Athletic Footwear Industry Analysis

Angela Gieras Jeremy King Tara McNeill Tom Parrish
January 17, 2003

Background
• Athletic footwear was first developed by the ancient Greeks in order to provide protection when moving over rough terrain in varying weather conditions. • The modern athletic shoe was developed in eighteenth century England as a result of an increasing interest in the sport of running and other outdoor activities. • Joseph William Foster founded the first large-scale sports shoe company in Boulton, UK in the 1890’s. During this period, other sport shoes could be found in mail order catalogues, such as Sears and Montgomery Ward’s. • In 1917, the Converse and Keds corporations entered the American athletic shoe market. • In 1958, Joseph William Foster’s grandson renamed his grandfather’s company Reebok . • Athletic footwear forever changed in 1962 when Phil Knight and Bill Bowerman created "Blue Ribbon Sports," the forerunner of Nike.
Source: Digital Dissertations: Gurian, Brian. “The Impact of the Sneaker and the Sneaker Industry on Modern Society.” St. John’s University, 2002.

Size of Market
• In the first half of 2002, NPD Group estimates that athletic footwear spending resulted in 1.4% year-to-year growth to $7.40 billion from $7.29 billion in the comparable yearearlier period. (Euromonitor) ATHLETIC FOOTWEAR MARKET SIZE ESTIMATES
Retail Dollars in Billions 1998 1999 2000 2001 Change 00-01

Men’s Women’s Children’s

$8.470 3.951 2.332

$8.037 4.194 2.327

$8.236 4.486 2.394

$8.541 4.418 2.461

+3.7% -1.5% +2.8%

TOTAL

$14.753 $14.558 $15.115 $15.420

+2.0%

Source: The NPD Group, Inc.

Size of Market
ATHLETIC FOOTWEAR MARKET SIZE ESTIMATES
Pairs Sold in Millions 1998 1999 2000 2001 Change 00-01

Men’s Women’s

155.200 161.661 170.316 175.010 106.486 115.755 125.999 119.973

+2.8% -4.8% -4.2%

Children’s 106.508 102.986 111.676 106.961

TOTAL

368.194 380.402 407.990 401.943

-1.5%

Source: The NPD Group, Inc.

7 $42.8 $44.0 $40.0 1.) TOTAL FOOTWEAR SOLD IN THE UNITED STATES – MARKET FORECASTS Market Size Growth Rate (billions of dollars) 2001 2002 2003 2004 2005 $40.6 $41.6% 2.7% 2. Inc. athletic footwear accounts for almost 35% of all footwear purchases.7% . (The NPD Group.2 2.8% 2006 Source: Euromonitor $45.5% 2.Expected Growth Rate • According to the Sporting Goods Manufacturers Association.

6 24.5 23.3 3.1% -49.4% Sport Skateboarding Snowboarding Backpack/Wilderness Camping Golf Running/Jogging Volleyball Ice/Figure Skating Racquetball Step Aerobics Roller Skating (2x2) Source: National Sporting Goods Association 2001 9.5 12 5.5% 15.1 .5 26.2 18.1% -49.3% 72. 1996 SPORTS WITH THE GREATEST POSITIVE AND NEGATIVE CHANGE Participated more than once (in millions) Seven (7) years of age and older Percent Change 106.6 5.7 1996 4.3% -35.4% 26.1 22.7 3.4% 10.4 5.3 11.0% -36.3 15.2001 vs.5 8.7 7.1 11.Growth Rates in Sports Participation 2001 SPORTS PARTICIPATION .1% -36.4 5.3 14.

057 3. Inc. Christmas.068 -5.307 3.4% +5.671 3.209 $3. .882 3.299 4. SALES BY QUARTER Dollars in Billions 1 2 3 4 1999 2000 2001 $3.015 $3.474 4.996 -1.4% Change +12.5% 4.1% 00-01 Source: Euromonitor and The NPD Group. and Easter holiday seasonal sales.Market Sales . with higher back to school.663 $4.453 3.Seasonality • The US market for footwear is seasonal in nature due to consumer spending patterns.

from $15. to $38. NPD estimates that spending for athletic footwear rose 2% to $15.5%. this was still well below the $40. • The average price paid per pair rose 3. Sales of running shoes rose 3.12 billion in 2000. Source: Standard & Poor’s Net Advantage . from $37.9 million pairs of athletic shoes.8% to $4. • Consumers purchased 401.38 billion in 2000. however. down 1.0 million pairs in 2000.05 in 2000.55 billion.5% from 408.07 paid in 1998. • Running shoes captured the biggest share of consumer spending.42 billion. with 29.36.0% of the total market. from $4.Market Sales • In 2001.

