By Claude Solnik
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The last year has proved it: Retailing sneakers is as competitive as any sporting event.
During the depths of the downturn in the athletic market, even the strongest athletic-shoe retailers drowned in heavy inventories and declining margins. But despite the pressures, many creative, aggressive chains pulled through, and some even managed to push their comp-store sales forward.
Over the past few years, a number of athletic retailers stood out with strong performance. Just For Feet's strong marketing continued to push comps higher. Finish Line opened ever-bigger stores in malls. Footaction shipped product every three days to stores and kept over half its assortment exclusive. City Sports carved a niche in Boston and expanded into outdoor footwear and into other cities. Gart Sports bought Sportmart to become the nation's second biggest full-line sporting goods retailer and then made a bid for The Sports Authority. Fleet Feet grew through franchises and capitalized on running.
As takeovers narrowed the playing field, the stakes in athletics became higher. "Retailers have realized that to be profitable they have to get economies of scale," said Gregg Hartley, executive director, Athletic Footwear Association, North Palm Beach, Fla. "Retail store frontage is increasing faster than the market increased."
The athletic-shoe market's growth has outpaced the overall footwear market's growth in recent years, but that's not saying much. U.S. sneaker sales, according to the Athletic Footwear Association, rose from $12.1 billion in 1993, to $14.1 billion by 1996 and $14.7 billion in 1997. At the same time, specialty athletic-footwear stores -- whose products represent only about 20 percent of the market -- including Finish Line and Footaction have pushed to open more, larger stores and expand existing units.
"Retailers that have operated small shops have been superseded by large category-killer stores," said Bernard Sosnick, managing director, Genesis Merchant Group Securities. "This is the story of athletic-footwear retailing in the U.S. today."
One result of the increasing competition has been consolidation. Over the pest year, chains such as Koenig's, Athletic Fitters, Athletic Attic, Imperial Sports and, most recently, Sneaker Stadium have been acquired by national chains. And in recent weeks, competition for The Sports Authority has heated up, with Gart Sports trying to outbid Venator Group Inc. and make itself the nation's largest big-box sporting-goods retailer.
Observers agree that in this competitive market, retailers that want to succeed and grow will need to take creative, aggressive merchandising approaches. Below is a glimpse of who's been doing what and how it has worked.
It's the Merchandising
When observers single out companies as consistently strong performers in the mall, many start with The Finish Line Inc. Founded 22 years ago, Finish Line dramatizes the benefits of savvy merchandising, catering to and tracking a broad range of customers. Through expanding stores and selection, frequent shipping and staying on top of trends, Finish Line has kept merchandise fresh and comps rising. The company also stays close to its patrons. Beyond customizing merchandise to meet local tastes, it fine-tunes store touches such as music. "The [store's] energy level is different [at different times of the day]," explained Marcia Aaron, analyst with BT Alex. Brown. "[The store atmosphere] is targeted to the customer."
Finish Line boasts a broad footwear presentation and minimal back-room space. The typical store's sales floor occupies 65 percent to 75 percent of total space. Standard 4,300-square-foot stores carry 700 styles, while the company's 10,000- to 15,000-square-foot, mid-sized stores carry 1,000 styles and Finish Line's largest stores, more than 15,000 square feet, carry 1,300 styles or more. Even during difficult times, Finish Line has defied the odds with increasing comps by catching trends early. When marquee-athlete shoes slowed, Finish Line was ready. The chain was also quick to jump on the resurgent popularity of Adidas.
"We've always been convinced you have to go after the whole family," said Steve Schneider, chief financial officer and senior vice president. "It's all based on the store size. If you don't have [that], you can't do a lot of these things."
Finish Line, Sosnick said, draws 30 percent to 50 percent of sales away from smaller sneaker stores at the mall. It opened 53 stores last year and expanded or remodeled 19 stores. For the year ending February 1999, Finish Line plans to open 55 more stores, and expand and remodel 26, adding 30 percent of total square footage. By the end of the year, the company said, average store size will rise to 5,300 square feet from 4,300 square feet. The firm is also opening superstores. Finish Line's first 20,000-square-foot large-format store went into Indianapolis' Circle Center Mall.
"Because [Finish Line has] a broader assortment, they can see what's working," Aaron said. "They saw the running trend early and were quick to capitalize on that."
The company also said it is spending a higher percentage of sales on its "Where's Your Finish Line?" advertising campaign than in the past. That campaign targets a broad audience and isn't athlete-driven.
"We didn't want to feel like you have to be an athlete, especially a young male, to go into the store," Schneider said.
