and innovation. They demonstrate their excellence by setting exceptional performance standards, which they then achieve through focused perseverance and vigorous execution. Innovation and fresh ideas drive their company to create powerful breakthrough products and inspirational marketing and advertising. Reebok strives to make a difference to their customers, employees, shareholders, athletes, and the world in which everyone lives. The company has developed various strategies so that their company can be ran in a productive manner. A few of their strategies are as follows:

1.) To create innovative products that generates excitement in the marketplace.

2.) To align its brand with a few of the world’s most talented, exciting, and cutting edge products.

Strategic Managers

Reebok International’s strategic managers consist of the Board of Directors and top management. The Board of Directors is obligated to approve all decisions that affect the long-run performance of the corporation. Top management is responsible for the implementation of corporate goals and objectives.

The Board of Directors of the Reebok International Corporation currently has 10 members and may expand to include 12. The Chairman of the Board is also the Chief Executive Officer. He and Jay Margolis, President and Chief Operating Officer, are the only two insiders. Most of the directors are currently holding, or have retired from, positions of executive leadership of other firms. One member of the board is a retired Executive Vice President of Reebok International There is one woman on the Board of Directors and the average age is 56.

The Board of Directors is divided into three classes, having staggered terms of three years each. It is common for Board members to be re-elected to serve more than one term. Half of the Board is currently serving their first term, and four members have been on the Board for more than 10 years.

There are five committees of the Board:

§ The Audit Committee is responsible for surveying the accounting and auditing activities.

§ The Board Affairs Committee reviews committee assignments and chairmanships and gives suggestions to the Board taking into account the desires of individual Board member.

§ The Compensation Committee establishes and administers all of the company’s employee benefit and compensation plans.

§ The Executive Committee has the authority to exercise the full authority of the Board of Directors between meetings of the board, as allowed by law.

§ The TIDE Committee is responsible for evaluating the company’s Shareholder Rights Plan.

Figure 1.1 shows Reebok’s Organization Chart, which describes the arrangement of the work positions within top management.

Figure 1.1

The External Environment

The External Environment of a company consists of the areas that comprise the opportunities and threats of the firm. It also entails the societal environment and the industrial environment.

External Factor Analysis Summary (EFAS) Table

The EFAS Table (Figure 1.2) assesses the major opportunities and threats of the firm by using weight (importance of the factor) and rating (level of company response) to calculate a weighted to score to determine the internal position of the company.

Figure 1.2

External Factors Weight Rating Weighted Score Comments


*NBA & NFL Promotion .20 5 1.00 Promotion has caused an increase in sales

*World Cup .05 1 .05 Marketing device that attracts more customers

*War .10 3 .30 War can cause an increase in short-term investment

*Investment in Premier Series Collection .05 2 .10 Investments can increase sales

*Usage of European Strategic Plan .10 4 .40 Effective in increasing sales in Europe


*Legal Proceedings .05 3 .15 Proceedings can inhibit Reebok’s sales

*Shift in consumer preference .15 4 .60 Shift can turn customers to substitute products

*Sales and market conditions .10 3 .30 Market fluctuation can affect sales

*Ability to keep pricing level of products .10 5 .50 Maintaining stability in pricing affects consumer spending

*Seasonal demand for products .05 1 .05 Seasonal demand affects sales revenue

International sales .05 2 .10 International sales are affected by government regulations

Totals 1.00 3.55

The Societal Environment

Currently, the interest rates in the global market are low. The spending income within households is also low so people are not able to buy or invest in the company. However, since war is currently taking place, it will give the company a chance at a short-term increase. Adverse changes in economic factors could have a negative effect on Reebok.

Economic Forces

Generally, weak economic conditions have led to fluctuations in investor confidence, a softening in consumer demand and a retrenchment in overall spending. Consumer spending in the United States, which accounts for two-thirds of all economic activity, grew at a rate of just 1.0% in the final quarter of 2002, which was down from a spending growth rate in the fourth quarter of 2002. An economic recovery is contingent on a variety of factors and remains uncertain. Accordingly, in 2003, Reebok expects the market for their business to be challenging. As one of the leading footwear companies, Reebok must maintain their image.

