1. Athletic Footwear Industry
Christine Bell, Mariana Pinos, Michael Turner, Jordan Winawer

2. Agenda Introduction Industry Analysis Pricing Strategies
Raw Data Analysis
Our Recommendations

3. Why the Athletic Footwear Industry?
Relevance of the Industry
College students are one of the largest consumers of athletic footwear as athletes on varsity or intermural teams.
Observable changes in the market due to seasonality of customer preferences

4. Why the Athletic Footwear Industry?
Well known manufactures in the industry:
Nike
Under Armor
Adidas
Major focus on advertisements and pricing strategies in the industry
Growing/Profitable Industry

5. Industry Analysis

6. Industry Analysis Athletic Apparel Industry
57.6% of sales in the athletic apparel industry come from athletic shoes
34.5% of sales come from men’s shoe sales
23% of sales come from women’s shoe sales
30% of the sales in the shoe industry come from the sale of athletic shoes
20% from men's athletic shoes
10% from women’s athletic shoes

7. Industry Analysis Athletic shoe industry experienced a change
Undifferentiated products
Brands had to many close substitutes
No longer capture the interest of consumers
Resulted in the industry we see today
Market and brand segmentation
But the real culprit in the mid 90’s was lack of segmentation.  Brands essentially made the same shoes for every retailer.  Every retailer wanted to look like Footlocker back then, creating far too much duplication of products and brands. When the soft patch occurred, the cars in the freight train piled up behind.
Today, brands (and retailers) understand their roles. Channels and markets are clearly defined, avoiding duplication and redundancy.  If the industry were to hit a soft patch or lull, there are guard rails in place to avoid catastrophe.

8. Industry Analysis

9. Industry Analysis 20 years of growth seen in sports participation
Driver of demand for athletic shoes
Growth is expected to continue causing a 0.3 percentage point increase by 2019

10. Industry Analysis Seasonality Back to school Sport seasons Fall
Football
Golf
Winter
Indoor Track & Field
Basketball
Spring
Baseball
Outdoor track & field
Summer

11. Industry Analysis Four-Firm Concentration Ratio:
CRM= 64%+9%+4%+3%= 80%
80% of the market share in the market is concentrated in the top 4 companies

12. Industry Analysis Herfindahl-Hirschman Index HHI= 4244.415
Highly concentrated
According to market research and reported by Yahoo Finance only 25 firms have any major marginal presence in the athletic footwear industry

13. Industry Analysis Sports-Style Athletic Footwear
Recent developments in market segmentation
Sports-Style
Athletic Footwear

14. Industry Analysis Research and Development
A major selling point for the high end shoes in the industry
The focus of this research moves away from the aesthetic appeal of the sport-style to focused on 4 categories
comfort
performance
injury prevention
durability
Studies the different needs of women and men in sports
Not a large expense when compared to sales
Studies the footwear needs of athletes in their respective sports
Adidas spends 0.9% of their net sales revenue and 2% of their operating costs
Adidas 46% of their sales id from footwear
Adidas produced 96% of their their footwear in Asia
Economies of scales, automoated production huge in the foowear industry
Nike and adidas annual reports
Research PDF I downloaded for the industry

15. Industry Analysis Threats of New Entrants
Industry has medium to low threat of new entrants
High barriers to entry for the industry.
Few firms hold most of the market share
Consumers have strong brand loyalty
Economies of scale
They have exclusive contracts with suppliers and existing supply chains
Also, to capture the interest of top athletes, company’s need to do research and development to produce the shoes that give their users the best results.

