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Cheaper sneakers on the way?
Adidas-Reebok merger could trim costs for companies and maybe even some dollars for consumers.
August 4, 2005: 7:53 AM EDT
By Parija Bhatnagar, CNN/Money staff writer

NEW YORK (CNN/Money) - The "G xt II," the new men's version of Reebok's best-selling "G-Unit" shoes inspired by rapper 50 Cent, costs $110.50.

These prices may have parents shaking in their Keds this back-to-school season, but lower prices might be on the way.

Analysts say that the merger between Adidas and Reebok (Research), the No. 2 and No. 3 players in the sporting goods market behind leader Nike (Research), could possibly make such highly coveted styles and even the regular branded sneakers a little more affordable in the months ahead.

German sports goods manufacturer Adidas-Salomon announced Wednesday that it is buying U.S. rival Reebok in a $3.8 billion aimed at expanding its reach in Nike's home market.

"The merger would take out redundancies in operations and overhead costs in a combined company," said Mitchell Kaiser, analyst with Piper Jaffray.

But the deal also bodes well for the major sporting goods retailers such as the The Sports Authority (Research) and Dick's Sporting Goods (Research).

As industry watchers point out, sporting goods sellers typically want fewer vendors to guarantee delivery of goods and to reduce retailers' own costs.

Said Tom Doyle, vice president of information research the National Sporting Goods Association (NSA), "In theory, a merger between two big vendors means retailers would be dealing eventually with one accounting unit and one distribution unit rather than a different set of units for both companies."

That's where the cost-savings occur for merchants.

It's in this win-win scenario for both the supplier and the seller that Kaiser and Doyle thinks consumers could stand to reap some cost benefits as well, especially as Nike, Adidas and Reebok strive to boost sales in a stagnant U.S. market for athletic footwear.

According to the NSA, total athletic footwear sales reached $14.75 billion last year, slightly up from $14.45 billion the previous year.

"Could retailers trim prices down the road? Possibly. Obviously manufacturers and retailers would rather increase their prices for profits but that would be counterintuitive to current industry sales trends," Doyle said.

At the same time, the trickle-down effects of any cost-savings resulting from the Adidas-Reebok merger on vendors, retailers and eventually consumers could come very slowly.

"So far, Adidas has said that it will maintain all of its current offices and there would not be any wholesales bloodletting in the workforce," said Doyle. "We'll have to wait and see how the synergies are achieved."

Others, however, are more skeptical of any price benefits to consumers down the road, saying that with one less competitor, the combined Adidas-Reebok will also get more of a pricing leverage with retailers.

"I think the Adidas-Reebok deal is more product and marketing driven than it is price driven," said Marshal Cohen, chief retail industry analyst for The NPD Group. With one less competitor, the combined Adidas-Reebok also get more of a pricing leverage with retailers.

Nike was too focused on technology and less on fashion. So it acquired Converse brand to fill in the gap, Cohen explained. "Like Nike, Adidas also needed a better fashion fit and Reebok provides that," Cohen said.

"Cost-efficiencies will be achieved but it will benefit the manufacturers more directly rather than the consumer," he added.

Reebok and Adidas could not immediately be reached for comment.  Top of page


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