As stores have consolidated, many, including Finish Line, also have begun to rely more heavily on key vendors. Nike merchandise represented more than 60 percent of its sales. Women's footwear sales have grown from about 16 percent a year ago to 23 percent of footwear dollars. And Finish Line has teamed up with Nike to open most of Nike's new women's concept shops in its stores.
Marketing Mastery
Some companies see marketing as a department; Just For Feet's marketing permeates the culture-- from giving an exciting name to its "Combat Zone" clearance area and using satellite dishes to broadcast announcements into stores, to posting hawkers outside some of its mall stores to lure shoppers. The company lost year spent about $45 million on ads and expects to spend $65 million this year and $100 million next year.
"We will beef up our advertising big time," Chairman and CEO Harold Ruttenberg said.
But marketing here goes way beyond money. The formula for success has been salesmanship -- and showmanship. Just For Feet Inc. brought sports into stores with instore basketball courts and backed up this idea with store size and selection.
"Outside the mall, you want to have a big focal point that's visible. Just For Feet has done that," said Sosnick. "In the end, you don't go to a basketball court to buy a pair of shoes. But it does add an element of excitement, an aura of being a dominant specialist in the field."
The company has about 86 Just For Feet "superstores," but by the end of the year expects to have about 140. Following the acquisitions of Athletic Attic, Imperial Sports and Sneaker Stadium, which was completed last week, it is expected to crack $800 million sales this year. That's more remarkable considering it is primarily outside of the malls with 16,000- to 20,000-square-foot stores.
"[Ruttenberg is] the best marketer. He knows how to bring people into his store, creating an exciting store environment," Aaron said. "The stores are not sitting in a mall where you can catch people coming by."
Just For Feet said it spends $150,000 to $250,000 on store grand openings, bringing in 30,000 to 60,000 people in a single day The company also knows the longer you keep consumers in the store, the more you can sell to them: Its stores sport snack bars. Never at a loss for innovation, it has tested out all sorts of frills, from a drive-through window (mostly for returns, but it didn't work) to a nursery (It also didn't work). However, many methods have worked along the way Calling its clearance area "The Combat Zone" created an additional allure: The area now accounts for more than 20 percent of business. The company's latest adventure is satellite broadcast; it even has its own studio, which it has rented to other companies.
"We're always trying new things," said Ruttenberg. "We have our eyes very firmly set on our satellite technology."
The company begins many days with what Ruttenberg calls a live "five-or 10-minute huddle via satellite" for store employees. Although the staffers can't see each other in the separate stores through the chain, they are briefed via satellite on store screens on what's coming in and what's hot. The company plans train staffers, bring in athletes, promote goods and hold competitions on its screens via satellite.
Going for It
Denver-based Gart Sports Co. has been on the prowl. Even if Venator Group walks off with The Sports Authority, Gart's bid for the nation's largest big-box sporting-goods chain reflects its efforts to grow market share.
Gart early this year acquired Chico-based Sportmart, combining Gart's 64 stores and Sportmart's 59 stores. It now operates 122 stores, averaging 36,000 square feet, and plans to open six to 10 primarily on the West Coast over the next year. But its key challenge has been how to make both chains work in very different markets. If Gart is successful in merging the two companies' strengths, the move may turn out to be the secret to its success.
"We have one strategy for both stores, and we're picking the most successful elements from each operation and applying those," said Fran Victor, vice president of marketing for Gart. "It's a blend. It's the best of both worlds."
The combination has given the company added clout and strength. Together, their annual sales hit $718 million. The big challenge is turning around Sportmart. The company's first-quarter comps rose 0.4 percent, with Gart stores up 6.9 percent and Sportmart down 2.5 percent. Sportmart footwear sales have been stronger, so Gart will stick closer to Sportmart's footwear formula.
"Sportmart is self-service [for footwear]; Gart is associate-assisted," Victor added. "We're going to a blend of that."
In 1997, 20.2 percent of Gart's net sales were footwear, while Sportmart tallied 29.1 percent. Most shoes in both stores will be on the sales floor, Victor said, while associates will focus on higher-end, technical product. Sportmart's look, however, is shifting to Gart's more colorful format.
"We're adding in-store signage to promote a lot of brands," Victor added. "Gart has a lot of brand identification already."
Gart has concept shops for Nike, Adidas and Columbia, but also gives extensive signage to companies including Reebok. Although it doesn't adjust assortments so much by store, it focuses on finding what works in each area.
"We pay attention to regionality and get a lot of customer input as well as [information from ] store management," said Victor. "We have customer comment cards and e-mail."
