Section E, Group 6

Footwear Industry

Scope & Purpose

We have undertaken this project with the aim to enhance our appreciation of different facets of marketing management
through the study & research analysis. Through this project we intend to study the Footwear market, which is highly
competitive with only a few major players and a seemingly endless array of smaller players, all vying for their share.
We propose to work on North American footwear Industry which is the global trendsetter for the rest of the world.
Meanwhile we would also see what stage Indian industry is reached compared to its American counterpart.

We choose to study 2 companies from the extreme ends of the spectrum- Nike, which is the global market leader &
Under Armour which is a relatively new entry in the market. The problems faced by both are different on account of
their age, brand and positioning in the US market.

Progress

We have defined the broad outline of our study and also the firms (Nike & Under Armour) we would work on. The
outline defined is as below:

Industry Analysis in North America:

Market Value & Growth

The overall performance of the American footwear industry continued to be good in 2016 with the current value growth
of 6% and it reached USD 79.7 billion. It is expected that footwear market will undergo an increase by CAGR of 3% at
constant 2016 prices over the forecast period. Health and wellness will continue to be a key influence on this category as
athletic comfort becomes a dominating factor in the process of footwear selection. Sales has also shown an increasing
trend with the arrival of casual and more relaxed dress codes with comfortable shoes that are supplements of an active
lifestyle.

Categorisation & Competition

The footwear industry is highly concentrated, with the top 50 companies generating about 75% of industry revenue.
Relatively high barriers to entry exist due to firms commanding strong brand loyalty. Additionally, economies of scale
plays a major role in how companies operate, as production costs have to be minimized, research and development
budgets must be considerable and outreach must be very strong to compete effectively. Nike, Skechers, Adidas, Under
Armour, Saucony, New Balance and Converse all registered growth in 2016. The footwear industry is divided into 2
major product categories Athletic and Non Athletic with high competition in each of the two segments. While it is the
brand associations and promotions that act as major influencers of consumer buying behaviour in the athletic segment,
utilitarian strategies form the basis of influencing consumer behaviour in the non-athletic/casual segment.

PEST Analysis

We conducted brainstorming sessions for coming up with PEST analysis of the industry for understanding of the factors
influencing the industry. Footwear market can be segmented into the following categories:
Political
Threats
- Foreign Direct Investment Policies. A few
foreign countries now have policies in place that
prohibit full ownership of retail stores.
- Currency fluctuation risk as manufacturing
remains outsourced
- Competitive tax system internationally
- Customs related issues on import & export due
to changing volatile political regimes
Social
Opportunities
- Quality over price is valued
- Increase in fitness & wellness trend
- Participation in sports is a major part of U.S.
culture
- Rise in the number of women athletes
Threats
- Obesity rates in the U.S. have raised showing
that some people are not interested in physical
activity
Economic
Opportunities
- Growth of the performance shoe industry
- Strong brand equity
Threats
- Increase in interest rates
- Increase in labor costs in developing countries
- Shoe sales rely on a consumers disposable
income
- Increase in the shipping costs of raw materials
- High reliance on overseas manufacturing
Technological
Opportunities
- Increase in the use of commerce conducted
electronically
- Increase in the use of mobile commerce
- Social media systems becoming increasingly
popular for marketing to consumers
- New technologies emerging that allow
corporations to become more energy efficient as
well as reduce manufacturing costs

Footwear Industry

Product
Distribution Channel Demography
Type

Athlethic Non Athlethic Internet Supermar Footwear Clothing

Children Men Women
(Sport (Casual Shoes, Sales kets Showrooms Stores
Shoes,Running Leather Shoes,
Shoes, etc) Boots)

Under Armour

In 2006, A new campaign, Click-Clack launched the brand into the footwear business through the introduction of its
first line of football cleats. Under Armour revealed its highly anticipated line of performance trainers marking its official
entry into the athletic footwear market in 2008. The Company's footwear offerings include running, basketball, cleated,
slides and performance training, and outdoor footwear. Its footwear is designed with technologies, including Anafoam,
UA Clutch Fit and Charged Cushioning, which provide directional cushioning and moisture management.The Company
competes with Nike and adidas.

Key Issue:

1. Given customer perception of Under Armour as a practical product rather than a lifestyle choice, its foray into
shoe industry has ran into troubled waters in US.
2. In Q1 2017, Under Armour sneaker sales grew only 2% which is in sharp contrast to high growth of 64% recorded
for the same quarter last year.
Some major reasons identified for the lacklustre performance are:

1. Focus on sports and function rather than sports lifestyle sneakers - shoes like the Nike Air Force One or Adidas Stan
Smith
2. Failure of Stephen Curry signature shoe line Curry 3
3. Subpar innovation and lack of compelling lifestyle offering in shoe offerings
4. Bloated sales figure based on retailer sales rather than end user sales for the last year data
5. Big box store closures in 2017 such as The Sports Authority

Nike

Nike is one of the worlds largest designers, marketers and distributors of athletic footwear. The companys strong
brand portfolio and enhanced retail presence enables easier customer recall as well as help it to drive topline growth and
to attain competitive advantage over its peers. However, intense competition has put pressure on the price of products
and therefore has affected the companys overall performance.

Key issues:

1. Nike was the worst performer in the Dow Jones Industrial average in 2016 declining nearly 19% , facing tough
competition from Adidas and Under Armour.
2. Nike set high expectations in October 2015 when it forecast annual sales would hit $50 billion by the end of fiscal
2020, a little more than three years from now.That projection equated to it maintaining annual growth rates of 10
percent. But it hasnt reached that level since.
3. Nike Inc.'s third-quarter earnings in 2016 increased by 20 percent, but the firm showed sluggish overall sales
growth and negative future orders.

The possible reasons for the above may be-

1. While Nike still holds half the market, big retailers like Foot Locker Inc. And Dick Sporting Goods Inc. Are
devoting more rack space to Adidas after its Boost success.
2. Nikes relentless focus on athletic performance and its size ( more than 70,000 employees ) began to look like
potential liabilities in its goal of achieving 50 billion in annual sales by 2020 i.e a 10 % increase per year
3. After the introduction of Yeezys by Adidas, it increased to 30% from the previous 1 % share in the secondary
market. Almost all of it was at the expense of Nike, which came down from 96 % to 67 % during the same time.
4. When Nike loosened supply of its limited releases in order to squeeze out resellers, it alienated key consumers who
did not like their exclusive club to be open to just anybody
5. Kanye West, Nikes biggest non-athlete endorser switched to Adidas. Stephen Curry also jumped from Nike to
Under Armour and helped triple the upstarts brand annual footwear sales in 3 years.
6. Nikes belief that fashion will follow performance is giving leeway to competitors like Adidas which is competing
for design talent and had renewed focus on the fashion crowd.

Remaining Tasks
We need to undertake use data from surveys/online retail chain feedback & ratings & secondary data to draw
conclusions about consumer behaviour. We further need to come up with a marketing plan for the revival in sales for
Nike & Under Armour and contrast these.