The adidas Group is just six months into a process that is expected to deliver even more upside potential for the company, but management last week unveiled a string of new initiatives and cost-saving opportunities that enabled the company to raise estimates of sales and earnings benefits associated with the Reebok acquisition that was first announced in August 2005 and closed at the end of January this year.

At an investor presentation in London last week, Herbert Hainer, adidas Group chairman and CEO, said the company now expects to see high-single-digit sales growth annually for the next three years, compared to previous guidance of revenue growth in the mid- to high-single-digit range. As part of that new projection, Hainer outlined updated revenue synergies that will add another €500 million to the top-line in 2009, an estimate the company said is based on opportunities in Reebok branded apparel, the expansion of the sports licensed business at adidas (see following story), regional product initiatives to drive Reebok growth globally, and the buy-out of Reebok distributors around the world. The company sees the biggest opportunity in the last initiative, but it is just part of a total goal of stepping up Reebok’s presence globally. Hainer noted that over 50% of Reebok sales were generated in North America, while market share for the brand was below 10% in “virtually all markets.”

Hainer also that net income would increase by double-digit rates for each of the next three years, producing bottom-line growth of least 20% in 2007. Gross margins are expected to be in the 46% to 48% range and operating margins are targeted in the 11% neighborhood. The company hopes that by adopting Reebok’s sharper costing structure, while increasing scale and introducing a World Class buyer program, they can carve out an additional €75 million in savings in cost of goods and another €20 million in operating expense savings. Further, adidas Group increased its projections for total annual cost synergies to €100 million based on evaluation of opportunities in marketing & sales, distribution & warehousing, and administration & IT.

The company also raised its estimates on annual cost savings projections to €175 million from the initial estimate of €125 million.

In discussions about the positioning of the adidas and Reebok brands, the company continued to walk a fine line in determining what each brand would stand for in the market place. Adidas will apparently be positioned as the brand most identified with team sports, while Reebok will play on its heritage in individual performance within sports, supporting continued focus on Reebok’s “I am What I Am” campaign and the adidas “+10” campaign.

With new leadership in place at Reebok, a sense of continuity and commitment to positioning may be taking place. Under the former regime, the brand created multiple logos and positioning statements that, more often than not, confused the consumer. Under new CEO Paul Harrington’s watch, and with a watchful eye in Herzo, the brand will narrow its logo treatment to three distinct looks, with the Vector representing performance product, Rbk representing lifestyle product, and the original Union Jack representing Classics.

The Greg Norman Collection business will now move under the TaylorMade-adidas Golf division where CEO Mark King sees sales exceeding €1 billion in the medium-term.

adidas continues to expect big things from running and sees the combined brands representing 35 million pairs sold globally. Here, adidas will be positioned as innovative and targeted to the high-end runner while Reebok will show a major focus on comfort, cushioning, and the fitness runner.


>>> It should not surprise anyone that adidas tried to clarify the positioning of the brands to reflect how the consumer already sees them, but there are still a lot of gray areas to resolve…