Global Marketing Management: Athlete's Foot in China Case
MASTER INTERNATIONAL FRANCHISING IN CHINA Ryan Duff Alex Glazer Jack Grover
THE ATHLETE’S FOOT, INC. Based in Kennesaw, Georgia Foremost franchisor of athletic -footwear operations 800 corporate and franchise stores in 40 countries 1978: Expansion globally begins in Adelaide Australia 1980’s: Bought out by the Group Rallye where more emphasis was put on customer service and product design balancing the rapid expansion
THE ATHLETE’S FOOT, INC. CONT. Reorganized structure: Two Divisions Marketing Team Serviced Franchises Store Team Operated Company-Owned Stores Rapid expansion continues throughout the 1990’s: More than 650 stores Competitive Advantage through customer -oriented technology: FitPrint System Focus Points: Customer Service, Aggressive Marketing, Control of Pipeline from Point of Sales
RETAILCO INC. CEO Rick Wang Young entrepreneur looking for a new venture No prior athletic-footwear retailing experience CMO of Foremost Dairies Ltd.: short-shelf-life consumer goods Trip to HQ in Georgia to learn Impressive inventory control system Became the Master Franchisor of The Athlete’s Foot, Inc. in China.
FRANCHISE STRUCTURE IN CHINA The Athlete’s Foot, Inc. (Franchisor) Retail Co. China Holdings (Franchisee)Corporate Store Corporate Store Corporate Store Sub-franchises Branch Branch Branch Store Store Store
FRANCHISING STRUCTURE IN CHINA CONT. Monthly Royalty Fee: 2.5 percent of net sales Other Fees (Franchising, MIS, etc.): $2000-$5000 per store Wang visited Atlanta HQ for “New Owner Training” and completed “On Site Training” learning how to run an ef ficient franchise of The Athlete’s Foot, Inc.
FRANCHISING STRUCTURE EXPLANATION The Athlete’s Foot, Inc. sold franchise rights to Retail Co. in exchange for royalty and service payments Retail Co. opened several corporate franchise stores One partnership was made to 12 sub -franchise The Athlete’s Foot, Inc. stores in Nanjing and Wuxi Sub-franchise: franchises granted within the territor y of an existing Franchisee, that are usually allowed to be granted when the original Franchisee reaches a point in business development whereby they cannot sustain any fur ther growth from the one outlet
GOALS AND STRATEGY FOR CHINESE Segment the Market into three Regions East China, North China, South China East China was thought to have most potential followed by North China “New Owner Training Program” complete Employees learn to work internal-control systems and marketing procedures September 1998: first franchise open in Parkson Department Store in Shanghai, East China Young Demographic 20-35 Years Old Devoted to Brand Names Style Conscious
INITIAL SUCCESS Before 2000, Wang opened a new store every 22 days Reached volume of $14 Million USD in sales in 2000 Had all the most popular brands and an inventory management system that allowed for ef ficient and aggressive pricing No market penetration by other companies
PROBLEMS ARISE•Loss of First Mover Advantage•Failure to maintain necessary inventory levels•Decreasing cash flow
LOSS OF FIRST MOVER ADVANTAGE China prepares to enter the W TO and the global financial community made preparations for increased potential in this new market Increase in Foreign Domestic Investment (FDI) Size of department stores grow, but so does Athlete Foot’s competition, making their space seem minimal More footwear retailing players enter the market
INVENTORY LEVELS/INCREASED COMPETITION Local National InventoryCompetitors Brand Names Levels National brands decreasing supply Nike, Reebok, Quest Sports because they are Adidas opening own outlets Competitive pricing, Selling direct to Cash flow struggles enhanced customer consumer instead prevent full service, increased of through retail inventory capability product quality location
CASH FLOW PRESSURE Need to commit large amounts of capital upfront to obtain popular retail venues High-traffic upscale locations were desired Quality location lead to increased sales performance and success 24-36-month leasing agreements were needed requiring large amounts of upfront capital Tried expounding to more department stores, but increased competition hindered this
SOLUTIONS1. Decreasing amount of store front locations2. Reposition its products from athletic -footwear to athletic products to dif ferentiate from local and global competition3. Reposition to dif ferent target market4. Leave China all together
DECREASING AMOUNT OF STORE FRONT LOCATIONS SOLUTION 1 Slow down expansion in China Approximately cost $75,000 per store (Based on 3,000 square meter stores)
REPOSITION FROM FOOTWEAR TO SPORTING GOODS SOLUTION 2 Reposition its products from athletic -footwear to athletic products to dif ferentiate from local and global competition Basketballs Tennis rackets Apparel
REPOSITION TO LESS-BRAND CONCIOUS DEMOGRAPHIC SOLUTION 3 RetailCo has a supply issue regarding the fact that national brands will no longer provide lots of inventory or trendy/current products Last season products can be taken advantage of – of fer for less to a more price sensitive consumer who is still interested in brands New Consumer: Brands are still important but not number one priority, motivated by price Will also attract loyal fans looking for deals Maintain superior customer service: when customers may have the choice, we want them to still pick going to RetailCo over corporate stores, “bang for buck” aspect
PULL FRANCHISES IN CHINA SOLUTION 4 Don’t go global unless you have to! Too many problems emerging with this market Refocus ef forts on domestic franchises Find another market that fits model better – not every country is the right fit Wang expanded too quickly: no time to plan exit strategy or long term goals, too much focus on sales volume & size of company
THE ATHLETE’S FOOT, INC. TODAY The athletes foot today is not able to compete The only available sector is high discount segments of the market, targeting middle income families This change in focus would require too much cash The company can no longer stock the products that consumers want to buy, and therefore cannot compete in the higher end segment like it has don e since its inception.