Eyes On The Bottom Line-
Footaction USA, which plans to end this year with 600 stores, has an eye for managing the bottom line. Footaction stores, targeting consumers ages 12-24, are sleek, sporting walks of fame with athletes' stars encased in the sidewalk. The Dallas-based chain benefits from parent Footstar Inc.'s ability to leverage the real-estate and operations costs of Footaction and Meldisco, which operates leased shoe departments in Meldisco.
"They're the best at the operations side," said Aaron. "A low-cost operator. Very conscious of that."
The company recently said it will close its Dallas distribution center and consolidate distribution and some support-functions into parent Footstar's Mahwah, N.J., headquarters. Footaction also snags some good leases in areas overlooked by many competitors. Sosnick points to its 14 stores in Puerto Rico, where rents are relatively cheap, as examples. The company also stands out for efficiently tracking customers, collecting more than 1 million names with offers of a 13th pair free -- a trick that Just for Feet also uses. The company has given out a few thousand pairs, which observers say is not a bad price for over a million names. It has sold its first ad in its "magalog," a catalog with articles it calls "relationship marketing pieces." Footaction also created a "Star Card," through which it tracks purchases and progress toward free footwear.
The company also solved one of retailing's biggest dilemmas: How do you create individuality? By selling more than half of its products as exclusives, it gets an added cachet.
"A young customer values uniqueness and product that is somewhat special, in that it can't be found everywhere," said Keith Daly, Footaction's senior vice president and general merchandise manager. "We focus a great deal of attention on exclusivity."
Footaction, like much of its competition, agrees that bigger is better and is increasing store size and count. But rather than simply opening stores, it is expanding many. In 1999, Footstar plans to open about 50 new stores and convert another 50 to a new format. Its original prototype was 2,000 square feet, but 200 stores now follow a newer 5,000-square-foot prototype. By 2000, the company stated, close to 80 percent of its stores will be the new prototype.
"It's identifying those stores where the brand or item is important," Daly said of merchandising. "In many cases it's not do you buy it or not, but to what level do you pursue it."
Strong Service
While running may rise or fall as a pastime, for Fleet Feet it remains front and center. Sacramento, Calif.,-based Fleet Feet Inc. is running's biggest franchiser, with 30 franchises.
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"Our goal is to have a runner come in and find anything for running in our stores," said Tom Raynor, president of Fleet Feet. "We're a destination location, so people spend time in our stores."
While Fleet Feet said it sees itself as a store catering to runners, about 65 percent of its business is sneakers. It said it is up to about $17 million in sales a year: Store sizes range from 605 square feet in San Francisco to 4,000 square feet, with stores averaging 2,000 square feet. While Fleet Feet stays true to the core runner, it hasn't ignored or been immune to a running boom. The company said comps rose 20 percent over the last year and added seven stores over the past year and a half.
"We try to focus our effort on people, product and presentation," Raynor said. "Let the product be the hero. There's not a lot of brand promotion. But you know you're in a Fleet Feet store."
Good service and specialization often mean good margins. Prices, Raynor said, are "fair," not cheap. He said that having owners in the stores keeps the firm in touch with customers, rather than shifting to a larger system's autopilot. "We keep the quality of the store better with local owners," said Raynor. "We get to know our customer better."
The company has focused on matching customers' needs, not simply taking a myopic view of merchandise. Its nutritional products, heart-rate products, and accessories all center around the runner.
"Lately, women really have been driving the running market," Raynor said. "In a lot of stores we're starting to see that trend." While few other stores will let consumers take product for a test-run, Fleet Feet encourages shoppers to take "test runs on the sidewalk" while sales staff watch. And the Chicago store hooked up a video camera to a treadmill to do a video analysis. "Some stores videotape so as to help them make the right selection," Raynor said. "I think the customer is more demanding of this service."
New Niches
Outside the mall, different companies dominate different cities, sometimes by finding a sports niche. A private company founded by high school friends Eric Martin and Michael Kennedy in Boston in 1983, City Sports has grown to nine free-standing stores that are 8,000 to 10,000 square feet. It has seven stores in the Boston area, one in Philadelphia and one in New York. Footwear accounts for about 40 percent of its business. And the company says its comps have risen fairly consistently in the single digits and it has held margins.
"We're not a discounter. We're performance product," said Scan O'Brien, footwear buyer, City Sports, North Reading, Mass. "We hold price on current product. We maintain a strong margin."
Its customers, half male and half female, are primarily ages 18 to 35. The company blends athletic with outdoor, going deeper into hiking with brands such as Salomon, Timberland, Technica, as well as active-casual and skate with Vans, Simple and 26 Redtred. It also does a "significant" inline skate business and carries equipment. The footwear selection includes 300 SKUs, which the retailer adjusts to trends. Outdoor is up to about 15 percent of the footwear business, and the company took dollars and selection from cross training and put it in running. Nike, Adidas, New Balance (a relatively new vendor for City Sports), Asics and Saucony lead running.
