Athletic Shoes

INDUSTRIAL CODES

NAICS: 31-6219 Other Footwear Manufacturing, 31-6211 Rubber and Plastics Footwear Manufacturing

SIC: 3149 Footwear (except Rubber), not elsewhere classified, 3021 Rubber and Plastics Footwear

NAICS-Based Product Codes: 31-621903, 31-621904, 31-62190Y, 31-62111, 31-62114, and 31-6211W

PRODUCT OVERVIEW

For almost a century, many Americans have worn canvas shoes with rubber soles in their youth. They were commonly called tennis shoes. Sometimes the same type of shoe was made of leather and rubber. Tennis shoes were referred to interchangeably as tennis shoes or sneakers. The English call sneakers plimsolls, a generic term for lightweight canvas shoes with rubber soles first produced in England. In Germany, the type of shoes casually referred to in the United States as sneakers are called trainers. These were casual shoes for playing outside, worn mostly by children.

A variation on the canvas and rubber shoe is the high top tennis shoe. Converse Rubber Shoe Company, headquartered in Malden, Massachusetts, introduced canvas high top shoes in 1917. Foreshadowing the later close connection between sports heroes and athletic shoe marketing, Converse classic high tops were made famous by Chuck Taylor. Taylor was a former basketball player for the Akron Firestones who joined Converse as a player endorser in 1921. For thirty-five years he led basketball clinics across the country wearing Converse high top basketball shoes. In 1931 Converse started stitching the Chuck Taylor name on its canvas high top basketball shoe and renamed them the All Star. At this time, the celebrity athletic shoe era was in its infancy, where it remained for nearly fifty years.

During World War II, Converse manufactured shoes and apparel for the troops. Soldiers were outfitted in Converse Chuck Taylor All Star shoes for basic training. After the war, Converse All Stars remained the standard government issue athletic shoes for military and physical training. In the 1950s Hollywood icon James Dean wore "Chucks," as these shoes came to be called.

Along with James Dean, Converse high tops became a symbol of counterculture. A white T-shirt, blue jeans, black leather jacket, and high tops became the uniform of youth rebellion. In the 1970s punk rock became the symbol of counterculture. Early punk bands, such as the Ramones, wore Chucks at their performances in New York City and in the United Kingdom at Roundhouse in London. Converse continued to produce the shoes and athletes on the U.S. male basketball team won gold at the 1984 Olympics in Los Angeles wearing Converse basketball shoes.

Athletic shoes are built for high performance and are considered part of an athlete's gear along with clothing and equipment. Athletic shoes provide sports-specific levels of cushioning, flexibility, stability, traction, and durability.

• Cushioning minimizes the force of impact. Cushioning systems are designed to protect the knee and ankle from impact and provide rebound, spring, or lift to the foot and leg muscles.
• Flexibility is the ability to yield and bend. It is maximized or minimized in a shoe, depending on the sport. For example, runners need flexible outsoles and walkers require stiff, inflexible outsoles.
• Stability is the capacity to resist forces which cause a rapid change of motion and possible injury. High top shoes provide extra ankle support to prevent sprains.
• Traction is friction between the sole and the surface that helps the shoe to grip. Traction needs vary. Court shoes should not grab the surface and stop so suddenly that ankles are sprained.
• Durability is important. Athletic shoes should endure and continue to perform over time while maintaining cushioning, flexibility, stability, and traction.

An athletic shoe has four basic components. The layers are, from top to bottom, called the upper, insert, midsole, and outsole. Each component has a purpose. Sports-specific shoes vary the components for different functions.

The upper layer is the material—generally canvas or leather—that covers the top of the foot. Some contain nylon or mesh inserts for ventilation. The upper encloses the foot to snug the soles to the bottom of the feet. The shoe insert supports the bottom of the foot. The insert positions the arch support, which is ideally suited to the wearer's arch type.

The midsole contains the cushioning system that not only distributes impact force to prevent the full transfer of that force to the ankle and knee but also provides a rebound or lift to foot and leg muscles. Known as the heart of the shoe because it performs so many functions, the midsole also contains stabilizing features like a stiff rear heel cup for added support. The outsole provides traction and reduces wear on the midsole to increase durability. Typically made of carbon rubber or blown rubber, outsoles have a grade or slope from heel to toe.

Manufacturers invest significantly in the technology of athletic shoes. In order to help the athlete run faster, jump higher, and endure longer, designs for athletic shoes consider specific movements involved with different sports. Some of these movements are sprinting, pivoting, jumping, rapid starts and stops, and side-to-side shuffling. Athletic shoes are designed as sporting equipment that helps improve performance.

