Reebok‘s deep-discounts before starting new biz model

Reebok stores in India have announced deep discounts,

barely two months after their mid-year sales. Hundreds of Reebok stores nationwide are offering 30 to 50 per cent discounts, which some franchise owners say could rise to more than 70 per cent as the company-imposed a deadline for the switch-over to the new business model draws near. Beginning December 1, Adidas AG-owned Reebok will offer franchise owners a flat 35 per cent margin on overall sales. Franchisees say it is a deviation from the earlier agreement with Reebok under which they received a fixed annual return of 18 per cent on investment and the company picked up all the tabs, including rent and staff salaries. Franchise owners were expected to make an initial lump-sum investment in the business.

While Reebok is expecting two-thirds of the franchises to move to the new model, the Delhi Reebok Franchisee Association feels that a majority of its 70 members would be closing their stores by the deadline.

After announcing a three-pronged strategy at its Reebok India operation, which includes possible closure of nearly a third of its 900 Reebok stores, a voluntary retirement scheme (VRS) for the 200-odd Reebok employees and integration of the two brands’ suppliers, Claus Heckerott, MD of Adidas, group-market India had said that they are changing their model from a minimum guarantee scheme (rent plus model) offered to franchisees, which is not sustainable for a cash-and-carry model and one-third of the franchisees are ready to go with this model.