12. The Hockey Company/Reebok Canada In a move reminiscent of what Nike did in the mid 1990s, Reebok bought its way into the hockey equipment market when it acquired The Hockey Company, a Canadian company firmly established in the hockey equipment market. The Hockey Company is a world leader of hockey wear and equipment. Reebok’s acquisition of The Hockey Company cost C$436 million. At the time of the acquisition The Hockey Company’s annual sales amounted to C$240 million, with profits of C$18.6 million. The Hockey Company/Reebok Canada is a subsidiary of Reebok International Ltd. Nike’s Entry Nike’s venture into the North American hockey market occurred in 1996 when it acquired Canstar Sports. With the acquisition Nike took ownership of the Bauer brand name, the leading brand of hockey skates and equipment in Canada and the United States. The Bauer name is synonymous with quality skates at all price points (entry-level to high-end professional models). The cost of the acquisition was C$545 million. Bauer Nike Hockey is a leading manufacturer of hockey equipment and is now a unit of Nike Inc., the world’s leading sporting goods company. From rather humble beginnings, Nike has become an overwhelming financial success with annual sales in the $12-billion range globally. Nike entered the Canadian hockey market with lots of flair. The company rather arrogantly assumed that hockey equipment customers would embrace the new Nike brand of skates and equipment. New products were launched with a futuristic-looking style—they were trend-setting and very pricey. Some skate models sold for $600 a pair. The Nike brand attracted younger customers (under 25 years) while older customers stayed with the Bauer brand, a tried and true brand in their minds. Nike’s original intention was to completely replace the Bauer brand with the Nike brand. That notion was put on hold when all kinds of Nike products were returned to dealers. Apparently, the quality of the skates and other equipment did not meet customer expectations. Nike had a public relations nightmare on its hands, and learned that it would take more than the Nike “swoosh” to sell skates. After struggling for several years, Nike put back the quality and has enjoyed success ever since. Both brands are currently popular; Bauer owns 30 percent of the Canadian hockey market, and Nike owns 30 percent. Reebok’s Entry Reebok’s acquisition of The Hockey Company occurred in June 2004. The Hockey Company makes hockey gear, including skates, protective equipment, sticks, and official National Hockey League uniforms. Its products are sold under the CCM, Canadien, Heaton, JOFA, KOHO, and Titan brand names in North America and Europe. CCM is a brand that dates back a full century in Canada. The collection of brands marketed by The Hockey Company own 30 percent of the Canadian market. There is a lot of history to call upon with this name. In rationalizing the acquisition, Paul Fireman, chairman and CEO of Reebok International, headquartered in Canton, Mass., said hockey is one of the fastest-growing sports in the world. Copyright © 2007 Pearson Education Canada 1 Reebok has annual sales of US$3.5 billion. Its other brands include Reebok, Rockport, and Greg Norman and Ralph Lauren footwear. The Sporting Goods Market The Canadian sporting goods market has had an average annual growth rate of 3.5 percent over the past four years (see Figure 1 for details). The market has a retail market value of C$6.9 billion. Equipment sales account for C$3.8 billion, or approximately 55 percent of all sporting goods sales. Hockey equipment sales fall within this category. The other sporting goods segments include apparel (20 percent of retail sales) and footwear (25 percent of retail sales). Sporting goods equipment is sold in mass merchandise stores, discount stores, and sporting goods stores. Of these retail outlets, sporting goods stores account for approximately 60 percent of sales. Prominent retailers such as Canadian Tire, Sport Chek, Wal-Mart, Sears, and Sports Experts are among the largest of Canada’s sporting goods retailers (see Figure 2 for details). The Hockey Equipment Market The worldwide equipment market is estimated to be worth US$680 million annually. The sport is growing in popularity in Europe and the United States, so there is growth potential for both Reebok and Nike. The high cost of entry into the sport is a major drawback, however. Many parents simply cannot afford the initial equipment costs and subsequent equipment costs as their children grow. The Canadian and U.S. markets are best described as an oligopoly. The combination of Nike/Bauer and The Hockey Company/Reebok virtually controls the market with their respective brand names. In the skate segment of the market there are other brands, such as Mission and Graf, but they are niche