Athletic Footwear - Industry Analysis | Sneakers | Adidas

ATHLETIC FOOTWEAR

INDUSTRY ANALYSIS

Economics of Management and Strategy Tufts University Medford, Massachusetts

May 1, 2006

TABLE OF CONTENTS
TABLE OF CONTENTS...............................................................................................................................2 1.0 INTRODUCTION TO ATHLETIC FOOTWEAR INDUSTRY.........................................................4 2.0 INTERNAL RIVALRY...........................................................................................................................6 2.1 MARKET DESCRIPTION................................................................................................................................6 2.2 PRODUCT PROLIFERATION............................................................................................................................8 2.2.1 Mergers and Acquisitions..............................................................................................................8 Adidas-Salomon AG and Reebok............................................................................................................8 2.2.2 Stride Rite Corporation and Saucony..........................................................................................10 2.2.3 Nike and Converse.......................................................................................................................10 2.3 INTERNAL PRODUCT PROLIFERATION...........................................................................................................10 2.4 BRAND IMAGE, PRODUCT IDENTITY, AND CUSTOMER LOYALTY.......................................................................11 2.4.1 Advertising...................................................................................................................................11 Entertainment and Celebrity Marketing Campaigns............................................................................12 World Cup 2006....................................................................................................................................13 Creative Niche Advertising...................................................................................................................14 2.4.2 Distribution Decisions.................................................................................................................14 Retail.....................................................................................................................................................14 Personalization.....................................................................................................................................15 2.4.3 Grassroots Marketing..................................................................................................................15 2.5 NEW PRODUCT DEVELOPMENT...................................................................................................................16 2.5.1 Keeping up with Competition......................................................................................................16 High End Running Shoe Examples.......................................................................................................16 2.5.2 New Products and Brand Image..................................................................................................16 3.0 ENTRY BARRIERS..............................................................................................................................18 3.1 MARKET OVERVIEW.................................................................................................................................18 3.2 IMAGE....................................................................................................................................................18 3.3 LICENSING AND RETAIL AGREEMENTS.........................................................................................................18 3.4 ECONOMIES OF SCALE...............................................................................................................................19 3.4.1 Marketing.....................................................................................................................................19 3.4.2 Research and Development.........................................................................................................20 3.5 ECONOMIES OF SCOPE...............................................................................................................................21 3.5.1 Umbrella Branding......................................................................................................................21 3.5.2 Consolidation..............................................................................................................................22 3.6 STRATEGIES FOR ENTRY............................................................................................................................23 4.0 SUBSTITUTES AND COMPLEMENTS............................................................................................24 4.1 INTRODUCTION.........................................................................................................................................24 4.2 EXTERNAL SUBSTITUTES...........................................................................................................................24 4.2.1 Footwear Sales Cycle..................................................................................................................24 4.2.2 Substitutability of Other Footwear..............................................................................................25 4.3 COMPLEMENTS.........................................................................................................................................25

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5.0 SUPPLIER POWER..............................................................................................................................28 5.1 MATERIALS FOR PRODUCTION ...................................................................................................................28 5.2 STANDARDIZATION WITHIN PRODUCTION......................................................................................................28 5.3 EASE OF SUPPLIER TRANSFER....................................................................................................................29 6.0 BUYER POWER....................................................................................................................................30 6.1 BUYER CONCENTRATION...........................................................................................................................30 6.2 BUYER LEVERAGE IN PRODUCT NEGOTIATION..............................................................................................30 6.3 EFFECTS OF RETAIL AND VENDOR CONSOLIDATION ......................................................................................31 6.4 CURRENT AND EMERGING RETAIL CHANNELS..............................................................................................33 6.4.1 Department Stores.......................................................................................................................33 6.4.2 Factory Outlets and Vendor Stores.............................................................................................35 6.4.3 Mall Specialty Stores...................................................................................................................36 6.4.4 Strip Specialty Stores...................................................................................................................37 6.4.5 Online Stores...............................................................................................................................38 7.0 CONCLUSION.......................................................................................................................................39 8.0 WORKS CITED.....................................................................................................................................40 9.0 COMPANY WEBSITES CITED..........................................................................................................44

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1.0 INTRODUCTION TO ATHLETIC FOOTWEAR INDUSTRY
The U.S. market for athletic footwear includes all producers of non-cleated, rubber and plastic footwear designed in an athletic style or for athletic use. The industry is a collection of smaller, segmented, yet often overlapping markets, defined by both the price and the purpose of the shoes. For instance, there are mini-markets for shoes designed for each of many sports and other purposes: basketball, running, walking, tennis, and casual wear. The greatest overlap between these categories is between performance shoes and casual wear. Many people wear running shoes or basketball shoes on a daily basis in a non-athletic setting. One can walk or play basketball in running shoes. Therefore, there is some degree of overlap between most segments. The industry is dominated by a few large firms, while the majority of other players have less than 5% market share. The graph below shows the market share breakdown by sales volume for 2004, before the merger of the #2 and #3 firms, Adidas and Reebok.
Athletic Footwear Industry Market Share by Sales Volume
3% 5% 6% 42% 12% 2% 1% 1% Nike Adidas Reebok Puma New Balance Skechers K-Sw iss Vans Asics 27% Saucony

Source: Hoover.com

These firms fight for market share through non-price competition, on strategies such as strengthening brand image and increasing product proliferation. The success of each firm is greatly dependent upon its marketing campaigns. The brand image of the

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Most firms design the sneakers and outsource their manufacturing to foreign producers. The United States is the world’s largest importer of athletic footwear. The following provides an analysis of Porter’s Five Forces relating to the athletic footwear industry. Entry to the industry is difficult as brand loyalties are high. internal rivalry. Imported Footwear (Millions of Pairs per Annum) Imports Domestic Production 5 . The graph at right shows the trend in US footwear production and imports.major firms is created by extensive marketing campaigns and celebrity endorsements. substitutes and complements. entry barriers. and buyer power. The sneakers are then distributed to major retailers and are sold to the consumer through a variety of channels. Consumers associate themselves with a particular brand and tend to stick with the brand with which they are comfortable. supplier power. which is primarily manufactured in Asian nations. 2500 2000 1500 1000 500 0 19 68 19 90 19 99 20 03 19 80 19 95 19 97 20 01 Domestic Production vs.

1 Market Description Price competition in this industry is relatively non-existent in its traditional form. The following chart shows the companies that participate in the various segments of the market as defined by the left column. Brooks and Asics specialize in running. Smaller firms usually specialize in particular types of shoes.0 INTERNAL RIVALRY 2. This results in a collection of specialized markets with far fewer firms competing than in the overall market for athletic footwear. For example. and Vans in skating and lifestyle shoes. Reebok. and New Balance. The means by which firms compete with respect to price is by introducing products at several different price levels in order to reach all areas of the market.2. Adidas. Type of Shoe\Company Running Walking Basketball Children’s Tennis Lifestyle Skating Cross-Training Soccer X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X K-Swiss Converse Puma Asics Vans Brooks AND1 Stride Rite Corp Spira Mizuno Saucony X X X X X X X X X X X X X X Nike Adidas Reebok New Balance . There are only a few firms who compete in every sector of the market with regards to intended purpose (as well as price): namely Nike. K-Swiss in tennis.

