Business Management Internal Assessment

Standard Level
Written Commentary

Ethics

To what extent did Adidas decide to sell Reebok and target their
“own the game” strategy to boost their profits?

Candidate Number: ID
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Introduction
Adidas is the world's largest manufacturer of sportswear corporations, specializing in

manufacturing athletic shoes and equipment. It is based in Herzogenaurach, Germany, and has

more than 13,000 stores worldwide. This includes owned stores, franchises, and outlets. Adidas

has been purchasing Reebok since 2005 to compete with Nike, the largest multinational

sportswear corporation in the world as their adversary. However its performance fell short of

Adidas' expectations in 2021, Adidas intends to hand over Reebok to the legitimate brands

organization for a price of $2.5 billion. Adidas revenues have decreased over 13% and Reeboks

over 16% for 2020 as a consequence of the pandemic's effect on revenue.

Reebok believes that by acquiring the organization, it will be enabled to concentrate on its

primary original brand because it has been unable to increase Adidas' sales. The Adidas "own the

game strategy" aims to increase online sales, revenues, and net profit by emphasizing consumer

fulfillment, the image of the brand, and environmental sustainability. This prompts the question

“To what extent did Adidas decide to sell Reebok and target their “own the game” strategy to

increase their profits.”

The profits will be examined using qualitative business analysis tools, Swot Analysis. In

contrast, both internal and external opportunities and threats, as well as strengths and weaknesses,

influence both current and future activities and aid in the development of long-term strategic

aims. Most of this study will be based on secondary sources, such as articles and financial reports

from companies. To give the exploration thorough information, the accompanying documents
have been attentively chosen. However, the fundamental drawback of such resources is that they

might be biased, which undermines the validity and dependability of this study.

Findings
Adidas acquired Reebok in 2006 intending to contend effectively with Nike. Reebok later attained

that position of deals, albeit an all-time high of 1979 million euros in 2006, during the time of

Adidas' accession. The pot's net earnings fell to 1409 million euros in 2021, the smallest position

in the once decade.

Analysis of the Findings

Ansoff Matrix

The Ansoff matrix is a strategic planning tool that provides a frame to help directors, elderly

directors, and marketers concoct strategies for unborn business growth. Adidas decision to use

request penetration to limelight its namesake brand's “enjoy the game” strategy boosted and

strengthened its request share from its adversary. Adidas unique selling point for their strategy is

to “ strengthen the credibility of the brand ”, expand and develop its deals, and acquire its request

share until a similar time as 2025. Their conduct is fastening on boosting deals of a product that's

formerly present, this is regarded as a parlous fashion.

Acquiring Reebok doesn't help as important as Adidas anticipated to set bottom on the request

being the number one sportswear company. Advertising Reebok is able to secure the products

from the Adidas group, which may produce a new adversary for Adidas. However, regardless of

its depression in deals, Reebok is still a considerably known brand in sportswear owing to its

comprehensive actuality, If Adidas can defy a new adversary. also, Adidas and Reebok were an

adversary in the same request sector. The contest between them might be the factor Reebook
could have done better while still in charge of the Adidas group since they both constructed

original products for the request. This explains how Adidas kept maintaining its strategy to

increase its gains its engagement in the strategy that they responsible for and perfecting its brand

image.
Ratio Analysis

The gross and net margins are used to evaluate a company's profitability. Return on capital

employed ratios can be used to reflect on how efficiently a company earns its net profit from the

capital it uses.

𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡
Gross Profit Margin: 𝑆𝑎𝑙𝑒𝑠 𝑅𝑒𝑣𝑒𝑛𝑢𝑒
× 100%
5463
2022 : 10897
× 100%

Gross Profit Margin= 50. 1 %

Table 1: Gross Profit Margin for Adidas Company for the past fiscal 4 years.

Fiscal Year Ending Gross Profit Margin

2023 50.9 %
2022 50.1 %
2021 51.8 %
2020 49.6 %

Overall, Adidas gross profit perimeters have been in a steady position for the history 2 times in

2020 and 2021. In 2020 it can be seen that it dropped much further than Adidas anticipated but

crushed the challenges and obstacles in its path. Adidas was suitable to increase it back to the

loftiest gross profit periphery in 2021 than in the coming time. Despite the drop in Adida's gross

profit periphery of 49.6% remains more advanced than the assiduity normal of 47 in 2020. It

demonstrates that the business is still profitable to operate in the case of Reebok.
 Fiscal Year Ending Return on Capital Employed
2022 5.3 %
2021 21.2 %
2020 8.0 %

The Adidas group of return on capital employed is shown in Table 2 which indicates that the

return on capital employed has seen a major decline in 2020 from 45.4% in 2019. This issue

might be a problem for unborn investors, who favor companies with dependable ROCE. The

swell in ROCE from 2020 to 2021 might have been due to varied factors, such as increased deals,

cost operation, or bettered functional effectiveness.

The drop in ROCE in 2022 could be attributed to several factors, similar to advanced operating

costs, increased capital employed, lower profitability, or changes in the profitable terrain. It's

important to claw deeper into the fiscal statements and operation commentary to understand the

specific causes. The decline in ROCE in 2022 raises questions about Adidas's unborn

performance. Investors and judges would want to know if this is a one-time circumstance or part

of a longer-term trend.
Swot Analysis

Strength Weakness

● Strong brand recognition ● Adidas is limited to certain countries

● Competitive Pricing ● Adidas sells its products at premium

● Increased Product Line pricing

● Strong Financial Position ● Sales ranked second in the world

● Increased collaborations and compared to Nike.

membership

Opportunities Threats

● Adidas will be able to focus on ● Less activity in market share

expanding their brand ● High competition from Nike, Under

● Strategic focus on credibility Armour, and other sportswear companies.

● Strengthen online sales platforms ● Lose to middle to lower-middle-class

● Expand to new markets consumers.

Thus, Adidas has several strengths, including brand recognition and a strong fiscal position. still,

it faces sins similar to limited request presence in some regions and decoration pricing. openings

live for brand expansion, strengthening credibility, and fastening one-commerce. Again, Adidas

must contend with the constant trouble of competition and the threat of losing request share,

particularly to dominant rivals like Nike. Managing these factors effectively will be pivotal for the

company's long-term success. On the other hand, Reebok's partnership with the Adidas group

allowed it to broaden its audience beyond those of the wealthy and upper-middle-class consumers

it had previously targeted. Reebok, however, is better prepared than Adidas to meet the
preferences of middle-income consumers because of its budget outlets and an array of prices.

Without Reebok, Adidas might have been able to put a higher priority on entering fresh sectors

and concentrating on revenues within the athletic wear sector, which currently accounts for 56%

of their total sales. Given the fierce rivalry that the market for sports apparel, there is a chance for

the business to expand its line of goods.