Consumer Demographics Baby Boomer Generation • • • • • Born 1946-1964 77 million Americans Healthcare. retirement compete for fashion dollars Fashion spending is waning. large sizes appeal to this group Generation X • Born 1965-1976 • Are typically marketed to in a similar fashion as Generation Y’s • Marketing focus may be lost between Baby Boomers and Generation Y Source: Standard & Poor’s Net Advantage . leisure. but still spend the most Conservative.

Internet) Source: Standard & Poor’s Net Advantage . teen boys spend 52% Loyal to footwear and apparel name brands Generally support smaller footwear companies in tune with fashions Comprised one-quarter of all athletic footwear spending Advertisers attempt to reach more through non-traditional mediums (i.e.Consumer Demographics Generation Y • • • • • • • • • Born 1977-1994 75 million Americans (25% of population) Focus of marketing in recent years Teen girls spend 75% of earnings on clothing and accessories Comparatively.

5% 5.4% 5.4% 7.5% 1998 28.6% 8.8% 5.7% Under 14 14-17 18-24 25-34 35-44 45-64 65 & Older 2001 26.6% 8.2% 22.7% 13.7% 9.5% 12.4% 2000 28.6% 22.7% 14.8% 5.7% 7.9% 13.6% Source: National Sporting Goods Association .4% 12.7% 14.8% 1999 30.4% 7.2% 9.5% 12.4% 6.5% 16.1% 11.1% 8.1% 19.Athletic Footwear Purchases by Age ATHLETIC FOOTWEAR PURCHASES BY AGE 2001 US Population 19.3% 20.8% 15.7% 9.0% 15.6% 23.

6% 26.0% 18.2% Source:Euromonitor .5% 22.Market Segments Sample Market Segment Female Clerical/Sales Female Executive Female Crafts/Repairs Female Professional Percent Purchasing Athletic Shoes 21.0% 25.6% Male Clerical/Sales Male Executive Male Crafts/Repairs Male Professional Men Women 22.6% 20.9% 30.0% 19.4% 22.

227 .076 $4.6.6.8% +11.267 1.937 .2.6% +21.469 .5% + 3.Product Segments Retail Sales in $ Billions 1999 2000 2001 Change 00-01 + 3.4.524 2.757 .320 .383 $4.466 .8% .678 Tennis .224 1.571 Sports sandals .216 Other .549 Basketball 2.922 .802 Hiking .8% .355 Aerobic .018 Source: SGMA International .524 .218 Athleisure 1.6% -13.220 Walking 1.378 .7% .971 Recreational boots .349 .126 2.2.726 .4% Running $4.282 2.606 2.121 .043 1.1% .7% .961 1.822 Cross training 2.0% .0.

ShopNBC) – Footwear is one of fastest growing categories on QVC & HSN – QVC and HSN reach 100 million homes – ShopNBC reaches 52 million homes Source: Footwear Journal USA . HSN. television (i.e.Consumer Purchasing Habits – Traditional • Mall – Non-traditional • Internet. • Retail outlets • Shoe store QVC.

Consumer Purchasing Habits • Who? – Men spend more per pair and buy more pairs of athletic footwear than women – Women’s and Children’s shoe sales growing more rapidly than Men’s – Nearly 33% of all athletic footwear spending is done by those aged 13-24 – Less than 30% of athletic shoes purchased are for use in sports or fitness activities • How? – Internet orders (via websites) – Telephone orders (i.e. etc) Source: SGMA International & Standard & Poor’s Net Advantage . QVC) – Walk-in orders (mall. outlets.