Source: Company websites of producers listed. such as those designed for basketball have been experiencing no growth at all.S. In terms of growth and sales for individual categories. and firms attempt to produce shoes that compete in several different price brackets. running footwear accounts for 25% of total athletic shoe sales and has been experiencing the strongest growth. consumers consider both price and purpose. With athletic footwear.S. Other sneakers. the products are somewhat differentiated by design but the players also try and emphasize the differences in their advertising. while skating shoe sales declined nearly 10%. Its sales have increased by nearly 25% in certain countries. Branded Athletic Footwear Sales (Millions of $) Revenues Nike Reebok New Balance 1995 2529 1405 151 1996 3261 1193 201 1997 3797 1229 265 1998 3252 1062 346 1999 3325 909 550 2000 3327 926 750 2001 3128 931 794 2002 3052 932 910 2003 3005 1036 910 2004 3225 1087 1022 2005E 3358 1141 1053 . The U. there is an emphasis on non-price competition. As a result. on footwear sales in the last decade. In the sneaker industry. As seen in the above table. this is the category with the most participants. Women’s footwear sales were up 1113% overall. sneaker industry is considered a mature industry although the numbers in the table below. U. suggest that there is still some amount of growth in the overall market.

The first tactic discussed in this section is the increasing consolidation of the industry as a result of several recent deals. it allows Adidas to further expand into the “lifestyle” market. including its signature Michael Jordan basketball shoes. urban buyers that Adidas has failed to attract (Karnitschnig and Kang 2005). By acquiring the Reebok brand and maintaining it separately from the flagship Adidas brand. Reebok on the other hand. First. This section will discuss several recent acquisitions demonstrating this tactic and analyze the impact of these mergers on the overall market. To complement the mergers. acquisitions. Nike. This merger of two of the largest companies in the industry creates a combined $12 billion company to compete with the industry leader. This is the same tactic used by Nike in its 2003 acquisition of Converse which will .S. Adidas has long been considered a very strong performance brand but has failed to develop the brand image that has allowed Nike’s products.1 Mergers and Acquisitions Adidas-Salomon AG and Reebok The deal that has been making the largest headlines recently is that between European giant Adidas-Salomon AG and strong U. 2. has had success recently in increasing its appeal to the fashion-conscious.2 Product Proliferation Firms seek to increase their market share by widening their range of products through mergers. which is valued at $14 billion (Carr 2005). to become synonymous with style in the American marketplace (Karnitschnig and Kang 2005).2.Adidas K-Swiss Converse Puma Other Total 355 89 208 32 2134 6574 390 76 194 23 2170 7215 465 92 285 23 2227 7983 910 145 167 32 1826 7396 845 264 132 43 1857 7486 840 197 144 58 1961 7804 700 205 133 82 2120 7672 810 245 181 121 2290 7994 750 369 245 172 2552 8253 790 395 305 209 2766 8890 822 403 320 230 2828 9201 Source: (Ohmes 2006) 2. This deal fulfills two strategic goals for Adidas. and internal production decisions. firms are increasing their product range in an attempt to capture more segments of the market. competitor Reebok. Adidas will be able to take advantage of both segments of the market without sacrificing the image of either brand.

9 0.3 1.5 8.6 0.4 1.S. please see the table below.1 3..8 1. Ryka. Sales* 3225 1087 1020 795 395 305 275 209 205 197 136 124 120 104 100 95 59 59 54 7 319 8890 U.3 2.2 1.7 4. bringing them much closer to Nike’s 36% share.2 9. Branded Athletic Footwear Market Share 2004 *Sales in millions of wholesale $ Company Nike Reebok New Balance Adidas K-Swiss Converse Vans Puma American Sporting Goods (Avia. Nike has historically been dominant in terms of its relationships with these retailers (Karnitschnig and Kang 2005).2 1. The second objective that Adidas seeks to achieve through the merger is to further solidify its position in the U. Turntec) Asics Keds/Pro-Keds Foot-Joy Fila Saucony Sole Technology And 1 Mizuno Hi-Tec Brooks Lotto Other Total U. market. Additionally.9 1.7 0.9 1.5 1 0.3 100 .4 0.2 11.4 3.1 2. the acquisition has brought the Adidas/Reebok U. where Nike continues to be the dominant player.6 15.5 4.4 3.S. For further information on the relative market shares of the individual competitors.6 100 Global Sales 6780 1963 1357 3150 480 905 395 1396 303 920 203 180 305 141 140 175 287 191 126 141 873 20411 Global Market Share (%) 33.5 1.1 0.7 0.3 12.4 2. Adidas will benefit from Reebok’s strong foothold in the U.4 4.7 0.be discussed later in this section.9 6. as it will gain distribution options from greater access to and leverage with primary retail chains like Foot Locker and Finish Line. Nevados.S.1 1.5 0.6 6.S.S. to Global sales and market shares.S. comparing U.7 0.4 1.4 2. market share to 21%.9 4.6 0. Market Share 36.

Grasshopper. This attempt proved unsuccessful for Asics. One example is Asics’ decision in the early 1990s to branch out from its focus on performance running footwear to introduce a basketball shoe (Bohnslay 2005). 2. the acquisition will allow Saucony to break into the children’s market (Ryan 2005). The first is by simply producing a new product under their primary brand name to fulfill the requirements for a product in an area outside their current specialty.3 Internal Product Proliferation In addition to acquiring new brands and area expertise through mergers and acquisitions. Maintaining these customers required that Nike not taint the Converse products with their own brand name. 2006) 2. where it has not previously been represented. a firm may decide to direct a particular brand that it controls or creates toward a new segment of the market. One reason was to add a lifestyle shoe to their product line that would appeal to a group that did not already buy Nike products Converse was a good acquisition because Nike wanted to capture the typical Converse consumer. firms also enter new sectors of the market through internal production decisions. which already includes brands such as Keds. Sperry Top-Sider. The addition of the Saucony brand will allow Stride Rite to break into the athletic performance market. which speaks to the difficulty of breaking into a market segment in this way. and the Tommy Hilfiger line. therefore.3 Nike and Converse In 2003. For example.2. Additionally.2 Stride Rite Corporation and Saucony Another recent acquisition is of Saucony by the Stride Rite Corporation. Nike has historically refused to market its Nike brand sneakers . Nike has allowed Converse to continue to operate as a separate entity (Marseille and Roos 2005). who looks for retro sneakers like Converse’s long-established Chuck Taylor line.Source: (Drbul et al. There are two ways in which they do this. 2. Nike purchased Converse.2. In other situations. Pro-Keds.