Categories of Athletic Shoes

The May 2007 issue of Clinical Reference Systems defined five major athletic shoe categories.

>Running Shoes

Running shoes are lightweight and flexible. They are designed for anterior (forward) and vertical (up and down) motion. Running shoes have cushioning to absorb the impact of each stride, plus extra shock absorption in the heel.

>Walking Shoes

Walking shoes are rigid and are designed to roll on a smooth tread from heel to toe. Walking shoes have extra cushioning at the ball of the foot. The rigid outsole rocks to encourage the natural roll of the foot during the walking motion.

>Basketball Shoes

Basketball shoes have a thick stiff sole, and are designed to support the ankle for side-to-side shuffling and to provide for sudden starts and stops. Basketball shoes are subject to heavy abuse.

>Tennis and other Racquet Sport Shoes

Court shoes have heavy traction to assist in rapid starts and stops. Posterior (backward) motion is more common in court sports.

>Field Sport Shoes

These usually have cleats, spikes, or studs and include shoes for track and field, golf, bicycling, soccer, and baseball. While spike and stud formations vary from sport to sport, they are generally replaceable or detachable and affixed into nylon soles.

High performance sports-specific athletic shoes have become high fashion. Nike, Inc. is generally credited with blurring the line between performance and fashion. The classic example is the Air Force 1. A limited edition shoe rolled out by Nike in 1982 on the National Basketball Association courts that became so popular that Nike reissued the $89.95 white-on-white original and began to introduce colorful limited-edition versions. Enthusiasm for Air Force 1s spread.

Nike does not deserve sole credit. The Zeitgeist of the 1980s facilitated the popularity of high-fashion, high-priced athletic shoes. The 1980s were the era of hip hop. Early rappers, Run-D.M.C., had the first rap single played on MTV, and the first rap album to go gold. Run-D.M.C. established urban fashion trends by performing in leather pants, leather jackets, adidas sneakers—always with the shoelaces removed—and fedora hats. They performed at Live Aid in 1985. They were the first rappers on the cover of Rolling Stone. They wore athletic shoes designed by adidas and even had a hit song called "My adidas."

Nike and adidas were not operating in a vacuum, however. The National Aeronautics and Space Administration (NASA) takes credit for the development of high-tech athletic shoes. After NASA developed a process called blow rubber molding to produce helmets, a former NASA engineer pitched Nike the idea to use the new molding process to create hollow athletic shoe soles designed to be filled with cushioning materials. Nike developed cushioning consisting of interconnected air cells. In 1987 Nike Air shoes were released. Athletes and non-athletes bought them for the benefit of high-tech cushioning.

In the shoe industry trends constantly change and new models are rolled out up to four times each year. Yet some styles, such as the Air Force 1, remain popular. The Air Force 1 Web site chronologically showcases all 929 models including the still popular black-on-black model rolled out in 1993. Air Force 1s for women are often a fashion statement. For men, Air Force 1s often function as dress shoes that complete the outfit.

Athletic shoes are no longer worn only for fitness and sports; they are also a fashion statement. This expands the pool of potential customers eager to pay for the look even if they never go near a basketball court or grassy soccer pitch. The design of high-tech, high-performance athletic shoes has permeated the artistic community as well. In 2000 the San Francisco Museum of Modern Art presented "Design Afoot: Athletic Shoes 1995–2000." The exhibit featured more than 150 shoes from companies such as adidas, Converse, and Nike. The exhibit highlighted the evolution of athletic footwear design and demonstrated the blurred line that exists between fashion footwear and high performance athletic shoes.

Athletic shoes are considered nondurable consumer goods, which are goods that are purchased for immediate or almost immediate consumption and have a life span ranging from minutes to three years. For active people, athletic shoes last barely a year. For instance, running and walking shoes last for 300 to 500 miles. Basketball shoes take a lot of abuse; it is estimated that they last six months if the wearer plays twice a week for one hour. Because nondurable goods are destroyed by their use, consumers need to replenish their supply repeatedly. Generally, this equates to a large variety of style and price choices in the marketplace.

MARKET

Athletic shoes are built for high performance and are considered part of an athlete's gear. They make up just one part of the sporting goods market typically thought to include footwear, equipment, and clothing. The total retail sporting goods market was valued at approximately $50 billion in 2005 according to estimates made by the National Sporting Goods Association. Footwear made up one-third of this total.

