Athletic Footwear Industry

Report
Athletic Footwear Industry
Rob Pannell,Kyle Ewanouski, Vaibhav Gupta, Venkat Koduru
1
Why athletic footwear?
• Constant observable shift in consumer preferences
due to seasonality
• Relevant to college students since most as
consumers of athletic shoes and involved in sports
team
• High (45%) gross margin; strong focus on marketing
• Nearly all inputs are outsourced except for endretailing
• Push to cut out retailers, and sell directly to
consumer
2
Industry Structure
3
Quick Figures
Global Footwear
Market
$185 billion
Global Athletic
Footware Market
$75 billion
US Athletic
Footware
$14 billion
• US Athletic Footwear
represents roughly 19% of
global athletic footwear
market
• Asia-Pacific market is
expected
Avg Gross Margin:
Avg Net Margin:
45%
7%
Avg Marketing Expense: 10%
4
Shoe Distribution
Shoe Manufactures
Retailers
Customers
5
Types of Shoes
• Based on survey data by NPD group of purpose of
athletic footwear
• Nearly 50% of sales is for “Casual Athletic” and
“Running”
6
Customers
• 50% of sales in the US are to men, 30% to women,
and 20% to children/infants
• Males account for roughly 60% of sales to children
and infants, so trend is not reversing
7
Let’s look closer
• Though Men bought the same number of athletic
shoes, they purchased more expensive ones
• Women too purchased more expensive shoes, but
they purchased less shoes
• Children’s shoes (though only 15%) of the market,
are the fastest growing area
2011 to 2012
Dollar % Change
Unit % Sales
Men
+6%
flat
Women
-3%
-5%
+13%
+4%
Infants
+7%
flat
Total
+4%
-1%
Children
8
Consolidated Industry
US HHI = 2,713
• Highly concentrated domestic market
• Nike and Addidas (including Reebok brand) make
up 80% of market share
• Smaller, specialized players that focus on particular
segments all with limited market share
Global HHI = 1,581
• Moderately concentrated global market
• Nike and Addidas (largest global players) make up
49% of market share
9
Specialization
• Only the Nike,
Adidas
(Reebok), and
New Balance
brands offer
products for a
wide range of
sports
• Most of the
other
manufactures
specialize in
only a few
segments
10
Key Success Factors
• Low internal costs
• Economies of scale & scope
• Manufacturing efficiency
o Outsourcing of majority of manufacturing
& automation
• Establishment of brand names
• Quality control
• Establishment of export markets
• Compliance with government policies
11
SWOT
Strengths
•
•
•
•
Low product costs, and high prices (avg.
gross margin: 45%)
High net margin (avg. roughly 10%)
Strong brand loyalty
Lean organizations (money not tied up in
factories, manufucatuing workers); most
costs can be easily reversed (marketing)
Opportunities
• Growth in emerging markets
(mainly in Asia-Pacific region) –
growing wealth and
internationalization
• Many global marketing
opportunities to increase exposure
(World Cup, Olympics, etc)
Weaknesses
• Low penetration of price sensitive
consumer market (especially
important in European market)
• Numerous ethical problems at
manufacturing facilities (problem
not limited to Nike)
Threats
• Rising competition from
counterfeited goods in growth
markets
• Slow growth in US
• Negative growth in Europe
12
Nike
• 42% domestic market share
• Purchased Converse in 2003 for $305 million
• Focus on selling higher-priced “customized” shoes
directly to customer – NikeId.com
• Focus on technology – Nike+ product with Apple
Nike
Revenue
(millions $)
Gross Margin
Net Margin
Marketing
Expense
2012
24,128
43.40%
9.21%
11.24%
2011
20,862
45.58%
10.22%
11.73%
2010
19,014
46.28%
10.03%
12.39%
2009
19,176
44.87%
7.75%
12.26%
2008
18,627
45.03%
10.11%
12.39%
13
Adidas
• 39% domestic market share (12% Reebok brand)
• Purchased Reebok in 2006 for $3.8 billion
• Globally Adidas is the more popular brand, US
Reebok
• In 2006, signed 11 year contract to become official
NBA clothing provider
o Increased revenue by 51%; Increased US market share
Addidas
Revenue
(millions $)
Gross Margin Net Margin
Marketing
Expense
2012
19,347
47.73%
3.53%
10.09%
2011
2010
17,347
15,587
47.54%
47.79%
5.02%
4.74%
10.21%
10.74%
2009
13,495
45.39%
2.36%
9.90%
2008
14,038
48.67%
5.96%
10.48%
14
Under Armor
• Focus is actually on specialized t-shirts
• Only began offering footwear in 2006; negligible
current footwear market share
o But growing brand + strong brand loyalty = expectation of higher market
share in the future
• Growing net margins
Under Armour
Revenue
(millions $)
Gross Margin
Net Margin
2012
1,834.9
47.92%
7.02%
2011
1,472.6
48.41%
6.58%
2010
1,063.9
49.87%
6.44%
2009
856.4
48.23%
5.46%
2008
725.2
48.94%
5.27%
15
Puma
•
•
•
•
U.S Market share only 6%
Global market share is 7%
Owned by PPR conglomerate
Large presence in European market
o Increased raw material costs and reduced demand have damaged
margins
• But above average gross margin
Puma
Revenue
(millions $)
Gross Margin
Net Margin
2012
4,252.3
48.28%
2.14%
2011
3,911.7
49.63%
7.64%
2010
3,517.8
49.69%
7.46%
2009
3,199.3
51.30%
5.12%
2008
3,281.2
51.76%
9.19%
16
Survey Results & Pricing
Strategies
Premium Pricing
• Footwear products are listed at an
above average price
o Nike Lebron X P.S. Elite + Enabled
priced at $279.99
• (Why?)
o Higher prices influence customers’
perceptions of product as they often
equate higher prices to higher
performance and an overall better
product, in comparison to lower
priced goods
Penetration Pricing
•Footwear products are listed at a lower price than
competitors in order to gain attention and support
from new potential customers
• Li-Ning leading sport brand in China attempting
• Just signed Dwayne Wade in 2012
(Why?)
•Companies attempt to gain market share and long
term survival amongst the industry by attracting
customers simply through the use of marginally
lower costing products than their well known
competitors
Promotional Pricing
•Footwear products are often listed as on sale
or part of a “Buy one Get one” offer for a
limited time
(Seasonality of products)
o Jordan AJ 2012 Lite- Men’S Width DMedium
$149.99
Now $99.99
(Why?)
•Companies utilize promotional pricing in order
to further attract the attention of price sensitive
consumers and in turn develop a long term
customer loyalty to the specific brand or
provider
Temporal Pricing
• Assume that when a sport is out of season the price
of footwear specific to that sport in fact drops or
goes on sale to provoke spending by consumers.
Value Based Pricing
•Pricing Footwear products according to the
amount and degree of benefits that that specific
product provides to the customer, as opposed to
pricing the product in regard to how much it takes
to actually make it
• (Nike’s average basketball shoe costs around $12 to manufacture)
(Why?)
•VBP is utilized in order to capture more consumer
surplus and works best when providers have an
accurate idea of just what consumers are willing to
pay for specific goods
High-Low Pricing
•Footwear products are originally priced higher than
competing products, and once initial consumer interest
and popularity begin to diminish, prices are significantly
lowered through the use of sales techniques such as:
opromotional efforts
oCoupons
odiscount rates
(Why?)
•Initial high prices captures extensive revenue from
customers willing to pay premium prices for popular
products, and once the majority of customers tend to
stray away, discount rates and slashing of high prices
make customers feel products are more affordable
Advertising
Lebron James
• Lebron James in 2003 signed a 7 year, $93
million deal with Nike and in 2010 resigned with
Nike for an undisclosed amount known to be
greater than $10 million per year.