German based Adidas-Saloman is the second largest manufacturer of athletic equipment. and sales of Adidas products in the U. • Adidas. and apparel in the world.Major Competitors • Nike. competitor information from Standard & Poor’s . equipment. The largest seller of athletic footwear and athletic apparel in the world. apparel. footwear .Principal business activities involve design. Adidas believes in creating a product to perform. All footwear products are produced outside the United States by independent contractors. Source: Company websites and company 10K reports. development. distribution. Their mission is to become the best sports brand in the world.S. Nike places emphasis on high quality construction and innovative design. and worldwide marketing of quality footwear. merchandising. Adidas America oversees marketing. Form follows function. and accessory products.

Revenues are primarily driven from wholesale distribution of products to selected athletic specialty stores. including footwear. high-end retail shops.A privately held company in Massachusetts.” Source: Company websites and company 10K reports. and accessories. competitor information from Standard & Poor’s . They devote significant resources to advertising products to a variety of audiences through various media.Major Competitors • Reebok International. as well as sporting goods and department stores.Global company engaged in the design and marketing of sports and fitness products. • New Balance Athletic. New Balance’s mission is “to be recognized as the world’s leading manufacturer of high performance footwear and apparel. New Balance was founded as a manufacturer of arch supports and orthopedic shoes. apparel.

women. develops.. and children. A global leader in the lifestyle footwear industry.A.S. dress casual. Skechers designs. casual. Source: Company websites and company 10K reports. Product offerings have grown from utility-styled work boots to include sports.A newer player in the athletic footwear market. and roller skates. and markets lifestyle footwear that appeals to trend-savvy men. dress.Major Competitors • Skechers U. competitor information from Standard & Poor’s .

baseball.Running. children’s. and walking • Reebok International. cross-training • Skechers U. basketball. utility. cross-training.Running.Casuals..A. urban.Basketball. steel toe Source: Company websites and corporate 10K reports .Running. workout. football. walking . aerobic • New Balance Athletic.S.Best Selling Product Categories • Nike. originals. training. walking. and women’s shoes • Adidas.

licensees. and subsidiaries – Greater emphasis placed on design for an athlete’s need Source: Nike website and 10K and Adidas website .Competitor Business Strategies • Nike – High quality • Adidas – Form follows construction – Innovative design – Collection based function – Marketing department begins design process marketing – Focus sales on distributors.

Competitor Business Strategies • Reebok – Grow sales through • Skechers – Fashionable footwear distribution channels – Focus on relationship with major sports – Does not concentrate on performance – International expansion figures to enhance brand image – Resources devoted to advertising through various media by leveraging domestic brand image – Building brand image Source: Reebok and Skechers websites and 10K reports .

duke.Brand Development • According to Forrester Research.html .” http://www. they remain loyal – Firms use celebrities and athletes • Nike: Michael Jordan and Tiger Woods • Skechers: Brittany Spears • Adidas: Kobe Bryant Source: “Drivers of Change. 69% of teens said that when they find a brand they like.edu/web/soc142/team2/drivers.

07 20.41 5.21 Inventory turnover Return on Assets Total Debt/Equity Current Ratio 4.700 Source: Bloomberg and Adidas consolidated financial statements.26 2.74 5.2001 Competitor Ratio Analysis Ratio Profit Margin Nike 6.26 Return on Net Worth 15.700 13.01 6.88 14.82 40.34 2.83 53.09 74.55 5.35 2.941 6. financial information unavailable for New Balance .7 Adidas Reebok 3.36 # of employees 22.29 10.41 2.

2000 Market Share of Athletic Shoe Competitors Other 25% Nike 42% New Balance 10% Reebok 12% Adidas 11% Source: Market Share Reporter .

2000. and Canada July 1995: The World Trade Organization created the Agreement on Textiles and Clothing (ATC) to replace the Multifibre Agreement May 2000: Caribbean Basin Trade Partnership Act (CBTPA) and the African Growth and Opportunity Act (AGOA). authorized for eight years – Duty-free treatment and reduced duties on footwear imports for potentially 72 countries • • • Source: “The Politics of Footwear.Historical Government Legislation and Trade Restrictions • May 1974: Multifibre Agreement (MFA) import quotas replace the regulations under the GATT agreements as the primary regulator of footwear trade – Protects countries whose domestic industries are severely threatened by imports December 1993: North American Free Trade Agreement (NAFTA) – Created the world’s largest free trade zone between the United States.” http://www. Mexico.edu/web/soc142/team2/Politics.duke.html . passed under the heading of the Trade and Development Act – Effective October 1.

