The Athlete's Foot Brands LLC

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The Athlete's Foot Brands LLC

1412 Oakbrook Drive, Suite 100
Norcross, Georgia 30093
U.S.A.
Telephone: (770) 514-4500
Toll Free: (800) 524-6444
Fax: (770) 514-4903
Web site: http://www.theathletesfoot.com

Wholly Owned Subsidiary of NexCen Brands Inc.
Founded: 1971
Employees: 3,500
Sales: $450 million
NAIC: 448210 Shoe Stores

The Athlete's Foot Brands LLC is a Norcross, Georgia-based, private company that specializes in the retailing of athletic footwear, either through its web site or chain of franchised stores. In addition to private label shoes, the company offers such major brands as adidas, Fila, New Balance, Nike, Reebok, and Timberland. A limited amount of apparel is also carried. Since filing for Chapter 11 bankruptcy protection in December 2004, Athlete's Foot has sold or closed all of its 170 company-owned stores, leaving approximately 250 franchised stores in the United States and more than 400 stores in about 40 other countries, especially Australia, France, Indonesia, Japan, Korea, Mexico, New Zealand, the Philippines, Poland, Portugal, Spain, and Venezuela. In order to appeal to serious athletes, the chain provides special training to sales associates in using its FitPrint System, which helps customers select the correct shoe by measuring the length and width of the foot and the arch while identifying pressure points at different parts of a person's stride. The Athlete's Foot is owned by NexCen Brands Inc. (formerly Aether Holdings), a Baltimore, Maryland, company that had previously been involved in wireless technology.

FIRST STORE OPENS IN 1971

The Athlete's Foot was the first sporting goods store dedicated solely to the merchandising of athletic shoes. The man behind the idea was David L. Lando, who had been running a Pittsburgh, Pennsylvania, sporting goods store called Olympic Sports Center since 1963. Athletic shoes were becoming increasing popular in the 1960s, for both playing sports and everyday use. Realizing that shoes had become his most profitable product line, Lando discussed the situation with a friend, Ralph Libonati, who was also a distributor for adidas, and he conceived a store that only sold athletic shoes and carried all the major brands. In the final months of 1970 he began scouting for a location in Pittsburgh. By some accounts the name for the new store came to him at 4:00 in the morning, when he supposedly woke up his wife, saying, "I know, we will call it The Athlete's Foot." A less dramatic explanation for the name gives credit to David's younger brother, Robert N. Lando, who owned a Pittsburgh advertising agency.

Regardless, the first Athlete's Foot store opened in Pittsburgh on February 1, 1971. David Lando estimated that the store would generate about $130,000 in business the first year. Instead the store rang up $200,000 in sales. A good deal of that success was due to the work of his brother's advertising agency, which designed the logo and developed a campaign of teaser ads ("Pittsburgh is getting The Athlete's Foot … you'll love it!"), as well as a successful grand opening ad.

FIRST FRANCHISED STORE: 1972

The Pittsburgh store was so successful and the concept so ripe that Lando wasted little time in franchising The Athlete's Foot. The first franchised store opened in June 1972 in Oshkosh, Wisconsin. Lando's son Michael became involved in the business and spearheaded the franchising effort. In 1975 David Lando sold the business to his 60-year-old brother Robert and a group of investors. Robert Lando accelerated the growth of the chain, aided in no small measure by the rising popularity in jogging. By the end of the year there were 50 Athlete's Foot locations and soon he was looking to foreign markets. The first international franchising agreement was signed in 1978 for Australia. In less than ten years Lando grew The Athlete's Foot chain to more than 475 stores in 46 states, Australia and Japan, producing sales of $300 million. Of those stores, 100 were company owned. About 90 percent of all units were located in shopping malls and strip malls. In the early years the chain mostly sold Converse and adidas shoes, which accounted for about 70 percent of revenues, but that would change with the emergence of Nike, which by the mid-1980s provided 70 percent of sales for Athlete's Foot.

In 1984 Lando sold The Athlete's Foot to the French retail conglomerate Rallye S.A. A year later the chain, having been placed under a parent company called General Sports Ventures Inc., moved its headquarters from Pittsburgh to Atlanta, whose mayor, Andrew Young, had made a concerted effort to convince Rallye to relocate The Athlete's Foot to his city. Given that the chain was looking to increase its growth in the Southeast, plus Atlanta's position as a transportation hub, the shift proved to be a good move.

The Athlete's Foot receded to 450 units over the next few years and did not resume its growth until the installation of a new CEO, Glenn E. Hemmerle, at the start of 1988. His top priority was to beef up the franchise operation, expressing a particular interest in increasing penetration in such major cities as New York, Chicago, and Detroit, as well as California, Florida, the Northeast, and the Northwest. The chain also introduced a new store design that boasted a more "international look" that helped to attract more women customers.

Also of importance in the effort to appeal to athletes and exercise enthusiasts was the company's WearTear Center. Located in Naperville, Illinois, the unit evaluated every athletic shoe on the market in order to provide customers with superior guidance on what shoes to wear. Helping to make sure that each store, which ranged in size from 700 square feet to 2,000 square feet, carried the range of merchandise most likely to appeal to that particular market was a new computerized point-of-sale system, replacing a manually controlled system fraught with problems.

The Athlete's Foot moved into a new world headquarters in the Atlanta area in 1992. In addition to 47,000 square feet of administrative space, the new facility included a 115,500 square-foot-automated distribution center to serve the chain's 240 company-owned stores and 325 franchise units. Although just 25 percent larger than the previous warehouse with its manual system, the new warehouse, because of automation, was designed to handle the needs of 600 more stores. Moreover, store would be able to be replenished three times faster.

