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Ryan DuffAlex GlazerJack Grover
MASTER INTERNATIONAL FRANCHISING IN CHINA
Based in Kennesaw, GeorgiaForemost franchisor of athletic-footwear operations800 corporate and franchise stores in 40 countries1978: Expansion globally begins in Adelaide Australia1980’s: Bought out by the Group Rallye where more
emphasis was put on customer service and product design balancing the rapid expansion
THE ATHLETE’S FOOT, INC.
Reorganized structure: Two Divisions Marketing Team Serviced Franchises Store Team Operated Company-Owned Stores
Rapid expansion continues throughout the 1990’s: More than 650 stores
Competitive Advantage through customer-oriented technology: FitPrint System
Focus Points: Customer Service, Aggressive Marketing, Control of Pipeline from Point of Sales
THE ATHLETE’S FOOT, INC. CONT.
CEO Rick Wang Young entrepreneur looking for a new venture No prior athletic-footwear retailing experience CMO of Foremost Dairies Ltd.: short-shelf-life consumer
goodsTrip to HQ in Georgia to learn
Impressive inventory control systemBecame the Master Franchisor of The Athlete’s Foot,
Inc. in China.
RETAILCO INC.
FRANCHISE STRUCTURE IN CHINA
The Athlete’s Foot, Inc. (Franchisor)
Retail Co. China Holdings
(Franchisee)
Corporate Store
Corporate Store
Corporate Store
Sub-franchises
Branch Store
Branch Store
Branch Store
Monthly Royalty Fee: 2.5 percent of net salesOther Fees (Franchising, MIS, etc.):
$2000-$5000 per storeWang visited Atlanta HQ for “New Owner Training”
and completed “On Site Training” learning how to run an effi cient franchise of The Athlete’s Foot, Inc.
FRANCHISING STRUCTURE IN CHINA CONT.
The Athlete’s Foot, Inc. sold franchise rights to Retail Co. in exchange for royalty and service payments
Retail Co. opened several corporate franchise storesOne partnership was made to 12 sub-franchise The
Athlete’s Foot, Inc. stores in Nanjing and Wuxi
Sub-franchise: franchises granted within the territory of an existing Franchisee, that are usually allowed to be granted when the original Franchisee reaches a point in business development whereby they cannot sustain any further growth from the one outlet
FRANCHISING STRUCTURE EXPLANATION
Segment the Market into three Regions East China, North China, South China East China was thought to have most potential followed by
North China“New Owner Training Program” complete
Employees learn to work internal-control systems and marketing procedures
September 1998: fi rst franchise open in Parkson Department Store in Shanghai, East China Young Demographic 20-35 Years Old Devoted to Brand Names Style Conscious
GOALS AND STRATEGY FOR CHINESE
Before 2000, Wang opened a new store every 22 daysReached volume of $14 Million USD in sales in 2000Had all the most popular brands and an inventory
management system that allowed for effi cient and aggressive pricing
No market penetration by other companies
INITIAL SUCCESS
PROBLEMS ARISE
• Loss of First Mover
Advantage
• Failure to maintain necessary inventory levels
• Decreasing cash flow
China prepares to enter the WTO and the global financial community made preparations for increased potential in this new market
Increase in Foreign Domestic Investment (FDI)Size of department stores grow, but so does Athlete
Foot’s competition, making their space seem minimalMore footwear retailing players enter the market
LOSS OF FIRST MOVER ADVANTAGE
INVENTORY LEVELS/INCREASED COMPETITION
Local Competitor
s
Quest Sports
Competitive pricing,
enhanced customer service,
increased product quality
National Brand Names
Nike, Reebok, Adidas
Selling direct to consumer instead of
through retail location
Inventory Levels
National brands decreasing
supply because they are opening
own outlets
Cash flow struggles
prevent full inventory capability
Need to commit large amounts of capital upfront to obtain popular retail venues
High-traffi c upscale locations were desiredQuality location lead to increased sales performance
and success24-36-month leasing agreements were needed
requiring large amounts of upfront capitalTried expounding to more department stores, but
increased competition hindered this
CASH FLOW PRESSURE
1. Decreasing amount of store front locations2. Reposition its products from athletic-footwear to
athletic products to diff erentiate from local and global competition
3. Reposition to diff erent target market4. Leave China all together
SOLUTIONS
Slow down expansion in China Approximately cost $75,000 per store (Based on 3,000
square meter stores)
DECREASING AMOUNT OF STORE FRONT LOCATIONS
SOLUT ION 1
Reposition its products from athletic-footwear to athletic products to diff erentiate from local and global competition Basketballs Tennis rackets Apparel
REPOSITION FROM FOOTWEAR TO SPORTING GOODS
SOLUTION 2
RetailCo has a supply issue regarding the fact that national brands will no longer provide lots of inventory or trendy/current products
Last season products can be taken advantage of – off er for less to a more price sensitive consumer who is still interested in brands
New Consumer: Brands are still important but not number one priority, motivated by price
Will also attract loyal fans looking for dealsMaintain superior customer service: when customers
may have the choice, we want them to still pick going to RetailCo over corporate stores, “bang for buck” aspect
REPOSITION TO LESS-BRAND CONCIOUS DEMOGRAPHIC
SOLUTION 3
Don’t go global unless you have to!Too many problems emerging with this marketRefocus eff orts on domestic franchisesFind another market that fi ts model better – not every
country is the right fi t
Wang expanded too quickly: no time to plan exit strategy or long term goals, too much focus on sales volume & size of company
PULL FRANCHISES IN CHINASOLUTION 4
The athletes foot today is not able to competeThe only available sector is high discount segments
of the market, targeting middle income familiesThis change in focus would require too much cashThe company can no longer stock the products that
consumers want to buy, and therefore cannot compete in the higher end segment like it has done since its inception.
THE ATHLETE’S FOOT, INC. TODAY