How Dave Thomas is getting Reebok back on track and pushing Adidas on a high growth trajectory
The critics in Australia, baying for captain Steve Smith’s blood, were stunned into silence. Back in Delhi, the same day, another Australian was savouring a hard-earned victory. On Thursday, Thomas, managing director of Adidas India, was busy signing the financial documents of his company.
Like the Australian team, one of the brands Smith oversees has made a comeback. Reebok posted its first profit in five years since it was rocked by a Rs 870 crore financial scandal involving stolen goods, fudged accounts and secret warehouses in 2012. And the flagship label Adidas — which made its India debut way back in 1995 — has crossed Rs 1,000 crore in revenues, the first sportswear brand to do so in India.
“The best is yet to come,” smiles Thomas, sitting at the Adidas India office in Vasant Kunj in South Delhi. It has to. After all, Reebok is still sitting on piled up losses of a little over Rs 2,200 crore. According to the documents filed with the Registrar of Companies, for the year ended March 2017, Reebok posted revenues of Rs 413 crore and a profit of Rs 19 crore. Adidas more than doubled the bottom line to Rs 95 crore.
For Thomas, who was appointed India head in October 2014 and joined three months later, a crippling legacy ensured a baptism by fire. The ghost of Reebok had to be exorcised. “The mood was dismal,” recalls Thomas. The morale of the employees was down, and the global team was getting jittery. There was a gross mismatch between the potential of India and the per formance of Adidas Group in the country, says Thomas. “Nobody was thinking of hanging up on India, but a game plan was missing.”
Best Foot Forward
Thomas went back to the basics. All loss-making Reebok and Adidas stores were shuttered, the ones that mattered were revamped to alleviate them to the global standards, and the policy of opening random and scattered outlets — at times multiple ones in the same locality — was done away with. From 272 Reebok stores in 2015, the count now stands at 220. Adidas’ stores, during the same period, came down from 502 to 464. “Just expanding for the sake of expansion was not smart,” says Thomas, adding that aggression needed to be backed by a strong strategy that focused on sustainable growth and a rich consumer experience.
In July, Adidas opened its biggest store at Express Avenue mall in Chennai. The 7,100 sq ft outlet has three zones: a small football pitch, a treadmill zone to try out football and running shoes, a jersey zone to personalise T-shirts where salesmen armed with tablets will also help consumers buy stuff that might not be found in the store.
“We need to be obsessed with consumers and consumer experience,” says Thomas, adding that a 500 sq ft store with a limited range was serving no purpose. Early this month, Adidas opened its first company-owned store in Delhi. The idea is to have complete control over customer experience by rigorously training the staff.
The second comeback move by Thomas was a replica of the global strategy: focus on key cities. Delhi, Mumbai and Bengaluru were identified as the top three cities, along with a clutch of six others, including Chennai, Hyderabad, Chandigarh and Pune. The plan was to fortify top markets and reach out to other parts with a mix of stores and online presence. “Online now contributes to over 25% of our sales,” he informs.
Another key element of the turnaround was streamlining of franchisee partners as well as distribution centres. From over 500 franchisees till a few years back, the company has pared them down to around 50. It also brought down operational costs by consolidating five distribution centres across the country into a single facility spread over 2,60,000 sq ft near Delhi. Concurrently, the focus has been on faster launch of global products in India. When Thomas joined India, there was a lag of at least twothree months. “Now global launches happen the same day (in India),” he says.
A sharper positioning for both Adidas and Reebok, along with ending the discounting strategy for the latter, has pushed up sales. Reebok’s attempt to woo every section of population has stopped. “Adidas is a sports performance and lifestyle brand and Reebok stands for fitness,” says Thomas. What has also speeded up the revival of Reebok is its focus on women. In March last year, Bollywood actor Kangana Ranaut was roped in as ambassador, and the brand associated with Pinkathon, which claims to be India’s biggest women’s run for 5 km and 10 km.
“Reebok’s revenue from women buyers outpaces Adidas,” grins Thomas, stressing on how targeting women buyers in India has helped. In the case of Adidas, pushing Originals, the lifestyle brand, helped in growing profits. “Rapid growth without profit doesn’t make any sense,” he adds.
The revival, reckon marketing experts, is noteworthy. While Reebok is a story of success scripted carefully and with hard work, Adidas is an example of how growth can be pushed to a higher trajectory without compromising the bottomline, says brand strategist Harish Bijoor. The turnaround of Reebok, he contends, is remarkable.
The brand was written off after the infamous scam, its outlets were closed, stocks were liquidated in the market at discounts as high as 80%. “If you were spotted in Reebok in the tumultuous days after 2012, you were labelled a discount,” he says, adding that both Adidas and Reebok had a rocky time, and scandal was just one part of it. While volumes are still not what a company of the size of Adidas might want, the stemming of the losses makes up for that, he adds.
Says Ankur Bisen, seniorvice-president of retail and consumer products, Technopak Advisors: “Crossing Rs 1,000 crore for a premium brand in India is not a joke,” he says, adding that the performance of Adidas needs to be viewed against the context of the size of the footwear market in India. Of the $8-9 billion (Rs 51,100- 57,400 crore) footwear market, the size of sportswear is around $1-1.5 billion, according to estimates of the consulting firm. “So Rs 1,000 crore (or $156 million) is a significant milestone.”
Bisen, however, quickly points out the potential challenge for the group. The first is to balance its premium positioning along with the fact that it’s the mid and value segments of sportswear shoes that will give volumes to any company in India. Investors are already backing players in this mass segment. Take, for instance, Campus. Early this month, TPG Growth, the fund that has backed companies, including Uber, picked up a minority stake in the Indian casual sports and footwear brand. Another challenge for Adidas, Bisen points out, is that MNC apparel brands like Levis, United Colors of Benetton and Zara target the same set of consumers that the Ranveer Singh-endorsed Adidas Originals banks on.
The most daunting task according to Ashita Aggarwal, head of marketing at SP Jain Institute of Management and Research, is to wipe out the huge loss. “Though a turnaround has started, a lot still needs to be done,” she says. From limping, Reebok has now started walking. “The challenge for Dave Thomas is to make it run fast and efficiently,” she adds.
Thomas, for his part, asserts that the worst is over. “You will see a faster turnaround from now onwards,” he says. The big question for the company, he adds, is how soon the turnaround plan can be accelerated. “You have to get better before you get bigger,” he says, adding that he won’t chase growth at the cost of profit. But what about media reports of potential layoffs by the group? Have profits been achieved over the last three years by trimming headcount?
Thomas rubbishes the prospect of of layoffs. “It was utter nonsense, and a completely speculative news.” While non-performing employees are shown the door from time to time, the vacuum is quickly filled by hiring fresh legs. “We are not running a charitable organisation. Only the fittest will have a place,” he says, adding that the headcount now is more or less similar to what it was in 2015. “There had never been targeted layoffs, there will never be,” he says, declining to share the headcount, citing global policies. For now, though, it’s more about footfalls than headcounts.