Adidas, a sportswear giant specializing in the creation and distribution of apparel plus accessories (also known for sponsoring soccer teams with nifty team soccer uniforms) currently holds the number two spot in football apparel industry.
The company’s merchandise is topnotch, and the firm has designed some of the best team soccer uniforms and cleats for soccer teams for players all over the globe. The general public throughout the world has seems to enjoy products sold by Adidas, as the massive income streams generated around the world clearly reflects just how successful the corporation has become.
Reebok, which was purchased by Adidas for approximately $3.8 billion back in 2005, has been performing exceptionally well in India. In this market, Reebok even surpassed many of its rivals in terms of profitability.
Despite this fact, things took a turn for the worse, as the main Adidas HQ in Germany has spotted several “commercial irregularities” within India, which wiped out 125 million euros in global profits. It is also predicted to lead to further charges amounting to 70 million euros as well.
A total of 195 million euros may not be that big of a deal to the colossal sportswear manufacturer, but it’s the nature of the losses that remains to be the main concern.
How did all of this happen? Analysts from Adidas believe there are several contributing factors to the flop, but all of which points back to Subhinder Singh Prem, the former managing director of Adidas India.
Although Reebok was bought back in 2005, the actual melding process of the two companies only commenced last 2011. Prem has long been gunning to become the head of the combined entity, and, with the help of a few high-risk marketing strategies, successfully overtook the managing director Andreas Gellner.
The method utilized by Prem to be appointed as MD involved massive expansion. In order to drastically increase the number of franchises across India, the Minimum Guarantee (MG) model was used to attract more franchisees. Now there may be different versions of the MG model, but all versions attract franchisees by offering them a “minimum guarantee” which is to be paid to make up for any losses and deficits sustained.
The MG model worked, and massively increased the number of franchises from 100 (back in 2003) all the way to over 900. To further impress the German bosses, Prem began supplying the franchisees with stock beyond their selling capacity, assuring them that the company would handle left over stocks they made from selling soccer teams’ shoes, team soccer uniforms, accessories, etc.
This of course then backfired on Prem, as many franchisees had plenty of leftover stock that customers didn’t want to buy. Many franchise owners then decided to stop payments until the old stocks were taken back by the company.