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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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. The graph at right shows the trend in US footwear production and imports. 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. The following provides an analysis of Porter’s Five Forces relating to the athletic footwear industry. Imported Footwear (Millions of Pairs per Annum) Imports Domestic Production 5 . internal rivalry. The United States is the world’s largest importer of athletic footwear. and buyer power. Entry to the industry is difficult as brand loyalties are high. entry barriers.major firms is created by extensive marketing campaigns and celebrity endorsements. Most firms design the sneakers and outsource their manufacturing to foreign producers. substitutes and complements. which is primarily manufactured in Asian nations.

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 .0 INTERNAL RIVALRY 2. For example. Reebok. 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. Adidas. K-Swiss in tennis.2. Brooks and Asics specialize in running. and New Balance.1 Market Description Price competition in this industry is relatively non-existent in its traditional form. 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. Smaller firms usually specialize in particular types of shoes. The following chart shows the companies that participate in the various segments of the market as defined by the left column. and Vans in skating and lifestyle shoes. This results in a collection of specialized markets with far fewer firms competing than in the overall market for athletic footwear.

The U.S. As a result. while skating shoe sales declined nearly 10%. sneaker industry is considered a mature industry although the numbers in the table below. Other sneakers. Its sales have increased by nearly 25% in certain countries. consumers consider both price and purpose. this is the category with the most participants.Source: Company websites of producers listed. U. on footwear sales in the last decade. 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 . such as those designed for basketball have been experiencing no growth at all.S. In the sneaker industry. Women’s footwear sales were up 1113% overall. there is an emphasis on non-price competition. suggest that there is still some amount of growth in the overall market. As seen in the above table. the products are somewhat differentiated by design but the players also try and emphasize the differences in their advertising. running footwear accounts for 25% of total athletic shoe sales and has been experiencing the strongest growth. With athletic footwear. and firms attempt to produce shoes that compete in several different price brackets. In terms of growth and sales for individual categories.

The first tactic discussed in this section is the increasing consolidation of the industry as a result of several recent deals. and internal production decisions.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. This section will discuss several recent acquisitions demonstrating this tactic and analyze the impact of these mergers on the overall market. which is valued at $14 billion (Carr 2005). it allows Adidas to further expand into the “lifestyle” market. To complement the mergers. First. 2. Adidas has long been considered a very strong performance brand but has failed to develop the brand image that has allowed Nike’s products.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.S. This merger of two of the largest companies in the industry creates a combined $12 billion company to compete with the industry leader. Nike. acquisitions. firms are increasing their product range in an attempt to capture more segments of the market.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. including its signature Michael Jordan basketball shoes. Reebok on the other hand. Adidas will be able to take advantage of both segments of the market without sacrificing the image of either brand. By acquiring the Reebok brand and maintaining it separately from the flagship Adidas brand. competitor Reebok. to become synonymous with style in the American marketplace (Karnitschnig and Kang 2005). urban buyers that Adidas has failed to attract (Karnitschnig and Kang 2005). This is the same tactic used by Nike in its 2003 acquisition of Converse which will .

2 9.2 11.1 1.7 4.6 0.5 1 0.6 15. market. Ryka.4 1.4 1. 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.1 0.S.2 1. Adidas will benefit from Reebok’s strong foothold in the U.7 0.4 3.S.3 2.6 100 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 (%) 33.6 6. Nike has historically been dominant in terms of its relationships with these retailers (Karnitschnig and Kang 2005)..9 1. Nevados.9 0.2 1.4 4.be discussed later in this section. to Global sales and market shares.4 0.4 2.S.S. comparing U.8 1. the acquisition has brought the Adidas/Reebok U. Turntec) Asics Keds/Pro-Keds Foot-Joy Fila Saucony Sole Technology And 1 Mizuno Hi-Tec Brooks Lotto Other Total U. please see the table below. bringing them much closer to Nike’s 36% share.5 1.7 0. market share to 21%.5 8.9 1.9 4.3 12.3 1. The second objective that Adidas seeks to achieve through the merger is to further solidify its position in the U.4 3. as it will gain distribution options from greater access to and leverage with primary retail chains like Foot Locker and Finish Line.5 4.4 2.S.3 100 . where Nike continues to be the dominant player.6 0.5 0.7 0.1 3. For further information on the relative market shares of the individual competitors. Market Share 36.1 2.9 6. Additionally. Sales* 3225 1087 1020 795 395 305 275 209 205 197 136 124 120 104 100 95 59 59 54 7 319 8890 U.S.7 0.

