The athletic shoe industry in the United States was an $8.25 billion market in 2003. By
2010, industry revenue had hit $21.9 billion with sales of over 362 million shoes a year [Ibis
World]. The four largest companies (Nike, New Balance, and Adidas-Reebok) controlled 70 percent of that market [Cassidy 2004]. The industry grew from almost nothing in the early
1980s to a global powerhouse. Reebok (ticker: RBK) can trace its history back to Joseph
William Foster, who made some of the first spiked running shoes by hand in London—in
1895. In 1958, two grandsons started a companion company known as Reebok. But, the modern version was born in 1979 when Paul Fireman saw the shoes at an international
trade show and negotiated for North American distribution rights. At $60 a pair, the shoes
were the most expensive running shoes in America [www.reebok.com].
In 1982, Reebok helped launch the aerobic dance industry with a shoe specifically targeted to women. With explosive growth, the company went public in 1985. Growth con-
tinued, supported by the Step Reebok program in 1989. By 1995, the company had grown from $50 million in sales to over $3 billion in a decade. Reebok’s 1993 sales of $2.9 billion placed it second behind $4.4-billion Nike, Inc. The nearly $1 billion increase in sales from
1989 to 1993 indicates Reebok’s success in gaining market share.
Paul Fireman, president and CEO of Reebok
Paul Fireman founded Reebok in 1979 and remains the largest shareholder. From 1986 to
1990, Fireman was one of the ten highest paid executives in the United States. Under his control, Reebok sales grew from $1.5 million in 1980 to $1.4 billion in 1987. In 1988, Fire- man relinquished the CEO role to spend time working on other projects, including develop- ing golf courses in Puerto Rico and Cape Cod. In the late 1980s and early 1990s, Reebok
suffered from two weak marketing campaigns (“Reeboks Let U.B.U.” and “Physics behind the Physique”). More importantly, the aerobics fitness craze began to subside. Women aero-
bics shoes were a major component of Reebok sales, so the sales decline hit them especially hard. In 1992, Fireman returned as CEO.
Tom Trainer, CIO
Tom Trainer joined Reebok in 1991 as the chief information officer (CIO). He noted that his role “is to enable the kid in Reebok to stay fresh and creative while also allowing the grown- up corporation to compete in global markets” [Pulliam and Pereira 1995]. To accomplish these objectives, Trainer implemented videoconferencing, computer-aided design, the In- ternet, and laptops for the sales force. The goal was to improve communications among em- ployees, faster development of products, and more effective sales presentations.
Before Trainer joined Reebok in 1991 as vice-president of information systems, the information systems area was less than up-to-date, with no global information system or
way to look at data. Communications, primarily by telephone and fax, between the manu- facturing partners and worldwide distribution network were slow. Turnaround on new
products was equally slow. This was a critical problem because Reebok is a fashion-oriented business with three product cycles a year in footwear and five in apparel. While sales repre- sentatives from Nike were walking in with laptops to display their lines, reps from Reebok were walking into offices with bags of shoes.
Trainer’s early days were spent accomplishing short-term projects that got him
points with the board of directors. He fired six of eight senior staff. He kept 85 percent of
the old programming staff, retraining many of them. In addition to his IS responsibilities, Trainer drove the re-engineering process in the company. To do so, he spent a great deal of time on the road, building relationships with Reebok executives around the world. He also studied Sony Corporation to learn ways that it meets customer needs.
To accomplish his re-engineering, Trainer formed five megaprocesses that stream- lined procedures for production, sales and marketing, research and development, adminis- tration, finance, and distribution. In 1992, he presented a four-year, $75-million strategic information systems plan to Reebok’s executive committee. The board approved it on the
condition that it give Reebok strategic advantage.
To improve its communications, Reebok installed a privately designed architecture for voice, video, and data. Reebok communicates not only with its worldwide distribution base but also with its ad agency and other suppliers. IT currently developed an electronic image library to enable product shots to be distributed to every country where Reebok does
business. The system dropped the new product lead time from six months to three, and, in some cases, 30 days.
Before the new ordering system was installed, orders were first printed out locally and faxed to the international headquarters in London. London would take all of the faxes and send them to the United States to be entered in the mainframe. Different standards for
shoe sizes from different countries added to the delay. Once the information was entered in the mainframe, production and manufacturing would evaluate the orders.