16. Industry Analysis Threat of Rivalry
The athletic footwear industry faces a medium to high threat
High brand loyalty
Still some growth in the industry
Differentiation among companies in the industry
As the growth slows in US in future years increased competition in the industry

17. Industry Analysis Threat of substitute products Threat is low
At the high end, there are not many other shoes that can be worn safely while doing serious athletic activities
Large amounts of research and development used to protect athletes from injury
Sport specific shoes reduce the substitution among the different categories of athletic shoes

18. Industry Analysis Power of buyers Threat is medium
Throughout 1990s and early 2000s, buyers where able to influence the practices of the top company in the athletic footwear industry to make changes to their supply chain and outsourcing standards
Fierce loyalty to brand

19. Industry Analysis Power of suppliers Power of supplier is low
After Nike’s public relationships problems, corporations in the industry are very sensitive to public opinion of their suppliers
Many potential suppliers to only a few athletic companies
Huge power imbalance

20. Industry Analysis
2013 report by Bidness Etc has 2014 estimates gross margins in the athletic footwear industry up to 44.7% of the sales revenue

21. Industry Analysis Nike Founded 1964 Hold 64% of the market
First mover advantage in globalizing their supply chain
Owns the Jordan Brand and Converse
Adidas
Founded 1920
Holds 9% of the market
Acquired Reebok in 1990s
Is the official apparel partner of NBA till 2017

22. Industry Analysis New Balance Founded 19 06
Very small market share in the US
Is know for products that are made in the US
Privately held company
Asics
Founded 1949
4% of the domestic market share in the industry
Introduced in the US in 1977
Heavily focused on research and development of their products
Japanese company

23. Industry Analysis Under Armour Founded 1995
Holds 2% of the market share in the domestic athletic shoes market
Know for its performance apparel made from breathable and lightweight materials

24. Industry Analysis 98% of athletic shoes are imported Move led by Nike
Influenced by transportation costs
Rubber prices are major input in athletic shoes
Production takes place in southeast Asia
Prices effected by automotive demand and sales throughout the world

25. Pricing Strategies

26. Pricing Strategies Premium Customization Pricing
Price Skimming/Versioning
Bundling

27. Premium Pricing Mark-ups can be upwards of 300%
Highly marketed and advertised
High consumer willingness to pay

28. Premium Sales Increasing
Despite charging huge mark-ups, “premium” shoe sales are increasing
In 2013 sales of men’s athletic shoes over $100 grew 20% and represented a third of sales, 75% for last four years – Forbes
But, how?

29. Mechanisms for Premium Pricing
Athletic shoes as a fashion statement
“Sneakerhead” population
Regulated supply and excess demand

30. Athletic Shoes in Fashion
“85% of all athletic shoes are never worn for the intended purpose” – Forbes .com

31. “Sneakerhead”
Cult-like following of shoe aficionados (Harry Potter, Lord of the Rings, Star Wars)
Highest WTP for certain shoes (time and money)
Value footwear for the story and history

32. Regulated Supply and Excess Demand
Shoe companies are very effective at keeping supply below demand to maintain exclusivity and “rareness”
Some models of Nike’s signature styles sell out hours after release.
Excess demand evidenced by “resellers”
Can be another mark-up of 200% of retail price

33. Premium Pricing: Air Jordan 10
Estimated production cost per pair of Air Jordans: $16
Air Jordan 10 “Powder Blue” released on February 22, 2014 for $170
Grossed $35 million on the first day

34. Pricing Strategies Premium Customization Pricing
Price Skimming/Versioning
Bundling

35. Customization Pricing
Second-degree price discrimination implemented by Nike, Adidas, New Balance, and Reebok
Allows customers to customize the color and/or material of existing models of athletic shoes
Charge a mark-up from the price of the standard shoe (except Adidas)

36. Customized Shoes Mark-Ups
New Balance and Reebok have limited styles available for customization. Nike and Adidas have a large percentage of styles available for customization but Adidas does not charge a premium.
Average: 40% (31% w/o outlier)
Max: 113% (New Balance)
Min: 4% (Reebok)

37. Customization: New Balance 574
113% mark-up

38. Pricing Strategies Premium Customization Pricing
Price Skimming/Versioning
Bundling

39. Price Skimming/Versioning
Prices initially very high but decline as the style or color grows older
Capture more price sensitive consumers through 2nd degree price discrimination

40. Price Skimming: Nike Air Max Tailwind 7
Originally released in late 2014 for $110
Currently listed on Nike.com for $89.97 (22% discount)