lifestyle and fashion” (Europe Intelligence Wire). Adidas and Reebok. technically orientated brand with strong European roots” (Kang 2006). In order to enter the market for low to medium cost footwear. product identity.2 2003 911. Nike appears to have been the most successful in this endeavor. Currently. Product Identity. and customer loyalty through marketing. Smaller companies like Vans and DC shoes have succeeded in creating a strong brand image in the eyes of young skateboarders and extreme sports followers. distribution choices. followed closely by the newly joined Adidas-Reebok entity with its two flagship brands.through low cost retailers. To provide an illustration of the high level of these expenditures. towards this area. Companies expend considerable effort and resources attempting to convince their customers that sneakers made by other companies are imperfect substitutes.7 . 2. Puma in the past was seen as “the brand that mixes the influence of sport. Nike has geared its Starter brand. Nike’s shoes are considered to be quality and stylish. and Customer loyalty Another significant component of industry members’ strategies to increase market share is the strengthening of brand image.7 2002 775.4 Brand Image. and so-called grassroots marketing. The methods by which they accomplish this include various forms of advertising.9 2004 1090.1 Advertising The top athletic shoe companies compete in advertising.4. and the Adidas brand boasts superior performance and is “perceived as a professional. aimed at building the image of the brand and the products they are trying to market. which it acquired in 2004. Nike entered into a deal with Wal-Mart to sell Starter brand shoes priced at under $40 through the discount retailer (Kang 2005). In 2005. Adidas and Reebok Marketing and Advertising Expenditures 2001-2004 (in millions of $) Marketing and Advertising Spending Adidas 2001 656. the following chart lists the advertising expenditures both independently and jointly of the recently merged firms. 2. Reebok’s are comfortable and casual.

Nike spent $44 million on endorsing an Indian cricket team.4 3127.3 8047.Reebok Adidas and Reebok Adidas Reebok Adidas and Reebok 329.0 13. particularly Nike. For example.5% 12. Reebok has a $70 million contract with Chinese NBA player Yao Ming (Barbaro 2006). The success of the Jordan and other signature lines has been and continues to be instrumental in Nike’s image as a stylish performance brand.8 9264. 2006) 5470.1% 383. Despite Jordan’s retirement several years ago.9% Marketing and Advertising expenditures as % of Net Sales Net Sales (in millions of $) Adidas Reebok Adidas and Reebok Source: (Drbul et al. The most successful examples are the signature lines and endorsement contracts that firms. A new shoe launched in February of this year at a retail price of $175 and several other models are sold at around $125 (Kang 2006).4 1295.3 11832.6% 11. and made the team the “world’s most valued brand in team sponsorship” (Barbaro 2006).2 7083. the Air Max 360. retailing at $160.3 10568.0% 12. In late 2005.2 3785.3 1526.2 985. other firms have also utilized this technique. the Air Jordan line continues to be a huge source of profit and brand support for Nike. .3% 435.3 12.8 8463.5 Entertainment and Celebrity Marketing Campaigns Celebrity marketing campaigns are a key way in which athletic shoe makers seek to differentiate their brands and associate their shoes with professional athletes and other celebrities.6% 11. whose image has thus far failed to break out of the realm of basic technical performance (Karnitschnig and Kang 2005).1 1119.0% 11. Reebok. the new Air Jordan shoe out-prices Nike’s most technologically advanced running shoe.9 12% 11. Adidas. At $175.6% 344.7 6136.S.9% 11. This “star” marketing extends beyond the U. The most famous of these company-player relationships is between Nike and Michael Jordan.9 2992. particularly Adidas.0 3485. While Nike has had the most success with basketball endorsements. and into international borders.0% 12.3 12. This image has allowed Nike to differentiate its products from those of its competitors. and AND1 have with professional basketball players.

Jay-Z. Although soccer cleats are not the same as sneakers. the company is hoping to enhance their overall brand image and to have their name transcend individual sports In response to Adidas’ World Cup ad campaign and its exclusion from TV ads. While it has not started developing signature soccer shoes. Another entertainment-based marketing campaign is the agreement between Adidas and Microsoft that involves Xbox kiosks in Adidas stores and Adidas contributing content to Xbox consoles.The use of celebrity and other entertainment marketing tactics extends beyond the basketball arena into many different types of shoes and entertainment genres.” The site will also feature French soccer player Eric Cantona and Brazilian soccer star Ronaldinho (Wentz 2006). Adidas CEO Herbert Heiner was quoted in Business Week as saying. Adidas’ ad campaign will feature soccer star David Beckham. 2006). World Cup 2006 In light of the upcoming 2006 World Cup. Adidas is an official sponsor of the tournament and its ads will be the only ones seen during the television coverage.com. Reebok has agreements with rap artists 50-Cent. as it paid to have its American competitors excluded. Adidas’ significant involvement is encouraged by the positive results from its involvement in 2002. and Nelly (Drbul et al. Nike has teamed up with Google to develop a friend networking site devoted to everything soccer. . “It’s vital for Adidas ‘to dominate the World Cup’” (Holmes 2006).” which in Brazilian Portuguese means “play beautifully. DC Shoes recently released a line of shoes designed by the popular musical group Linkin’ Park. and the corresponding ad campaign take their name from the phrase “joga bonito. the most recognizable and stylish face in the sport. The website. when it sponsored the Japanese national soccer team and saw sales go up 30% (Barbaro 2006). Adidas is spending approximately $200 million over the next few months to market its soccer products. in hopes that the alliance will help to drive sales of both companies’ products (DME). entitled Joga.

Not all major ad campaigns feature celebrity athlete endorsements.com). Analysts suggest that Nike will work with Sears again using one of its other brands. New Balance has a long standing policy against such endorsements. . Though Nike does not sell products under the Nike brand to discount retailers. During the 2002 World Cup in Japan. Instead. and Madrid to showcase its product. running. it relies on campaigns featuring every day people. In October 2005. Nike refuses to sell its flagship brand to low cost retailers. Puma used sushi bars in fifteen cities around the world including New York. most likely Starter (Kang 2005). Reebok.” The company also began running a commercial that featured former English soccer player Vinnie Jones and other Puma sponsored athletes in a sushi restaurant (Tkacik 2002). This strategy complements their original product positioning as a company for serious runners that also makes shoes in all widths. Hong Kong.4. New Balance. Nike stopped selling to Sears in response to its merger with Kmart. and lifestyle shoes.2 Distribution Decisions Retail Firms also make decisions regarding the distribution of their shoes in line with the brand image they wish to maintain. One of their most recent campaigns ran under the slogan “There are two motivations in sports. Puma branding director Antonio Bertone noted that Puma’s target market of fashion-conscious twenty-somethings are “eating sushi anyway. Which is yours? For love or money?” which emphasized their focus on producing shoes for everyone who enjoys sports.Creative Niche Advertising Smaller companies have used marketing as a means of creating their own unique niche in the market. and Sketchers (Hoovers. Puma. not just star athletes (White 2005). a company that makes soccer. it does target some of its other brands toward that market. Sears will continue to carry products from Adidas. 2. has emphasized its position as a trendy brand. while Nike and Adidas spent millions of dollars on conventional advertising. for athletes of different abilities and shoes sizes.