the acquisition will allow Saucony to break into the children’s market (Ryan 2005). Nike has allowed Converse to continue to operate as a separate entity (Marseille and Roos 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. Nike purchased Converse. 2. firms also enter new sectors of the market through internal production decisions. which speaks to the difficulty of breaking into a market segment in this way. which already includes brands such as Keds. Nike has historically refused to market its Nike brand sneakers . 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. This attempt proved unsuccessful for Asics.2 Stride Rite Corporation and Saucony Another recent acquisition is of Saucony by the Stride Rite Corporation. In other situations.2.2. 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). therefore. There are two ways in which they do this. Pro-Keds. Grasshopper. 2006) 2. Maintaining these customers required that Nike not taint the Converse products with their own brand name. The addition of the Saucony brand will allow Stride Rite to break into the athletic performance market. 2. who looks for retro sneakers like Converse’s long-established Chuck Taylor line. 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. For example.Source: (Drbul et al. and the Tommy Hilfiger line. Sperry Top-Sider.3 Internal Product Proliferation In addition to acquiring new brands and area expertise through mergers and acquisitions. Additionally.3 Nike and Converse In 2003.

2. In 2005. 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. The methods by which they accomplish this include various forms of advertising. and the Adidas brand boasts superior performance and is “perceived as a professional. Nike appears to have been the most successful in this endeavor. Companies expend considerable effort and resources attempting to convince their customers that sneakers made by other companies are imperfect substitutes.1 Advertising The top athletic shoe companies compete in advertising. Nike has geared its Starter brand. Puma in the past was seen as “the brand that mixes the influence of sport.7 . followed closely by the newly joined Adidas-Reebok entity with its two flagship brands.through low cost retailers. Reebok’s are comfortable and casual. Currently. towards this area. lifestyle and fashion” (Europe Intelligence Wire). which it acquired in 2004.4.9 2004 1090. Adidas and Reebok. technically orientated brand with strong European roots” (Kang 2006).4 Brand Image.2 2003 911. and so-called grassroots marketing. 2. the following chart lists the advertising expenditures both independently and jointly of the recently merged firms. and customer loyalty through marketing.7 2002 775. Adidas and Reebok Marketing and Advertising Expenditures 2001-2004 (in millions of $) Marketing and Advertising Spending Adidas 2001 656. aimed at building the image of the brand and the products they are trying to market. To provide an illustration of the high level of these expenditures. In order to enter the market for low to medium cost footwear. Product Identity. product identity. Nike entered into a deal with Wal-Mart to sell Starter brand shoes priced at under $40 through the discount retailer (Kang 2005). distribution choices. 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.

Nike spent $44 million on endorsing an Indian cricket team.3 11832. particularly Nike.6% 11.9 2992.5% 12.3 10568. 2006) 5470.6% 344. While Nike has had the most success with basketball endorsements. and AND1 have with professional basketball players. and made the team the “world’s most valued brand in team sponsorship” (Barbaro 2006). the new Air Jordan shoe out-prices Nike’s most technologically advanced running shoe.3 12. Despite Jordan’s retirement several years ago.8 8463.3% 435.0% 12.1 1119. The most successful examples are the signature lines and endorsement contracts that firms.3 8047. In late 2005.6% 11. 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). The most famous of these company-player relationships is between Nike and Michael Jordan. particularly Adidas.Reebok Adidas and Reebok Adidas Reebok Adidas and Reebok 329. . Adidas.9% 11.5 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.3 12.1% 383. and into international borders.3 1526.S.9 12% 11.2 985.9% Marketing and Advertising expenditures as % of Net Sales Net Sales (in millions of $) Adidas Reebok Adidas and Reebok Source: (Drbul et al. the Air Max 360.4 3127. For example.8 9264.4 1295. 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. other firms have also utilized this technique. the Air Jordan line continues to be a huge source of profit and brand support for Nike.7 6136.0 3485.0% 12. This “star” marketing extends beyond the U. At $175.0 13.2 3785. Reebok. whose image has thus far failed to break out of the realm of basic technical performance (Karnitschnig and Kang 2005). retailing at $160.2 7083. This image has allowed Nike to differentiate its products from those of its competitors.0% 11.