The National Sporting Goods Association has tracked consumer spending for athletic shoes since at least 1988. Its twenty-six categories of athletic shoes include aerobic, baseball/softball, basketball, boat/deck, bowling, cheerleading, cross training, cycling, fashion sneakers, fitness, football, golf, gym shoes/sneakers, hiking, hunting, jogging/running, skateboarding, soccer, sport sandals, tennis, track, trail running, volleyball, walking, water sports, and wrestling. To gather its data, the National Sporting Goods Association surveys 20,000 households twice a year for a total of 40,000 households.

Figure 4 depicts a ten-year sequence of consumer purchases of athletic shoes from 1998 to 2007. Consumer spending on athletic shoes steadily increased from a low of $12 billion in 1999 to a high of a projected $17.5 billion in 2007. Consumer spending increased during the period by almost 25 percent. The market grew in part because Americans buy more shoes. In 1980 each American purchased 5.7 pairs. By 2005 per capita purchasing was 7.71 pairs per year, a 40 percent increase.

While consumer spending on athletic shoes steadily increased, U.S. production steadily decreased. According to U.S. Census Bureau reports on footwear from their Current Industrial Reports series, in 1992, U.S. shoe manufacturers shipped products valued at $4.8 billion and within a decade shipments fell more than 50 percent, down to $2.2 billion in 2002.

The American Apparel and Footwear Association has tracked U.S. production and U.S. imports of shoes since at least 1990. Rather than focusing on consumer spending as does the National Sporting Goods Association, the American Apparel and Footwear Association counts numbers of shoes in pairs. For athletic shoes, 100 percent are imported as of 2005, the year for which most recent data are available. Of imports, 78 percent of athletic shoes come from China.

The National Sporting Goods Association conducts twice yearly surveys of footwear retail sales. Retail sales of athletic footwear rose 1.0 percent during the 6-month survey period of October 2006 through March 2007. Half of the sixteen types of athletic shoes covered in the National Sporting Goods Association 2006–2007 survey showed sales declines. Among the most popular athletic shoe categories—those with projected sales of five million units or more—only gym shoes/sneakers, fashion athletic shoes, and walking shoes increased in dollar sales. Fashion sneakers led the dollar increase, up 10 percent. Gym shoes/sneakers were up 2 percent. Walking shoe sales rose 6 percent.

Basketball shoe sales had the largest decrease among major athletic shoe categories, with a decrease of 4 percent. This decrease in sales of basketball shoes—a high-tech, high-priced segment of the shoe market—does not bode well for key producers of athletic shoes.

KEY PRODUCERS/MANUFACTURERS

In the U.S. marketplace adidas and Nike are essentially a duopoly. Since 100 percent of athletic shoes are imported, all key U.S. players have manufacturing operations abroad. For example, in 2004 Nike had 900-plus supplier factories—none of them owned by Nike—in fifty countries. In August 2007 the National Sporting Goods Association estimated that Nike controls almost half of the market for athletic shoes, jerseys and clothing.

Nike, Inc.

Based in Beaverton, Oregon, Nike designs, markets, and distributes athletic shoes, clothing, and equipment. Nike reported $16.3 billion in worldwide revenue for the year ending May 31, 2007. Bill Bowerman (1911–1999), a University of Oregon coach, and Phil Knight, a University of Oregon accounting student and a middle-distance runner under Bowerman, each chipped in $500 in 1964 to start importing low-priced, high-tech athletic shoes from Japan.

From the beginning their goal was, in part, to dislodge the German domination of adidas in the U.S. athletic shoe market. By 1971 Bowerman invented a new shoe based on treads inspired by his wife's waffle iron. The waffle trainer became a bestseller and in 1971 the two founders took the name Nike, the goddess of victory, and adopted the swoosh logo. The Nike 1980 initial public offering involved 2.4 million shares at $11 each. After several splits, the stock traded at approximately $55 in August 2007.

Nike's 1982 success with Air Force 1s precedes its 1985 launch of the Air Jordan, endorsed by celebrity athlete Michael Jordan of the Chicago Bulls basketball team. Jordan signed a five-year contract in 1984 for $2.5 million to represent the first marquee basketball shoe. Close to twenty-five years later Air Jordan's remain hip; forty-four Air Jordan models are available at prices of $175 and less.

In 1994 Nike entered the soccer market, an area historically dominated by adidas. Ten years later its share of the European soccer shoe market was 35 percent, exceeding adidas' 31 percent for the first time. To gain market share in Europe, Nike built on its celebrity athletic shoe marketing savvy. It paid the prestigious Manchester United soccer club in the United Kingdom $450 million over 14 years to outfit its players and to run its merchandising operation.