and in some cases. The new +F50 Tunit line allows the customer to customize the weight of the shoe chassis. The company’s CEO. materials.4. Soccer is considered “an important gateway to brand loyalty with children worldwide” (Holmes 2006). Nike pioneered this venue with the introduction of the NikeID service in the spring of 2005 which allows customers to personalize their shoes. and after we hope that they become loyal customers” (Pereira 2004). The firms believe the products will market themselves on the basis of their quality and suitability to the wearer. . Jim Davis. Brooks Sports. Adidas has also begun using this method in its soccer cleats. This dynamic is also part of Nike’s justification for its World Cup ad campaign and determination to take the soccer market from Adidas. New Balance made the most use of this technique. Nike ID allows buyers to choose their own colors. Personalization One unique distribution tactic that has entered the market place in the last few years is allowing customers to design their own shoes.Other companies such as Brooks and Spira choose to market their products almost exclusively to specialty running stores. also plans to use this type of distribution decision to market its shoes. add a wide variety of logos and images to the shoes (NikeID. notes that the objective of the acquisition is “to work with coaches to get kids in the right shoes.com). a young company that makes running shoes with springs in the bottom. Spira Footwear. has suggested that the company needs to establish itself “in the small stores where people explain the technology” (Gregory 2005). They used this strategy in their 2004 acquisition of Warrior Lacrosse. which is a subsidiary of the Russell Corporation. focuses on “high-performance running shoes” and considers itself “the brand of choice among discerning runners of all abilities” (www.brooksrunning.3 Grassroots Marketing Companies also seek to attract new customers and cultivate customer loyalty by introducing young athletes to products that fit their particular needs. The company’s founding chairman. Despite that their shoes are revolutionary. Of the major shoe competitors. they lack aesthetic appeal. 2.com). Andy Krafsur. the weight of the cleats. and the overall fit of the shoe (Holmes 2006).

priced at $165 as the highest priced shoe Asics has ever brought to market. 2. The Adidas 1. features a foamless mid-sole that provides increased cushioning durability. Nike plans to introduce basketball and cross-training shoes based on the same technology (Citigroup 2006). though producers of casual foot wear also seek to develop new styles to keep up with trends in consumers’ preferences. includes a microprocessor that adjusts the shoe’s cushioning to the needs of the wearer. The Nike Free. includes technology that allows cushioning to adjust to the wearer’s needs as well as more durable cushioning features. The Asics Gel-Kinsei.2.2 New Products and Brand Image New products can also enhance the image of a brand. 2.5. High End Running Shoe Examples In the current running market. a target group Nike is partly losing to Brooks and Asics. is an important product because it indicates a . it is important to sell products based on the latest technology in order to have a competitive product in the top–of-the-line market. there are three new high end models.5 New Product Development Sneaker companies constantly seek to develop new technologies and products to keep up with other competitors and to maintain their brand image. Furthermore. priced at $160. the Air Max 360 is expected to drive growth due to its potential to evolve into a technology that will be attractive to specialty runners. The Nike Air Max 360. This type of development is particularly important in performance sneakers.5. reduced weight.1 Keeping up with Competition For many performance brands. These new technologies can then be introduced into lower priced footwear and other types of sneakers to help companies maintain their presence in different market segments or break into new ones. which lets runners feel as if they are running barefoot. and improved stability. at $250. According to a Citigroup report.

shift in the way Nike views the interaction between their products and their consumers (Citigroup 2006). . Another example is the Adidas 1 discussed above. The Free is meant to be used as a training tool to strengthen runners’ feet (Davis 2005). This hi-tech shoe will likely reinforce Adidas image as a firm at the forefront of athletic technology.

Customers notice whether their shoes have a swoosh or a lack thereof. While the biggest firms routinely use established designers.1 Market Overview Relatively high barriers to entry exist in the athletic footwear industry due to obstacles like strong brand loyalty and economies of scale and scope. they do face the enormous difficulty of establishing popularity in an industry with extremely imageconscious consumers and one of the world’s strongest brands. New Balance has proven that by creating a suitable niche. 3. high priced designers and endorsements are not a requirement for success in the industry.2 Image Style-conscious consumers.0 ENTRY BARRIERS 3. when Puma enlisted designer Jil Sander to create a limitededition women's running shoe to ignite its lackluster image and sales (Orecklin 2002). 3. thus entrants will have difficulty winning them over without these symbols and the cool-factor that goes with them. The “fashionization of shoes” took off in 1997.3 Licensing and Retail Agreements Access to endorsement and distribution opportunities constitutes a second barrier for new firms. the importance of fashion over function is rising.3. Though new entrants will have little problem gaining raw materials or labor. Even in the athletic shoe sector. Existing shoe companies also have a financial advantage due to consumers’ willingness to pay high prices for name brand shoes. The bigger sneaker companies have already established agreements with . guided in part by effective marketing. Adidas’ sneakers created by designer Japanese Yohji Yamamoto retailed for up to $590 (Orecklin 2002). especially those offered in limited editions. want shoes that will enhance their image and not just cover their toes. With its “endorsed by no one” policy. While the image barrier is high. it is not insurmountable. entrants with limited capital will be hard pressed to convince such revered professionals to sign contracts. For instance.

NFL and MLB) (Drbul et al 2006).4 Economies of Scale The athletic shoe industry faces significant economics of scale and scope. soccer player Ronaldinho. Larger firms can afford higher advertising expenditures than any new firm could. 3. The barrier of overcoming the existing relationships with athletes and retailers will narrow entry. and the Brazil soccer team. “Just do it. Like customers. won a total of 4 (out of 18 given) Gold Clio Awards in the Television/Cinema ad category (http://www.athletes. The top sneaker manufacturers sponsor the most successful athletes and organizations in order to impress and win customers. and research will be spread out. and they are likely to place more ads in the first place. marketing. NHL. First.clioawards. the sneaker industry faces economies of scale because the total cost of manufacturing shoes goes down as output increases and the fixed costs of machinery. Footwear stores are more likely to save shelf space for an incumbent than a new company because the established brands have a history of good sales. retailers are also affected by the prominence of a particular brand.” and its simple slogan. Furthermore.1 Marketing The athletic shoe industry faces economics of scale in advertising. the two largest firms by market share. and retailers. It would be difficult for a start-up firm to compete with Nike given that the brand. in 2005.” are known and valued worldwide. I will discuss the last two special cases of economies of scale in further detail below. teams. (Genereux 2006). giving cost advantages to incumbency.4. new companies must work harder to have their goods seen. 3. which I will explore in the next two sections.com/home/). Adidas and Reebok together hold a “solid portfolio” of agreements with athletes from Yao Ming and David Beckham. incumbents have lower advertising costs per potential customer due to . to teams like Real Madrid and the four major sporting leagues in the US (NBA. For instance. As a result. its trademark “swoosh. Nike and Adidas. Newcomers will not only have trouble finding teams and players without ties but also will lack the capital for these contracts. Nike has deals with golfer Tiger Woods. These high marketing expenditures can result in higher quality advertisements.

