By Thomas J. Ryan

Fleet Feet Sports celebrated its 40th anniversary this week at its annual conference. Since opening its first store in Sacramento, CA in 1976, the retailer has become one of the nation’s most successful franchisees, even ramping up its expansion efforts in recent years.

Yet the anniversary comes at a challenging time for the run specialty channel that is generally seeing flat to declining sales after nearly two decades of steady strong growth. The blame for the pullback has been placed on everything from heightened competition from online and non-traditional retailers, a rocky shift to digital retailing, and even concerns about the dwindling appeal of the activity of running.

But Fleet Feet continues to outperform the channel, even delivering a positive comp last year. And with the event’s theme, “We Run As One,” Fleet Feet CEO Jeff Phillips believes the company’s ownership-centric model will continue to pave the way for success in the future.

“The theme wasn’t a reaction to what’s going on but I think it’s appropriate to circle the wagons a little bit,” Phillips said at the event held in Huntington Beach, CA. “Our franchisees coming here and spending time with each other talking about business challenges and business ideas and learning from each other, that’s the power of the brand. It’s bringing all that collective experience and knowledge that exists out there in our system together and leveraging it.”

Taking some time to sit down with SGB, Phillips discussed the newest challenges facing the run specialty channel, its distinctive business model and its franchisees’ embrace of the digital consumer.

How would you assess what’s going on in run these days? I think what we’re going through right now is natural and to be expected. The running industry went through a 20-year growth cycle, which is unprecedented. It was due for a reset. We would have possibly seen a reset in 2010 if minimal hadn’t fallen out of the sky and propelled the industry for a few more years. So I think we were overdue for a reset because categories always cycle and performance running as a category had undergone an unprecedented cycle. And you need resets to gather yourself and figure out how you need to evolve and change for the next push upward.

What are some of the newer challenges facing run specialty? Certainly with everything that’s going on at the retail level with bankruptcies and liquidations, there’s a lot of product out there, most of which is not being sold at suggested retail. The proliferation of distribution had been a challenge for several years and now we have mass liquidation of product. So it’s going to take a while for that to flush through the system. Long term, I think we’re positioned well when we come out the other side of it.

Are there too many run specialty stores? There are certainly markets where there are too many running stores. But beyond the question of too many running stores, the bigger issue is there are too many places to buy running shoes – period. Performance running product has been pushed into channels of retail where historically you wouldn’t necessarily find a lot of performance product. I don’t think that running specialty as a whole is going to be unscathed by what’s going on. We will lose some running specialty retailers in the environment we’re in right now. But again, I think that’s a natural process. When you get over-retailed or over extend, the market will correct itself and we’re going through that now.

Running USA recently reported that overall race participation declined for the second straight year. Is participation the problem? There are still a lot of people running and the people who aren’t running much still wear running shoes. But the simple fact is there’s a lot of competition for mind share with the running customer with fitness boxes such as Orangetheory and the Flywheel where runners are going into those environments a couple times a week in lieu of going for a run. But they’re still running. We’ve also gone through a cycle where there were a lot of new events like color runs, and those types of events are probably a little bit on the downside for now. But it doesn’t concern me greatly because there are still are a lot of people running for a lot of different reasons such as health and fitness and wellness.

Jeff Phillips Head Shot[1]

Fleet Feet CEO Jeff Phillips

Have MAP policies reduced the online challenges? No. It’s something we look to control and obviously it’s a topic we talk about a lot. But MAP policy is really a result of over-distribution. Unfortunately, vendors are playing ‘whack a mole’ with MAP policy, which doesn’t really address the root cause.

How is your e-commerce push going? We launched our e-commerce site about a year-and-a-half ago. We’ve had great adoption from our franchisees and we’re building it in the right way. We do fulfillment from our stores. We launched local inventory visibility on our website about three weeks ago and we had over 10,000 click-throughs on the check-your-local inventory button in the first three weeks. So we’re really integrating everything that we’re doing digitally into what we’re doing locally in the stores. Next on the list is buy-online, pick-up in-store and prior to the holiday shopping season, we plan to integrate gift cards into our online site. Not surprisingly, online sales are growing like crazy right now, but we don’t simply look at online from a ‘how many transactions we can create point of view.’ For us it’s more about how we can keep customers in our ecosystem by eliminating dead ends. If a customer goes into a store and the product they want, in the color they want is not there on that day, we can direct them online and get the product to them quickly. Using our stores as fulfillment centers truly gives us an endless aisle of product because we’re able to leverage inventory across the entire system.