Nike began a series of acquisitions in 1988 by buying Cole Haan, the manufacturer of upscale shoes for $880 million. At the height of the inline skating fad in 1995, Nike paid $409 million for Bauer, the maker of ice and in-line skates. Some say Nike overpaid for Bauer since the in-line fad quickly faded. Seven years later it bought Hurley International, a surfing and skateboarding clothing company, for $95 million. It acquired Exeter Brands Group LLC in 2004 for $43 million, which makes value-priced footwear and apparel.

Nike's most successful acquisition was Converse in 2003 for $305 million. Converse has renovated its 60,000 square foot corporate headquarters in North Andover, Massachusetts, where it designs authentic presentations of the classic Chuck Taylor All Star. In 2006 Converse issued hundreds of variations on its moderately priced Chucks.

Nike founder, Knight, is chairman of the board, the largest shareholder, and chief executive officer. He has a net worth of $7.3 billion and is the world's seventieth-richest person according to Forbes. Knight gave the University of Oregon $100 million in August 2007 to create the Oregon Athletics Legacy Fund. Knight sold nearly $50 million of his stake in Nike since August 2007 but remains the majority shareholder, owning 93 percent of outstanding Class A shares as of May 31, 2007. Fortune recognized Nike in 2006 and 2007 for employee benefits like paid sabbaticals, on-site fitness centers and child-care facilities, and its 50 percent discounts on company products.

Adidas North America, Inc.

Until 2003 adidas was the top European athletic shoe maker. It sold the top-ranked shoe for the top sport: soccer—known outside the United States as football. Following its $3.7 billion acquisition of Reebok in 2006, adidas had a 28 percent share of the world sporting goods market, not far behind Nike's 31 percent. Adidas and Reebok together make a worldwide sporting goods industry powerhouse. Reebok headquarters are in Canton, Massachusetts, near Boston. Adidas AG, based in Herzogenaurach, Germany, has its North American headquarters in Portland, Oregon.

Adidas made its name in soccer shoes. In the 1920s Adolph Dassler, a shoemaker in Herzogenaurach, Germany, decided to concentrate on athletic shoes and founded a business with his brother Rudolph. In 1936 Jesse Owens wore adidas when he won four Olympic gold medals in track and field in Berlin, Germany. The brothers later formed separate companies. Adolph formed adidas named after himself—Adi from Adolf and Das from Dassler—and Rudolph formed Puma in 1956, also headquartered in Herzogenaurach. Adidas made its name in soccer, with its famous three stripes logo developing from three support leather bands used to bolster the sides of soccer shoes. Adidas remains since 1954 the German soccer federation's official supplier beyond 2010. In 1974 the adidas-wearing German team won the World Cup.

After Adi Dassler died in the 1980s his wife and kids took over the company. By the 1990s new management started to move from a manufacturing to a marketing focus. The company went public in 1995. By 1996 adidas—with its famous three stripes logo—equipped 6,000 Olympic athletes from thirty-three countries.

Adidas acquired Salomon Group with brands Salomon, TaylorMade, Mavic, and Bonfire in 1997. Salomon in-line skates helps to explain the acquisition, but the fad had already begun to fade. The new company went by the name adidas-Salomon AG but the deal lasted only 6 years. By 2005 adidas sold Salomon Group, retaining only Tay-lorMade Golf Company Inc., to return to its core athletic shoes and apparel market. In 2006 it reverted to the legal name adidas AG.

The company unveiled the adidas 1, a $250 running shoe, in 2005. The shoe has a built-in 20MHz microprocessor computer chip that automatically adjusts the fit as the wearer runs. When the adidas 1 heel strikes the ground, a magnetic sensor measures the amount of compression in its midsole and the microprocessor adjusts firmness during the seconds the shoe is airborne. Adidas spent an estimated $20 million on the rollout. Film director Spike Jonze created several cinematic, big-budget TV spots with the theme "Impossible is Nothing."

Since Nike moved into the number one spot in European soccer shoe sales, adidas successfully attacked the U.S. basketball market, where Nike controls 60 percent of sales. Adidas signed three NBA all-stars: Tracy McGrady, Tim Duncan, and Kevin Garnett. Each will have his own sneaker. Adidas signed an 11-year deal with the National Basketball Association (NBA) in 2006 that makes it the official uniform provider for the league. The deal includes providing uniforms and other products for the Women's National Basketball Association and the NBA Development League, starting with the 2006–2007 season. Reebok, meanwhile, is the global marketing partner of the NBA with the power to create NBA branded footwear. In 2007 adidas signed college contract after college contract, including luring Michigan and Texas A&M away from rival Nike.