Technological Forces

Reebok places a strong emphasis to technology and has continued to incorporate various technologies into its footwear. It is part of a footwear industry that is exploding with new information technologies. Reebok International maintains this Internet site as a service to the Internet community. Access and use of Reebok’s website are subject to the terms and conditions set forth herein and all applicable laws. Reebok invites the Internet user community to browse and peruse Reebok.com for the purpose of personal entertainment, information, education, and communication. In order to compete, Reebok must spend millions in product research, development and evaluation.

Political-Legal Forces

Reebok’s athletic footwear, apparel sales and manufacturing operations are subject to risks of doing business abroad. Some of the risks include: fluctuations in currency exchange rates, hyperinflation in some foreign countries, import duties and investment regulation and other restrictions by foreign governments. If these risks limit or prevent them from selling or manufacturing products in any significant international market, their operations could be seriously disrupted.

Socio-cultural Forces

The footwear and apparel industry is currently subject to rapid changes in consumer preference. Such factors include recession, inflation, and general weakness in retail markets. Consumer demand for athletic footwear and apparel is heavily influenced by brand image. Consumers place an emphasis on the performance aspect of their athletic footwear. Therefore, they must utilize current and future technology to continue to offer performance-oriented products. Their failure to anticipate, identify and react to shifts in consumer preferences and maintain a strong brand image could have an adverse effect on their sales.

Porters Five Forces

Porters Five Forces are collective strengths that determine the ultimate profit potential in the industry where profit potential is measured in terms of long-run return on invested capital.

Threat of New Entrants

Threats of New Entrants are newcomers to the existing industry. They typically bring new capacity and a desire to gain market shares. Due to the amount of money and market shares needed to enter the industry, newcomers do not affect Reebok International.

Rivalry Among Existing Firms

Reebok International has two top competitors Nike and Adidas. Since the market for athletic footwear and apparel is intensely competitive, if Reebok International fails to compete effectively, they could lose their market position. Their failure to anticipate, identify, and react to shifts in consumer preferences and maintain a strong brand image could have an adverse effect on their sales and results of operations.

Threat of Substitute Products

Substitute products are those products that appear to be different but can satisfy the same need as another product. Reebok International focuses on athletic footwear, which could be replaced by any other form of footwear.

Bargaining Power of Buyers

Reebok International’s methods of competition in this industry include product design, product performance, quality, price, brand image, marketing and promotion, customer support and service, and their ability to meet delivery commitments to retailers. If they fail to accurately forecast consumer demand, they may experience difficulties in handling customer orders or in liquidating excess inventories and their sales and brand image may be adversely affected. The prices that they are able to charge for their products depend on the type of product offered, the consumer and retailer response to the product and the prices charged by their competitors. To the extent that they are forced to lower their prices, their gross margins will be lower and their revenues and profitability may be affected.

Bargaining Power of Suppliers

Reebok International manufacturing operations are subject to the risk of doing business abroad, which could affect their ability to manufacture their products from foreign suppliers or control the cost of their products. Profitability may be adversely affected if the independent manufacture fails to meet price, product, quality, and timelines requirements. Their suppliers are located in China, Indonesia, Thailand and Vietnam. Manufacturing operations are subject to the following risks, fluctuations in currency exchange rate, limitations on conversion of foreign currencies into United States dollars, restrictions on dividend payment and other payments by their foreign subsidiaries, and investment regulation and other restrictions by foreign governments.

The Internal Environment

As a multi-brand company, Reebok is able to leverage its resources across their brands by integrating common operations and idealistic products. Their company is submerged in an athletic environment, which is evident in its corporate culture and its corporate resources. Although they have weaknesses, the strengths of Reebok have been sturdy enough to maintain its standard operating procedures, financial position, and competitive ranking among its contenders.

