German sportswear giant Adidas AG has revealed its plans to sell or spin-off its struggling Reebok brand, which it acquired 15 years ago to compete with rival Nike Inc. The decision to divest Reebok is part of Adidas’ five-year strategy, which will be presented on March 10 along with the company’s 2020 results. Starting from the first quarter of 2021, Adidas will report Reebok as a discontinued operation. Analysts estimate that Reebok could be worth approximately €1 billion ($1.2 billion).

Adidas CEO Kasper Rorsted stated that the separation of Adidas and Reebok will allow each brand to maximize its independent growth potential. Adidas purchased Reebok in 2006 for $3.8 billion, but the brand’s underperformance has faced pressure from investors to be let go. While Adidas has successfully challenged Nike’s dominance in the US market with its core brand, Reebok’s slow performance has hindered its progress. Additionally, the COVID-19 pandemic further impacted Reebok’s sales, with a 7% decrease in net sales in Q3 2020 to €403 million ($488 million) following a 44% decline in the previous quarter.

When CEO Rorsted assumed his position in 2016, he implemented a turnaround plan for Reebok, which led to the brand returning to profitability. However, Reebok continued to lag behind the core Adidas brand. Adidas has several options for divesting Reebok, such as spinning it off as a standalone public company or selling it to private equity firms, major sports retailers, or multibrand players like VF Corp. Recent collaborations with celebrities like Cardi B and a renewed focus on women’s apparel have positioned Reebok in a better place, according to analysts.

Adidas had previously anticipated a decline in overall sales for the end of 2020 due to lockdown measures in Europe. However, the company saw a return to growth in China and strong demand for running gear and products designed by Beyonce. The decision to sell Reebok highlights Adidas’ commitment to streamlining its operations and concentrating on its core brand. By divesting Reebok, Adidas aims to unlock its full growth potential and enhance its overall performance in the sportswear market.

Useful links:
1. Adidas official press release on Reebok divestment
2. Wall Street Journal article on Adidas’ plans to sell or spin-off Reebok