Others

Sporting goods maker Puma AG was acquired for $7.3 billion in July 2007 by the French company that owns Gucci Group, Balenciaga, and Yves Saint Laurent, among other luxury brands. Puma is owned by Sapardis S.A., a nearly 100 percent subsidiary of PPR S.A. Puma is Europe's second largest sporting goods company and quadrupled sales since 2000.

In 1969 quarterback Joe Namath led the New York Jets football team to Super Bowl III wearing Puma shoes. In 2000 supermodel Christy Turlington and Puma jointly launched the Nuala yoga collection. Nuala was an instant, high-end success. In 2006 Puma was, with twelve teams, the dominant kit supplier at the World Cup in Germany. Puma is a premium brand.

Puma has a design center in Boston, Massachusetts that employs upward of 115 people. In August 2007 Puma North America paid $11.5 million for a 105,000 square foot office building in Westford, Massachusetts for its North American headquarters where it employs more than 250 people.

New Balance researched how running impacts the foot during the 1960s and developed an orthopedic running shoe with a rippled sole and wedge heel to cushion shock. Running grew in popularity and New Balance innovated with lightweight nylon to replace the heavy canvas and leather materials previously used in running shoes. New Balance has sales estimated at $1.5 billion per year, making it one-tenth the size of Nike.

MATERIALS & SUPPLY CHAIN LOGISTICS

For the U.S. footwear industry, the largest expense in production is for design, which is done in the United States, while the production of the shoes is done abroad. The materials needed to design shoes are different than materials needed to make shoes. The U.S. athletic shoe industry uses a variety of high-tech methods to facilitate design: specialized laboratory machines, objective athletic tests, and high-speed photography, film and video. Scientific techniques designers employ include motion analysis (kinematics), ground reaction forces and loading rates (kinetics), foot-pressure measurement (in-shoe and external), ankle range of motion (ROM), foot morphology, and electromyography. Designers need computer-aided design and drafting software and the state-of-the-art computer equipment to operate it.

Designers need materials and equipment to fabricate prototype athletic shoes that build on advances in three primary areas: biomechanics, the study of human move-ment and related forces; physiology, the study of the integration of the body's energy systems and responses to environmental stresses; and sensory/perception, the subjective evaluation of product attributes such as cushioning, flexibility, stability, traction, and durability.

Design prototypes are fabricated in-house. Prototypes are laboratory tested for cushioning, flexibility, stability, traction, and durability. Athletic shoe companies buy machines to test seam strain, adhesion, heat absorption, and water permeability. Durability tests are important as they provide a benchmark, a method to determine under identical conditions how one shoe compares to another. Durability tests are repeatable, and data acquisition systems can accumulate performance information. Athletic shoe companies buy machines to simulate specific conditions such as toe drag on a tennis shoe. Gait equipment is used to study the overall performance of the athlete in the shoe and the forces the lower extremities encounter. In addition to laboratory tests, prototypes are tested by actual athletes before shoes go into production overseas.

Nike has a nearly 13,000 square feet design department referred to informally as its Innovation Kitchen on its 175-acre headquarters campus. One wall displays every Air Jordan model ever made. Nike design materials include high-speed video cameras that capture soccer kick data at 1,000 frames per second and a scanner that produces a perfect 3D digital image of any human foot in just seconds. Nike testing surfaces include a huge section of regulation maple basketball flooring, artificial soccer turf, and a 70-meter running track. In 2001 Nike used the equipment to design and introduce Nike Shox, a system of columns of engineered foam that provide superior cushioning.

Other materials needed by the U.S. athletic shoe industry are computers to track the complicated worldwide supply chain. Since 100 percent of athletic shoes are imported, primarily from China, all key U.S. players have manufacturing operations abroad. For example, in 2004 Nike had 900-plus supplier factories in fifty countries. All players need materials to build top-flight information systems to handle logistics and to manage the supply chain.

Nike, for instance, designs and launches 120,000 products in four cycles per year. Nike spent $500 million in 2004 to modernize its technology system to track supply chain operations as it moves goods from its 900-plus factories to retailers. The $500 million helped Nike get products to customers faster and cheaper. Lead time for getting new sneaker styles to market was cut from 6 to 9 months.

Because 100 percent of athletic shoes are manufactured abroad, and because Nike controls an estimated 50 percent of the U.S. sporting goods market, in the late 1990s Nike was criticized about sweatshop labor condi-tions in China and Vietnam, the low-wage countries that produce 65 percent of its footwear. Business Week reported that by 2004 Nike had a staff of close to 100 inspectors to visit factories, grade them on labor standards, and work with managers to improve problems. Nike's staff performed 600 factory audits between 2002, when it built up its in-house monitoring staff, and 2004, including repeat visits to those with the most problems.

