Ryan DuffAlex GlazerJack Grover

MASTER INTERNATIONAL FRANCHISING IN CHINA

Based in Kennesaw, GeorgiaForemost franchisor of athletic-footwear operations800 corporate and franchise stores in 40 countries1978: Expansion globally begins in Adelaide Australia1980’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.

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

THE ATHLETE’S FOOT, INC. CONT.

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

goodsTrip to HQ in Georgia to learn

Impressive inventory control systemBecame the Master Franchisor of The Athlete’s Foot,

Inc. in China.

RETAILCO INC.

FRANCHISE STRUCTURE IN CHINA

The Athlete’s Foot, Inc. (Franchisor)

Retail Co. China Holdings

(Franchisee)

Corporate Store

Corporate Store

Corporate Store

Sub-franchises

Branch Store

Branch Store

Branch Store

Monthly Royalty Fee: 2.5 percent of net salesOther Fees (Franchising, MIS, etc.):

$2000-$5000 per storeWang visited Atlanta HQ for “New Owner Training”

and completed “On Site Training” learning how to run an effi cient franchise of The Athlete’s Foot, Inc.

FRANCHISING STRUCTURE IN CHINA CONT.

The Athlete’s Foot, Inc. sold franchise rights to Retail Co. in exchange for royalty and service payments

Retail Co. opened several corporate franchise storesOne partnership was made to 12 sub-franchise The

Athlete’s Foot, Inc. stores in Nanjing and Wuxi

Sub-franchise: franchises granted within the territory 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 further growth from the one outlet

FRANCHISING STRUCTURE EXPLANATION

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: fi rst franchise open in Parkson Department Store in Shanghai, East China Young Demographic 20-35 Years Old Devoted to Brand Names Style Conscious

GOALS AND STRATEGY FOR CHINESE

Before 2000, Wang opened a new store every 22 daysReached volume of $14 Million USD in sales in 2000Had all the most popular brands and an inventory

management system that allowed for effi cient and aggressive pricing

No market penetration by other companies

INITIAL SUCCESS

PROBLEMS ARISE

• Loss of First Mover

Advantage

• Failure to maintain necessary inventory levels

• Decreasing cash flow

China prepares to enter the WTO 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 minimalMore footwear retailing players enter the market

LOSS OF FIRST MOVER ADVANTAGE

INVENTORY LEVELS/INCREASED COMPETITION

Local Competitor

s

Quest Sports

Competitive pricing,

enhanced customer service,

increased product quality

National Brand Names

Nike, Reebok, Adidas

Selling direct to consumer instead of

through retail location

Inventory Levels

National brands decreasing

supply because they are opening

own outlets

Cash flow struggles

prevent full inventory capability

Need to commit large amounts of capital upfront to obtain popular retail venues

High-traffi c upscale locations were desiredQuality location lead to increased sales performance

and success24-36-month leasing agreements were needed

requiring large amounts of upfront capitalTried expounding to more department stores, but

increased competition hindered this

CASH FLOW PRESSURE

1. Decreasing amount of store front locations2. Reposition its products from athletic-footwear to

athletic products to diff erentiate from local and global competition

3. Reposition to diff erent target market4. Leave China all together

SOLUTIONS

Slow down expansion in China Approximately cost $75,000 per store (Based on 3,000

square meter stores)

DECREASING AMOUNT OF STORE FRONT LOCATIONS

SOLUT ION 1

Reposition its products from athletic-footwear to athletic products to diff erentiate from local and global competition Basketballs Tennis rackets Apparel

REPOSITION FROM FOOTWEAR TO SPORTING GOODS

SOLUTION 2

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 – off er 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 dealsMaintain 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

REPOSITION TO LESS-BRAND CONCIOUS DEMOGRAPHIC

SOLUTION 3

Don’t go global unless you have to!Too many problems emerging with this marketRefocus eff orts on domestic franchisesFind another market that fi ts model better – not every

country is the right fi t

Wang expanded too quickly: no time to plan exit strategy or long term goals, too much focus on sales volume & size of company

PULL FRANCHISES IN CHINASOLUTION 4

The athletes foot today is not able to competeThe only available sector is high discount segments

of the market, targeting middle income familiesThis change in focus would require too much cashThe company can no longer stock the products that

consumers want to buy, and therefore cannot compete in the higher end segment like it has done since its inception.

THE ATHLETE’S FOOT, INC. TODAY