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

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

Jim Davis.Other companies such as Brooks and Spira choose to market their products almost exclusively to specialty running stores. Adidas has also begun using this method in its soccer cleats. Personalization One unique distribution tactic that has entered the market place in the last few years is allowing customers to design their own shoes. The company’s founding chairman. Of the major shoe competitors. has suggested that the company needs to establish itself “in the small stores where people explain the technology” (Gregory 2005). Nike pioneered this venue with the introduction of the NikeID service in the spring of 2005 which allows customers to personalize their shoes. The new +F50 Tunit line allows the customer to customize the weight of the shoe chassis. materials. The company’s CEO. and the overall fit of the shoe (Holmes 2006). a young company that makes running shoes with springs in the bottom. and after we hope that they become loyal customers” (Pereira 2004). . Despite that their shoes are revolutionary. the weight of the cleats. The firms believe the products will market themselves on the basis of their quality and suitability to the wearer. also plans to use this type of distribution decision to market its shoes. Brooks Sports.com).brooksrunning.4.3 Grassroots Marketing Companies also seek to attract new customers and cultivate customer loyalty by introducing young athletes to products that fit their particular needs. which is a subsidiary of the Russell Corporation.com). Nike ID allows buyers to choose their own colors. This dynamic is also part of Nike’s justification for its World Cup ad campaign and determination to take the soccer market from Adidas. focuses on “high-performance running shoes” and considers itself “the brand of choice among discerning runners of all abilities” (www. notes that the objective of the acquisition is “to work with coaches to get kids in the right shoes. They used this strategy in their 2004 acquisition of Warrior Lacrosse. add a wide variety of logos and images to the shoes (NikeID. Spira Footwear. Andy Krafsur. they lack aesthetic appeal. 2. and in some cases. Soccer is considered “an important gateway to brand loyalty with children worldwide” (Holmes 2006). New Balance made the most use of this technique.

a target group Nike is partly losing to Brooks and Asics. High End Running Shoe Examples In the current running market.2 New Products and Brand Image New products can also enhance the image of a brand. reduced weight. is an important product because it indicates a . The Nike Air Max 360.5. and improved stability.1 Keeping up with Competition For many performance brands. The Adidas 1. 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. priced at $165 as the highest priced shoe Asics has ever brought to market.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. The Asics Gel-Kinsei. Nike plans to introduce basketball and cross-training shoes based on the same technology (Citigroup 2006). This type of development is particularly important in performance sneakers. 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. The Nike Free. 2. Furthermore. 2. 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 Air Max 360 is expected to drive growth due to its potential to evolve into a technology that will be attractive to specialty runners. at $250. priced at $160.2.5. which lets runners feel as if they are running barefoot. includes technology that allows cushioning to adjust to the wearer’s needs as well as more durable cushioning features. there are three new high end models. features a foamless mid-sole that provides increased cushioning durability. According to a Citigroup report.

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

Even in the athletic shoe sector. thus entrants will have difficulty winning them over without these symbols and the cool-factor that goes with them. For instance. Though new entrants will have little problem gaining raw materials or labor.3 Licensing and Retail Agreements Access to endorsement and distribution opportunities constitutes a second barrier for new firms. entrants with limited capital will be hard pressed to convince such revered professionals to sign contracts. With its “endorsed by no one” policy. Adidas’ sneakers created by designer Japanese Yohji Yamamoto retailed for up to $590 (Orecklin 2002). when Puma enlisted designer Jil Sander to create a limitededition women's running shoe to ignite its lackluster image and sales (Orecklin 2002).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. 3. New Balance has proven that by creating a suitable niche.3. While the image barrier is high. want shoes that will enhance their image and not just cover their toes. 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 . The “fashionization of shoes” took off in 1997. high priced designers and endorsements are not a requirement for success in the industry. they do face the enormous difficulty of establishing popularity in an industry with extremely imageconscious consumers and one of the world’s strongest brands. guided in part by effective marketing. Customers notice whether their shoes have a swoosh or a lack thereof. While the biggest firms routinely use established designers. 3. it is not insurmountable. especially those offered in limited editions.2 Image Style-conscious consumers. the importance of fashion over function is rising.0 ENTRY BARRIERS 3.

