New Delhi: To lower cost and ensure better accountability from its partners, German sportswear maker Adidas, which is undertaking an accelerated restructuring of its business activities in India, is in the process of changing its franchise business model for the Reebok brand.

Adidas, which has recently found some "commercial irregularities" at Reebok India, had last year communicated to its Reebok franchisees in India about its intention to discontinue the 'Minimum Guarantee (MG) model' in the country.

"Under the new leadership team, management is undertaking an accelerated restructuring of its business activities, including significant changes to its commercial business practice, as part of the course of actions to protect the Group's interests in India," Adidas has said.

The restructuring is a part of a long-term strategic business plan 'Route 2015', it said.

At present 900 Reebok outlets are operational in India.

According to a Delhi-based franchisee, who did not want to be identified, "Since the last six to seven months Reebok was working to abolish the MG model and work on a rent plus margin model with its franchisees in India."

The MG model enables a franchisee to retain a part of total sales done by a store to cover high investment costs of setting and operating an outlet in an expensive location.

"The management had communicated to its franchisees that they were not willing to work on the MG model and wanted to work on a model that guarantees fixed margin of about 35 percent to a franchisee," the franchisee said.

However, since the top management change that happened in March, there has been no communication from the company, he added.

A few other Reebok franchisees based in Delhi and Rajasthan confirmed that the company was planning a model change.

Earlier this week, Adidas had issued a statement from Germany that said the company had discovered commercial irregularities at Reebok India.

"The currently estimated maximum negative impact could be up to a pre-tax amount of Euro 125 million," it had said.

The restructuring could lead to additional one-time charges in the remaining quarters of 2012 in an estimated amount of up to Euro 70 million, it had said.



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