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Athletic Footwear - Industy Snapshot

The multi-billion dollar business of athletic footwear has become a grueling marketing battleground, with Madison Avenue taking center stage over the usual spotlight hog, Wall Street. Everyone is familiar with the pseudo art-house images and the emotive quality of the commercial spots, but perhaps very few know the business models that make these companies grow.

What could be better than athletic shoes for building a brand name presence? The business has barriers to entry that can be characterized as a virtual "moat," rather than the medieval moat of Warren Buffet fame. In theory, anyone could start making shoes, but the brand awareness generated by star power and the distribution arrangements needed to become successful make start-ups a virtual impossibility. Hence, the athletic shoe arena is populated by only a few players, and even the most beaten down participants have substantial brand awareness that can be used to foster shareholder value. As far as demographics, kids around the world wear athletic shoes and constantly outgrow them, teens make them a fashion statement, and older consumers develop brand loyalties that are not easily changed. For the front runners, it is truly a magical business.

Certainly the bellwether of the industry is Nike. From rather inauspicious beginnings selling running shoes out of the trunk of his car, Phil Knight fashioned Nike into an international titan (to mix mythology rather than metaphors). Indeed, the story of Nike over the last twenty years is as much about building its brand name as it is the exigencies surrounding the building of a business, such as the actual product characteristics, manufacturing, and distribution. Ironically, though, the company whose brand name Nike did the most damage to in the 1970s and '80s might now be its most threatening global competitor.

On the Playing Field

Where Fila has been tripped up in the key basketball shoe market in the U.S. by misfires with its Grant Hill IV shoe, Adidas North American sales rose 51% to about $390 million in its most recent quarter. Nike's footwear sales growth in the U.S. for fiscal 1997 lagged both of these companies, but was still strong at 36%, off a much larger sales base. Adding to growth for Nike, 1997 athletic apparel revenues grew 70%, which points to a key difference between Nike and the rest of the industry at the moment.

One key element of the equation came about as a result...

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