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

because shoes with hightech elements can be sold at higher prices. Reebok and Adidas. 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. Coincidentally.4. Adidas’ adidas_1 shoe and its continuously adjusting cushioning level was also released after three years of research (adidas.com).com). ads for Adidas are more effective because viewers inspired to buy Adidas shoes will have an easier time following through. As discussed in the previous section. Nike’s Sport Research Lab in Oregon is near 13. 3. These patents make entry more difficult because potential entrants must design their shoes without infringing . will invest roughly €130 million in R&D.0 and Abzorb SBS. because Adidas sneakers are sold in more stores than Saucony ones.com/techcenter/tech/featured_tech. pressure platform. 2006). and Nike launched the Air 360 for $160 (Genereux 2006). After spending so much on technological research. the value of technological expertise in this industry is growing. according to an industry report (Drbul et al. These years of research usually pay off. Companies like Nike can afford to put more money into R&D due to larger sales volume.html). The upfront cost of setting up a comparable facility to test and examine products is certainly a barrier to entry. 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). leading to even more of a learning effect. Adidas launched the Adidas 1 last year at $250. 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.2 Research and Development In a day and age when shoe manufacturers are putting microprocessors in our sneakers.larger advertising reach.000 square feet and boasts owning “virtually every variety of muscle sensor. For instance. which was developed over three years (newbalance. breath analyzer. now merged. foot scanner and thermal imaging device” to test and design potential new products (Nikebiz. footwear companies patent their new shoe features so that competitors can not imitate them.

com). and so athletic shoe makers have incentive to expand their product range.1 Umbrella Branding One special case of economies of scope is “umbrella branding. They produce items ranging from watches and eyewear. According to a search of the US Patent and Trademark Office website. as they have over a fifth of the apparel market. where as the separately listed Reebok has 363 and Adidas has 149.5. Nike can introduce Market Share (Current $) Nike 20.com). Consumers choose brands they recognize and trust.72 Champion 2. asserting that Adidas used elements of Nike’s SHOX cushioning technology in developing the Adidas Kevin Garnett and A3 shoes (Hoover. The U. Nike has registered 1830 patents. Nike recently sued Adidas for patent infringement.S.27 Adidas 7.50 Source: Shanley and Svezia 2005 . In the figure below.5 Economies of Scope Another entry barrier is the economies of scope in the athletic shoe industry.40 New Balance 0. 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. 3. while New Balance has just 20 (US Patent and Trademark Office). 3. they are able to leverage their reputation from one sector to another. By doing so.79 Puma 0. to more related products such as athletic apparel and bags (Nikebiz.on the protected designs. allowing incumbent firms to enjoy cost savings by producing a wider range of related goods.54 North Face 2.65 Columbia 10.” 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. 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). The market leader Nike has a significant lead in numbers of patents.

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

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

flip-flops.. and 2005. The primary complements to sneakers are other types of sports apparel. Steve Madden reported sales of $91. causing the primary promoter of these shoes. and jackets. In 2004. as seen by the proximity of the lines representing 2003. but have not penetrated many other markets. How do consumers know which ones to buy? Currently. also known as sneaker mules. Sketchers shoes are incredibly popular among young women and show strong sales.com). heelless shoes have gained popularity in the U. shorts.0 SUBSTITUTES AND COMPLEMENTS 4. .2 External Substitutes Although sneakers are the most popular footwear in the world.4. See the graph below for the month-to-month changes in footwear sales. Sales then decline during the fall-early winter months.2. 4. such as t-shirts.2% with total sales equaling $222 million for that year (Just-style. Sketchers and Nine West. Sketchers’ sales increased 6. Heel-less shoes are widely popular in Europe. These include boots. Lifestyle athletic shoes have seen the largest annual growth rates.4 million which is an increase of 8. Sketchers. dress shoes. socks. the market for footwear is filled with substitutes for sneakers. slippers.1 Footwear Sales Cycle Like other types of apparel. Steve Madden. with Puma leading the way with a sales increase of more than 50%. One of the most successful nonathletic footwear companies. There is little year-toyear variability in the sales. is well known for its thick high heeled shoes introduced in the mid 1990’s.1 Introduction There are thousands of shoes available on the market today.com).2% from the previous quarter (Just-style. to experience healthy sales figures. Sneaker sales peak between August and September. Sketchers’ non-athletic shoe department has also been growing lately due to the introduction of their heel-less shoes. 2004. when many students are buying back-to-school wardrobes. 4. there are a tremendous number of substitutes within the footwear umbrella. Some of the major producers of these shoes include Steve Madden. and other non-athletic footwear. footwear experiences a seasonal sales cycle. Recently. In Q4 of 2005.S.

