Reebok's franchisees cry foul over notice to shut shop

Sportswear major Reebok India's franchisees from Delhi have accused the company of asking them to shut their shops by August 31 if they do not agree to the new business model.

The franchisees have also alleged that the company, which had filed complaint against two former top executives for an alleged Rs 870 crore fraud, has refused to settle dues in violation of their franchise agreement.
"As per our agreement with the company, whenever a franchisee wants to exit the business, three months time would be given to liquidate the stock and if any product remain unsold, the company would take it back at the purchase price.

"Now they are asking us to close the shop in just 15 days. They are saying that once the goods are transferred, it is our responsibility," Delhi Reebok Franchisee Association spokesperson told PTI.

The franchisees claimed that they received notices from Reebok India's parent Adidas Group on August 13 for closing down their stores by August 31 if they do not accept the new terms of the agreement.

"They are purely holding us on ransom and are not ready to settle our claims at all," they alleged.

The franchisees said they were hired by Reebok India under the Minimum Guarantee (MG) basis, in which they used to get fixed returns on investments irrespective of sales.
When contacted, Reebok India Company, did not comment specifically to the allegations but said it will "follow good standards of respectful and professional conduct to engage with our stakeholders while restructuring the business".
"Despite the challenges, we are committed to the Indian market and believe in the growth potential of Reebok India. Hence, we are working closely with all our Reebok franchise partners and discussing revised business terms to drive strong profitability for both the franchise partners and Reebok India," the company said.
Under the Franchisee Transformation Project for Reebok India making a fresh start from 2013, the new business model includes comprehensive performance based commercial terms.
The company said although it received "a very good response from our partners from across the country", however, "some of our franchisee partners are a bit uneasy about making a change from an existing model".
"Basis our discussions, we expect some two-thirds of the current 900 Reebok franchisee store base to transfer over to the new business model," it added.
In May this year, the German parent Adidas had said it planned to shut down one-third of its 900 Reebok stores in India as a part of a restructuring strategy for the brand.
Adidas Group CEO Herbert Hainer had said the restructuring could lead to additional one-time charges of an estimated Euro 70 million in the remaining quarters of 2012.

In November 2010, Adidas had announced its 'Route 2015' programme, under which the sportswear major would further invest in its own-retail activities and open up to 400 additional stores globally by 2015. The majority of the new stores were planned in emerging markets, particularly Russia.

Last month, nearly 80 franchisees from the National Capital expressed their insecurity in a letter addressed to Hainer due to lack of clarity from the new Indian management, which was announced at the end of March, about the company's future operations here.

The franchisees had sought his intervention regarding handling of the situation by the new management and alleged that Reebok India Company has not taken them into confidence while planning to initiate a new business model.

Adidas had said global sales of its Reebok brand declined by 26 per cent in April-June quarter on a 'currency-neutral basis', mainly due to impact from Reebok India Company.

The Group had also said it expected a hit of 70 million euro in its global operating profit in 2012 on account of "irregularities" in Reebok India.

In May this year, Reebok India had filed an FIR, alleging that its former Managing Director Subhinder Singh Prem and Chief Operating Officer Vishnu Bhagat were involved in a Rs 870-crore fraud by indulging in "criminal conspiracy" and "fraudulent" practices over a period of time.

Currently, Serious Fraud Investigation Office and the Income Tax Department are probing the alleged financial irregularities in Reebok India Company.

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