Saturday, 8 September 2012

Reebok India asks franchisees to move to cash-and-carry model


German sports goods maker Adidas AG is moving its Reebok business in India to a cash-and-carry model to protect itself from further losses in domestic operations.

As a part of this exercise, the company is understood to have given its franchisees an ultimatum to move to the new terms and conditions latest by November.

In a recent analyst call, Adidas Group Chairman of Executive Board and Chief Executive Officer, Herbert Hainer, had said, “We will clean up India, there is no doubt, because we want to have a clean sheet. Reebok customer review will be completed in the next few weeks and the company will move towards a profitable business model for the brand.”

The group has also roped in Ernst and Young to undertake the restructuring.

Under the Franchisee Transformation Project, the company is looking to move away from the minimum guarantee (MG) model. The franchisees, by far, were operating under this scheme and were assured a minimum amount from the company irrespective of sales.

Reebok India’s 900-store growth in India is largely attributed to this model. However, under the new scheme, the franchises will be offered stocks at discounts.

‘MODEL NOT VIABLE’

Delhi Reebok Franchisee Association, comprising 120-odd franchises, said this model is not viable as they had invested in real estate and human capital. Most franchisees had received a notice from company to accept the new terms or shut shop by August 31. The franchisees Business Line spoke to said that earlier, the company had assured them their investments would be protected and unsold stocks could be returned.

When contacted, Reebok India said, “The Franchisee Transformation Project is an instrumental component of our restructuring. As of now, some two-thirds of the franchisee store base is expected to move over to the new business model. For the remaining few franchisees, who are uneasy to make this transition, there will be a three-month period, from September 1 to November 30, to transition out”.

The company also said it may offer voluntary retirement scheme to 200 employees.

Meanwhile, Minister of State for Corporate Affairs R. P. N. Singh informed the Lok Sabha that the Ministry has initiated an investigation into alleged irregularities at Reebok India.

Reebok India, in May, 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.
http://www.thehindubusinessline.com/industry-and-economy/marketing/article3871229.ece?homepage=true&ref=wl_home

 
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