but instituted no actions regarding sweatshop and child labor conditions • • • • Source: “The Politics of Footwear.S. final text due January 2005 October 2001:Vietnam Bilateral Trade Agreement – Established normal commercial trade relations subject to annual review by Congress October 2001: Bilateral Trade Agreement with the Kingdom of Jordan – Mandates that “all footwear articles must meet the basic 35% local content origin rule” November 2001: China enters the World Trade Organization – China allowed to ship apparel and footwear to the U.duke.” http://www.html . under reduced tariffs December 2001: Congress directed attention to numerous labor issues in the footwear industry.Historical Government Legislation and Trade Restrictions (cont.) • April 2001: Summit of the Americas Conference in Quebec – Delegates agreed to a draft to eliminate all trade barriers within North and South America.edu/web/soc142/team2/Politics.

and Peru) – Retroactive modifications to the May 2000 Caribbean Basin Trade Partnership Act (CBTPA) and the African Growth and Opportunity Act (AGOA) Expected Consequences of Latest Legislation – Increase in imports from the Caribbean basin and Andean region. imports due to lower labor costs in China • Source: Standard & Poor’s Net Advantage . and to a lesser extent sub-Saharan Africa • Erosion of Asia’s share of U.S. Columbia. imports in the short term – Increasing amounts of footwear imports from China in the longrun • Eventual erosion of Mexican and Caribbean share of U.S. Ecuador.Latest Trade Legislation • July 2002: Trade Act of 2002 – Trade Promotion Authority (TPA) – grants the President the right to negotiate trade agreements and gives Congress the final authority to approve or disapprove those agreements – Andean Trade Preference Act (ATPA) • Duty-free access to virtually all footwear from the Andean region (Bolivia.

including “voluntary initiatives.edu/web/soc142/team2/Politics. workers worked 84 hours per week and earned $1. production workers were paid 86 cents per hour for a 12 hour day. factory workers earned 20 cents per hour • In China (where Nike has 40% of its production).html .duke.50 per shoe made • The International Labor Office reports a recent trend in selfregulation. no breaks • In Vietnam. no overtime.” http://www.” due to pressure from labor and special interest groups – Footwear companies are concerned with public image and corporate citizenship Source: “The Politics of Footwear.Labor Practices • Labor practices and environmental issues in the footwear industry have been historical issues – Example: Nike (Historical) • In Indonesia.

) • Government Actions – President Clinton worked with UNITE to form worldwide labor regulations for the footwear industry.Labor Practices (cont.” http://www.html .duke.edu/web/soc142/team2/Politics. limiting the work week to 60 hours and establishing a minimum wage Source: “The Politics of Footwear.

and entertainment Source: Standard & Poor’s Net Advantage . and cut non-fixed costs like technology. demographics. footwear sales should begin a gradual recovery • A wave of consolidation is expected as firm’s attempt to gain leverage in distribution channels. freeze hiring. travel. and pricing • With expected economic recovery in 2003. The slow economy has led athletic footwear manufacturers to lay off workers. find less expensive sourcing.Economic Factors • Apparel and footwear sales are driven strongly by economic conditions.

it is good for inventory • Since 1995.Benefits of Economic Downturn • Retailer position becomes “If it isn’t moving. the industry inventory-to-sales ratio has declined Source: Standard & Poor’s Net Advantage . mark it down” – while bad for margins.

4 Source: Standard & Poor’s Net Advantage . sales dropped more than 10% after • In October 2002. exacerbating the problem – While consumer spending for athletic footwear was up about 7% before the attacks. causing retailers to reduce and cancel orders • September 11 terrorist attacks dramatically slowed consumer spending.Consumer Confidence Index • Declines in the Consumer Confidence Index tend to curtail spending on discretionary items like apparel and footwear. the Consumer Confidence Index reached a nine year low of 79.