Corporate Structure

The corporate structure for Reebok International encompasses a team-oriented approach to reach both long and short-term goals. The company designs and markets their products through five major brands, which are Reebok Brand, The Rockport Brand, Ralph Lauren & Polo Footwear, the Greg Norman Brand, and OnField. Reebok International is a global firm that operates in 15 countries, which all have access to the Reebok product line.

Corporate Culture

Group oriented assignments dominate Reebok International. Although the company is fragmented into different employment areas, such as brand marketing and apparel design, corporate teams are often utilized to maximize strategic planning and potential product success. This also maintains the global position of the firm, in that diversity within corporate teams enhances culture specific marketing, thus increasing sales in the international market.

Internal Factor Analysis Summary (IFAS) Table

The IFAS Table (Figure 1.3) assesses the major strengths and weaknesses of the firm by using weight (importance of the factor) and rating (level of company response) to calculate a weighted to score to determine the internal position of the company.

Figure 1.3

Internal Factors Weight Rating Weighted Score Weighted Comments


*Diverse Target Market .10 3 .30 Cater to 3 main groups, but need to specify particular segments for particular shoes

*Endorsements by top athletes .15 5 .75 Continue to acquire big names

*Innovative advertising campaigns .10 4 .40 Improving target marketing

* Positive Brand Image .10 4 .40 Good due to major sports and longevity

*Secured Intellectual Property .05 4 .20 Keeps items specific to company; increases competitive advantage

*Rotating Board of Directors .05 5 .25 Staggered re-election balances experience


*Minimum product Differentiation .10 3 .30 Rockport sales decreased 5.6%

*Broad distribution Channels .10 2 .20 Slowing economy affecting department store channel

*Lack of racial and gender diversity within senior management .25 2 .35 Need to diversify top management

Totals 1.00 3.10


As shown by the following Boston Consulting Group Matrix (BCG Matrix) (Figure 1.4), Reebok International has areas that are highly marketable, competitive within their specified markets, and provide profitability for the company, indicated by the stars and cash cows quadrants. However, they also require improvement in other areas to gain a more competitive position, which is shown by the question marks quadrant. A benefit to the company is that they have no dogs.

Figure 1.4

Business Growth Rate Stars· Basketball Shoes· Rbk Product Line Question Marks· Kid’s Footwear· Running Shoes· Rockport Brand

Cash Cows· Classics Dogs

Relative Competitive Position

Stars: This quadrant reflects those products that have both a high growth rate and high competitive position. By implementing a more athletic marketing campaign, and maintaining player Allen Inversion, the basketball shoes have continued to grow in revenues. Mainly due to the tri-monthly release of the signature Iverson and the successful release of Above the Rim basketball products, basketball shoe sales increased by 26%.

In addition, the Rbk Product Line, which introduced new products during the last fiscal year, contributed to the increase in sales of the basketball shoe and other athletic footwear, as indicated by the 12% increase in overall backlog for the Reebok Brand.

Question Marks: This category is designated for those products that have potential growth, but to not have a very high competitive position. As an area that is not dominated by any one company, kid’s footwear could become very competitive, but it would require heavy market penetration to gain a more definite competitive advantage, since sales in this category declined. The recent partnership arrangement with Limited Too should prove to be a positive step in repositioning kid’s footwear.

Running shoes have also become a troublesome area for Reebok. Despite the overall success of the company in the third quarter, this area declined due to poor marketing and positioning. The company has proposed to reposition this category through the introduction of its new Premier Series collection, which is expected to launch in the first quarter of 2003.

Finally, the Rockport Brand experienced a decline in 2002, as well. Overall, the brand experienced a 3.5% decrease. Although domestic sales decreased by 5.6%, international sales increased by 1.7%. As a result, the company is providing more differentiated products through two new categories: Rocs and XCS. They also plan to target women through new product introductions in second half of 2003.

Cash Cows: This quadrant refers to those areas that have low growth, but high competitive positions that normally generate enough revenue to finance themselves and newer products. The Reebok Classic maintains its position as a cash cow, as the retro trends of the new millennium have reverted to the classic tennis shoe. The company has also acquired major music endorsements for this product line, such as hip-hop artists Eve and Fabolous, through their new “Sounds and Rhythm of Sport” platform. As a result, the Classic experienced a 9% increase in 2002 and is expected to see a greater increase in 2003.


