The tussle between a section of Reebok franchisees and German sports-goods maker Adidas took an ugly turn today, with about 100 people protesting at the gates of the company’s headquarters in Gurgaon.
The franchisees from the National Capital Region (NCR) were protesting against the new terms proposed by the German sports goods major for operating stores in India. The company had given an ultimatum to about 70 franchisees in the NCR region to either accept the new terms, or shut shop by August 31.
Together, these franchisees operate about 125 Reebok stores in the NCR region. The franchisees, who have formed a consortium called Delhi Reebok Franchisee Association, say the new terms and conditions aren’t viable. These terms seek to do away with the minimum guarantee (MG) model the franchisees were operating on so far. Under the MG model, franchisees were assured a minimum amount from the company, irrespective of sales. It was because of this model Reebok was able to set up about 900 stores in 325 cities and towns, becoming the largest sports-wear brand in India.
Now, Adidas, which acquired Reebok globally in 2005 and merged operations in India in 2011, plans offer stock to franchisees at a reasonable discount. In reply to a questionnaire sent by Business Standard, a company spokesperson denied it wasn’t cooperating in negotiations with franchisees. “The franchisee transformation project is an instrumental component of our restructuring to set Reebok India up for a fresh start in 2013. The new business model includes comprehensive performance-based commercial terms that would help drive store profitability. As of now, about two thirds of the franchisee store base is expected to shift to the new business model. For the remaining franchisees, there would be a three-month period from September 1 to November 30 to opt out,” the spokesperson said.
However, franchisees say this doesn’t help their cause, as the company has not yet agreed to meet their key demands. Says a spokesperson for the Delhi Reebok Franchisee Association, “They have agreed to take back stock at only 10 per cent of the wholesale price, the price at which we procure goods from them. The balance 90 per cent would not be reimbursed by them, which is a huge loss for us. Second, they would discontinue the MG model from September 1.
That is another huge blow. Third, they are committing to paying rentals or any other expense from September 1. Last, but not the least, they are not ready to meet us, treating us as criminals instead.”
The company spokesperson, however, said, “Our franchisees are free to decide whether they would continue to do business with us or not. As far as reconciliation of accounts is concerned, please understand it is a two-way process and reconciliation requires full support of our franchisees in providing all the necessary account information.”
On an average, Reebok franchisees in the NCR region have invested between Rs 50 lakh and Rs 3 crore per store. Most franchisees have at least two stores each, depending on the investment, say people in the know. Across the country, Reebok has about 800 franchisees, with about 533 expected to make the transition to the new model of operation, according to the company.
Recently, Adidas had announced it was restructuring operations in India. It added it might close about a third of its 900 Reebok stores, introduce a voluntary retirement scheme for its 200-odd Reebok employees and integrate Adidas and Reebok brand suppliers. Speaking for the first time since Adidas had taken a Rs 870-crore hit due to commercial irregularities at Reebok, Claus Heckerott, managing director, Adidas Group India, had said, “We are changing our model from a minimum guarantee scheme offered to franchisees, which is not sustainable for a cash-and-carry model. We’ll be happy with 300 outlets, provided those are profitable. We had begun slowing the opening of new stores from 2010.”
Franchisees allege they haven’t received any new stock from the company for the last few months.
For the quarter ended June, Adidas reported a 26 per cent decline in sales of Reebok-branded products, despite group revenue rising seven per cent.