These years of research usually pay off. now merged. The sneaker industry has economies of scale in Research and Development (R&D) because incumbent firms that established research centers years ago have experience and know-how that sets them ahead of potential entrants. 3.000 square feet and boasts owning “virtually every variety of muscle sensor.larger advertising reach. according to an industry report (Drbul et al.0 and Abzorb SBS. ads for Adidas are more effective because viewers inspired to buy Adidas shoes will have an easier time following through. Adidas’ adidas_1 shoe and its continuously adjusting cushioning level was also released after three years of research (adidas.4. will invest roughly €130 million in R&D.html). Nike’s Sport Research Lab in Oregon is near 13. Coincidentally. Adidas launched the Adidas 1 last year at $250. because shoes with hightech elements can be sold at higher prices. Years of research can go into developing a single new cushioning system: New Balance’s website features their technology for cushioning and shock absorption called N-ergy 2.com/techcenter/tech/featured_tech. pressure platform. As discussed in the previous section.com). The upfront cost of setting up a comparable facility to test and examine products is certainly a barrier to entry. For instance. footwear companies patent their new shoe features so that competitors can not imitate them. because Adidas sneakers are sold in more stores than Saucony ones.2 Research and Development In a day and age when shoe manufacturers are putting microprocessors in our sneakers. the value of technological expertise in this industry is growing. These patents make entry more difficult because potential entrants must design their shoes without infringing . 2006). and Nike launched the Air 360 for $160 (Genereux 2006). Companies like Nike can afford to put more money into R&D due to larger sales volume. foot scanner and thermal imaging device” to test and design potential new products (Nikebiz. leading to even more of a learning effect.com). Reebok and Adidas. Customers who see a Saucony ad may give up before they find a store with the shoes they want or may even settle for a different brand’s (Besanko 2003). breath analyzer. After spending so much on technological research. which was developed over three years (newbalance.

S. they are able to leverage their reputation from one sector to another.on the protected designs. Nike can introduce Market Share (Current $) Nike 20.65 Columbia 10.50 Source: Shanley and Svezia 2005 . According to a search of the US Patent and Trademark Office website. asserting that Adidas used elements of Nike’s SHOX cushioning technology in developing the Adidas Kevin Garnett and A3 shoes (Hoover. 3.54 North Face 2. as they have over a fifth of the apparel market. In the figure below.72 Champion 2. By doing so.” Most of the top athletic footwear competitors have already expanded the variety of goods and services they produce by venturing into athletic apparel and equipment. you will see the footwear companies that also make athletic apparel (or vice versa) and their market shares as of August 2005: Brand Nike is not only the market share leader with athletic footwear but also with sports apparel. The U.com).79 Puma 0.5. The market leader Nike has a significant lead in numbers of patents. and so athletic shoe makers have incentive to expand their product range. Nike recently sued Adidas for patent infringement. where as the separately listed Reebok has 363 and Adidas has 149.1 Umbrella Branding One special case of economies of scope is “umbrella branding. to more related products such as athletic apparel and bags (Nikebiz.com). 3.40 New Balance 0. while New Balance has just 20 (US Patent and Trademark Office). allowing incumbent firms to enjoy cost savings by producing a wider range of related goods.27 Adidas 7. Nike has registered 1830 patents. athletic apparel market at $20 billion wholesale is a good target because it is nearly three times the size of the athletic footwear industry (Ohmes 2005). Consumers choose brands they recognize and trust.5 Economies of Scope Another entry barrier is the economies of scope in the athletic shoe industry. They produce items ranging from watches and eyewear.

and distributors (Besanko 2003). For example. the major players preemptively buy smaller sneaker companies before they grow too large and pose serious competition. Entering firms that are successful and gain market share pose threats to the larger players. Furthermore. Many companies have made the link between sneakers and apparel explicit. if the new products introduced are complementary (like socks are to sneakers) firms will achieve synergies in production. Saucony by Stride Rite. These acquisitions allow the buyer to reap benefits from both increased scope and association with the new trends in footwear. by linking them under the same name as their shoes. retailers.5. The incumbents have budgets large enough that they can simply buy up smaller companies. Potential entrants that notice this tendency but want to remain independent may just choose not to enter in the first place. For example. For example. Nike introduced the Jordan line of shoes and then brought out t-shirts with the same name to boost sales for both categories.these products with less risk because consumers infer that all products under the brand umbrella are high quality. rather than risking a loss in market share to them. Nike’s research on the way the foot works can help them design both more supportive socks and sneakers. The sneaker industry has faced considerable consolidation recently. . and so on. Though Nike is a clear leader. in 2003. other footwear companies see the growth potential and are following suit. Umbrella branding helps the expanding company and by default deters entrants because they will not need to spend additional money on promotion to develop credibility in the eyes of consumers. As a result. Converse by Nike.2 Consolidation Larger incumbents also control entry by strategically acquiring smaller sneaker companies. 3. with the aforementioned acquisitions of Reebok by Adidas. The incumbent firms essentially make it impossible for a new entrant to grow substantially without takeover. New Balance signed seven additional licensing deals to put its logo on gear from sunglasses to exercise equipment (Fonda 2004).

best known for their sunglasses. Today. their sneaker the Freestyle became one of the best-selling shoes in history. In 2000. and they gained loyal customers who buy their products to this day (Hoover. they are able to break into the sneaker market with less difficulty.3. The first strategy is specialization. Many clothing designers sell sneakers.com) The second strategy for entry is for non-sneaker companies with established brands to enter the footwear market. Just as sneaker companies have expanded to apparel and equipment. from Tommy Hilfigger to Gucci.5 million. Oakley’s Net sales skyrocketed 41%. making colorful. extremely comfortable clogs for boating and outdoor use. brought their shoes to market in the mid 1990’s. These apparel companies rely on their established brand images in order to capture sneaker consumers. Oakley and the other designers are able to sell sneakers relatively well due to the fact that they have already established well-known brands. Oakley.com). Other companies have moved from seemingly unrelated accessories to footwear. Reebok designed shoes for aerobics just before aerobics ballooned in popularity across the US. The Oakley shoe is a unique hybrid of sneaker and hiking shoes that are durable and fashionable.6 million (Hoover. Reebok gained its popularity by doing just this in the early 1980s: Realizing that competing with established companies such as Nike and Adidas would be tough. As a result. . and they have been a huge success world-wide. totaling $363. there are a few key strategies that would allow an entrant into the sneaker industry. many apparel and equipment manufacturers are doing the same . Designing footwear for certain types of consumers or activities is no new task.6 Strategies for Entry While barriers to entry are relatively high. The footwear company Crocs started in 2002. Since these companies have already established loyal customers in other sectors. Many companies have successfully entered the athletic footwear market by targeting a specific niche of consumer or designing for a particular activity. they got a temporary lead over Nike in the athletic-shoe industry. newer companies are still using this tactic. who place high importance on image and branding.moving into the footwear sector for wider scope. and now they boast a wide product range and sales of $108. the most notable example being Oakley.

