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The Athletic Shoe Industry Analysis

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by

Skip Spencer

on 12 March 2013

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Transcript of The Athletic Shoe Industry Analysis

The Athletic Shoe Industry We confine our analysis to companies that produce footwear for athletic use and have a strong market share.
Three dominant shoe companies.
Nike, Adidas and Puma collectively control 87% of the athletic footwear market.
All other athletic footwear companies control less than 5% each. Market Definition Fairly competitive industry Internal Rivalry Relatively low barriers to enter market in some form, most new firms do not succeed however Barriers to Entry There are endless options

Running shoes are most easily substituted for in the athletic footwear realm Substitutes Moderate but Increasing Buyer Power Seller Power Market Definition Internal Rivalry Barriers to Entry Substitutes & Complements Buyer Power Seller Power Sources of Information Shoe Industry analyzed by
Skip Spencer
Mark Boucher
&
Jake Shannon
Fiscal 2013 2nd quarter report
7% increase in operations revenues
up to $6.0 billion


2012 avg. quarterly report
avg. quarterly sales of $2.38 billion


2012 avg. quarterly report
avg. quarterly sales of $635 million Nike Adidas Puma The introduction of the Nike Free series put everyone in competition for the lightest and most realistic foot to pavement technology Adidas dominates the soccer/futbol industry



Some shoes substituted for cleats are artificial turf shoes.
Artificial turf shoes offer traction yet are still lightweight and supportive for soccer/futbol Vibram entered the market in 1999 and competes for the foot to pavement feel. A valid substitute for some. In the athletic footwear industry there are many complements.

Among these is sports apparel designed for each specific sport and team.

Many complements such t-shirts, shorts, jackets, sweatshirts and athletic jerseys bear the logo of the popular shoe companies. Nike's North American revenue from 2009 to 2012, by segment Year Million U.S. Dollars Low Supplier Power Shoes are a downstream industry, where upstream input suppliers command prices Materials 3 major materials, cotton/polyester blends, rubber, foam, all catergorized as commondity goods, so their price are determined by market value An inconsiderable percentage of these commodities are consumed for athletic shoes; therefore no direct control over the price of commodities used. Bargaining Power Small foreign manufacturers often dependent on contracts of larger shoe companies, therefore very little bargaining power keep manufacturing costs low. Top 25 retailers total 2/3 sales of athletic footwear. These are department stores like Wal-Mart, Sporting Goods Stores, and smaller footwear retailers such as footlocker, finish line Formerly buyer power has been minimal, in that the large athletic shoe companies own the creative rights, design, and manufacturing process of their footwear, and buyers take a very large risk in choosing to not carry a certain branded product, or face very high transaction costs in switching to a smaller less established shoe company. Although with the recent Footlocker acquisition of FootAction, and Gart’s merger with Sports Authority, and other market consolidations show signs of increasing concentration of buyers, increasing buyer power overall… Horizontal moving industries would support buyer power. Growing Margins Growing Margins are another sign of that buyer power is increasing(reference chart below) Buyer Power Threats to Power • The growth of Factory Stores and Outlets
-NikeTown, NikeFactory Stores, Employee Owned Stores
-Nike/Adidas/UnderArmour stores in the same Woodburn Outlet Mall

• Online shoe retailers – NikeID vs. Zappos.com Adidas quarter revenue 2012 - http://www.adidas-group.com/en/investorrelations/assets/pdf/annual_reports/2012/GB_2012_En.pdf

Athletic Footwear Industry Analysis, Economics of Management and Strategy, Tufts University, 2006

Besanko et al. Economics of Strategy. 2004. 3rd Edition. New York: John Wiley & Songs, Inc..

Genereux, Virginia, and Michelle Graham. Footwear Industry Overview: U.S. Athletic OK, Europe Improving Slightly. Ed. Merrill Lynch., 14 February 2006.

Ohmes, Robert. Apparel, Footwear & Textiles Industry Overview. Bank of America Securities, June, 2005

Nike quarter revenue - http://nikeinc.com/earnings/news/nike-inc-announces-q2-fy13-earnings

Puma quarter net sales 2012 - http://about.puma.com/wp-content/themes/aboutPUMA_theme/financial-report/pdf/PRESSRELEASEQ42012_final.pdf ihy There are many sellers but only Adidas and Nike control very large portions of the market There are few untapped markets, gaining market share means taking it from a competitor, which adds to rivalry All athletic shoes are very similar, with the exception of some technological advances patented by a manufacturer, meaning they are very substitutable, making price more important Most competition is seen through marketing/branding, research and development, promotions, athlete endorsements -Having a recognizable brand and/or a loyal customer base gives manufacturers huge advantages in sales (ex. Nike swoosh, Adidas 3 parallel bars, etc.)
-New technological breakthroughs can differentiate a shoe just enough that consumers will want it and may even switch from their normal brand, its all about looking for “the next big thing”
-Promotions and sales help to further lower prices and lure in new customers
-Athlete endorsements help influence young athletes into wearing the same shoes as their professional counterparts Gaining market share can also come through the acquisition of smaller firms by bigger firms, boosting their market share and removing a competitor in the process -Large firms can also buy out new technologies from smaller firms that they might otherwise not be able to use in their products, they can purchase the whole firm or just purchase the rights to the tech and pay royalties Gaining market share for a newcomer can be difficult -Since most competition is based on making the brand more recognizable or differentiated, new firms can find it hard to make it that point.
- New firms often lack capital for marketing and promotional campaigns to gain notoriety
-New firms often lack capital for research and development of new technology that can set them apart from incumbent firms
-A new firm can also lack a diverse enough product line to sell in different athletic shoe submarkets that could help give them in a foothold in a market they may not have targeted originally New entrants are at a price disadvantage Many large manufacturers have outsourced production to lower costs and small firms cannot do this, making them charge higher prices than their incumbent competitors Compliments The athletic footwear industries largest compliments are those of apparel
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