Was it a challenge to get franchises to buy into the online push? It really wasn’t. Our owners are smart. Change is always hard, right? Introducing new concepts is hard. It’s a process you go through but our owners know we need to be there. And I think they appreciate the approach we take which is to make the local owner and local stores a big part of the solution by using them as fulfillment centers and driving the customers to the stores. So we’ve had really good success in terms of adoption. The owners know that we have to play in this space because our customers expect it.

What are some other key priorities on the digital side? We just completed development of a centralized customer data hub. This will allow us to consolidate customer data from over 160 local point-of-sale systems to create a singular view of the customer. This will ultimately allow us to segment and target markets to customers based on their purchase history, training program and event participation, online activity, etc.

What are some other priorities? We’re doing a lot of blocking and tackling and we’re doubling down on our in-store experience. As I said, there’s a lot of places to buy running shoes, including online. So when a customer walks into one of our doors, if that interaction doesn’t go well, the margin for error is zero. We’re hyper-focused on creating a great in-store experience because that’s where most retailers struggle and it plays to our strengths because it’s what we’re really good at.

How about marketing? We just completed a comprehensive customer study and we’re in the process of a major refresh in terms of our brand positioning and consumer facing messaging. Our ability to create national campaigns that can be executed at the local level is unique and powerful.

What’s been the cornerstone to Fleet Feet’s longevity? I think one of the most important decisions was made by Tom Raynor when he decided that he wasn’t going to have any investor-absentee owners, which is not how most franchising models work. All of our owners work in the stores, They’re involved in day-to-day operations, they’re involved with their employees, with the vendor community, and most importantly they’re involved with customers and the community. This has allowed us to be a strong national brand that is really good at being hyper-local and the magic dust in our model is that engaged owner operator at the local level that guides everything. This is something that we have always embraced. It’s not necessarily the fastest growth strategy but it’s been incredibly successful because we’ve had very few store failures over the years.

How else has Fleet Feet stood out? Ten years ago, we crafted a brand positioning of inclusiveness and belonging and that was all about really embracing a larger group of runners, not just the fast runners, but runners of every pace and ability level. I attribute that positioning to driving sales growth for us over the last decade. We’re never going to shift away from our core focus on running. But being inclusive to customers and reaching new customers through an in-store environment that isn’t intimidating for any level of runner, that’s been a cornerstone of our model for a decade and that’s not going to change.

How is Fleet Feet doing? We’re doing well. We comped positive last year and I don’t know many retailers in any channel of distribution that can say they comped positively. It wasn’t by a lot but we comped positively. And through May of this year we were still comping positively. But it’s hard work. I look at the industry trends and see performance running as a category down 15 to 20 percent. I’ve also seen stats that show run specialty as a retail channel also down double-digits. We’re never satisfied because we’re accustomed to growth. But when you look at what’s going on, you have to feel pretty good about how you’re performing compared to the rest of the industry.

What do you attribute that to? Our owner-centric model. As I said, we have the ability to leverage the knowledge and experience and successes and failures of a lot of different people and it gives us an advantage. Secondly, I would say the things we’re doing digitally. We have size and scale that allows us to do some things that smaller retailers in the channel simply can’t do.

Can you discuss your expansion efforts? After spending the first 36 years as basically a franchise-only company and primarily a single-store owner/operator model, we’re going on four years of really strong growth expanding our footprint. Over the past three years we’ve averaged adding 20 locations a year and we’ll add around 14 or 15 this year. The biggest driver for growth has come from existing franchisees opening a second, third or fourth location. We also added company-owned stores through acquisitions. Another way we’ve grown is through independents that have converted to Fleet Feet. Finally, we’ve opened a handful of company-owned stores from scratch. What’s really neat about our company-owned stores is they’re franchiseable. We have an operating partner program that puts some of our best employees on a path to ownership. That allows us to not deviate from our model, which is having everything very local in terms of execution.

What’s the key to keeping Fleet Feet humming for the next 40 years? I think at the end of the day it’s really simple. You have to raise your focus on your customer, understanding what they value and evolving to be able to deliver what they want. The reality is that as recently as five or six years ago, run specialty had a reasonable amount of control over their relationship with their customer. Now, the customer is in complete control because technology has brought the customer access to everything. Our keynote speaker, Lee Peterson of W.D. Partners said, “Customers don’t have to come to stores,” and it’s true. We have to stay focused on reasons why our customers want to come to our stores, and if we’ll do that we’ll be fine.

Lead Photo: Jeff Philips, CEO, Fleet Feet Sports, pictured right.