National Basketball Association Most Valuable Player Allen Iverson helped Reebok International Ltd win a customer: 13-year-old Chaz Gass.
"It's the Iversons I'm into," said the Trenton, New Jersey, teenager, who has gotten two pairs of Reebok US$115 Answer IV basketball shoes featuring the player's face on their soles in the past year. Gass' previous five pairs of sneakers were manufactured by Nike Inc.
Reebok is on a drive to raise its cachet among the consumer group most sought after by athletic-shoe manufacturers: teenagers.
PHOTO: BLOOMBERG
After lagging competitors among 13 to 24-year-old buyers, the No. 2 athletic-shoe maker is hoping Iverson will add youthful hipness to its image.
"It's very important we get cool with that consumer," said Bob Munroe, Reebok's senior vice president for North America.
"First and foremost we are doing that with Allen Iverson." The effort has begun to pay off. Basketball sneakers were Reebok's fastest growing product category, rising 20 percent in the first half of the year, led by increased sales of shoes marketed with Iverson's nickname, "The Answer." Reebok won 14 percent of the US$10.5 billion American athletic-shoe market last year, surpassing Germany's Adidas-Salomon AG to take second place behind Nike, according to Wells Fargo Van Kasper analyst John Shanley. Nike has about 40 percent of the market.
Reebok's shares have risen 64 percent in the past year, and they were the best performer in the Standard & Poor's 500 index last year. Second-quarter profit, reported last month, rose 33 percent to US$14.1 million on sales of US$711 million.
Thirty to 44-year-olds have been Reebok's largest consumer group, making up about 36 percent of sales, while 13 to 24-year-olds have generated about 23 percent of revenue, said Munroe. At Nike, teen boys accounted for about 35 percent of sales last fiscal year, Sanford C. Bernstein & Co analyst Faye Landes wrote in a report in May.
Boys aged 13 to 19 spent US$2.25 billion on 40.6 million pairs of athletic shoes last year, according to market research firm NPD Group. Men aged 25 to 34 made up the second-largest purchasing group, shelling out US$1.41 billion for sneakers.
"The teenager is the biggest opportunity," said Matt Powell of Princeton Retail Analysis, a consultant for athletic-shoe retailers. "If you don't have them, you are not going to be a significant player in the athletic-shoe industry." The Canton, Massachusetts-based Reebok is also pursuing younger consumers through an endorsement contract with tennis star Venus Williams and through an advertising campaign entitled "Defy Convention." The 60-second commercial, launched during the first episode of Survivor II: The Australian Outback, included shots of a sumo wrestler doing gymnastics, elephants playing soccer and a man leaping over a car.
Outfitting contracts
In December, Reebok signed a 10-year contract to outfit National Football League teams. Last week, the company signed a deal to supply on-court apparel for 11 NBA teams in the 2001-2002 season and become the exclusive supplier for all 29 teams in the 2004-2005 season. The contract will end Nike's present role of outfitting 10 teams.
"The hot market is the young urban market," Nike spokesman Eric Oberman said. "That seems to be the market that everyone is putting concerted effort in reaching." Oberman said the contract wasn't "mutually beneficial" for Nike and the NBA and that Nike maintains a separate relationship with the league. Seventy percent of NBA players wear the company's shoes either voluntarily or through endorsement contracts with the largest athletic-shoe maker, he said.
Reebok signed the 183cm, 59.7kg Iverson to an endorsement contract in 1996 when he left the Georgetown University team after his sophomore year. Several weeks later, Iverson was the first player picked in the NBA draft. He began playing for the Philadelphia 76ers, eventually signing an US$80 million, six-year contract. He was named rookie of the year after he averaged 23.5 points a game.
This past season, Iverson was named the league's most valuable player, the shortest player ever to be so honored, and led the 76ers to the NBA finals in a losing battle against the Los Angeles Lakers.
Despite his on-court success, Iverson has signed only two endorsement contracts, one with Reebok and the other with Japanese video-game maker Sega Corp, said Bob Williams, president of Burns Sports & Celebrities Inc, which matches athletes and celebrities for corporate endorsements.
Williams estimated the value of the Reebok contract at US$50 million over 10 years and the Sega contract at US$500,000 a year.
Iverson's lawyer, Thomas Shuttleworth, Reebok and Sega declined to reveal the terms.
Peter Moore, president of Sega's US unit and a former Reebok senior vice president, said the company this year will release its third basketball video game featuring the basketball star.
"We've always found a strong relationship with him and our brand: a little bit edgy, not afraid to push the envelope," Moore said.
Many companies have been reluctant to tie their image to Iverson because of past brushes with the law, Williams said. At 17, the native of Hampton, Virginia, was convicted of maiming by mob after a brawl. He was sentenced to five years in prison and served four months before then-Virginia Governor Douglas Wilder pardoned him. The Virginia Court of Appeals overturned the conviction.
In 1997 Iverson was arrested in Virginia on marijuana and gun-possession charges after police stopped a speeding car in which he was a passenger. He pleaded no contest to carrying a concealed weapon, and the marijuana charge was dropped. Iverson was sentenced to three years probation. NBA Commissioner David Stern also criticized Iverson last October for making a rap music album that contains derogatory terms about homosexuals and women.
Reebok stood with Iverson despite the controversy.
"We recognized that people will make mistakes but that they should be given the opportunity to mature and change, which Allen has done," said US marketing vice president Peter Roby.
Reebok began selling an Iverson line of basketball shoes, called "The Question," in 1996 and followed every year with successively numbered "Answer" collections. The Answer V line is due out in October. In May, Reebok also introduced Iverson-endorsed running, training and slip-on sneakers that sell for US$65 to US$85 under an "Off The Clock" slogan at Footstar Inc's Footaction stores.
Iverson products
Roby said that for several years Reebok marketed Iverson products under a "sub-brand" named I3, a combination of Iverson's initial and his jersey number. He said ads typically featured the I3 logo until about eight months ago when the company began displaying more of its own insignia in them.
"The first step was to make Allen cool and the I3 product cool," Munroe said. "Now we want to connect that with the Reebok brand." In addition to outfitting NBA teams, Reebok's new contract with the league calls for it to make and sell licensed merchandise, such as NBA and Women's National Basketball Association replica player jerseys. The company will also make and sell an exclusive line of NBA-branded basketball shoes.
The license should add at least US$40 million to US$60 million in sales next year, Landes, the Sanford C. Bernstein & Co analyst, wrote in a report. It should also help the company gain sales at athletic-specialty chains, where teens make up a large bloc of consumers, analysts said.
"That's where Reebok has targeted to boost their sales," said Wells Fargo's Shanley. "That's part of their strategy to enhance their position with teenage males." David Martin, an executive director with Omnicom Group Inc's Interbrand, a brand-consulting service, said Reebok may be able to change its image with teens within a year if it strikes the right chord. Some analysts believe there may be a long way to go.
What Iverson "hasn't done is give an umbrella effect for the Reebok brand in total," said Powell of Princeton Retail Analysis.
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