When a new chief executive arrives, that leader inevitably wants to make a quick impression, to send the signal that there’s a new boss in town. Kasper Rorsted certainly didn’t waste any time at Adidas.
Rorsted quickly threw the Reebok business through its biggest changes since the Adidas acquisition a decade ago: He decided to sell off the space-age Canton campus that was tailor-made for Reebok in 2000, move nearly 700 employees to an as-yet-to-be-named Boston site, and relocate or lay off about 300 more.
And he may not be done. Rorsted said during a teleconference on Thursday, his first quarterly earnings call since joining the German company in August from soap maker Henkel, that Reebok could face bigger changes ahead if it fails to meet its performance goals. Rorsted spelled out certain things with regard to Reebok’s future, and offered cryptic clues about others. For those tuning in, the call was instructive about Reebok’s relationships with its parent company and its new boss.
1. Reebok’s turnaround has gained traction, but the progress still isn’t good enough
Rorsted and his lieutenant, chief financial officer Robin Stalker, made it clear that they’re seeing things they like in Canton. Revenue was up 7 percent at Reebok, year over year, and North American sales grew for the first time since 2013. Reebok president Matt O’Toole must be doing something right: Rorsted kept him rather than promoting someone else, giving O’Toole full responsibility for Reebok in North America.
But here’s what Rorsted doesn’t like. Reebok’s sales growth is slower than the parent company’s, and slower than the competition. Profitability is falling short, well below the Adidas group average. So Rorsted quickly put in place an improvement plan, with specific milestones to be hit, by certain times. “It’s time to get back to the gym,” he said, “and redouble our efforts on Reebok.”
2. The focus on fitness over traditional sports isn’t going away
Rorsted emphatically backed predecessor Herbert Hainer’s strategy of making Reebok a fitness brand. The celebrity endorsements Rorsted wants to see are with fitness gurus and social media sensations, not celebrity athletes. Stalker highlighted Reebok’s arrangements with US model Gigi Hadid and Australian fitness pro Emily Skye, deals aimed at motivating women “to unlock their potential.” This worked for Reebok in the 1980s, when aerobics was the next big thing. Reebok embraced the CrossFit craze in its ascendancy. A fitness focus is the right direction, though Adidas execs apparently aren’t quite satisfied.
3. More wholesale, less retail
In the US, 60 percent of Reebok’s sales come through wholesale channels, while 40 percent are direct-to-consumer (primarily through Reebok-operated stores). Rorsted wants to rely more heavily on the wholesale side, by selling more shoes and clothing through chains such as Dick’s Sporting Goods, Academy Sports + Outdoors, Champs Sports, and Macy’s. This makes sense. Retail stores can be expensive to staff, and leases in key malls aren’t cheap. Rorsted wants to cut Reebok’s factory outlets in half — 20 will be closed by the end of the year, with more closings to come in 2017.
4. Consumers may notice a change on the price tags
Rorsted and Stalker didn’t offer much detail on this, but there’s a clear belief that more expensive apparel means more profitable apparel. The goal, Stalker said, is to make Reebok “the best fitness brand in the world.” Translation: a premium brand. Stalker said profits will improve at Reebok as the business shifts to “product with higher price points.”
5. Reebok isn’t for sale right now, but that doesn’t mean Rorsted hasn’t thought about it
The new Adidas exec addressed the long-simmering rumors that Adidas might sell the Reebok brand. As CEO, Hainer crafted a nearly $4 billion deal to buy Reebok in 2005. But the business weighed on Adidas like a rock for years afterwards.
Rorsted didn’t come out and say it. But plucking the corporate jobs like IT and finance -- that Reebok shared with Adidas -- out of Massachusetts and moving them to Adidas’ North American headquarters in Oregon could enable a cleaner sale of Reebok at some point in the future.
Rorsted used an athlete’s analogy to describe Reebok’s place on the Adidas team: “Like in sports, every member has to contribute to the success, and that is also our expectation [for] Reebok.” He repeated that sentiment later on the call, for emphasis.
“This is not by any means saying that we’re selling Reebok,” Rorsted added. “We’re saying we’ll put a plan in place, we’ll execute the plan, and should something different come out, we’ll deal with the scenario when we get there.”
Jon Chesto can be reached at jon.chesto@globe.com. Follow him on Twitter @jonchesto.