. Sketchers’ sales increased 6.1 Introduction There are thousands of shoes available on the market today. Sketchers and Nine West. Steve Madden reported sales of $91. One of the most successful nonathletic footwear companies.4. Sketchers. Heel-less shoes are widely popular in Europe.com). footwear experiences a seasonal sales cycle. In Q4 of 2005. Sketchers shoes are incredibly popular among young women and show strong sales. and jackets. slippers. 4. also known as sneaker mules.com). Sketchers’ non-athletic shoe department has also been growing lately due to the introduction of their heel-less shoes. causing the primary promoter of these shoes. . Lifestyle athletic shoes have seen the largest annual growth rates. How do consumers know which ones to buy? Currently. Some of the major producers of these shoes include Steve Madden. These include boots. socks. Steve Madden. and other non-athletic footwear. when many students are buying back-to-school wardrobes. is well known for its thick high heeled shoes introduced in the mid 1990’s.1 Footwear Sales Cycle Like other types of apparel.2% from the previous quarter (Just-style.2 External Substitutes Although sneakers are the most popular footwear in the world. dress shoes. Recently. 4. to experience healthy sales figures. 2004.0 SUBSTITUTES AND COMPLEMENTS 4. The primary complements to sneakers are other types of sports apparel. In 2004. See the graph below for the month-to-month changes in footwear sales. such as t-shirts.2% with total sales equaling $222 million for that year (Just-style. the market for footwear is filled with substitutes for sneakers. flip-flops. Sneaker sales peak between August and September. shorts. there are a tremendous number of substitutes within the footwear umbrella. but have not penetrated many other markets.4 million which is an increase of 8. heelless shoes have gained popularity in the U. There is little year-toyear variability in the sales. and 2005. Sales then decline during the fall-early winter months.2. with Puma leading the way with a sales increase of more than 50%.S. as seen by the proximity of the lines representing 2003.

sales of sandals and heel-less shoes increase.3 Complements The most popular sneaker complement is sports apparel. During summer months. Source: Ohmes 2005 4. During the holiday season. footwear sales goes up with many other products. winter months.S. while other regions saw higher sales growth: 31.8% in Europe (Ohmes 2005). Indeed.mostly due to seasonably colder and inclement weather conditions. According to SGMA . athletic sneakers serve many functions for customers and are not perfectly substituted by any other footwear. Sales of summer footwear. Overall U.2 Substitutability of Other Footwear. outdoor footwear accounts for as much as 15-20% of all footwear sales (Ohmes 2005). while sneakers experienced an increase of 50% in sales. 4. For example. increased by nearly 70% in the summer of 2001. including sandals and openheel shoes and excluding sneakers. we continue to see little evidence suggesting significant shift to brown shoes” (Ohmes 2005).3% in the Asian Pacific and 19. During the holiday season. One industry report says that “Though we continue to monitor fashion trends and any potential movements in the athletic versus brown-shoe dichotomy. Although many substitutes to athletic shoes exist. there is little evidence suggesting that they will ever replace sneakers. sales of boots increased by over 100% while sneaker sales only increased by 2.2. sports apparel sales rose 12. specifically driven by boots and waterproof walking shoes appropriate for the cold.2%. in the holiday shopping period of 2001.9% in 2004.

For many years. Adidas and Microsoft have agreed to help each other promote the other’s business. the best selling sport apparel world-wide has been T-shirts (ANSOM).com). to capitalize on his success (Hoover. Nike developed golf clubs and a line of apparel for their sponsored golfer. and women outspend men in this sector. See the graph below for an illustration of apparel versus other sources of revenue for Nike and Reebok.International. which is now the #2 golf club maker. and at the end of 2002 it acquired the Maxfi brand of golf balls and accessories (Hoover. Adidas bought TaylorMade in 1998. Ecko recently released a game called “Mark Ecko’s Getting Up”. Region: Asia Pacific Europe/Middle East/Africa South Americas Apparel Sales Increase/Decrease (2004): 31. which many retailers have bundled together with Ecko shoes.8% increase  $409. Tiger Woods.com). As mentioned earlier.8 million 19.3% increase  $138. Both Nike and adidas have looked to the golf market to expand their scope.7 million 8% decrease  $35. .5 million Sales of apparel can represent a large part of the sneaker companies’ revenue. young adults represent nearly 40% of all consumer sports apparel purchased in 2004. There are also some unusual complements to foot wear. Furthermore. The move was meant to bolster the company's golfing products portfolio.

S. so do the sales of athletic footwear. Furthermore. as the sales of apparels go up. This is clear sign that sport apparel and sporting equipment are not only complements to each other. US Sales ($ millions) 2003 Sports Equipment 2004 Sports Equipment Market . Sales 1000 900 800 700 600 500 400 300 200 100 0 2003 Apparel 2004 Apparel 2003 Athletic Footwear 2004 Athletic Footwear As seen in the graph above.Total U. but also to sneakers. as the sales of sports equipment goes up. so do the sales of athletic footwear.

the sole is a major focus of research in each of the main firms. This investment is a barrier to entry for smaller manufacturing houses that desire Nike or Adidas’s business. To reach the acceptable level. through a simple chemical process that adds durability and strength to the rubber. Nike and Adidas both work only with approved manufacturers/suppliers that meet the labor standards that they require. Its composition varies. but also it normalizes the quality of service that they will encounter when dealing with a supplier. Once a supplier has become a Nike supplier they often become dependent on that contract. support. All three major inputs are commodity goods. The rubber is always vulcanized. They have created this system so that the quality of product. Partially in response to these image-damaging statements.0 SUPPLIER POWER 5. The cotton is generally a synthetic blend to increase both durability and strength. The producing firm’s only choice is quantity of production.5. and lifespan of the shoe. because its physical properties are crucial to determining the comfort. a supplier must make a commitment to their employees and an investment in their facilities. the factory working conditions. and the logistics of delivery can be held to a higher standard. . Firms do not set the price of these items. rather the market determines their value. but foam is a simple material to produce at low cost.1 Materials for Production A typical athletic shoe is constructed from three major raw materials: cotton. rubber. Nike sets their prices and buys in enormous volumes. the major firms have set up a system of standards. 5. Those firms not meeting these conditions are penalized and contracts are not renewed. Not only is this good PR for the firms. Some models also include a waterproofing agent in the fabric. Foam acts as padding within the shoe. In fact. The shape of the sole is formed from rubber.2 Standardization within Production The major firms in the market have experienced considerable pressure from the public regarding the labor practices of their suppliers and manufacturers. and foam.

