Wednesday, May 25, 2005

With flattening sales, athletic footwear companies are ‘sole’ searching…

According to the National Sporting Goods Association (NSGA), the athletic and sports footwear market size was $14.75 billion in 2004. Annual growth has averaged 2% since 2000. During the late 1990s, the industry suffered sales declines as large as 10%. Nike dominated the market from the mid-1980s through the early 1990s, while its most popular styles had price points near $100. Athlete driven advertising campaigns and cutting-edge designs drove worldwide market share to nearly 30%. Nike controlled over 40% of the U.S. domestic market. Sales declines were attributed to declining retail space and consumer trends that began to favor lower-priced models and discount brand such as Skechers.
The sneaker industry was a long favorite of growth investors, but began selling at levels reserved for value stocks. After trading for years at multiples equal or greater than the S&P 500’s, Reebok and Nike were valued at 13 and 20 times earnings, respectively, in 2000-01. As of today’s market close (5/25/2005), both maintained such multiples with Reebok’s stock price of $40.63 and Nike’s $81.61. Analysts are pleased to see that Reebok and Nike have recovered from their late 1990s slump. Both stock prices have more than doubled since 2000. Earnings have been supported through acquisition and increased market segmentation.
Since 2000, the industry has achieved annual market growth of nearly 2%. Footwear manufacturers have sought alternative design and marketing strategies to gain market share. Industry research has shown that nearly 80% of all athletic footwear sold is not used for sports. Companies such as Puma, Adidas, and Converse are teaming up with high-fashion designers to create limited edition styles to take advantage of the ‘lifestyle’ market segment. Puma joined forces with designers Jil Saunder and Neil Barrett, Converse with John Varvatos, and Adidas co-opted Yohji Yamamoto.
During the height of the early 1990s ‘sneaker boom’, sporting brands did not embrace fashion. Designers focused primarily on function and refused to view their products as fashionable apparel. Companies have begun to embrace the trend, realizing that brand awareness can be broadened through segmented marketing and distribution.
The only company to stick to their purist guns is Nike. Although, Nike has offered limited edition designs for its retro styles, they refuse to include fashion as a marketing tool. These limited editions are distributed through alternative channels such as sneaker boutiques, skateboard shops, and high-end department stores. At some point, Nike had to realize that its retro styles stabilized sales declines, in the late 1990s, as their $100+ shoes suffered decreased demand. Nike segmented this market with its SB, Air Force 1, and Dunk retro lines. These styles are typically only distributed to urban retailers where Nike had never lost its luster. There is also an active reseller market that is facilitated through sneaker chat rooms and EBay. Shoes that wholesale for $35 can fetch up to $500 in this worldwide market. Sneaker enthusiasts collect and trade these shoes similar to pieces of famous art.
Brands such as Reebok are even going as far as signing non-athlete endorsers for their shoes. Their most recent hottest selling shoes have been endorsed by rappers 50 Cent and Jay-Z a.k.a. Sean Carter. When Jay’z’s shoe line S. Carter’s premiered, they sold out within days at major retailers such as Foot Locker and Athlete’s Foot. They have begun to cross-market their non-athlete styles with sport celebrities for the traditional consumer. Thus far, the marketing has been successful as Reebok is capturing increased market share and becoming a close second to Nike, in the US domestic market, with approximately 25%.
As the athletic footwear industry is suffering from almost flat sales growth, companies are seeking alternative ways to engage consumers by offering a diverse product line. ‘Lifestyle’ sportswear brands are becoming more popular and battling for market share from industry giants such as Nike and Reebok. Competitive strategies are being developed to combat such charges. Nike has decided to stick to its winning formula of product innovation with the release of its newest development, Free, which debut with a $100 retail price. The shoes recreate the effect of running barefoot. The shoe is aligned with Nike’s fundamental focus on the ‘true’ athlete. Nike has acquired Converse to regain lost market share that has occurred over the last six years. Reebok responded to maintaining its market share with acquiring brands such as Rockport, Ralph Lauren footwear, and Classic Footwear. Reebok has followed Nike’s 1990’s marketing scheme by signing top name athletes to multi-million dollar endorsement contracts to market alongside their non-athlete endorsed shoes. Regardless of the strategy, fierce competition and a fickle consumer are forcing companies to search of their true ‘sole’.

Jua Mitchell and group


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