Adidas asks Reebok franchisees to accept new terms
August 28, 2012 - India
Adidas, the German sports goods manufacturer that acquired Reebok globally in 2005 and merged operations in India in 2011, has strictly directed around 70 franchisees in Delhi-NCR to accept the new terms and conditions or close shops by August 31, 2012.
Until now, Adidas operated franchisees under a minimum guarantee (MG) scheme, whereby the company paid a minimum fixed amount to the franchisees, irrespective of their sales.
However, with the launch of a three-pronged strategy for its Reebok India operations, the company, which is eager to revive its Reebok business in India as soon as possible, has proposed to end the MG scheme, and instead start offering stocks to franchisees at a reasonable discount.
In response, the 125 Delhi-NCR based Reebok franchisee outlets have formed a consortium called Delhi Reebok Franchisee Association, which has denied accepting the new terms, as the same are unviable in view of the investments made by them so far.
Besides the change in the franchise model, the three-pronged strategy proposes closure of about one-third of the 900 Reebok stores operating in the country, a voluntary retirement scheme (VRS) for 200-odd Reebok employees and integration of the Adidas and Reebok brand suppliers.
Specifying the reason for changing the franchisee model from MG scheme to discounted stock offerings, Adidas said the company did not find the earlier model to be a sustainable one, and one-third of the franchisees are ready to accept the new model.
In spite of a seven percent year-on-year rise in group revenues, the company’s Reebok-brand sales fell 26 percent during first quarter of the current year.