2. One industry report says that “Though we continue to monitor fashion trends and any potential movements in the athletic versus brown-shoe dichotomy. footwear sales goes up with many other products. specifically driven by boots and waterproof walking shoes appropriate for the cold. sales of sandals and heel-less shoes increase. including sandals and openheel shoes and excluding sneakers. Sales of summer footwear. sports apparel sales rose 12. sales of boots increased by over 100% while sneaker sales only increased by 2. winter months. During the holiday season. Indeed. Overall U.2 Substitutability of Other Footwear. while other regions saw higher sales growth: 31. For example.3 Complements The most popular sneaker complement is sports apparel.S. while sneakers experienced an increase of 50% in sales.2%. Source: Ohmes 2005 4. in the holiday shopping period of 2001. During the holiday season. Although many substitutes to athletic shoes exist.mostly due to seasonably colder and inclement weather conditions.3% in the Asian Pacific and 19. During summer months. we continue to see little evidence suggesting significant shift to brown shoes” (Ohmes 2005). increased by nearly 70% in the summer of 2001. outdoor footwear accounts for as much as 15-20% of all footwear sales (Ohmes 2005). 4.8% in Europe (Ohmes 2005). there is little evidence suggesting that they will ever replace sneakers.9% in 2004. According to SGMA . athletic sneakers serve many functions for customers and are not perfectly substituted by any other footwear.

young adults represent nearly 40% of all consumer sports apparel purchased in 2004. which is now the #2 golf club maker. Adidas and Microsoft have agreed to help each other promote the other’s business.com). and at the end of 2002 it acquired the Maxfi brand of golf balls and accessories (Hoover. For many years. Tiger Woods. Nike developed golf clubs and a line of apparel for their sponsored golfer. See the graph below for an illustration of apparel versus other sources of revenue for Nike and Reebok.3% increase  $138.International. Furthermore.com). the best selling sport apparel world-wide has been T-shirts (ANSOM).8 million 19. Adidas bought TaylorMade in 1998.5 million Sales of apparel can represent a large part of the sneaker companies’ revenue. Both Nike and adidas have looked to the golf market to expand their scope. which many retailers have bundled together with Ecko shoes.7 million 8% decrease  $35. and women outspend men in this sector. The move was meant to bolster the company's golfing products portfolio. to capitalize on his success (Hoover. .8% increase  $409. As mentioned earlier. Ecko recently released a game called “Mark Ecko’s Getting Up”. There are also some unusual complements to foot wear. Region: Asia Pacific Europe/Middle East/Africa South Americas Apparel Sales Increase/Decrease (2004): 31.

S. as the sales of apparels go up. 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. so do the sales of athletic footwear. so do the sales of athletic footwear. This is clear sign that sport apparel and sporting equipment are not only complements to each other. but also to sneakers.Total U. as the sales of sports equipment goes up. Furthermore.