To improve this process, Trainer developed a software package called Passport. Passport rationalizes product codes and shoe sizes. It also gives small distributors and sub- sidiaries access to the system through personal computers. It can also function as a module
by plugging into larger systems.
Laptops were also given to the entire Reebok sales force. When orders were paper based, replacing material in a shoe to change its price from $95 to $65 might take 30 days
and mean a lost sale. With the new system, these changes could be made almost automati- cally. Salespeople are able to check inventory and look into special orders. They can also
access two years’ catalogs with full motion video and sound clips of Reebok’s advertise- ments. Lotus Notes is used to store the catalogs with mail links through cc:Mail.
Another Reebok initiative is to use electronic data interchange with 10-15 percent of its retailers. This commitment enables goods to be tracked through shipping companies, customs, and warehouses. Hoover, a data capture system to “suck in” information from da-
tabases around the world, is linked to customer databases that track what customers have ordered and what they want.
Reebok experienced some problems implementing the new systems. Particularly dif- ficult was the effort to integrate the Canadian operations into the U.S. business operation. Concentrating development and support in the United States did not take into account the
specifics of invoicing under the Canadian law. This mistake added time and resources that had not been budgeted to the project.
Reebok early 1990s
In the early 1990s, facing continuing declines in the aerobics’ market, Fireman changed the focus and tried to expand into other areas. To a large extent, Nike was killing the competi- tion—largely by focusing on star athletes and spending more than 10 percent of its revenue on marketing. In the early 1990s, Fireman knew that he would have to compete directly in the sporting world [www.reebok.com]. His basketball market strategy copied a page from
Nike, and relied on the new “Shaq Attaq” line supported by Shaquille O’Neal from the Or- lando Magic. While sales did increase, they did not reach the 25 percent levels predicted by Mr. Fireman—reaching only 20 percent market share. Additionally, Fireman estimated in
1993 that the outdoor-wear division would sell $350 million worth of shoes in 1995. Outdoor sales fell far short of the goal, reaching about $110 million.
More importantly, expenses skyrocketed, increasing from 23.6 percent of sales in
1991 to 32.7 percent in June 1995. Experts say shoe company expenses typically average about 27 percent of sales. Investors blamed most of the increase on the cost of endorse-
ments.
Nike Late 1990s
At the same time that Reebok was suffering, Nike reported a 55 percent jump in first- quarter 1995 earnings, with revenue increasing by 38 percent. Part of the increase was from expanded international sales, with a 34 percent increase in orders from France and
Germany. Sales in Japan increased by 65 percent. Nike also expanded sales of tennis shoes, partly through endorsements from tennis stars Andre Agassi and Pete Sampras. In the first quarter of 1995, revenue from tennis shoes increased by 92 percent with a 42 percent in- crease in orders.
At the same time sales were increasing, Nike managed to decrease its expense ratio.
Selling and administrative costs dropped to 22.3 percent of revenue from 25 percent in the prior year. Much of the improvement came from an improved distribution system, including a new warehouse in Belgium that consolidated operations from 30 different facilities in Eu- rope.
Beginning in the late 1990s, the footwear industry lost its luster. However, Nike
revenue increased from $3.4 billion in 1998 to $9.0 billion in 2000 to $9.5 billion in 2001, to over $10 billion in 2003 [annual report]. In 2001, Nike installed a customized retail supply chain system from i2 Technologies, Inc. The implementation, including ties to other ERP systems, did not go well, and Nike faced a serious inventory reduction and misplacement. Nike management was disappointed in the problems, and Nike chairman questioned: “This is what we get for $400 million?”
Reebok Late 1990s
In 1990, Nike surpassed Reebok in footwear sales. In the year ending in August 1995, Nike had $4.7 billion in sales compared to Reebok’s $3.37 billion. One of the largest battle- grounds was the retail Foot Locker stores owned by Woolworth Corp. The 2,800 retail
stores sell 23 percent of U.S. sport shoes, representing $1.5 billion of the $6.5 billion U.S. market for athletic shoes. Sales at Foot Locker stores account for almost 60 percent of the
1$ billion U.S. sales gap between Reebok and Nike.
Insiders note that