Reebok Strategic Audit

Joseph William Foster in England formed Reebok in the 1890's. The company was founded based on the need to increase the long-distance track runner's performance. In 1979, Paul Fireman bought the rights to market and distribute the products in the US and Reebok USA was formed. Reebok USA eventually merged with Reebok International and today Reebok International is a very diversified operation with distribution worldwide. Through the acquisition of several footwear and apparel makers, the company now consists of four strategic business units: Reebok Division, Rockport Company, Ralph Lauren Footwear, and the Greg Norman Division.

Today, the Reebok focus on developing and strengthening their brands. The aim is to maximize consumer impact and enhance brand profitability through five strategic approaches: matching structure to the consumer; extending design and innovation leadership; developing leading positions in all major markets; achieving excellence in execution; and focusing on financial performance (Adidas Group Strategy, 2007).

There are many factors that affect the manufacturing and financial performance of Reebok. Either separately or combined in one way or another could cause a shift in market share thus impacting the corporation, its shareholders, and its stakeholders.

The biggest external factor plaguing Reebok is the economy. Any increase or decrease of variables such as interest rates, money supply, inflation, unemployment, production levels, or import levels all serve to determine the amount of disposable income available for buying sports footwear or apparel. When interest rates are high or there is an unusually high unemployment rate, there is generally less disposable income for the consumer to spend, thus sales and profits could be lower than expected. Since Reebok products are marketed worldwide, it may be possible for one part of the world where the economy is good to make up for the losses in another part of world where there is an economic downturn.

Supply and demand play into the external factors also. The company must maintain sufficient production levels in order to meet demand. If production falls there is a shortage of the product but would offer the opportunity for price increases. However the price increase may also price Reebok out of the market for some income groups. If there is a surplus of products, Reebok may have to offer incentives to retailers in order to move the merchandise out of its warehouses.

Competition plays is an important external factor that should be addressed. Reebok must not rest on its laurels and must spend on research and development in order to beat the competitor to the market with new products. Reebok's major competitors for Reebok are Adidas, Nike, Converse, Sketchers, and New Balance.

Other external factors that may affect Reebok performance are technology factors, technology upgrades or refreshes. With the huge surge in e-commerce, Reebok has a new marketing tool but this could also be used as a distribution channel. Further upgraded technological factors may improve the manufacturing process, improve the products and/or services of the supply chain partners, and may also benefit the competition in getting new products to the market faster and at lower prices.

The government also plays an important role in the success of Reebok. In the United States, there are import regulations as well as labor laws for work performed on foreign soil. Although Reebok has such a policy and governs the subcontractors regarding child labor and the number of hours worked, it is virtually impossible to police all the subcontractor facilities to ensure compliance.

That being said, there is a great opportunity for Reebok to move into an undeveloped country, establish a factory, train the employees, and maintain a reasonably priced end product. This strategy would not only show Reebok as a good corporate citizen, it would provide economic aide to the third world country by providing a steady income and a better quality of life for its citizens.

A final external factor that Reebok must consider is the lifestyle trends and what changes there are in the fashion industry. This can be either an opportunity or a threat. If Reebok is on the cutting edge of technology and introduces new and improved products, it could greatly affect the bottom line. However, if there is no product development or a stagnation of product development, it could result in not only the competition beating Reebok to market but also in the consumer deciding it is tired of the same old product and switching to a different brand just for a change. Along with lifestyle trends, Reebok must look at the market it is targeting and be mindful that there are baby boomers, Generation X, and Generation Y consumers using their products.

The external factors cited above can then be used in our Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis.

Strengths:Ш Financial positionШ Available discounts from vendorsШ Corporate responsibilityШ Training programsШ Alliance with professional sportsШ Name loyalty Weaknesses:Ш Debt loadШ High cost of endorsements/ advertisingШ Targeted audienceШ Overseas manufacturingШ Organization decision making

Opportunities:Ш Lifestyle trendsШ Demographics showing more people moving into target marketsШ Economic development of third world nationsШ Innovation design Threats:Ш Economic conditionsШ CompetitionШ Technology changesШ Government regulationШ Change in consumer trends

Internal factors comprise the strengths and weaknesses of the SWOT table. These points are discussed further below.

Reebok has a strong arm on the financial systems and the sales reported into the system. The financial controls, or some may classify as constraints; extend to all the operating business units. In 2001 Reebok had a net profit of $102.7 million from gross sales of $2.993 billion (Wheelen & Hunger, 2006). The gross margin for 2001 was in excess of 36% (Wheelen & Hunger, 2006), which is unusually high. At the end of 2001, long-term debt was $351 million (Wheelen & Hunger, 2006). Long-term debt is 43.8% of the total liabilities of the company (Wheelen & Hunger, 2006). Executive compensation appears to be reasonable compared to other US companies. The current ratio, based on year-end 2001, is 2.88 (Wheelen & Hunger, 2006). This means that for every dollar of current liability there is $2.88 of current asset to pay the liability. The return on investment is 7.0%. This shows the managements ability to use obtain a return on all assets (Wheelen & Hunger, 2006).

Since Reebok distributes products worldwide and is a brand name that

...