To reach the acceptable level. Not only is this good PR for the firms.1 Materials for Production A typical athletic shoe is constructed from three major raw materials: cotton. support.5. The cotton is generally a synthetic blend to increase both durability and strength. Once a supplier has become a Nike supplier they often become dependent on that contract. This investment is a barrier to entry for smaller manufacturing houses that desire Nike or Adidas’s business. They have created this system so that the quality of product. The rubber is always vulcanized. but foam is a simple material to produce at low cost. the factory working conditions. and foam. through a simple chemical process that adds durability and strength to the rubber. Firms do not set the price of these items. Partially in response to these image-damaging statements. 5. the major firms have set up a system of standards. Nike sets their prices and buys in enormous volumes. because its physical properties are crucial to determining the comfort. Its composition varies. and lifespan of the shoe.0 SUPPLIER POWER 5.2 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. The producing firm’s only choice is quantity of production. but also it normalizes the quality of service that they will encounter when dealing with a supplier. Foam acts as padding within the shoe. Some models also include a waterproofing agent in the fabric. Nike and Adidas both work only with approved manufacturers/suppliers that meet the labor standards that they require. Those firms not meeting these conditions are penalized and contracts are not renewed. and the logistics of delivery can be held to a higher standard. the sole is a major focus of research in each of the main firms. rather the market determines their value. a supplier must make a commitment to their employees and an investment in their facilities. The shape of the sole is formed from rubber. rubber. All three major inputs are commodity goods. . In fact.

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

Lower cost structures. small vendors who have entered the market through a small retailer will find it more difficult to maintain market share. 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. Also. 6.2 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. and growing market share through consolidation have benefited the major footwear retailers.6.0 BUYER POWER 6. but new players have emerged in the form of big box stores and vendors opening their own merchandise stores and outlets. Under current market conditions. Long-term market growth for athletic shoes in the United States is projected to persist in the low single digits. buyer power is relatively weak. As fewer retailers control larger market shares. Large players like Nike and Adidas are able to dictate the price points of each pair of shoes they sell. so market share will be the key driver of earnings growth for each market participant (Genereux 2006). 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. They have full creative rights to the design and manufacturing of their footwear. Traditional retailers like Finish Line and Footlocker dominate the sales landscape. a value approaching $15 billion. A decrease in industry-wide margins in 2001 has . However. al 2005).1 Buyer Concentration Athletic footwear retailers range from smaller shoe stores such as Footlocker to large department stores such as Wal-Mart. Regardless. The top 25 retailers generate approximately two-thirds of the sales of athletic footwear. smaller inventories.

and Dick’s acquisition of Gaylan’s for $362 million (completed in July 2004). see the table below. This consolidation is expected to continue through the next couple years. with the first product line expected to launch in spring 2007. VF’s acquisition of Reef for $188 million (closed in April). Amer Sports’ acquisition of Salomon from Adidas for €485 million (completed in . The major transactions included “Gart’s merger with The Sports Authority for approximately $378 million (closed in August 2003). Foot Locker’s acquisition of Footaction for $225 million (completed in May 2004). compared with an estimated $10 billion in 2002. Wolverine’s licensing agreement with Patagonia (announced in June). Thomson Financial estimated that the announced deals between athletic footwear companies increased to $40 billion in 2004. Source: Ohmes 2005 6. mergers are estimated to have surpassed the $40 billion record set by deals in 2004. “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.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. This trend is expected to continue for the next five years. In 2005.been met with larger margins through until 2004. 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). American Sporting Goods’ acquisition of And1 (announced in May).

and Timberland’s acquisition of SmartWool for $82 million (announced in November” (Drbul et al 2006). . In that time period. overall retail space for athletic footwear dropped by 21% as a result of overcapacity. The 2005 fiscal year marks the first time since 1998 that square footage of retail floor space has increased. From 1999-2004.October). 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 consolidation. These mergers have increased the market share for a select group of companies. thus giving them bargaining power over the brands because there are fewer buyers to sell their footwear.

These companies have traditionally been in the business of selling athletic shoes with a price point under $50 and selling to the masses. Attempting to open new markets for itself. and others. Sears.1 Department Stores The large department store shoe category includes Wal-Mart. JC Penney. . In America.4 Current and Emerging Retail Channels (Susquehanna Financial Group) 6.4. Target.6. 50% of all footwear purchases are under $50. Nike’s recent purchase of Starter Brands may have changed the face of the industry. Kohl’s.