Hemmerle left The Athlete's Foot in November 1992 to take over Crown Books Corporation. He was replaced at The Athlete's Foot by Pierre Serralta, who faced the challenge of increased competition from other athletic footwear chains, most notably Foot Locker. The company placed greater emphasis on international markets where there was less saturation, and grew the chain to more than 700 stores by the summer of 1997. It was at that time that The Athlete's Foot opened a 19,000-square-foot company-owned flagship store in New York City, as well as four 12,000-square-foot stand-alone stores in the Southeast. While the company planned to make the New York store a financial success, its primary purpose was to promote The Athlete's Foot brand to the many international tourists that visited the city and hopefully spur more international franchising.

COMPANY PERSPECTIVES

The Athlete's Foot is the world's first franchisor of athletic footwear stores and is recognized today as the world leader in athletic footwear franchising.

Serralta was replaced in 1998 by Robert J. Corliss, the former CEO of the Herman's sporting goods chain. He took over at a time when the athletic footwear market was flooded with stores carrying too much inventory, leading to price cuts, diminished profits, and often losses. Many stores were either closed or snapped up by better financed rivals, and a number of sporting goods chains like Herman's and Just for Feet were eliminated from the field. Nevertheless, Corliss told Sporting Goods Business that he wanted to "bring more excitement to the shopping experience" as well as spur even greater growth both inside the United States. In 1999 the chain launched an expansion program to selectively add stores in the United States to keep pace with competitors like Foot Locker and Footaction, primarily targeting the East Coast and West Coast. Internationally, The Athlete's Foot signed its largest franchise agreement, covering the countries of Puerto Rico, El Salvador, Guatemala, Honduras, Nicaragua, and Venezuela. Also in 1999 the company launched a new women's specific format, The Athlete's Foot For Her, opening a pair of stores in Katy, Texas, and Charlotte, North Carolina. Merchandise centered around running, walking, and cross training shoes. A larger store format would later be rolled out in Opry Mills Mall in Nashville, Tennessee. It was a move that made sense, given the increasing amount of money women were spending on athletic shoes. By the start of the new century, women would buy a larger percentage of athletic footwear than men, a fact recognized by shoe manufacturers, which were also hoping to appeal to the female customer.

As the new century dawned, The Athlete's Foot was poised for expansion, especially abroad where nearly 300 of the chain's more than 725 stores were located. Of the 435 U.S. stores, 261 were owned by the company. The plan was to primarily expand through franchising, adding about 55 domestic and 85 international stores each year. At the same time the company planned to winnow out underperforming stores and weed out old inventory. To help fund the expansion drive, which included rolling out new prototype stores and the installation of FitPrint technology to both domestic and international units, the company secured a $38 million line of credit with Wells Fargo Retail Finance in 2001. Unfortunately, the economy began to slip into recession, sales suffered, and any dreams of rapid expansion had to be shelved. At the start of 2002 Corliss explained to Sporting Goods Business, "You've got a mature market and I don't see us growing as aggressively as in the past. But if there is an opportunity that makes sense to us, we'll take advantage of it." One of those opportunities was in Canada, where the company opened a pair of franchised operations in 2003. In the meantime the chain lost a dozen foreign franchise operations, which fell from 362 units to 350. Overall, the company lost about $10 million in both 2001 and 2002, due in large measure to the termination of bad leases.

MANAGEMENT BUYOUT: 2004

After owning The Athlete's Foot for some 20 years, Rallye had for some time considered divesting the chain, which was its only major U.S. holding and just a small part of its total business. In February 2004 Corliss led a management buyout of the company. He expressed optimism that after posting another net loss in 2003, The Athlete's Foot would break even in 2004. He also pinned high hopes on new master franchise agreements the company signed for Greece, the United Kingdom, and Saudi Arabia. Further, he did not dismiss the possibility of The Athlete's Foot making an acquisition, should an opportunity arise that made economic sense. Because of uncertainty in the U.S. sporting goods market such opportunities were likely, but The Athlete's Foots would be in no position to take advantage of them.

In December 2004 the company filed a voluntary Chapter 11 liquidation petition in U.S. Bankruptcy Court in New York. It listed assets of $33.6 million and liabilities of $39.4 million. The franchised stores were not affected, and in general were faring much better than the company-owned stores. The plan was to shed all of the company-owned units, hopefully with a large number moving to current franchisees. Because the stores were small they held little appeal to competitors like Foot Locker or Finish Line that operated larger formats.

KEY DATES

1971:: First store opens in Pittsburgh.
1972:: Franchising begins.
1978:: First international store opens in Australia.
1984:: Rally S.A. acquires company.
1985:: Headquarters moves from Pittsburgh to Atlanta.
1999:: The Athlete's Foot for Her is launched.
2004:: Company declares bankruptcy.
2006:: NexCen Brands Inc. acquires company.

The Athlete's Foot emerged from bankruptcy as a pure franchising operation in 2006, although Corliss held out the possibility that at some point in the future the chain might once again include company-owned stores, but as he explained to SGB it would be as "a franchisee with some retail stores rather than a retailer with some franchise locations." In August 2006, The Athlete's Foot was acquired by Aether Holdings (since renamed NexCen Brands Inc.) in a $5.15 million cash and stock transaction. Corliss remained president and CEO of the company. It was the first deal for NexCen since its merger with the interests of former investment banker Robert W. D'Loren. His grand vision was to assemble a stable of well-known consumer companies, to "become the world's premier brand owner and manager." For The Athlete's Foot that would represent a radical departure from the athletic shoe store David Lando opened in Pittsburgh 35 years earlier. According to Business Week, D'Loren planned "to transform the chain into a splashy sports-lifestyle hub by developing consumer brand products to sell through the franchise—much like Starbucks Corporation sells everything from coffee to DVDs." Whether the plan would prove successful was very much an open question.

Ed Dinger