3 Ease of Supplier Transfer When dealing with commodity items like cotton. . They have the power over the suppliers. rubber. supplier power is extremely low in this industry. Therefore. The major firms in the market are able to switch suppliers quickly without worry of a significant decrease in quality. and foam. there is little to stop large footwear companies from switching between suppliers. Any supplier that meets the requirements of the firm will be able to supply such homogenous products.5.

Regardless.6. As fewer retailers control larger market shares. Footlocker’s acquisition of Foot Action and Gart’s merger with Sports Authority are microcosms of an across-the-board power consolidation within the footwear retail industry (Yurman et. Growing margins are another indication that buyer power is increasing. larger firms like Nike and Adidas will continue to maintain the name recognition and infrastructure to remain industry leaders through their aggressive acquisition of smaller companies threatening to take market share. Under current market conditions. Lower cost structures. but new players have emerged in the form of big box stores and vendors opening their own merchandise stores and outlets. Large players like Nike and Adidas are able to dictate the price points of each pair of shoes they sell. 6. Also.1 Buyer Concentration Athletic footwear retailers range from smaller shoe stores such as Footlocker to large department stores such as Wal-Mart.2 Buyer Leverage in Product Negotiation It appears that the lack of concentration at the buyer level would inhibit margins while allowing vendors to determine base prices for their product. retailers have little power or influence in the design of the product resulting from the large number of industry participants. buyer power is relatively weak. al 2005). a value approaching $15 billion. However. A decrease in industry-wide margins in 2001 has . They have full creative rights to the design and manufacturing of their footwear.0 BUYER POWER 6. Long-term market growth for athletic shoes in the United States is projected to persist in the low single digits. Traditional retailers like Finish Line and Footlocker dominate the sales landscape. and growing market share through consolidation have benefited the major footwear retailers. smaller inventories. so market share will be the key driver of earnings growth for each market participant (Genereux 2006). small vendors who have entered the market through a small retailer will find it more difficult to maintain market share. The top 25 retailers generate approximately two-thirds of the sales of athletic footwear.

“Famous Footwear President Joe Wood commented that the department store consolidation coupled with a strong cycle in athletic footwear has driven some of the gains in the family footwear sector. In 2005. see the table below.3 Effects of Retail and Vendor Consolidation The consolidation phase of the footwear industry has spurred increases in the growth rate for many retailers by allowing them to purchase a diversified range of shoes from each large athletic footwear company. Thomson Financial estimated that the announced deals between athletic footwear companies increased to $40 billion in 2004. American Sporting Goods’ acquisition of And1 (announced in May). Wolverine’s licensing agreement with Patagonia (announced in June). mergers are estimated to have surpassed the $40 billion record set by deals in 2004.been met with larger margins through until 2004. This trend is expected to continue for the next five years. Source: Ohmes 2005 6. and Dick’s acquisition of Gaylan’s for $362 million (completed in July 2004). VF’s acquisition of Reef for $188 million (closed in April). compared with an estimated $10 billion in 2002. This consolidation is expected to continue through the next couple years. The major transactions included “Gart’s merger with The Sports Authority for approximately $378 million (closed in August 2003). Shoe Carnival CEO Marc Lemond believes that the strength in women’s fashion was driven by more emphasis on footwear and apparel” (Genereux and Graham 2006). Amer Sports’ acquisition of Salomon from Adidas for €485 million (completed in . Foot Locker’s acquisition of Footaction for $225 million (completed in May 2004). with the first product line expected to launch in spring 2007.

The 2005 fiscal year marks the first time since 1998 that square footage of retail floor space has increased. . bankruptcy filings. footwear companies promoting a diversified set of retail offerings (sporting goods and apparel) were able to withstand the loss of earnings growth in the athletic shoe category until the up-tick seen in 2005 (Yurman et al 2005). and Timberland’s acquisition of SmartWool for $82 million (announced in November” (Drbul et al 2006). thus giving them bargaining power over the brands because there are fewer buyers to sell their footwear. These mergers have increased the market share for a select group of companies. In that time period. From 1999-2004.October). and consolidation. overall retail space for athletic footwear dropped by 21% as a result of overcapacity.

4 Current and Emerging Retail Channels (Susquehanna Financial Group) 6. Target. 50% of all footwear purchases are under $50. Nike’s recent purchase of Starter Brands may have changed the face of the industry. Sears. Kohl’s.4. These companies have traditionally been in the business of selling athletic shoes with a price point under $50 and selling to the masses.1 Department Stores The large department store shoe category includes Wal-Mart. . Attempting to open new markets for itself. In America. JC Penney.6. and others.

Next. and Nike aligned itself to take advantage of expanding its markets without hurting the Nike brand image. Signing a partnership with Wal-Mart. After Nike creates the shoes. This strategic alliance created by the supplier and buyer will allow for economies of scale. Nike does not receive direct revenue from the sale of Starter athletic shoes. the design is taken to a manufacturing plant where the shoes are made and sold to Wal-Mart. Nike negotiated an agreement to design the Starter shoes yet released themselves from the manufacturing process. Much of the influence and transaction . becomes Nike’s link to the value market. and is Wal-Mart’s opportunity to market a premium value shoe. Nike is encouraged by estimates of strong revenue growth and plan to turn the Starter/Wal-Mart marriage into a billion dollar business (Drbul 2006). The value net created by this relationship will create value for the customer and bottom line savings for the retailer and vendor. While this partnership may not maximize potential revenue for the Nike. the designs must be approved by Wal-Mart. The 2004 purchase of Starter for $43 million gave Nike a premium brand in the value market. but is paid royalties and design fees by Wal-Mart.Source: Banc of America Securities The $14 billion athletic shoe value industry is large and growing as shown by the above graph. The discount market has been trying to find a way to counter clearance sales at specialty stores and this new method has opened the barrier between the two channels. it gives the vendor a profit channel without having to make the necessary capital expenditures to produce and ship the product.

