There is an interesting dynamic at play in athletic footwear, which has the potential to alter the retail and wholesale landscape for some time to come. The retail business for athletic footwear has gone from hot to cold over the last few months, a shift that may indicate more than just a change in fashion trends to one that is a more fundamental revolutionary shift in the way sneakers are made, bought, marketed, and sold.
The growth of Lifestyle Fashion Athletic (some are calling the category fusion, but a fusion between what?) is taking several new forms. As evidenced by the interest and excitement at the Pool and Project shows around this category, retailers in this space must address how to exploit this emerging trend for the long term, but most current business models may prevent them from doing so.
Traditionally, athletic shoe retailers have built their businesses on two parallel strategies: The “drive-thru” model and the “fill-in” model. The athletic specialty chains specialize in the drive-thru strategy while full-line sporting goods and the value channel tend to focus on the fill-in model, but all channels employ both models to some extent.
The drive-thru strategy is a simple one: the manufacturer develops new products (often marquee items, but not exclusively so), markets the item directly to the consumer, and the customer goes to their local outlet and picks a pair up. The customer just hits the store, grabs a pair, and leaves, just like at the drive-thru window at a fast food restaurant. It takes little to no marketing effort on the retailers part to sell the blockbuster item. There is no sales interaction. And once the retailer has negotiated their allocation, their work is basically done.
It should be noted that the blockbuster, or marquee, item previously had a “halo” effect on the rest of the retailers business. As kids came in to see or to buy the blockbuster item, they often picked up something else. However this phenomenon seems to be playing itself out. There is less of a halo from blockbuster items today than previously experienced.
Launch product, while still very important, no longer has the impact that it previously did. The Air Max 360 is an example of a successful launch that had little long-term halo effect. While the shoe itself sold extremely well, the tangential business did not materialize.
Athletic specialty retailers are having greater peaks and valleys in their volume levels on a week to week basis, because of this blockbuster strategy. Shifts in launch dates now have a huge impact on the sales results, and often cloud the overall health or weakness of the business. For instance, last week the basketball business was driven by one blockbuster shoe that represented nearly 40% of all dollars sold in the category.
As retailers become more and more dependent on the drug of blockbuster items, they become vulnerable to changes in taste. It has been evident for some time that white/white classic footwear has lost much of its luster, even including the venerable Air Force 1. Overall, white classics footwear from all vendors has slowed considerably (although colors continue to perform well).
Nike sells millions of pairs of AF1 in all colors annually. NKE will no doubt tweak the flow and allocation on these items to make sure it remains a multi-million pair program for them at wholesale, but retailers cannot count on it driving the blockbuster customer as it did in the past. Other manufacturers have announced plans to cut back on the supply of classic footwear to try to improve demand
The fill-in model is based around the manufacturer developing products that will remain in their assortments for more than one season. The manufacturer takes an inventory position on these styles, so retailers can place initial orders and then fill-in. Some retailers really love this strategy because their inventory liability is limited.
New Balance is the icon brand for this model. The retailers toughest job is to make sure orders are written and delivered on a frequent basis according to historical sales models. Some selling skills are required; presentation is not much of an issue; staying in stock is the key. This is a strategy that Nike has also invested in quite heavily over the last year and they continue to take share at key price-points with quick response programs. Turnover is quick with the fill-in strategy, but the fill-in items do not spike the business like the blockbuster items. The fill-in strategy is not well suited to the fashion business, which requires a constant flow of new looks and styles.
The emergence of Lifestyle Fashion Athletic as a critical element in the sneaker business created a problem for athletic shoe retailers, because the category does not really work in either of these retail models. This category, because it is fashion based, requires an entirely different approach to nearly every aspect of the business.
For instance, the buying approach is more like that of a boutique shoe store. Instead of thousands of pairs of one shoe, the buy is made around a collection, an assortment of similar, related styles that tell a merchandising story. The collection might include the same style in two or three colorways as well as a couple of related styles. All styles within the collection are not bought equally, but rather the “safest” color is purchased with more depth, while the more forward colors and styles are bought much shallower, sometimes not even covering all sizes. The faster colors are there to attract the eye, but the consumer buys the less risky color.
A collection has to be presented in a different manner as well. This customer does not buy in categories (“running” or “basketball”), but rather selects a style based on its look. The conventional way of showing athletic footwear by category does not apply any longer in this model. Merchandise must be grouped on tables and fashion fixtures in collections. The sales floor must be changed frequently to attract the same shopper to a new look.
Fashion must be sold differently as well. The salesperson must try to find an item for the customer, as the requested style may be out of stock. The salesperson must know which items to substitute and how to present that substitute item to the consumer. (The drive-thru phenomenon is the exact opposite of this sales technique).
So the conventional athletic outlets must change nearly every facet of how they do business if they want to exploit the athletic lifestyle fashion. It will not be easy as the methods needed go against every basic tenet of the athletic business.
The mall channel is probably best poised to make this transition. Champs is doing the best job in a weak field. When you enter a Champs today, you are immediately struck with 24-36 feet of just “cool shoes,” no categories or brand statements. The only categories shown are the biggest-basketball and running, and they are set much deeper into the store. A good start, but the model must evolve further.
The sporting goods retailers are not as well positioned to exploit this new category. While one chain already uses department store presentation techniques in its apparel area, it does not use this type of presentation in footwear. The same old sporting goods cookie cutter approach is used. Buying a couple of cool fashionable shoes and sticking them on shelves, categorized as “casual” or “lifestyle” or “fusion” isnt going to get it done.
Interestingly, the family footwear channel may have the inside track here, although they generally do not have access to the full breadth of brands and styles. Because they already sell both white and brown footwear, all as casual looks, and because they do not merchandise by sports category, they have been able to transition to this type of merchandising strategy more easily.
Why is exploiting this revolution so critical to the long term health of the industry? First of all, it is the next new thing and fashion retailers must always stay on trend. Lifestyle Fashion Athletic represents more than 12% of total footwear sales today and is growing faster than the “true athletic” categories. Most will agree that only 15% of athletic shoes are ever used for the purported purpose or activity. Most consumers buying sneakers just want cool shoes to wear with jeans. Why insist on forcing them buy as if they had another intention?
If athletic retailers do not maximize this new category of Lifestyle Fashion Athletic, they risk losing it to other footwear specialists. There are plenty of examples of apparel categories that had originated in, and belonged to, athletic, but that were better executed in specialty and were lost to athletic almost altogether. Some years ago, if you wanted a t-shirt that said “Football” or “Athletics” on it, you went to a sporting goods store. But that trend has been usurped by the mall teen retailers. Now, ANF probably sells more “Athletic” printed t-shirts than all of the sporting goods retailers put together. The same thing happened with track jackets. Once a category that was owned by athletic retailers, the fashion apparel guys have stolen the track jacket category and exploited it to the fullest.
The athletic industry runs the same risk with Lifestyle Fashion Athletic footwear. If the athletic retailers cant figure out how to exploit the category, someone else will, leaving the sporting goods and athletic specialty retailer with the 15% of consumers who actually perform in a sport. That is not a business that spells growth for anyone.
Matt Powell is a Senior Retail Analyst at The SportsOneSource Group.
