Adidas to spin-off Reebok and focus on its own brand

German sportswear company Adidas has unveiled its plans to sell the Reebok brand to help the company step up its competition in the American market.

Adidas said further details of its new five-year strategy and the start of the formal divestiture process will be revealed on March 10. It added that from the first quarter of 2021 it would be reporting Reebok as discontinued operations.

The German sportswear company acquired American sportswear company Reebok for $3.8 billion in 2006 to expand its influence in the U.S. market. Contrary to what investors had expected, Reebok yielded slow results, and its underperformance led to repeated calls from investors to cut-off the brand.

The company said it had been considering better alternatives for Reebok. These alternatives could either be spinning Reebok into an independent company or selling it to another retailer, group, or private equity which may include VF Corp (VFC), the parent company of Vans and The North Face. Other potential buyers include Authentic Brands Group (ABG) and China’s Anta Sports. The brand’s recent collaboration with superstar Cardi B and its focus on women's apparel puts it in a good position to get a good deal, according to Reuters.

“Reebok and Adidas will be able to significantly better realize their growth potential independently of each other,” said Adidas CEO Kasper Rorsted, in a Tuesday statement. “We will work diligently in the coming months to ensure a successful future for the Reebok brand and the team behind it.”

He emphasized the “highly attractive” long-term growth opportunities that the “iconic sports brands” will encounter in the market.

According to a banking source cited by Reuters, Reebok could be worth $1.2 billion.

After Rorsted became CEO in 2016, he launched a strategic plan to revivify Reebok and make it more profitable. The success was brief as the brand continued to underperform, lagging behind the core brand Adidas. The hit of COVID-19 was another major factor that led to the poor performance of the brand in recent times. Covid-19 related store closures and low demand for sportswear affected sales in 2020.

Net sales of Reebok fell 7% in the third quarter of 2020 to $488 million (403 million euros) after it fell as much as 44% in the previous quarter.

In the meantime, Adidas is focusing on expanding its presence in the US market, through partnerships with celebrities like Beyonce, Kanye West, and Pharrell Williams. “The long-term growth opportunities in our industry are highly attractive, particularly for iconic sports brans,” Rorsted said.