In 2003 Kobe Bryant signed a 5 year, $45
million deal with Nike. His current
contract with Nike is unknown but
believed to be an amount greater than his
previous one.
Derrick Rose

In February of 2012, Derrick Rose signed a
14 year, $250 million contract with Adidas.
Derrick Rose was MVP of the league at age
22 before tearing his ACL.
• Durant signed a 7 year, $60 million deal with
Nike after turning down a 7 year, $70 million
deal and $12 million signing bonus with Adidas.
Durant says he has history with Nike dating
back to the 8th grade.
Michael Jordan
• Jordan signed a 5 year contract with Nike in
1984 for $500,000 per year and Nike stock
options bringing the deal to over $7 million for 5
years.
• Today Michael Jordan earns an estimated $60
million a year from the Nike/Jordan brand.
• Air Jordans are responsible for 58% of all
basketball shoe sales today and $2.5 billion in
sales for Nike.
Second Degree Price
Discrimination
•“Firms offer a menu of different packages” or in
this case different athletic footwear options
“designed in such a way that consumers sort
themselves out (self-select) by choosing different
packages.”
•Different products offering different benefits to
the consumers that allows the public to self select
for the specific good they desire
• (Nike Lebron X priced at $180.00 vs. Nike
Hyperdunk Low priced at $120.00 vs. Nike Zoom
Hyperchaos priced at $90.00)
o Similar Product Different Name
• (Nike Lebron X vs. Hyperdunk)
Nike Lebron X vs. Nike
Hyperdunk
Nike Lebron X priced at $180.00
Nike Hyperdunk priced at $140.00
Summary
•
•
•
•
•
•
Slow unit sales growth in developed markets; increasing in emerging
markets
Margin growth in developed markets
Highly concentrated industry domestically; moderately concentrated
globally
Second degree pricing discrimination frequently used with mainly
penetration pricing, promotion pricing, premium pricing, and hi-lo
pricing, value based pricing
Recap on trends and raw data:
o Many from survey said that they though shoes were overpriced
but also said that they had a high willingness to pay
o Shift in consumer preferences due to intense advertising –
consumers prefer celebrity endorsed or technology enhanced
shoes with higher markups
Industry Growth:
o Increased margins in developed markets
o increased brand awareness in both developed and developing
markets
o Favorable demographic shifts in emerging markets
45
Recommendations
• Industry wide recommendations:
o Increase prices through more technology advancements and celebrity
endorsements (limited scope for increased sales in developed markets)
o Expand market share with lower priced shoes in $25 to $50 range
o Green marketing campaign: Proved successful for Nike
• Company recommendations:
o Nike: Focus on improving working conditions and PR image which are
hurting growth in certain segments
o Adidas: Increase market penetration in the US
o Under Armor: Mainly focused on football and running. Should focus on
expanding product lineup.
o Puma: Expand market share outside Europe and expand product line to
enhance premium pricing and penetration pricing
46

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