DISTRIBUTION CHANNEL

The athletic shoe retail distribution channel primarily involves full-line sporting goods stores, specialty athletic footwear stores, department stores, and online/internet stores. The distribution channel was described and quantified in unit sales by the National Sporting Goods Association in its August 2007 newsletter. Figure 5 depicts the percentage of unit sales controlled by the type of store in the distribution channel for the six-month survey period in 2006–2007.

Full-line sporting goods stores accounted for 14 percent of unit sales in athletic footwear, an increase from 12 percent over 2005. Specialty athletic footwear lost market share, claiming 10 percent of units in the athletic footwear market versus 12 percent the previous year. Department stores were even at 21 percent. Online/Internet sales were 5 percent of the athletic footwear market in units, up slightly from 4.6 percent the previous year.

Foot Locker, headquartered in New York, is the leading specialty athletic footwear store in the United States, operating approximately 1,300 primarily mall-based stores. It owns Lady Foot Locker, Kids Foot Locker, Footaction, Footquarters, and Champs Sports. Its direct-to-customer channels include Footlocker.com and Eastbay, a catalog retailer. Nike has also established retail space within some Foot Locker locations, often known as a store within a store. Nike represents an estimated 50 percent of Foot Lockers total sales, making Foot Locker a de facto retail division for Nike. This explains why Nike announced it will open jointly with Foot Locker as many as fifty House of Hoops stores in the United States by 2010. The stores are designed to boost sales of high-tech, high-priced, marquee basketball shoes. The first House of Hoops store will open in Harlem in New York, followed by stores in Los Angeles, Chicago, Houston, and Las Vegas.

Specialty athletic footwear stores lost market share. Perhaps as a result, Foot Locker announced in May 2007 that it reduced previously planned store openings from 170 to 125, including thirty-five Footquarters postponed store openings. In July 2007 Foot Locker announced it will close up to 250 stores in 2007, approximately twice the planned closures. Foot Locker also retained Lehman Brothers as an advisor to evaluate strategic alternatives, including inquiries received from private equity firms.

Major players Nike, adidas, and Puma own stores in prime locations. Nike announced in February 2007 that it will open an additional 100 of its own stores by 2010. The first Nike Town opened in 1990 in Portland, Oregon. The second was opened in 1992 in Chicago, Illinois, on Michigan Avenue. In 2007 there were 14 Nike Town stores. Nike Town New York on 57th and 5th was a travel destination recommended by Frommers. Nike.com lists 12 Nike Women stores, plus eighty-six Factory Stores.

Adidas operates 258 adidas Originals stores worldwide. Recent openings include Amsterdam, Los Angeles, London, Milan, New York, Berlin, Toyko, and Osaka. Its 1,750 square meter store in Paris on the Champs Elysées features Stella McCartney-designed skiwear and faux fur vests from rapper Missy Elliott. Adidas plans more stores in major cities worldwide, including one in China. Adidas operates 20 adidas Originals stores in the United States, mostly on the coasts; there are no adidas Originals stores in the Midwest.

Adidas and its new partner, the NBA, plan to increase the number of products at the NBA Store in New York. The league will create a store within a store adidas concept shop to serve as a prototype for future stores worldwide. The company will sell NBA products at its own shops, including its planned store in China, home of Houston Rockets player Yao Ming, who wears shoes designed by Reebok, which adidas acquired in July 2007.

Puma operates 40 Puma Stores in the United States. It opened its third store in New York on Union Square in Manhattan in October 2006.

KEY USERS

Athletic manufacturers divide their market into segments in two ways, by demographic characteristics and by athletic activity pursued while wearing the product. In terms of demographics, young people dominate this market and in particular, young men.

The key user of athletic shoes is male. Users of the marquee high-tech, high-price basketball shoe are young urban males. In January 2007 PR Week estimated that $2.9 billion worth of basketball shoes are sold per year, with males 12-20 years of age being the biggest consumer demographic. Manufacturers of athletic shoes market heavily to this demographic segment.

Women, too, wear athletic shoes but a far larger percent of female athletic shoe users wear those shoes primarily when they are participating in an athletic activity. Men are more likely to wear athletic shoes while doing their day-to-day activities, as a general-purpose shoe.

