Reebok asks unhappy partners to sell items at 50% off and exit

Sportswear major Reebok India has asked its franchisees, who are unwilling to move to a ’new business model’, to liquidate products at discounts of up to 50 percent, while giving them time till November-end to exit.

In letters sent out to the franchisees, the company which had filed a complaint against two former top executives for an alleged Rs 870 crore fraud, also said it would repurchase unsold stock at the end of the deadline at not more than 10 percent of the wholesale price.

“To support a large scale stock liquidation till 30 November 2012, RIC (Reebok India Co) recommends a ‘Flat 50 percent’ sale till November 30, 2012,” the letter said. During this extended sale period, RIC is willing to support the franchisee with additional discount upto 40 percent of WSP (wholesale price), it added.

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However, this additional discount support is available only on sales made during the extended sale period and will be passed on to the franchisee through the distributor, it added.

In case of unsold stock at the end of November 30 deadline, the company said it may repurchase unsold stocks from franchisee at a ‘mutually agreed’ price.

“Mutually agreed price will be the price RIC is expected to realise if the stocks are to be sold in the market. Given the ageing of stocks and current market scenario, we feel the same is not likely to be more than 10 per cent of WSP,” the letter said.

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A spokesperson of Delhi franchisees of the company said the move would result in huge loss to many of them. “The Delhi franchisees put together have stock worth around Rs 100 crore and unfortunately sales are not good now.

So if we have to get only 10 percent for the unsold stock, then we are bound to lose a lot,” the spokesperson said. Earlier in the day the Delhi franchisees of the company had gathered in front of Reebok India headquarter at Gurgaon demanding fair treatment.

In a separate statement, Reebok India said its Franchisee Transformation Project was a key component of

restructuring for a fresh start in 2013. “As of now, some two-third of the franchisee store base is expected to move over to the new business model. For the remaining few franchisees, who are uneasy to make this transition, there will be a three-month period from 1st September to 30th November 2012 to transition out,” it said.

Under its new strategy, Reebok India had decided to do away with the Minimum Guarantee (MG) model of business and move to comprehensive performance based commercial terms.In May this year, the German parent Adidas had said it planned to shut down one-third of its 900 Reebok stores in India as a part of a restructuring strategy for the brand.

In May this year, Reebok India had filed an FIR, alleging that its former Managing Director Subhinder Singh Prem and Chief Operating Officer Vishnu Bhagat were involved in a Rs 870-crore fraud by indulging in “criminal conspiracy” and “fraudulent” practices over a period of time.

Currently, Serious Fraud Investigation Office and the Income Tax Department are probing the alleged financial irregularities in Reebok India Company.

PTI