41. Pricing Strategies Premium Customization Pricing
Price Skimming/Versioning
Bundling

42. Bundling
Shoe manufacturers will bundle two similar styles together or bundle two complimentary products
Shoes/shoes, shoes/socks, shoes/shoe cleaner
Not as common as other strategies
Geared highly towards “sneakerhead” community and high WTP consumers

43. Bundling: Asics Gel-Kayano Pack
Released in 2013 to celebrate the 20 year anniversary of their 1993 classic Kayano Runner style
$300 with a limit to 1,993 pairs worldwide
Contained the 93’ Kayano Runner and the newer Gel-Kayano in exclusive colorways

44. Raw Data Component

45. Aims of Raw Data Research
To determine if there is a correlation between the popularity of a sport and the price of its footwear
To determine if there is a correlation between the price of footwear for a sport and the amount of complementary products needed to play that sport
To analyze consumer brand loyalty
Determine how much competitors would have to lower prices in order for consumers to switch brands

46. Is there a correlation between the popularity of a sport and the price of its footwear?

47. Higher Popularity=Higher Cost?
If relationship exists, we expect football cleats to be priced the highest, followed by baseball, basketball, etc.

48. Prices of Football Cleats

49. Prices of Baseball Cleats

50. Prices of Basketball Shoes

51. Prices of Soccer Cleats

52. Prices of Golf Shoes
*Under Armour is still waiting on the release of its first golf shoe

53. Prices of Running Shoes

54. What we would expect…
PRICE
Popularity (decreasing) 

55. Actual Results
PRICE
Popularity (decreasing) 

56. Is there a correlation between the price of footwear and the amount of other equipment needed to play the sport?
We expect that athletic footwear for sports that require many pieces of equipment will be cheaper than footwear for sports with minimal equipment

57. Amount of complimentary goods needed for each sport (other than footwear)
Football: pads, helmet, football, gloves -average cost=$426 Baseball: bat, baseball, glove, batting gloves -average cost=$506 Basketball: basketball -average cost=$29.99 Soccer: soccer ball -average cost=$25 Golf: set of clubs -average cost=$500 (but last over span of many years) Running: ✖

58. Relationship Between Complementary Goods and Price of Footwear
Running shoes
Soccer
Basketball
Golf
Football
Baseball
# of other pieces of equipment needed

59. To what extent does brand loyalty affect how much consumers of athletic footwear are willing to spend?

60. Consumer Loyalty and Pricing of Athletic Footwear

61. Survey Results %
Brand

62. %
Level of Loyalty

63. How much would the competition’s prices have to drop for consumers to switch brands?
Survey results say 40% on average
This number indicates that brand loyalty has a large impact on purchase decisions in the athletic footwear industry

64. Our Recommendations for the Industry Overall
Cater to the aging population
Lower price of footwear to increase market share with this new generation
Create a product line for the older generation to maintain brand loyalty
Cater to increased world population/
Create luxury goods to meet increased demand for these products
Find alternatives to lower input prices from these developing countries.
Larger cohorts of older Americans
Less likely to exercise than younger generations
Consumer demand possibly decrease in future

65. Industry’s Current State
According to IBS World, the prices of shoes are expected to grow in the years between 2015 and 2020 at a 0.9% compounding growth rate
After the recession, the years between 2010 and 2015 experienced a 1.3% compounding growth rate for shoe prices
Growing Industry with many opportunities for investment
Oil crisis 80s
90s oil price shock
Early 2000s tech boom and 9/11
the great recession and recovery

66. Investment Recommendations
Suggested companies to invest in:
Nike
Top company in the industry
NLF recently signed a 5-year deal with Nike until 2019
Increase in contracts with universities as primary vendor for athletic departments
Under Armour
New Balance
New deals with Global Soccer Market

67. Pricing Strategy Recommendations
Nike
Focus on Premium Pricing
Increase prices for special footwear products to maximize profits
Under Amour
Customization Pricing and mark up
Focus on Running Shoes
Adidas
Implement Mark-up for Customizations
Increase Reebok Market Share
Expand footwear lines in Reebok
Increase brand Awareness

68. Questions?