Athletic Footwear Industry Christine Bell, Mariana Pinos,
Michael Turner, Jordan Winawer
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Introduction Industry Analysis Pricing Strategies Raw Data
Analysis Our Recommendations Agenda
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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 Why the Athletic Footwear
Industry?
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Well known manufactures in the industry: Nike Under Armor
Adidas Major focus on advertisements and pricing strategies in the
industry Growing/Profitable Industry Why the Athletic Footwear
Industry?
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Industry Analysis
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30% of the sales in the shoe industry come from the sale of
athletic shoes 20% from men's athletic shoes 10% from womens
athletic shoes 57.6% of sales in the athletic apparel industry come
from athletic shoes 34.5% of sales come from mens shoe sales 23% of
sales come from womens shoe sales Athletic Apparel Industry
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Industry Analysis
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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
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Industry Analysis Back to school Seasonality Sport seasons Fall
Football Golf Winter Indoor Track & Field Basketball Spring
Baseball Outdoor track & field Summer Golf
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Industry Analysis CRM= 64%+9%+4%+3%= 80% Four-Firm
Concentration Ratio: 80% of the market share in the market is
concentrated in the top 4 companies
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Industry Analysis Highly concentrated According to market
research and reported by Yahoo Finance only 25 firms have any major
marginal presence in the athletic footwear industry
Herfindahl-Hirschman Index HHI= 4244.415
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Industry Analysis Sports-Style Athletic Footwear
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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
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Industry Analysis 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, companys need to do research and development to produce
the shoes that give their users the best results. Threats of New
Entrants
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Industry Analysis 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 Threat
of Rivalry
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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
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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
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Industry Analysis Power of suppliers Power of supplier is low
After Nikes 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
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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
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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
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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
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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
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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
Premium Pricing Mark-ups can be upwards of 300% Highly marketed
and advertised High consumer willingness to pay
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Premium Sales Increasing Despite charging huge mark-ups,
premium shoe sales are increasing In 2013 sales of mens athletic
shoes over $100 grew 20% and represented a third of sales, 75% for
last four years Forbes But, how?
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Mechanisms for Premium Pricing Athletic shoes as a fashion
statement Sneakerhead population Regulated supply and excess
demand
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Athletic Shoes in Fashion 85% of all athletic shoes are never
worn for the intended purpose Forbes.com
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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
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Regulated Supply and Excess Demand Shoe companies are very
effective at keeping supply below demand to maintain exclusivity
and rareness Some models of Nikes signature styles sell out hours
after release. Excess demand evidenced by resellers Can be another
mark-up of 200% of retail price
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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
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)
Price Skimming/Versioning Prices initially very high but
decline as the style or color grows older Capture more price
sensitive consumers through 2 nd degree price discrimination
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Price Skimming: Nike Air Max Tailwind 7 Originally released in
late 2014 for $110 Currently listed on Nike.com for $89.97 (22%
discount)
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
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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
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Raw Data Component
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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
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Is there a correlation between the popularity of a sport and
the price of its footwear?
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Higher Popularity=Higher Cost? If relationship exists, we
expect football cleats to be priced the highest, followed by
baseball, basketball, etc.
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Prices of Football Cleats
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Prices of Baseball Cleats
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Prices of Basketball Shoes
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Prices of Soccer Cleats
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Prices of Golf Shoes *Under Armour is still waiting on the
release of its first golf shoe
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Prices of Running Shoes
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What we would expect Popularity (decreasing) PRICEPRICE
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Actual Results PRICEPRICE Popularity (decreasing)
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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
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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:
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Relationship Between Complementary Goods and Price of Footwear
# of other pieces of equipment needed Running shoes Soccer
Basketball Football Baseball Golf PRICEPRICE
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To what extent does brand loyalty affect how much consumers of
athletic footwear are willing to spend?
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Consumer Loyalty and Pricing of Athletic Footwear
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Survey Results Brand %
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% Level of Loyalty
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How much would the competitions 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
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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.
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Industrys 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
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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 Increase in
contracts with universities as primary vendor for athletic
departments New Balance New deals with Global Soccer Market
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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
