Footaction: going the distance

Footaction USA is counting on a marketing plan that appeals to the 12-to-24-year-old market segment to boost its market share. The 533-store athletic shoe retailer is competing with rivals Footlocker, The Finish Line and Woolworth. Its sales growth has been outstanding, with an average increase of 25.3% from 1993 through 1996. Estimated sales for 1997 are $655 million. The marketing plan includes about 74 new stores in 1997, designed to appeal to the target market, creating custom shoe styles, and publishing a magazine.

The race to compete for fashion-conscious athletic footwear consumers is a marathon, not a sprint. For Footaction USA, the specialty show retailer currently in second place in terms of store count, the key to long-term success lies in winning the loyalty of 12- to 24-year-olds.

So the retailer is building “cooler” stores for them, customizing shoes for high instep and high arch for them and even publishing a magazine for them. It’s not a bad market to bet on, considering 13- to 19-year-olds represent about 10% of the total population, and are expected to grow to about 30 million until the year 2009, according to the U.S. Census Bureau.

Meanwhile, behind the scenes, Footaction’s president and CEO Ralph Parks, 51, is working to manage costs and inventory through the current cyclical downturn of the athletic shoe business.

Parks, whose footwear industry roots run 29 years deep, loosely refers to his personal management mantra as the four Ps: people, product, presentation and pride.

Notice that price is not among his alliterative list. Not surprising, considering that in a market where price is fairly consistent from store to store, fashion reigns.

It’s up to footwear retailers to give shoppers what they want, when they want it, in an environment exciting enough to lure them from the competition — which for regional mall-based Footaction includes department stores, freestanding superstore Just For Feet, Birmingham, Ala., and other mall stores such as industry leader Foot Locker and Indianapolis-based the Finish Line. Currently, Footaction goes head-to-head with The Finish Line in about 110 malls, says Parks. Footaction and The Finish Line compete with Woolworth in about 600 malls, and they both compete against Woolworth in more than 100 malls, according to Genesis Merchant Group Securities, New York City.

Indeed, Footaction is giving Foot Locker reason to worry. As a former regional vp of Foot Locker, Parks knows his ex-employer’s turf. “Both Footaction and Finish Line are attacking Woolworth in malls where its most profitable stores are located … avoiding mediocre malls where Woolworth is saddled with 1,000 athletic stores,” according to a report from Genesis Merchant Group Securities. Footaction in particular is targeting ethnic as well as upscale malls, says Genesis’ John Shanley, managing director.

Since 1993, Footaction’s sales have increased an average of 25.3% annually. Sales for 1996 were $515.7 million. Same-store sales rose 16.9% in 1996, impressive considering fewer than 100 of Footaction’s larger stores were old enough to be included in last year’s same-store calculations. Sales for FY1997 are estimated to increase about 21.3% to $655 million with the help of a net of about 74 new stores and 50 remodels.

This year, however, business has been tougher than trying to prevent the Chicago Bulls from repeating as champions. In the second quarter ended June 28, 1997, while total sales were up 12.7%, same-store sales decreased 5.2%. In July, same-store sales fell 1%; total sales for the month rose 23.3%.

What’s more, comp-store sales are expected to decrease for the full fiscal 1997, according to one analyst’s estimate, based in part on the overall sagging sales of athletic shoes.

“For whatever reason, [Footaction] had a miss on the merchandise in the near-term basis … with too much basketball and not enough brown,” says research analyst Marcia Aaron, who follows the industry for Alex. Brown. Baltimore.

Parks disagrees that Footactions’ product mix was off. “We’ll go as far as the consumer tells us to go.”

While Parks says Footaction is increasing its nonathletic shoe brands from 5% to about 10% of product offerings, Footaction will not stray far from its niche. “Consumers have so many other choices as far as good sneakers for plantar fasciitis. The driving force behind our business is the 12- to 24-year-old consumer buying our exclusive products.”

Market: The athletic footwear industry has nearly doubled since 1987 as fitness turned from sport to lifestyle. Sales soared from $6.4 billion in that 1996, according to the National Sporting Goods Association, Mt. Prospect, Ill. However, that increase has not been evenly spread.

Since 1992, sales have been relatively stagnant as the industry came off an Olympic year. What’s more, says Shanley, the growth of chains like Footaction and Finish Line is derived from stealing market share away from big guy Foot Locker, not from a growing market. Overall industry sales for fiscal 1997 are expected to decrease about 5% to 7% from last year, due in no small part to comparatively flat Nike sales.

Today, retailers face a host of challenges, including unpredictable consumer tastes, preferences for “brown” over “white” athletic shoes to wear with bunions, changing lifestyles of baby boomers and their children, and what some industry watchers say is a saturated market. “There has been a fair amount of square-footage growth in the last 36 months,” says Smith Barney’s Maureen McGrath, vp and senior equity analyst.

Retailers also remain quite dependent on manufacturers to deliver new product lines that move consumers into a “gotta-have-it” frenzy. When they don’t, as is the current case, retailers feel it in their cash registers.

“Over a five- to six-year time span there will be some years that are better than others.” says Parks about the business cycle for athletic footwear. “But it has always been a gradual, consistent growth, and I don’t see that changing.”