brands at best. From this point forward any gain in market share by either Nike or Reebok will come at the expense of the other company. Technology and product innovation will play a significant role in the development and growth of both companies. The Reebok Hockey Product Len Rhodes, vice-president of marketing for The Hockey Company, insists Reebok has learned from Nike and won’t make the same mistakes. “When Nike entered the market they were more flash than substance. We’re going to show a lot of respect for the game of hockey. Our products will be quality products.” On January 22, 2005, Reebok International launched Rbk Hockey, a new line of ultra–high performance hockey products developed and tested by The Hockey Company, in close collaboration with some of the world’s best hockey players. Rbk skates, sticks, and protective equipment offer unmatched customizability and feature new, proprietary technologies and materials never before used in hockey equipment. Several NHL stars have already made the switch to Rbk Hockey, including Chris Pronger of the St. Louis Blues, Mike Madano of the Dallas Stars, Tony Amonte of the Philadelphia Flyers, and Patrice Bergeron of the Boston Bruins. As a paid endorser of the equipment, here’s what Chris Pronger had to say: “Reebok has always been a brand that puts performance and quality first. It Copyright © 2007 Pearson Education Canada 2 was clear the first time I laced up my Rbk skates that this commitment to quality and attention to detail extends into hockey. All of the Reebok products are tremendous and I have no doubt my game will benefit from joining the Reebok team.” The Rbk hockey products integrate cutting-edge technology and were developed with input from NHL players to create the lightest equipment with the best fit and performance available. The products are targeted at the expensive, new-school hockey player who pushes the limits of speed, agility, and creativity on the ice and demands nothing but the best in performance, fit, and comfort. Through innovative product lines Reebok plans to make the world’s fastest game even faster. Leading the new Rbk line is the 8K FitLite helmet, which features MICRODIAL technology, a unique circumference-adjustment dial that fits the helmet to all sides of the head. The 8K FitLite skate provides unmatched foot and ankle protection with its PRO ARMOUR technology. The 7K full-composite stick features seamless construction that offers a more consistent and durable shaft. It also features super-light aerospace-grade graphite for a lighter stick and a quicker release. Marketing Communications The new product line was launched in 2005 with a multi-faceted marketing campaign entitled “The switch is on.” The campaign featured the NHL players mentioned above and included print, electronic, out-of-home, and television advertising. The campaign demonstrates how Reebok went back to the drawing board to “rethink,” “redefine,” and “redesign” the look, feel, and performance limit of hockey products while remaining true to the game and its long history and tradition. The new product lines are targeted at younger players who possess new and different attitudes about the game of hockey and how it is played. They are influenced by celebrity and are less concerned with tradition and brand loyalty. The present marketing communications campaign delivers a state-of-the-art product message with endorsements from numerous NHL stars. Just recently Reebok added Sidney Crosby to its roster of celebrity endorsers. Crosby is widely anticipated to be the best player to enter the professional ranks in 20 years. Already immensely popular in Canada, Crosby’s profile is expected to grow in the United States and around the world when his pro career begins. He will be an integral part of Reebok’s marketing strategy, both on and off the ice. Can Sidney Crosby do to Reebok Hockey what Tiger Woods did for Nike Golf? Matt O’Toole, president and CEO of The Hockey Company, said, “Rbk Hockey products represent a new generation of equipment for a new generation of players, and no player fits that profile better than Sidney Crosby.” The Challenge Innovative new products and celebrity endorsements are a step in the right direction, but how does Reebok penetrate the retail environment and secure distribution in keeping with the brand’s growth expectations? The company wants to add 15 market-share points over the next five years, meaning that any combination of existing product lines and brands plus the new Rbk Hockey line will equate to a 40-percent market share. Copyright © 2007 Pearson Education Canada 3 If Rbk Hockey is to become a leading brand it must be available wherever Nike and Bauer equipment is available. Convincing the retail trade that new, younger customers will buy the Rbk brand represents another challenge.