By Thomas J. Ryan
Supported by a second running boom, the run-specialty channel enjoyed a period of oversized growth that lasted nearly two decades.
In 2014, however, the channel hit its own proverbial “wall” akin to a marathoner suddenly running out of gas at the 20-mile mark. While some stores still managed gains, sales for the overall run specialty channel have generally been flat over the last two years, with some suffering rare declines.
“I don’t think it’s an overstatement to say that specialty run is facing its biggest challenges ever,” said John Benedict, president of Playmakers Sports in Michigan. “It is the most competitive, oversaturated market we’ve seen.”
Kris Hartner, owner of Naperville Running Company in Illinois, felt the industry was heading for a slowdown around the start of this decade, but two factors artificially inflated growth in ensuing years. The first was the minimalist craze that was followed by the maximalist trend, and both caused some runners to purchase a second pair of shoes.
The second was a strong fashion trend toward running shoes that has since shifted to basketball, and more recently to classic athletic footwear. But Hartner said expectations for continual double-digit growth rates were “unrealistic,” with periodic ups and downs more the norm for the run specialty business.
“I think what we’re going through right now is natural and to be expected,” agreed Fleet Feet CEO Jeff Phillips. “The running industry went through a 20-year growth cycle, which is unprecedented. It was due for a reset.”
Phillips also felt the industry could have seen a reset in 2010 if minimal “hadn’t fallen out of the sky” to propel growth for a few more years. He added, “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.”
Fallout From Growth
The industry faces a bit of a hangover following the years of exuberant growth. Terry Schalow, executive director of the Independent Running Retailers Association (IRRA), said one major, newer challenge isn’t so much the many run specialty stores that opened in recent years, but that running product is widely distributed.
“The top-selling products that the channel championed twenty years ago — when no other channel really cared — are now so heavily distributed that they have become, in effect, commodities,” lamented Schalow. “These products are sold almost everywhere, and even worse, this almost always leads to discounting and a dilution of the premium nature of the product.”
Schalow is not blaming the vendor community, believing consumers are looking for more choices in where to purchase product. But strong partnerships have become more critical, with many vendors understanding the importance of a healthy run specialty channel.
“The challenge is to find a solution within the framework of how the market has evolved, and we’re seeing interesting new trends,” Schalow said. “For example, the leading market share vendors are working to provide unique product solutions for specialty retailers, and retailers are exposing their customers to some amazing new products from vendors who aren’t widely distributed. This isn’t an overnight solution, but we’re already seeing movement in this direction, and this is a good sign for the future health of the channel.”
David Durkin, senior associate at Karnan Associates, a consultancy specializing in the running, cycling and outdoor industries, agreed that run specialty faces bigger hurdles when attempting to stand out since they’re “much less distinct and isolated” than before. Beyond running shoes, apparel and accessories are readily found in other retail channels, as the athleisure trend has driven a huge influx of retailers into the athletic category.
“There’s also a diversification of activities,” added Durkin. “We don’t track cumulative participation in training programs or beginner programs, but there are many more options for activity and accomplishment beyond a 5K or marathon, such as CrossFit, obstacle runs, mud runs, relays, virtual runs and now Pokemon Go.” Schalow believes stores have to adapt to a new mindset around running.
“Simply put, we’re seeing fewer people identify themselves as ‘runners,’” he said. “In fact, they eschew labels altogether and instead view running as a part of their overall fitness regimen.”
Moreover, the popularity of mud runs and color runs point to a yearning for new experiences and a social component from the sport that needs to be addressed.
“Running stores did a great job twenty years ago shifting their service model from the hardcore 70-mile-per-week runner to the 10- to 15-mile-per-week runner,” said Schalow. “Now it’s time to figure out how to attract these new running customers and convince them to come shop in what they view as a traditional running store. This requires a shift in thinking and strategy that many stores have struggled to resolve.”
Finally, the growing omni-channel market is another new challenge that has proven to be a difficult transition for many run-specialty stores.
“To stay competitive, the specialty retail channel clearly needs omni-channel platforms,” Schalow said. “What is really tough in these days of search-engine optimization is that it’s virtually impossible for the small retailer (or even chain stores) to compete with Amazon and some of the larger running e-tailers that invest heavily to get their stores in the front of the Google queue.”
A Digital Focus
Many local retailers have shifted their focus to online engagement. Hartner said Naperville Running attempted to launch an e-commerce platform several years ago but found it to be time-consuming since the business had to be run as a separate entity. Like many other stores, Naperville Running has since partnered with Locally.com, which enables online customers to see what inventory is available at nearby stores. Merchandise can be reserved or bought online for pickup, or consumers may just head to their local store, knowing their size is available. Like other retailers, Naperville Running invested more in online outreach, dedicating a staff associate to focus its attention on social media and e-mails.
Playmakers’ Benedict also works with Locally.com to support its omni-channel reach, but has not embraced online selling. Said Benedict, “Our in-store experience will be our focus and remains the only card we have to play. We will try to be more convenient for our customers and let them shop how they want to, but for us it will be a minimal part of our business.”
Fleet Feet has seen strong online growth since it launched its e-commerce site tied to local franchises’ inventory a year and a half ago. But local inventory visibility was also recently launched and buy-online, pick-up in-store will be introduced before the holiday selling season to fully support their customers’ purchasing needs.
Said Phillips, “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 gives us an endless aisle of product because we’re able to leverage inventory across the entire system.”
Durkin said providing an online purchasing option may be necessary at some point for all run-specialty stores, particularly with the technology hurdles easing every year. But he also believes stores could be doing a better job overcoming the perception of convenience, ease and price-beating that most consumers have when online shopping. With stringent vendor MAP policies, prices in-store are the same or close to online in most cases. But Dunkin still believes many stores have to raise their game with the overall heightened competition.
“It is not a hobbyist industry by any stretch at this point,” Durkin said. “Look at a store like Red Coyote, last year’s Competitor Group Store of the Year. They are the definition of running retail professionals. They built their business from day one as a professional operation and continue to try to hone in and evolve. They have unique partnerships that contribute to their brand with car companies and breweries. There are a number of businesses like that across the country, and I think that’s the standard now. Those are the ones that survive. We also expect that there will continue to be new businesses that come in and thrive.”
In the near term, the run-specialty channel, like the whole-sports channel, will be challenged to sell full-price merchandise amid the widespread liquidation sales at Sports Authority. Most of the players in the industry remain upbeat about the prospects for run specialty to capitalize on the trend toward active lifestyles.
Hartner pointed to Naperville Running’s plans to open a third store in Wheaton as a sign of “bullishness” about run specialty. He further believes the business challenges at Finish Line’s Running Specialty Group prove the advantages of the local ownership model in run specialty. At the same time, he also believes the competitive pressures require a higher level of professionalization for industry players.
Said Hartner, “Stores have to adapt and look for ways to become more efficient and increase profitability as opposed to looking to grow.” While most observers expect to see some contraction with weaker stores closing, Schalow feels it may be the “perfect time” to open a run-specialty store. He noted how more communities in the U.S. are realizing the benefits of creating “main street” shopping and dining experiences.
Said Schalow, “The community-health benefits supported by specialty running stores, along with the premium product and shopping experience that these stores provide, are a natural fit within the ‘main street’ focus. What this all pivots on, however, is the ability of individual stores to create a unique and engaging experience for their local customers. How that experience is provided is one of the channel’s ongoing challenges, but the stores that figure it out will remain healthy and experience growth.”