I. Statement of the Problem Based upon the critical issues stated in the case, Wyatt wondered if LFL should consider bringing a Lobo shoe to market in partnership with Reebok. Was there retail potential in a signature product built around an emerging professional women’s player such as Rebecca Lobo? Did it make sense financially? II. Objectives of the Study This study seeks the following objectives: to be able to understand the market potential of LFL shoes in partnership of Reebok – to determine the profitability of the partnership and the launch – to know whether the decision of being partners with Reebok on the Lobo launch was a good idea III. Scopes and Limitations of the Study The study includes the current situation of Woolworth Corporation, the LFL, its consumers and Reebok. The nature of the company LFL. , the organizational background of the company and the different strategies that the company has already done to the specific product line of athletic shoes and apparel, are also some scopes included in the study.
The study however, is limited with only secondary data based on personal interviews and field research and was written solely as a basis for class discussion rather than to illustrate either effective or ineffective retail and marketing strategy practices. This study has recommendations and points of view that are based from my own perspectives and thinking as a marketing student. IV. Nature of the Research A. Woolworth Corporation Woolworth Corporation’s Athletic Group included LFL, Foot Locker, World Foot Locker, Kids Foot Locker, Champs Sports, Going to The Game and many more.
The athletic group, Woolworth’s largest and most profitable business unit, operated 3,588 stores in North America, Europe, Asia and Australia and led the industry in sales of branded athletic footwear and apparel in the US. As part of its growing strategy, the Athletic Group had continually introduced new store designs that combined trend-setting product assortments with exciting retail environments. Historically, its largest proportion of sales and net income were generated during the Back-To-School season in August. B. Lady Foot Locker
LFL’s first retail store opened in 1982 in Joliet, Illinois. As of 1997, LFL operated approximately 650 stores across the United States and in Puerto Rico, primarily in shopping malls. LFL was the premier retailer of athletic footwear, apparel and related products for women, carrying major brands of athletic footwear and apparel for a variety of sports and fitness activities, including running, fitness and basketball. LFL prided itself in providing the best in woman-to-woman service and product selection. Its stores typically ranged from 800-1,200 square feet of selling space.
Besides operating retail store sales, LFL had recently initiated a mail-order catalogue. C. The LFL Consumer LFL targeted the 18-34 year-old active female. According to management, this woman was active in sports, fitness and family life. The 12-17 year-old teen female represented an important secondary market. Management believed that sales occurred across broad age segments, and thus considered the LFL customer to be “ageless”. LFL executives believed that 12-17 year-old female consumers were increasingly critical to reach because of their present and future buying power.
Traditionally, Reebok held a relatively low share of this segment compared to other brands such as Nike and Adidas. D. Reebok Reebok International consisted of 3 principal operating units: The Reebok Division, the Rockport Company, and the Greg Norman Collection (golf apparel). Reebok designed, marketed, and distributed sports, fitness, and casual footwear, apparel, and equipment. Although Reebok products were sold in approximately 170 countries, the US was Reebok’s single largest market. E. Rebecca Lobo Rebecca Lobo attended the University of Connecticut 1992-1995 as a Political Science major.
At Connecticut, she became the school’s all time leader in rebounding and blocked shots, while averaging 16. 9 points per game. Lobo was named the 1994 and 1995 Big east Conference Player of the Year as well as an Academic All-American. Lobo also received the Wade trophy in 1995 as the National Player of the Year. V. Areas of Consideration The areas to be considered upon pursuing the study are the following: A. Reebok’s Lobo Endorsement Rebecca Lobo’s contract with Reebok enabled Reebok to involve her in product endorsements and advertisements, store appearances, and speaking engagements.
However, because Nike (in footwear) and champion (in apparel) were primary sponsors of the WNBA, Lobo could not appear in WNBA games with Reebok footwear unless the Reebok logo was masked on her shoes. Further, Reebok could not feature Lobo in its advertisements or in-store displays wearing her New York Liberty uniform. B. Target Consumer LFL targeted the 18-34 year-old active female. According to management, this woman was active in sports, fitness and family life. The 12-17 year-old teen female represented an important secondary market.
Management believed that sales occurred across broad age segments, and thus considered the LFL customer to be “ageless”. LFL executives believed that 12-17 year-old female consumers were increasingly critical to reach because of their present and future buying power. Traditionally, Reebok held a relatively low share of this segment compared to other brands such as Nike and Adidas. C. Industry Competition – Marketing Mix 1. Product Economies of scale and purchasing power within the channel provided advantages to companies with broad lines.
Larger brands such as Nike, Reebok, Adidas and Fila developed numerous product lines ranging from basketball and tennis to soccer and hiking/outdoor shoes. Several athletic footwear brands offered proprietary technologies designed to enhance their products’ performance. As a result of growing consumer demand, consumer segmentation, and increased competition, manufacturers frequently introduced new products and shortened product life cycles. Product cycles, particularly in the more fashion-dependent basketball category, had evolved from yearly introductions to quarterly and even monthly introductions. . Pricing Consumers paid premium prices for athletic shoes with advanced technology because they believed these products enhanced performance. Reebok priced its Hexalite shoes between $50 and $90. Pricing in the athletic footwear industry was typically based upon 30% to 55% supplier gross margins on wholesale selling price and 45% retailer markups on retail selling price. Reebok management believed that the Lobo shoe should incorporate Reebok’s soon-to-be-introduced DMX technology. Reebok’s DMX shoes were slated for $110 suggested retail.
