Do Retailers Have Room to Run?

NEW YORK — Everyone wants to go running.

The red-hot product category is on track to finish 2010 up 20 percent over the $5 billion in sales it did last year in the U.S., according to SportsOneSource.

Almost all retail segments have profited from that boom: Mall and family footwear chains have both seen sales rise sharply. And the technical channel, which sped through the recession posting gains, is poised to finish 2010 at $760 million, up about 12 percent from last year, according to the Independent Running Retailers Association, whose membership represents roughly 60 percent of the specialty store volume.

“We have more people running for health than we’ve ever had, and the tech guys are really benefiting from that and putting up strong [comp-store numbers],” said Matt Powell, an analyst for SportsOneSource. “At the same time, we have a fashion cycle moving into running as a silhouette, and that business is up nicely, too.”

As the mall retailers and brands seek to capitalize on running’s popularity, some specialty independents are starting to feel the pressure.

In perhaps the best example, Foot Locker Inc. opened its first Run by Foot Locker concept shop in February on Manhattan’s 14th Street, a few hundred yards from longtime New York running independent JackRabbit Sports. The chain even recruited two associates from the store, JackRabbit President Lee Silverman told Footwear News.

“My whole concern — and this has been true from day one — is that they’re 200 yards down the street, and they don’t have to hurt us that much to hurt us,” Silverman said.

“Profit leads to competition, right?” said Guy Perry, owner of the three-store Salt Lake Running Co. chain in Salt Lake City. “I’m not afraid [the big-box stores] will close us out, but we don’t have room to make mistakes.”

Interest in running has come from all sides. In April, Finish Line Inc. rolled out a Nike shop-in-shop dedicated to running footwear and apparel. Thirteen stores now contain a Nike Track Club, and the company plans for almost half its locations to have some form of the concept by year’s end. In addition, a large-format version recently opened on Staten Island in New York.

Foot Locker also opened its second Run by Foot Locker door in Menlo Park, N.J., in August. According to Ken Hicks, chairman and CEO of Foot Locker, the retailer has the technical runner squarely in its sights with the concept.

“Run by Foot Locker is a prototype and [an] opportunity for us to learn more about the running business for the dedicated runner — and the running geek, if you will. It gives us a chance to really understand the shoes, the apparel and accessories they are interested in,” he said.

What the chain learns at Run, he said, will help Foot Locker better serve runners in its flagship doors — a strategic imperative that Hicks has emphasized since taking over the top spot earlier this year.

“It’s about learning what is the preferred assortment. We’ve developed relationships with vendors that we probably didn’t have a strong [relationship with before], like Brooks,” he said. “And we’re able to understand how we can do with some very high-end, technical running shoes, and it also helps us understand selling techniques, presentation techniques, what’s important to the customer and what they look for in terms of presentation, marketing and service.”

But Hicks is emphatic that Foot Locker is not just targeting dedicated runners.

“There are some people who want a running shoe, and we need to be able to serve them. Then there are other people who look and say, oh, this is a comfortable shoe. They want to make sure they’re buying a great product, that it’s comfortable and it’s good for their feet, and that’s what [Run] allows us to do.”

Similarly at Finish Line, Sam Sato, president and chief merchandising officer, said the company is working to meet the needs of its existing consumer.

“We’re not carving out a different demographic,” he said. “We have always talked about this everyday sport consumer, and we want to expand our offer to our current Finish Line customer, who’s in high school or maybe a little older.”

The Nike Track Club concept, he said, grew out of the Finish Line LTD store that opened in 2008 and was converted back to a standard Finish Line in 2009.

“At LTD, we were more narrowly focused around the high school athlete and his or her performance needs,” Sato said. “At Track Club, we’re focusing on high school athletes and their on-the-field, as well as off-the-field, needs. The off-the-field needs are the core of our business and always have been.”

But whether they are fashion or runner-oriented, the big-box forays into their home turf have made independent running retailers take notice.

“Those stores have incredible reach to the general consumer, and that general consumer is very comfortable walking into a mall store,” said Chris Lampen-Crowell, owner of Gazelle Sports, a three-store chain in western Michigan. “And when that’s more convenient, we lose.”

Lampen-Crowell noted that his stores plan to take a page from mall retailers, courting the casual running shopper with a bigger selection of color SKUs. “That’s an additional consumer,” he said. “We might be more authentic and want you to run in [the shoes], but at the same time, we’d be silly to not be trying to reach some of that market because that’s added dollars.”

Other retailers polled by FN said they would focus on their assets, especially their commitment to service, which provides a point of difference.

“Any door is someone to go up against, but we need to continue to do what we do best, and that’s our customer service,” said Robb Finegan, owner and footwear buyer at Portland, Ore.-based Fit Right Northwest.

And Salt Lake Running’s Perry said his company is focusing on service, selection and expertise in things like running groups and race preparation. “Our challenge [as an industry] is to continue to elevate our game,” he said. “No more playing store.”

But some owners are taking new steps to compete.

For example, next April, JackRabbit will host the inaugural JackRabbit NYC Running Show, a 30,000-sq.-ft. expo featuring footwear, apparel and accessory brands, as well as speakers, lecturers and social events. “It’ll introduce people to running if they’re not runners yet, and if they are runners, it’ll be a one-shot place you can get everything you need and access to the brand directly and see what’s new,” Silverman said.

In spite of new competition in the category, analysts said there is still plenty of growth potential for independent retailers.

Sam Poser, an analyst with Sterne Agee, said the recent prominence of running at the mall is fashion-driven — and not necessarily a drive to take share from the specialty market. “Running is something you can just go out and do, and there’s lots of new performance product and new technology and looks. It’s just a hot group of product.”

And Powell is confident both specialty and mall merchants will be able to take advantage. “We’re in a technology-as-fashion cycle, and [consumers] want a shoe that can do way more than they need it to,” he said. “[The stores] aren’t really catering to the same consumer. We’re in a perfect storm for running and every channel is benefiting, and every retailer and brand is benefiting.”

But JackRabbit’s Silverman is not entirely reassured.

“At some point, one of the majors is going to start to succeed in changing the perception of run specialty as the place you have to go [as a dedicated runner],” he said. “Either they’ll create a sub-brand or they’ll do something in their stores.”

And for run specialty to maintain its edge, he added, the channel is going to have to be creative: “To keep doing what we’re doing might not be enough. But I don’t know what else to do. We need to keep thinking outside the box.”

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