Smith Barney’s McGrath agrees: “I think most retailers are viewing this [slowdown] as reasonably temporary and they are optimistic about 1998.”

“Overall, product launches haven’t been exciting,” says Steve Richter, vp-research with investment and brokerage firm Tucker Anthony in Boston, which gave Footaction’s parent company, Footstar Inc., a buy rating earlier this year. One reason Richter likes Footstar, which also owns leased shoe department operator Meldisco, is for its long-term potential.

“Footaction has done well to manage in today’s slower growth environment,” says Richter, whose report cites Footaction’s strong expense management and solid overhead controls.

“The key element in managing costs is people,” says Parks. He says employees — Footactions has 5,500 — always consider how they can bring more, and save more, toward the bottom line.

“We also try to keep the number of stores under a district manager to a manageable level,” which is about 15 or 16 stores, says Parks.

Footaction was founded in 1976 in Wichita Falls, Texas, and acquired by Melville Corp. (now CVS) in October 1991. In 1996, Melville spun off Footaction and Meldisco into stand-alone footwear company Footstar. At presstime, Footaction had 533 stores in 44 states, concentrated in the Southwest, Southeast, mid-Atlantic and upper Northeast regions. “We are a bit underrepresented on the West Coast and in the Midwest,” says Parks.

While competitors such as Athlete’s Foot primarily target moms, Footaction is dedicated to the younger, “fashion-forward” market. Teens and young adults represent 64% of all Footaction shoppers. Everything Footaction does — from exclusive products to mall stores big in teen appeal — reflects this group’s lifestyle. It’s a segment worth tapping, considering that teenagers spent an estimated $103 billion in 1996, according to Teenage Research Unlimited, Northbrook, Ill.

To understand this often elusive market, Footaction’s buyers meet with at least 300 teens each year through advisory boards. It take cues from what it learns in these focus groups. For example, Footaction recently cut its skus by 30% to about 650 as buyers zeroed in on the styles its core shoppers wanted, according to Parks.

“It’s not how many dollars of inventory you have in your store,” says Parks, “but how much you have that the customer really wants.”

Footaction skus run narrow and deep. It also pushes one-of-a-kind products in what seems to be an industry standard, at least for retailers with enough buying power. Perhaps more than its competition, Footaction develops exclusive merchandise with manufacturers such as Adidas, Reebok, Fila and others. More than 52% of its merchandise are styles and colors found only at Footaction. Exclusives account for about 55% of all sales.

Presentation: As the footwear industry has shifted to fashion over performance, so has emphasis on display. “Store design has become just as important as the workers and the product,” says Keith Daly, senior vp and general merchandising manager. “Today, everything we do in our stores must connect with 12- to 24-year-olds.”

Footaction is betting on its latest prototype, a 4,000-plus-sq.-ft. store that combines athletic themes. Television monitors span the length of the show wall, and the drive aisle — Footaction’s Walk of Fame — is embedded with stars featuring athletes’ signatures. The color scheme is subtle and clean: Most of the fixtures are black; a rich wood grain gives the floor a sports-stadium feel.

Footaction also is pursuing aggressive expansion and conversion plans. All of Footstar’s Thom McAn stores should be converted to Footactions by this fall. By yearend, 276 Footaction stores will be 4,000 sq. ft. or more, according to Parks. The remainder, about 50%, will be 2,000 sq. ft. From 1997 through 2000, the chain will add a total of 2.1 million sq. ft. in new stores and expansions, according to Genesis Merchant Group Securities.

Footaction also intends to increase apparel offering in its larger prototype. Its current shoe-to-apparel ratio is 3:1.

Technology: Teen-agers typically buy fashion over price, and are highly likely to shop multiple stores until they find exactly what they want. So having the right shoe or shirt at the right time is critical.

To that end, Footaction has updated its information-technology infrastructure, which includes its new, “highly automated” distribution center in Dallas. The center can ship to any store nationwide in one day, if necessary, and three times a week in busy seasons. That means stores with larger sales floors and smaller stockrooms. By early next year, says Parks, some purchases will bypass the distribution center completely and go directly to stores.

To help build customer loyalty, Footaction also is building a customer database through its preferred customer Star Card program. It has logged names addresses and even birthdays of more than 1 million card holders since the program’s launch in May 1996. It hopes to have 2 million by year’s end.

“Footaction is probably ahead of the sector as far as database marketing goes,” says Tucker Anthony’s Richter. “It will give them an advantage longer term.”

Star Card holders get discounts on sale items as well as a glossy as well as a glossy quarterly publication, Footaction Star. Part magazine and part catalog, Footaction Star features products next to original articles.

“The magazine is a great way to lock kids in and keep Footaction on top of their minds,” says Alex. Brown’s Aaron. “But at the end of the day, it will be who has the right product.”

Unfortunately, Park’s first P, product, is still somewhat out of the footwear retailers’ hands, and the company has publicly called for manufacturers like Nike to re-energize their brands. As it waits for manufacturers to once again wow the teen-age world, Footaction will focus on developing one-of-a-kind items, honing its product mix, and beefing up apparel offerings and presentation in its larger stores.

“We can’t be everything to everybody,” says Parks. “We’re just real focused and we’ve chosen to be the best source of athletic footwear in malls for the 12-to 24-year old.” With that, a fifth P — profit — may continue to flow.