Nike currently has been concentrating on . Each company used a different strategy for attaining profitability. Nike. for a total store count of 374. Also.2 Factory Outlets and Vendor Stores Reebok. 6. Dick’s Sporting goods separates itself with an emphasis on athletic equipment. Converse. and other major brands have led the move to capitalize on a new growth market. 12 Niketowns. Adidas.costs are mitigated by Nike’s new relationship as shoe designer and logo licenser. Puma. These stores threaten the health and buyer power of the current retailers in the athletic footwear industry by competing directly. and all are successful at maintaining their advantages in a competitive market (Ohmes 2005). this highly integrated business model allows the companies to increase margins and boost brand presence. the company operated 184 owned retail stores in the United States. and 80 Cole Haan. and Hurley stores. four employee-only stores.4. The Sports Authority has made a name for itself by being the only national sports department store. Nike has been able to grow their NikeTown and factory store models with increasing success. and 190 non-U. their buyer power will increase as athletic footwear sales increase. Adidas has experienced a 13% increase in margins for 2005. The large amount of square footage of footwear sales space is an indicator that these corporations will concentrate on footwear as a large portion of their business. which comprises 60% of their sales. This strategic advantage allows the company to establish its brand presence and increase buyer power for all sporting goods because of their large volume. As the influence of these sporting goods stores increases throughout the country. 11 Nike stores. Hibbett is unique in that they have found that placing small sporting stores located in areas that cannot handle large department stores can be a profitable business model. “At the end of fiscal 2005 (June fiscal year end). They currently have 714 stores and plan to increase that number to 800 by the end of 2006 (Drbul 2006).S. WalMart can buy directly from the factory as they had been doing in the past in order to avoid new costs. compared with 330 stores at the end of fiscal 2004” (Ohmes 2005). stores. mainly because of the rapid growth of its stores unit. running their own brand name stores. including 77 factory stores.

However. the last link in the chain. It is apparent that operating wholly-owned manufacturing plants is not a margin-driver. is proving a valuable tool for growth. and the impact has not yet posed a significant threat to Footlocker and Finish Line. Within two to five years these outlets will be competing more directly with the department stores on pricing. Also. potentially inviting conflict with retailers. but the retail stores. Preliminary sales statistics are currently unavailable for most vendors. the point-of-sale storefront is the last frontier in the chain. Specialty stores will not see significant sales decreases because their niche is selling the newest. 6. There are added risks to carrying such a narrow scope of styles and market presence.3 Mall Specialty Stores Footlocker and Finish Line dominate the mall specialty store segment of the athletic footwear market. most stylish shoes on the market. . Finish Line is expected to experience slow growth in the short term because of its over-saturation of Nike products (60% of all products) and questionable adaptability to the active lifestyle market (Genesco Rises 2006).4. Future growth for Finish Line will come through nationwide mall expansion ushering in a greater brand presence and larger sales volume.expansion into China with its Nike-branded storefronts. and Nike has the brand awareness advantage in Asia over all other major brands. Advertising costs can decrease considering that the storefront becomes an interactive marketing symbol. These stores are focused on the newest trends in footwear and stock footwear with higher price points than other segments of the athletic footwear industry. slashing stick prices on last year’s brand name models. overall buyer power will be weakened by the prevalence of these vendor stores. With the vertical integration present with vendor retail stores. China is the next frontier for driving revenue growth in the footwear industry. the escalation of opening brand name retail stores will inherently put a dent in the sales of the specialty and department stores.

it could lose its customer base.4 Strip Specialty Stores Famous Footwear. “In an attempt to better serve its urban markets Finish Line has segmented its store base into five demographic groupings: urban. If that store wanted to change its footwear options from mostly Nike to mostly Puma or New Balance. the uncontested leader in strip mall specialty footwear stores. mixed. has historically specialized in non-athletic footwear for the family. and Hispanic” (Genereux 2006). Famous Footwear recently targeted women aged 25-45 and took their priorities into consideration with store redesigning and price-point management. and better presentation . have incentives to diversify their brand offerings to protect themselves from dramatic changes in market development.Source: Banc of America Securities (Ohmes 2006) Mall specialty stores. has had to change its business plan in order to stay ahead of the discount shoes store competition. suburban. A company showcasing Nike as 40% of its footwear offerings will likely be subservient to Nike’s preferences and intentions. Their competition. Too much reliance on one or two brands of shoes will disable the ability of the retailer to change with the trends. 6. the buyer of many different brands of shoes. metro/campus. Also. Shoe Carnival. The redesigned stores have a larger middle aisle. diversifying their product line will decrease the power vendors have over the mall specialty market. lower shelves.4.

interactive experience. The main disadvantage to online shopping is the lack of interaction with the product. and do not generate enough sales to garner the attention of the vendors.for their athletic shoes. Pure online stores shoebuy.com and zappos. The online sales arena does not appear to be a threat to buyer power because of its limited success. 6.5 Online Stores The online presence of shoe retailers is small but powerful. These chains cannot compete with the specialty stores at the higher price points (Ohmes 2006). Although this market segment has been able to revamp its image. Not a sales driver or threat to buyer power. there is very little buyer power.com are placing small amounts of pressure on brick-and-mortar stores to debut online websites to compete in this new sales arena. Nike has created a shoe-building website to provide the customer with a fun. .4. Strip specialty stores carrying low and high priced footwear. In electronics markets. most priced between $30 and $120 (Balousek 2006). online stores are likely to be used as an advertising vehicle in the present and near future. product specifications are uniform among companies while athletic footwear must be tried on to determine the best fit.

Entry by small firms is difficult because the large brands have strong consumer loyalty. Sneakers compete seasonally with many other types of footwear such as sandals. and dress shoes. Buyer power in the industry has historically been low. such as marketing and types of products sold. vulcanized rubber. .7. the divide between performance athletic shoes and lifestyle footwear will be a defining characteristic of product marketing and alignment over the next several years. and foam. The industry is aging and looking to expand its reach into apparel and higher technology outlets. Lastly. with well-established niche markets. work boots. Producers compete primarily on non-price elements. but recent consolidation has provided retailers more bargaining power in terms of price and marketing. followed by smaller competitors like Puma and Vans. Innovation in this industry is essential to keep customers interested in the product. plus economies of scale and scope.0 CONCLUSION Athletic footwear companies live and die by their perceived brand image in the marketplace. Success postentry is often met with buyout offers from larger companies that are both worried about increased competition and hoping to lead the next big trend in sneakers. In the future we expect the trend of buyouts and mergers to continue as the producers continue to have incentives to consolidate. Nike and Adidas are leading the research and development of new technologies such as automatic comfort adjustments and microprocessor inserts within the athletic shoes. Shoe companies are able to exert extensive power over their suppliers due to the homogeneous nature of the three raw materials essential in the sneaker-making process: cotton. Nike and the now merged Adidas-Reebok claim a huge percentage of market.

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asicsamerica.newbalance.com/ .com/section/products http://www.com/index.9.asp?b http://www.0 COMPANY WEBSITES CITED Corporation Adidas AND1 Asics Brooks Converse Crocs K-Swiss Mizuno New Balance Nike Niketown Puma Reebok Saucony Spira Stride Rite Vans Home Page http://www.com http://www.com/ http://www.com/ http://www.com/ http://www.com/ http://www.crocs.and1.com/ http://www.brooksrunning.spirafootwear.com/niketown/ http://store.com/ http://shop.mizunousa.nike.striderite.com/ http://store.com/ http://www.vans.puma.com/ http://www.converse.reebok.sopadidas.com/ http://nikebiz.kswiss.com http://niketown.saucony.com/ http://www.

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