0% for the full-year 2002 and 2.5% in 2003 • Disposable income expected to rise 5.) • Consumer spending is expected to rise 3.8% in 2002 and 4.Consumer Confidence Index (cont.7% in 2003 Source: Standard & Poor’s Net Advantage .

but hurt profit margins – While spending for all men. the pattern of buying more for less was consistent among all segments – Years of price promotion have tarnished the image of athletic footwear Also contributing to price deflation have been an increase in imports and market share gains by discounters Despite a 6% rise in average prices for athletic shoes in 2001. Bad News for Manufacturers • • • • • Poor economy and high competition leads to extreme price pressure. wanting quality at a low price – evident in the growth of mass merchant and off-price retail stores Discounts and bargain shopping maintained sales level. analysts believe the reversal is temporary Source: Standard & Poor’s Net Advantage .Good News for Consumers. which reversed the trend beginning in 1997. and children’s athletic shoe categories increased. women. deflating prices and margins Consumers are more value-conscious.

0% 12.7% -0.65 $57.6% 11.28 $56.8% na na 14.68 $57.97 $27.72 $42.4% 1996 $40.0% 13.19 $48.7% na 5.00 $42.1% -0.8% 1.92 $30.2% 2.9% 12.Average Price of Athletic Footwear Aerobic Shoes Baseball/Softball Basketball Shoes Boat/Deck Bowling Shoes Cheerleading Cross Training Shoes Cycling Fitness Football Golf Shoes Gym Shoes/Sneakers Hiking Shoes/Boots Hunting Boots Jogging/Running Skateboard Shoes Soccer Shoes Sport Sandals Tennis Shoes Track Shoes Trail Running Shoes Volleyball Shoes Walking Shoes Water Sport 2001 $42.39 $53.85 $65.27 $34.26 $14.57 $47.5% 4.36 $32.0% 0.44 na $33.7% 0.36 $42.0% 1.5% -1.66 $12.16 $31.9% na 4.21 $35.54 $64.25 $40.7% -3.23 $60.99 $47.8% -2.22 $23.9% -1.7% 1.01 $29.16 $13.13 $50.23 $54.39 na $40.95 $45.35 $24.01 $56.7% 2.6% 18.81 $39.4% 12.88 $33.33 $29.43 $50.27 $51.09 $48.25 $47.94 $36.88 $53.9% -1.51 $23.7% 2.51 $61.15 na na $46.92 $54.35 $36.03 Change 1996-2001 6.9% -3.2% -7.26 $48.5% -0.5% 0.4% 15.03 $31.5% 3.2% 19.5% 1.64 $54.31 $44.26 2000 $41.1% 5.93 Change 2000-2001 3.5% 2.8% 6.5% 3.67 $42.68 $40.0% -0.60 $35.3% 2.9% -2.89 $47.41 $42.5% Source: National Sporting Goods Association .81 $24.96 $42.41 $54.60 $46.06 $39.3% -2.86 $27.5% 10.04 $47.74 $39.52 $45.09 $35.

Options for Survival • There is a necessity to diversify in terms of product line. and distribution channels • Options – Acquisition • Eliminates competitors • Expands acquirer’s top line and market share • Example: Nike acquired surf wear manufacturer Hurley International – Licensing • Offer new products while leveraging current brands • Example: Perry Ellis International has swimwear licenses with Nike and Reebok Source: Standard & Poor’s Net Advantage . market segment.

and older casual wearers) • Increased number of imports Source: Standard & Poor’s Net Advantage .e. girls.Expected Change in the Industry • Product diversification – Athletic apparel viewed as the new growth component for firms • Slower growth due to competition and price-conscious consumers • Granting of exclusive rights to retailers by manufacturers • Issuing limited editions of high-fashion and high-tech models • Increased competition from the growing popularity of traditional designer shoes. women. which have taken on more athletic designs. and casual shoe styles – Athletic footwear manufacturers introducing styles not meant for sports and targeting different segments (i.

and international government relations for U.html .Industry Trade Organizations • Footwear Industries of America (FIA) – National association for footwear manufacturers. importers.infomat. DC Footwear Distributors and Retailers of America (FDRA) – Provides representation on U.-based retail chain shoe retailers and the footwear brands National Shoe Retailers Association (NSRA) – Founded: 1912 – Trade organization representing independent shoe retailers Athletic Footwear Association (AFA) – Founded: 1982 – Serves an international group of athletic footwear manufacturers and marketers – About 140 members – Part of the Sporting Goods Manufacturers Association (SGMA) • • • Source: “Contacts and Links. and suppliers to the leather and allied trades – Represents the industry in Washington.” www.S.S.com/information/research/industry/ Reports/USA_Footwear. distributors.

