All manufacturers have traditionally utilized independent footwear retailers as their primary distribution
channel for selling branded footwear. Manufacturers have built a network of retailers to handle their brand
in all geographic areas where they market. Retailers are recruited by small teams of company-employed
sales representatives working out of regional sales offices in each geographic region; the role of the sales
reps is to call on retailers, convince them of the merits of carrying the company's brand, solicit orders, and
provide assistance with merchandising and in-store displays. Retailers typically carry anywhere from 1-3
brands of athletic footwear (depending on store size and location) and usually stock only certain
models/styles of the brands they do carry (since manufacturers have anywhere from 50 to 500
models/styles in their product lines). Retail markups over the wholesale prices of footwear manufacturers
can run anywhere from 40% at discount chains to as high as 100% at premium retailers. Thus, a pair of
shoes wholesaling for $50 usually retails for between $70 and $100.
However, mounting use of the Internet by shoppers has prompted all footwear manufacturers to launch a
Web site displaying their models and styles and giving consumers the option to purchase footwear online.
Sales have been growing steadily at the company’s Web site, partly because selling online gives the
company access to consumers located in areas where there are no retailers carrying the company’s brand
and partly because some consumers like the convenience of online buying. As indicated earlier, online
sales to individuals are projected to grow from 5% to 15% of total branded sales in each geographic region
by Year 20. Whether companies will gradually de-emphasize selling through retailers and shift their
marketing emphasis to promoting online sales remains to be seen.
The third channel—private-label sales to large chain store accounts—is attractive for two reasons:
• The private-label segment is projected to grow a healthy 10% annually during Years 11-15 and a brisk
8.5% during Years 16-20. The growth in private label sales is being driven largely by the practice of
multi-outlet chains to use lower-priced private-label goods to attract price-conscious consumers. Chain
retailers that sell athletic footwear under their own label outsource the pairs they need from
manufacturers on a competitive-bid basis.
• Making private-label shoes for chain retailers allows a manufacturer to use plant capacity more
efficiently. For example, a manufacturer selling only 5.5 million pairs of branded shoes with plant
capacity of 6 million pairs (7.2 million pairs with maximum use of overtime) can reduce overall costs
per pair by utilizing some or all of its unused capacity to produce private-label shoes. The added
production volume from being a successful low-bidder to supply private-label shoes to chain retailers
helps spread fixed costs over more pairs and can improve overall financial performance (provided the
price received for producing the private-label shoes is above the direct costs per pair).