ADJACENT MARKETS

The primary adjacent market for athletic shoes is sporting goods. Since athletic shoes are built for high performance and are considered part of an athlete's gear, they make up just one part of the sporting goods market, typically thought to include footwear, equipment, and clothing. The total retail sporting goods market was valued at approximately $50 billion in 2005 according to estimates by the National Sporting Goods Association. Footwear accounted for 30 percent of this total. Clothing and equipment markets were the other two closely adjacent markets that together made up the rest of the $50 billion U.S. retail trade in sporting goods.

The U.S. athletic shoe producers also have clothing and equipment lines. Nike, adidas, and Puma depend heavily on brand recognition and brand loyalty. For example, those with a twenty-five year love of Air Force 1s might buy Nike clothing and sports equipment, or Nike sunglasses—which retail for $79 to $169. Those who identify with hip urban trends may buy adidas apparel and gear. When a brand is successful, its success spreads across adjacencies to increase sales.

RESEARCH & DEVELOPMENT

Current research and development related to athletic shoes is focused on redefining interactive marketing. R&D efforts involve how to best take advantage of the Internet as a medium for commerce, brand extension, and relationship building. Athletic shoe companies want to maintain a consistent brand image across retail and direct distribution channels, and across their adjacent clothing and equipment markets. Nike uses the interactive marketing of the World Wide Web to extend its brand in a sports-specific fashion. In addition to Nike.com, it operates Nikebasketball.com, Nikewomen.com, Nikerunning.com, Nikesb.com (skateboarders), Nikefutbol.com (Spanish), and countless others. Nikeid.com allows visitors to customize shoes. Its newest site is Nikeplus.com.

Nikeplus.com won a 2007 Industrial Design Society of America award in the consumer products category. The Industrial Design Society of America explained:

Thanks to a unique partnership between Nike and Apple, your iPod nano can do more than play music. It can now be your coach, your personal trainer and your favorite workout companion. A small sensor inside the Nike+ shoe communicates with your iPod nano, and your iPod communicates with you. Real-time data, such as running pace, time and distance elapsed, and calories burned, are spoken over customized music tracks. Users can follow and manage workout data through a dedicated web site that offers goal-driven training programs and graphic results. The web site also allows you to create run-specific playlists, such as mellow songs for your warm-up and cool-down, and more intense tunes for the run in between.

Nike also won a 2005 Industrial Design Society of America award in the digital media category for its Nikeid.com Web site. The site transforms the visitor into a designer, allowing them to apply their own choice of colors and materials to shoes and gear. The design interface includes visual call-outs and audio cues to guide users through the design-build process.

As part of its success with Nikeid.com and Nikeplus.com, Nike increased its Internet spending more than tenfold since 2002, according to TNS Media Intelligence. Nikeid.com and Nikeplus.com both created experiences for consumers. During an era when most companies use the Internet primarily to tell their story and create their mythology, merely hoping it will become as legendary as the mythology surrounding Nike's founding, Nike transformed its Web presence from a mere storytelling platform to a digital world of customer connections. The iPod partnership demonstrated how a brand can market itself by offering something useful to a community rather than just communicating its assets. As a result, Nike shook up the entire advertising industry.

In 2007 Nike put its lead agency of the past twenty-five years, Wieden+Kennedy, into review for a longstanding assignment. Even though Wieden+Kennedy helped Nike create the iconic "Just do it" TV and print campaigns that catapulted the company into a commanding position, Nike is tellingly looking elsewhere. Wieden+Kennedy did not provide design services for the successful Nikeid.com (created by R/GA) and Nikeplus.com sites.

When Nike starts researching innovative ad agencies with interactive, digital and community-building capabilities and developing relationships with them, it has the power to shake down the entire advertising industry. Nike recently moved the advertising account for its high-profile running market segment to Crispin Porter+Bogusky. Wieden, whose relationship with Nike goes back to its founding, remains its primary creative ad agency.

Where Nike goes, others soon follow. In August 2007 New Balance placed its estimated $15-$20 million ad account in review. It had long used independent Boathouse Group Inc. in Waltham, Massachusetts, as its lead shop. In November 2006 the company awarded its interactive account and other nontraditional marketing chores to independent Boston, Massachusetts, shop Almighty.

CURRENT TRENDS

The newest trend in athletic shoes is the affordable basketball shoe. Many suggest that the day of the high price, high tech marquee basketball shoe is over. Sales of basketball shoes dropped 16 percent in 2006 according to Business Week. Furthermore, these sales dropped 4 percent over a single 6-month period in 2006–2007 according to the National Sporting Goods Association.