The following, (Figure 1.5), is a table that shows the financial position of Reebok, Inc. through financial ratios. The data is based off of Reebok’s most recent fiscal year ending December 31, 2002.

Financial Analysis

The following financial summary based on the financial ratios calculated using Reebok’s most recent year ending December 31, 2002 financial statements. The liquidity ratios indicate that the total borrowing power of the firm remains strong. Inventory to net working capital is small, but positive, which is good for the company. This ratio, along with the low current ratio, indicates a high reliance on short –term borrowing, which could be a disadvantage to the firm if interest rates increase. However, the quick ratio for Reebok is above the industry, which indicates the liquidity is not a problem.

The profitability ratios reveal that Reebok was satisfactory in profit but still needs improvement. One reason being the net profit margin is below the industry, meaning a low profit margin indicates poor cost control. Both the return on investment and the return on equity were below the industry, meaning that Reebok’s assets are financed by debt, and the return on equity reflects a small level of debt financing because the return of equity of 14.9% is more than a quarter as large as return on assets of 12.79%.

The activity ratios for Reebok are satisfactory. The inventory turnover the day of inventory ratio was satisfactory as well. The average collection period was doing satisfactory it was below the industries 97 days. The asset turnover is satisfactory also because it was 1.8 and the industry is at 1.74. The fixed asset turnover is satisfactory, even though it is below the industry average. The accounts receivable turnover is also good because receivables are collected almost eight times per year.

The leverage ratios were good. The debt to asset ratio is satisfactory because it is above the industry. The debt to equity is good because it is one of the top three companies in the industry, which is the same for the interest earned ratio. The long-term debt to capital structure is above the industry. Overall Reebok is doing well enough to stay in the top three, but if they want to stay on top they need some improvement in the activity ratio area.

Figure 1.5

Company Ratios Industry Ratios Rating

Liquidity Ratios

Current 2.73 2.78 Satisfactory

Quick 1.8 1.4 Satisfactory

Inventory to Net Working Capital .40 N/A N/A

Profitability Ratios

Net Profit Margin 4.2% 4.40% Satisfactory

Gross Profit Margin 36.28% 38.70% Satisfactory

Return on Investment (ROI) 12.79% 15.01% Poor

Return on Equity (ROE) 16.42% 18.11% Satisfactory

Activity Ratios

Inventory turnover 5.1 3.7 Satisfactory

Days of Inventory 71 days 97 days Satisfactory

Asset Turnover 1.8 1.74 Satisfactory

Fixed Asset Turnover 5.66 7.6 Satisfactory

Average Collection Period 49 days 47 days Satisfactory

Accounts Receivable Turnover 7.8 5.8 Satisfactory

Leverage Ratio

Debt to Asset 52.46% 50% Satisfactory

Debt to Equity 42% 90% Good

Long-term Debt to Capital Structure 39.94% 20% Good

Times Interest Earned 2.74 4.9 Good

Current Liabilities to Equity 65.56% N/A N/A

Other Ratios

Price/Earnings 16.29 12.1 Satisfactory

Human Resources

Career opportunities and employee benefits are a phenomenal attribute of Reebok International. Through their playful atmosphere and athletic oriented set-up, co-workers become teammates. In addition to an array of employment areas that offer a variety of divisional options, they also provide exceptional employee benefits to ensure a more comfortable work environment. Aside from preferential insurance plans, they also offer fitness and wellness centers, on-site child development center, educational assistance, and employee assistance programs. Finally, in the even that there are no openings in an interested candidates desired employee area, they offer “Future Opportunities,” where a resume will be added to their applicant tracking system for future opportunities.

Analysis of Strategic Factors

The TOWS Matrix shows how the company can overcome its threats and weaknesses with its strengths and opportunities by implementing defensive strategies.