"I think then there's not huge sale pressure by our employees," said Scan O'Brien of the company's decision to go with base, rather than commission, for sales associates. "If you're on a commission basis, you're trying to push [customers] into any shoe possible. Consumers, if they get the right product, are going to continue to come back."
The Foot Locker Factor
When athletic-retail executives talk about the competition, the conversation eventually turns to one chain: Foot Locker, owned by Venator Group Inc. formerly Woolworth Corp. The competition isn't just for customers; it's also for leases and allocated product. When something happens at Foot Locker, it can affect the entire industry.
At about 3,650 stores -- including 2,000 Foot Lockers, 700 Lady Foot Lockers, 250 Kids Foot Lockers and 700 Champs stores -- Venator's athletic group is nearly everywhere in and outside of malls. Some see it as a struggling giant, whose comps have been dropping. But it is still the only company Nike listed on SEC filings as accounting for over 10 percent of its business. Foot Locker accounted for 12 percent of Nike's branded sales in 1997. But despite its market share in the athletic footwear arena, it also faces huge obstacles.
"Venator Group operates 3,000 athletic footwear stores in the U.S. in virtually every shopping mall," said Bernard Sosnick, managing director; Genesis Merchant Group Securities. "But the stores are small."
Venator Group's most obvious impact has been simply by taking over others. The company acquired Koenig's, Athletic Fitters and Champs and made a bid to take over The Sports Authority. It also may have added steam to others' acquisitions. Soon after what Gruntal & Co. analyst Mike Conn called the "blockbuster" bid for The Sports Authority, Just For Feet announced its takeover of Sneaker Stadium.
"From what I'm hearing, they're putting in a lot of their own branded product," said Just For Feet's Harold Ruttenberg of Venator: "That to me is good for me and my vendor's. We might have some special makeups. That's not a big part of our business."
Venator still gets top deals from vendors, but now others are big enough to get more attention and perks. While Foot Locker still gets key product, other chains are getting their foot in the door.
"When Nike released Air Jordan in 1994, Woolworth would get preferential treatment. Foot Locker became the fashion outlet for athletic footwear;" said Sosnick. "Now Finish Line and Footaction get the product at about the same time in the malls."
Foot Locker is a competitor for mall space. Other companies have formed informal alliances that have opened the door to major malls. According to sources, Nordstrom helped Finish Line get into key malls. Nordstrom denies any connection with Finish Line.
"The ones who hold the cards are the mall owners. Major mali owners have given Finish Line selective positions in its malls," said Sosnick. "Why not run with the horses who are proven winners?"
Still, Foot Locker has been focused on building a powerhouse, more than raking in strong sales for the short term. And the Foot Locker factor soon may extend much further as Venator revs up its Lady Foot Locker and Kids Foot Locker formats, creating triplexes linking all three.
But in some other respects. Foot Locker may be its competition's best friend and resource. Venator often hires from other industries or other parts of retail. But many top executives in footwear retail, including Foot Action USA President Ralph Parks and senior vice president Keith Daily, come from Foot Locker.
New Life for Old Product
Every retailer is faced with the same question: How do you handle clearance goods, older merchandise and product that just won't move? Different stores have come up with different solutions: Some use sales, some concentrate product in a few stores, and some use special sections. Handled improperly; cheap product drives down sales and margins on other product. But clearance product also can become a big part of a healthy business.
"What we're seeing is with the excess inventory in the pipeline, stores are able to offer lower prices on higher quality shoes than they were in the past," said Gregg Hartley, of the Athletic Footwear Association. "The question that has to be answered is, when the inventory is gone are they going to be able to move the price point back up?"
Many companies that have done well in recent years have been able to sell cheap product without hurting their margins and main business. Genesis Merchant Group analyst Bernard Sosnick said Finish Line carries about 25 percent of its athletic footwear sales in budget priced or "opportunistic" product. The Finish Line says it consolidates older merchandise in one or more stores in each district for final markdown. It has half a dozen outlet stores where it puts old merchandise to keep the other stores fresh. And Footaction USA says it keeps inventories down and uses sales to move older product.
"Your inventory always needs to reflect what's current, new and fresh," said Keith Daly, of Footaction USA. "I think the key is to really manage those inventories to reflect new not old goods."
But Just For Feet used marketing to glamorize clearance product. It created "The Combat Zone" for close-out product it sells at a discount in front of its stores. That section now accounts for over 20 percent of its business.