LFL, on the other hand had seen Nike struggle with a $100-plus product in the Swoopes shoe. They proposed that Reebok produce a Lobo product with a version of Hexalite cushioning at an $85 suggested retail price, based upon a 45% selling margin. 3. Retail Channels Retail competition within the athletic footwear market was based upon several factors, including target consumer segment, price, merchandise assortment, store or chain reputation, store location, advertising and customer service. For years, Foot Locker and Lady Foot Locker experienced little direct competition.
Although no other national retailer besides LFL concentrated solely on the women’s athletic market, indirect competitors to LFL included national athletic specialty stores such as Footaction ad Finish Line as well as “big box” stores such as The Sports Authority, Sneaker Stadium, and Just For Feet. 4. Promotion Companies such as Reebok and Nike depended on promotions to grow market share. Promotions included celebrity endorsements and national brand and image campaigns. Reebok spent heavily in celebrity endorsements as well, having recently signed basketball player Shaquille O’Neal for $3 million per year.
Unmeasured promotional expenditures(which would include the cost of celebrity endorsements)for Nike, totaled $290 million in 1997 and $160 million in 1996. Reebok’s figures were $68. 1 million in 1997 and $68. 2 million in 1996. D. Industry Trends As the industry matured and competition intensified, athletic footwear companies attempted to capture sales and market share through market segmentation, differentiation and branding. The athletic footwear market had been declining for the past two years.
Industry sources believed this trend resulted from a shift to alternative footwear, such as sandals and casual shoes, that they expected to continue into 1997. E. Emerging Women’s Athletic Market To bring sex parity to intercollegiate sports and the related emergence of sports participation among pre-teen and teen-age girls had recently influenced the women’s sport market. According to the Women’s Sports Foundation, one in 27 girls participated in high school sports in 1971. By 1997, that figure was one in three. Also, over 13 million women aged six and over played basketball in the US.
Most important were the financial considerations LFL faced with the Lobo launch decision. Would LFL be able to liquidate the approximately 15,000 pairs it would carry, without significant markdowns? Wyatt still harbored concerns that a women’s-specific product such as Lobo signature model was a tremendous risk. Moreover, Wyatt felt that the sales in the basketball category were trending down. With these questions and more in mind, Wyatt knew they had a difficult decision on their hands – whether or not to launch a Lobo shoe with Reebok. VI.
Alternative Courses of Action Launch the Lobo shoes in partnership with Reebok. VII. SWOT Analysis * Strengths – 3rd highest of total pairs sold within a given year – Great reputation for supply of women’s athletic shoes – Few other chains specialize in women’s footwear – Largest portion of sales during back to school season – Prides itself on service – 600 store chains strengthens relationship with vendors – Power to solely own the Rebecca Lobo launch * Weaknesses – Sales below that of Footlocker and Kids Foot Locker – Swoopes II launch failure 12 17 year olds do not purchase shoes for performance – Web page is not kept up to date – Lack of creative advertising * Opportunities – More product segmentation – Technologies designed to enhance performance – Increase in women’s sports participation – Lobo contract enabled product endorsements ads, store appearances and speaking engagements – 12 17 year olds critical is proceeding with Lobo launch also offer athletic wear and Accessories to match * Threats – More product segmentation – Sales within industry starting to fall Increasing demand for men’s and children’s shoes – Discount stores VIII. Financial Analysis |INCOME STATEMENT | | | | |SALES |1,200,00. 00 | |15,000(Inventory Sold) * 80(Selling Price) | |LESS: SALES DISCOUNT |108,000. 00 | |9% of Sales | |NET SALES |1,092,000. 0 | | | |LESS: COST OF GOODS SOLS |240,000. 00 | |20% of Sales | |GROSS PROFIT |852,000. 00 | | | |LESS: SELLING EXPENSES | | | | | AND OTHER EXPENSES |36,000. 0 | |3% of Sales | |INCOME BEFORE TAXES |816,000. 00 | | | |LESS: INCOME TAX |97,920. 00 | |12% tax rate on corporations | |NET INCOME |718,080. 00 | | | | | | | | | | | | | | | | | |Profitability Ratio: | | | | |Gross Profit |852,000. 0 | | | |Net Sales |1,092,000. 00 | | | | |78% | | | |ROI | | | | |Net Income X Net Sales |81% in 1 year | | | |Net Sales Ave.
Investment | | | | | | | | | |Gross Margin (45% of sales) | | | | | | | | | |GMROI | | | | |Total Investment |924,000. 00 | | | | Gross Margin |540,000. 00 | | | | | | | | | |1. 1 | | | | |x | | | | |100% | | | | |171. 00 | | | | | | | | |GMROI of 171 is higher | | | | |than the desired GMROI of 140 | | | | IX. Recommendation I suggest that LFL will launch Lobo shoe with Reebok and take the minimum amount of pairs for exclusivity (15000) with a price product at 80 or 85.
The advertising and promotional support shall commence in June and October shall be the delivery date for purchase. Rebecca Lobo is well known among teens and with solid marketing efforts the market can be reached effectively. The company should also have some interesting marketing and promotional strategies like maybe the first 5000 pairs sold will receive one of the following: o free tickets to a Lobo game o photograph with Rebecca Lobo o autographed accessories or apparel o team shirt VII. Conclusion I therefore conclude that LFL’s decision to launch the Lobo shoe with Reebok is beneficial to the company. There are a lot of strengths and opportunities that the decision offer LFL.