Figure 1.6

Internal Factors External Factors Strengths (S)· Positive brand image· Endorsements by major athletes· Promotion of products· Diverse target market· Intellectual property rights of great value (trademarks, patents, technology, and design) of good value· Rotation of Board members Weaknesses (W)· Minimum product differentiation (Rockport)· Broad department store channel of distribution· Lack of racial and gender diversity in senior management

Opportunities (O)· NBA & NFL endorsements· Promotion of product at World Cup · War is boost for economy in short run· Repositioning running shoe through Premier Series Collection · Penetrate European market by implementing European Strategic Plan SO Strategies· Find joint venture partners in Europe and Asia to promote product at World Cup and to implement European Strategic Plan.· Use brand image and endorsements to reposition running products. WO Strategies· Emphasize department store channel of distribution for running products.· Diversify senior management

Threats (T)· Uncertainty of pending litigations· Shift in consumer preference· Sales and market conditions· Ability to keep pricing levels of products· Seasonal demand for product· International sales including government regulations, currency exchange, and freight costs, etc. ST Strategies· Use endorsements to counter seasonal demand.· Use brand image to combat shift in consumer preference by creating a slogan. WT Strategies· Focus on reducing manufacturing and distribution costs to keep current pricing levels of products.· Expand product line to improve seasonal revenue.

Key Strategic Factors

After assessing the external and internal factors of Reebok International, key strategies are specified to improve the positioning and future success of the company, as indicated by the following:

§ Finding joint ventures in Europe and Asia to promote the product at the World Cup and to implement the European Strategic Plan would improve the international customer base and global revenue.

§ Emphasizing the department store channel of distribution for their running products would help to implement the Premier Series Collection.

§ Using brand image to combat shift in consumer preference by creating a slogan would increase consumer perception and recognition.

§ Focusing on reducing manufacturing and distribution costs to keep current pricing levels of products would improve the competitive position of the company.

Current Mission and Objectives

The current mission statements for Reebok International clearly represent how a well-structured company should function. The missions need no changes. They appear appropriate for the productiveness of the company. Many of the objectives seem to demonstrate how the company should operate.

Recommended Strategies

The following strategies focus on improving the competitive position of Reebok Corporation. The implementation of these strategies will defend Reebok’s position within the footwear industry.

Reebok can use the following strategies to counteract the fluctuating sales and market conditions:

§ Expand product line to improve seasonal revenue. Diversifying the products available for sale will counteract fluctuating sales.

§ Use brand image and endorsements to reposition existing products. Marketing should then emphasize improved brand images in promotions for the products. This should increase the demand for the product and customer loyal, to improve the company’s competitive advantage.

§ Strengthen market research to anticipate consumer preferences and avoid poor sales. This should improve the inventory turnover ratio, which currently has a poor rating.

§ Emphasize department store channel of distribution for running products. Having products available in more locations will increase sales.

§ Establish a slogan, comparable to Nike’s “Just Do It,” to increase familiarity with the Reebok brands.

The following strategies can improve the efficiency of Reebok’s operations and management:

§ Increase research and development to find more cost efficient methods of production and new technologies to make shoes more marketable. This should help increase the inventory turnover ratio.

§ Hold independent manufacturers to higher levels of accountability for: pricing, product quality, and timeliness requirements.

§ The substantial debt of the company should be decreased.

§ Implement the European Strategic Plan. This regionalized approach will improve operating efficiencies, improve logistics, and reduce expenses.

§ Diversify the ethnicities and genders of Top Management. Diverse management can bring new ideas and opportunities to the company. Reeboks top management and employees to reflect its targeted markets.

§ The Board of Directors should adopt an executive compensation plan that is performance based. This will encourage better work ethic.

Reebok is a competitive company with plenty of room for growth. By implementing the recommended strategies, the company will increase its financial performance and offer better products.


Hunger, David J., and Thomas L. Wheelen. Essentials of Strategic Management. 3rd ed.

New Jersey: Prentice Hall, 2003

Reebok International, Ltd. March 31, 2003 .