Deal opens hockey to Reebok

Reebok’s transformation is complete.

The Massachusetts-based shoe giant started as a lightly regarded upstart that specialized in women’s aerobic shoes made out of soft glove leather. Now it owns perhaps the toughest image in the brutal business of athletic footwear and apparel, thanks to its purchase last week of the Hockey Co., a leading manufacturer of hockey jerseys and equipment.

Going from jazzercise to hip checks is far more than symbolic, however. The $329million deal provides Reebok with several key advantages in its ongoing fight to close the gap between itself and market leader Nike.

The Hockey Co., based in Montreal and in business since 1899, holds exclusive rights to manufacture and market authentic jerseys for all NHL teams, as well as all of the sport’s leading minor leagues. Because Reebok holds similar pacts with the NFL and NBA and a smaller footwear contract with Major League Baseball, the company is in the unprecedented position of having prominent deals with all four major sports leagues.

Perhaps more important for Reebok, the Hockey Co.’s CCM, Jofa and Koho brands are beloved in Canada and Europe — two of Reebok’s weakest markets and strongholds of Nike and Adidas. And Reebok now makes its first entry into hard-line sporting goods after a quarter-century of focusing on shoes and apparel.

“This unquestionably strengthens our position as a global sports brand,” said John Frascotti, Reebok senior vice president for new business. “We’re buying a company with a great deal of heritage, and it’s something we can combine very effectively with our existing expertise in licensed apparel and distribution.”

Reebok traveled a long road to reach this point. After its ballyhooed beginnings in the 1980s, the company saw Nike renew itself in the 1990s on the backs of Michael Jordan, Tiger Woods and other top stars. Reebok was left behind, the result of a failed marketing strategy that focused on technical aspects of its shoes as opposed to branding, affinity and emotional attachment.

Nike controls 38 percent of the athletic footwear market, well ahead of Reebok at 13 percent and a cluster of challengers behind them, including Adidas and New Balance. The almighty swoosh is also getting plenty of industry buzz lately from an intriguing ad campaign that places athletes like Lance Armstrong, Michael Vick and Randy Johnson in alternate sports like bowling and boxing.

But Reebok has posted four straight years of earnings growth and has seen its stock soar more than 500 percent since early 2000 and 44 percent in less than a year. And the company is expanding its traditional sports endorsements through contracts with rap stars like Jay-Z and 50 Cent.

“This [hockey deal] is a great situation for Reebok. It definitely is a further extension of their dominance in pro sports licensing,” said John Shanley, an analyst with Wells Fargo Securities. “All you have to do is look around and see how hockey jerseys have become such a fashion point to know why they want to be involved. It’s amazing what people buy and the price points at which they buy. Perhaps one of the best things about this is how many jerseys get sold at arenas instead of discount stores or sporting good shops. It happens more than anyone thinks, and those are very lucrative accounts they’re getting.”

There’s still some question about the wisdom of aligning with hockey at precisely the point when the NHL is preparing for what could be the longest and nastiest work stoppage in the history of pro sports.

The NHL’s collective bargaining agreement expires Sept.15, and owners and players remain far apart on a new economic structure. Owners ideally want a salary cap or at least some formal mechanism to tie player salaries to industry revenue. The union wants a continuation of the current marketplace-based system.

Frascotti insists Reebok is not concerned. The minor leagues will continue even if NHL arenas are dark. Olympic ice hockey competition is wildly popular. And recreational play of ice hockey, a key business for the Hockey Co. through its equipment division, is growing at strong rates around North America and Europe.

“We take a long-term view on the sport,” he said. “The NHL certainly needs to solve its problems, but we’re very confident on the long-term, overall prospects of hockey.”