Is $120 the new $90?
Is $120 the new $90? I distinctly remember when running customers could buy a core running shoe for $90. In 2006, the Adrenaline, the 2000, the Omni, and the Wave Rider were all $90. Today, those same shoes are $120 except for the Wave Rider, which sells for $115.
I know that technology has improved, and I know that no one is trying to rip anyone off. Costs have risen. However, even though I have been in the running industry for a couple of decades, there is still a consumer inside of me that thinks that I can get a really good pair of shoes for less than $100 out the door. Returning from The Running Event, I am confident and inspired by the business owners that have dedicated their careers to the sport of running and specialty retail. Vendors and retailers alike bust their tails to satisfy the needs and desires of runners, and they do a great job of doing that. Specialty retailers additionally do a great job, better than anyone else, of creating new runners--introducing people to the possibilities of their own fitness and inspiring them to reach new levels. But are we scaring away the very customer we work to create because of sticker shock?
The Bureau of Labor Statistics reports that a $90 purchase in 2006 has the same buying power as $104.26 today. In other words, the running shoe market has exceeded inflation by $15 (15%) over the past 7 years. I wonder if it is a coincidence that the average shoe price at retail was $105 in 2013 and that footwear margins for local running retail dropped slightly in 2013. At first blush, it appears that our customer is telling us what a fair value is to them, and it’s on par with inflation. Additionally, even though we’ve continued to see slight growth in dollar sales volume, footwear unit sales within the channel have dropped 1.6% this year. The reality is, we are selling fewer shoes.
So how can we solve this? It appears that there is a market need for performance running footwear at $100. One way retailers can address this need is by making opportunity buys on phase out models at the end of their cycle. The Adrenaline 13 is still a great shoe. Is it too far-fetched to think that a local running dealer could offer a customer the 13 and 14 side by side and let them choose what is best for them? A few running retailers have pursued this, and in some cases, the previous model remains a top seller. The retailer is still fitting the customer in the proper shoe and in quality product. The retailer still maintains a high margin rate because the phase-out shoe was purchased at a discount. Even the margin dollars are nearly identical between the new and the old model.
In this scenario the retailer may also shake the consumer perception that the retailer is more expensive than online since most online deals come from older model shoes that are no longer protected by MAP policies. If a customer searches a current product, they will quickly discover that the in-store price matches the price from online retailers.
Another way to address the need is for vendors to engineer a $100 shoe. Vendors currently engineer SMU’s (Special Make-Ups) for larger retailers to achieve certain price points and limit channel conflict. Could they do the same thing for local running retailers by using fully amortized tooling and tuned upper packages? Would local running retailers embrace the effort and support the vendors who created these models in the interest of customer retention and channel relevancy?
Most industry folks I talk to admit that they believe price had something to do with the decrease in unit sales this year. We can buck this trend, but it will require some innovative thinking on all sides. Vendors must challenge their current views on footwear and product line management. Independent running retailers must learn to retool their category strategy for footwear and view price points below “core” models as a necessary evolution of their business. They will realize that it is possible to maintain margin rate and increase unit sales and customer retention.
Innovative changes to be sure, but after seeing everyone at The Running Event and witnessing the devotion we have to our industry and its success, I am confident we can make it happen.