the designs must be approved by Wal-Mart. 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. Signing a partnership with Wal-Mart. Next. becomes Nike’s link to the value market. 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.Source: Banc of America Securities The $14 billion athletic shoe value industry is large and growing as shown by the above graph. Much of the influence and transaction . Nike does not receive direct revenue from the sale of Starter athletic shoes. This strategic alliance created by the supplier and buyer will allow for economies of scale. and is Wal-Mart’s opportunity to market a premium value shoe. but is paid royalties and design fees by Wal-Mart. 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 2004 purchase of Starter for $43 million gave Nike a premium brand in the value market. it gives the vendor a profit channel without having to make the necessary capital expenditures to produce and ship the product. While this partnership may not maximize potential revenue for the Nike. and Nike aligned itself to take advantage of expanding its markets without hurting the Nike brand image. The value net created by this relationship will create value for the customer and bottom line savings for the retailer and vendor. After Nike creates the shoes.

This strategic advantage allows the company to establish its brand presence and increase buyer power for all sporting goods because of their large volume. which comprises 60% of their sales. Dick’s Sporting goods separates itself with an emphasis on athletic equipment.2 Factory Outlets and Vendor Stores Reebok. 11 Nike stores. for a total store count of 374. “At the end of fiscal 2005 (June fiscal year end). As the influence of these sporting goods stores increases throughout the country. The Sports Authority has made a name for itself by being the only national sports department store. four employee-only stores.S. compared with 330 stores at the end of fiscal 2004” (Ohmes 2005). stores.costs are mitigated by Nike’s new relationship as shoe designer and logo licenser. the company operated 184 owned retail stores in the United States. Nike. and 80 Cole Haan. Puma. Adidas has experienced a 13% increase in margins for 2005. and 190 non-U. Nike currently has been concentrating on . mainly because of the rapid growth of its stores unit. 6. and all are successful at maintaining their advantages in a competitive market (Ohmes 2005). including 77 factory stores. running their own brand name stores. Also. Each company used a different strategy for attaining profitability. and Hurley stores. They currently have 714 stores and plan to increase that number to 800 by the end of 2006 (Drbul 2006). Nike has been able to grow their NikeTown and factory store models with increasing success. 12 Niketowns. Adidas. These stores threaten the health and buyer power of the current retailers in the athletic footwear industry by competing directly. their buyer power will increase as athletic footwear sales increase. this highly integrated business model allows the companies to increase margins and boost brand presence. Converse.4. WalMart can buy directly from the factory as they had been doing in the past in order to avoid new costs. and other major brands have led the move to capitalize on a new growth market. 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. 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.

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

Also. “In an attempt to better serve its urban markets Finish Line has segmented its store base into five demographic groupings: urban. the buyer of many different brands of shoes. Too much reliance on one or two brands of shoes will disable the ability of the retailer to change with the trends.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. and Hispanic” (Genereux 2006). suburban. it could lose its customer base. If that store wanted to change its footwear options from mostly Nike to mostly Puma or New Balance. have incentives to diversify their brand offerings to protect themselves from dramatic changes in market development.4 Strip Specialty Stores Famous Footwear. 6.4. and better presentation . A company showcasing Nike as 40% of its footwear offerings will likely be subservient to Nike’s preferences and intentions. the uncontested leader in strip mall specialty footwear stores. has historically specialized in non-athletic footwear for the family. mixed. Shoe Carnival. diversifying their product line will decrease the power vendors have over the mall specialty market. The redesigned stores have a larger middle aisle. lower shelves. Their competition. Famous Footwear recently targeted women aged 25-45 and took their priorities into consideration with store redesigning and price-point management. metro/campus.

Strip specialty stores carrying low and high priced footwear. .com and zappos. there is very little buyer power. The online sales arena does not appear to be a threat to buyer power because of its limited success. and do not generate enough sales to garner the attention of the vendors. Although this market segment has been able to revamp its image. The main disadvantage to online shopping is the lack of interaction with the product. 6.com are placing small amounts of pressure on brick-and-mortar stores to debut online websites to compete in this new sales arena. These chains cannot compete with the specialty stores at the higher price points (Ohmes 2006).4. most priced between $30 and $120 (Balousek 2006). interactive experience. In electronics markets. Not a sales driver or threat to buyer power.for their athletic shoes.5 Online Stores The online presence of shoe retailers is small but powerful. Nike has created a shoe-building website to provide the customer with a fun. 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. Pure online stores shoebuy.

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

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