2003 <http://www. 2003 <http://www. • • • • .com/sgma-press-releases. Bloomberg.Sources • • • • • • “An Inside Look at America’s Sneaker Biz.html>. 2003 <http://www.com/company>. 2003 <http://www. 2003 <http://usa. “Nike.” Standard and Poor’s Net Advantage.sgma.” 14 Jan.sgma.” SGMA International.usa.com/search/advanced/company/result. Adidas. “Athletic Footwear.com/sgma-press-releases. 2003 <http://www.hoovers.” 14 Jan.com/sgma-pressreleases. “Athletic Footwear Sales Climb 2% in 2001 As Customers Pay More Per Pair. Adidas.html>. 2003 <http//www. “Athletic Footwear: a Mature Industry. 2003. 14 Jan. “Reebok. “About Adidas.com/>.” SGMA International.html>.” SGMA International.netadvantage. 2003.standardandpoor.html>. “Annual Report. 2003 <http://www.adidas.adidas. Financial Analysis Report. 14 Jan. “Apparel and Footwear Industry Survey. Bloomberg. 14 Jan.” 14 Jan.sgma.html>. “Athletic Footwear: Adjusting to a Changing Market. 14 Jan.sgma.” 15 Jan. 15 Jan.” SGMA International.com/sgma-press-releases.” 15 Jan. Financial Analysis Report.com>.

The U.com/information/research/industry/reports/US A_footwear.duke. “Footwear Industry. Ellis. Bolivia. Jul.infomat. Brian.gov>. 2003 <http://www. Apparel and Footwear Trade Group Reversed Its Longstanding Support of Protective Tariffs for Footwear.” 15 Jan.com/mrm/default. Only Columbia. Quota Breaks.umi. 15 Jan. and Ecuador to See Footwear Duty. Kristi. “Footwear in the USA. John’s University. 24 Jun.S.” Footwear News. 2002.” 15 Jan. 15 Jan.” US Census Bureau.) • • • • • • • • Ellis. 19 Aug.” Footwear Journal USA. 2002.Sources (cont. . “AAFA Joins the Call for Free Trade.asp>. 2003 <http://www. Kristi. “Footwear in the USA.” Footwear News. 2002.html>.treas. “Lobbyists Say Trade Act Falls Short.iteds. “The Impact of the Sneaker and the Sneaker Industry on Modern Society: A Review of the Transformative Powers of an Icon. 2003 <http://www.edu/web/soc142/team2/>. 2002. “Footwear Production. 2003 <http://wwwlib. Gurian. 2003 <http://www.euromonitor. “Footwear in the USA.” St.” 15 Jan. Peru.com/dissertations/preview_all/3056600>.

newbalance.sgma.com/sgma-press-releases. “US Sporting Goods Market Outlook 2002. “Sports Shoe Market. Inc. Reebok. “10K report for Nike. “10K report for Reebok.org/public/pages/index. 7 Oct. 2003. 14 Jan. 2003. Sarah. Vendors Couldn’t Be More Thrilled. “Footwear Industry Weathers Economic Storm.” Market Share Reporter (Detroit: Gale) 2003.” 15 Jan. Edgar Online. 14 Jan. “10K report for Skechers. Taylor. 2003 <http://www.com>.Sources (cont. Footwear Is Now One of the Fastest Growing Categories for Home-Shopping Networks QVC. Lazich. 2003 <http://www.” 14 Jan.” National Sporting Goods Association. Inc.” 14 Jan.” SGMA International. Inc. but Retailers? That’s Another Story. 2002.cfm?pageid=328>. HSN and ShopNBC. “Research and Statistics. Mike McNulty.nsga. New Balance.” 14 Jan. 2002. Robert S. Edgar Online. “Fact Sheet. “Phoning It In. Nike. 29 Jul. Skechers. • • • • • • • .html>.” Rubber & Plastics News. 2003 <http://www. Edgar Online. 2003.” Footwear News.) • • Howell.

nike.Sources (cont.reebok.com – www.com – www.) • Company Websites – www.com – www.skechers.com .com – www.com – www.adidas.newbalance.asics.

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