A McGill University, Montreal, Canada, study found that high price athletic shoes were overrated. The report, based on a 1987 Swiss study of 5,000 runners, showed a 123 percent higher incidence of injury in people wearing shoes priced at more than $95 than those wearing shoes costing $40 or less. McGill researchers tested fifteen men to find out if more expensive shoes changed athletic performance. They concluded that people tended to step harder on shoes that were priced higher, possibly causing more injuries. The conclusion, published in 1997 in the British Journal of Sports Medicine, was that no evidence available proved that less expensive shoes were worse than expensive shoes for sporting activities.

A high-profile example of a low-priced athletic shoe is the Starbury One; it sells for $14.98 at discount clothing chain Steve & Barry's. The Starbury One is endorsed by New York Knicks guard Stephon Marbury. Changing the celebrity athletic shoe style of marketing, Marbury's up-front endorsement fee was $0. Marbury makes money only from sneaker sales. As part of the introductory promotional tour in August 2006, Marbury traveled to forty cities in seventeen days selling an estimated three million pairs. The Starbury II came out on April 1, 2007, and Marbury visited thirty-eight cities in seventeen days. The Starbury II also sells for $14.98. The expanded Starbury line supports twelve shoe styles, each available in a range of colors, along with basketball and lifestyle apparel. Mar-bury grew up poor with seven siblings and said $200 shoes were not an option for him.

Basketball shoes like the Starbury and other low-price athletic shoes have the potential to grow according to researcher NPD Group Inc. The low-cost shoe market—defined as sneakers under $50-grew nearly 9 percent over the past two years. Low-cost athletic shoes in the under $50 segment represent an estimated 50 percent of the $17.5 billion U.S. athletic shoe market.

As part of the low-cost trend, Payless introduced Dunkman athletic shoes in 2004. The shoes were endorsed by professional basketball superstar Shaquille O'Neal and sold for under $40. Dunkman shoes are available in several low top and high top basketball styles for men, women, youth, and toddlers. The line features full-grain leather, professional basketball team colors, and a Dunkman logo depicting Shaq doing his signature slam dunk. The high-tech shoes perform similarly to shoes that cost five times the price. Shaquille O'Neal explained "These shoes are unbeatable—amazing styles, great quality and performance technology for under $40. They are professional basketball worthy."

TARGET MARKETS & SEGMENTATION

The major U.S. athletic shoe players segment the market into sports-specific categories. Categories at Nike are called action sports, baseball/softball, cardio, fitness dance, golf, lacrosse, running, sports culture, track and field, walking, all conditions, basketball, cycling, football, air Jordan, soccer, tennis, training, and yoga (yoga being a very small category of flexible shoes). Reflecting this sports-specific segmented approach, Nike has separate Web sites for various segments.

The National Sporting Goods Association segments the market in a similar manner. It tracks consumer spending in twenty-six categories of athletic shoes. Figure 6 shows changing participation rates for sports-specific categories between 2001 and 2006.

Recognizing the importance of targeting segments, Nike reorganized internally in 2006 to focus on six major areas. The six main divisions, expected to generate 75 percent of future growth, are: running, basketball, soccer, women's fitness, men's training, and sports culture. Nike previously focused on the three traditional segments of footwear, clothing, and equipment.

Adidas is segmented toward distinct groups of sports-oriented consumers and the affiliated lifestyle. Men's athletic shoes at adidas are categorized by baseball, basketball, football, golf, outdoor, running, soccer, tennis, training, and wrestling. Reflecting their adjacencies in clothing and gear, adidas also has collections called Dunk the Impossible, Run the Impossible, Mexico Federation Collection, +F Series Collection, Award Winning Shoes, Men's Test Run 28 Shoes, Thrill & Destroy Collection, Beckham Collection, and the L.A. Galaxy Collection named after the soccer team where Beckham plays. Shopadidias.com has personal stories on video of athletes including soccer star David Beckham.

Adidas is ahead of Nike in targeting women. Adidas by Stella McCartney is a full line with fifty items that includes eight models of sleek high-fashion athletic shoes.

Since its 2006 acquisition by adidas, Reebok has targeted women. Its Run Easy campaign extols the virtues of running while chatting with a friend. Actress Scarlett Johansson developed a line of nine shoe and apparel items introduced in 2007.

RELATED ASSOCIATIONS & ORGANIZATIONS

American Apparel and Footwear Association, http://www.apparelandfootwear.org

Footwear Distributors and Retailers of America, http://www.fdra.org

National Shoe Retailers Association, http://www.nsra.org

The National Sporting Goods Association, http://www.nsga.org

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see also Shoes, Non-Athletic