March 1, 2007
New Things That Make Nike Go Swoosh
By Tom Ryan
Aiming for the legions of budget-conscious women shoppers trolling the mass channels, Nike Inc. recently launched an exclusive line of women’s sneakers at Payless ShoeSource Inc.
Under terms of the multi-year deal, Exeter Brands Group LLC, Nike’s wholly owned subsidiary that targets the mass market, will design and produce shoes under the Tailwind name with Payless serving as the exclusive retailer. The women’s line hit 400 Payless stores on February 26 and will be expanded to all 4,600 locations by year-end. Footwear and accessories for girls will be added in July, and a men’s and boy’s performance footwear line is being considered.
Tailwind provides Nike with yet another opportunity to dig into the massive mass channel while attracting an entirely new audience previously alienated by the high prices and athletic focus of Nike’s core product offerings.
“What this does is afford a big-name brand the ability to enter an even bigger market without diluting the core essence of its dominant brand,” NPD Group chief analyst Marshal Cohen told Business Week. “Nike really has nothing to lose and a lot of volume to gain … Consumers like the idea that Nike is behind [the new brand] – it seems like a good bargain.”
But Nike so far hasn’t found loads of success in mass. While the 2004 acquisition of Exeter Group, which owned the Starter and SHAQ labels, officially marked its entry into mass, the sneaker giant hasn’t reshaped the channel as quickly as many had predicted.
Perhaps learning from its missteps, the Tailwind launch seems to mark a change in tactics for Nike in attacking the mass channel.
While the first Starter product engineered by Nike for Wal-Mart was quietly launched in 2005 with limited assortments and little fanfare, Tailwind represents a much more comprehensive collection consisting of six styles ranging in price from $19.99 athletic sandals to $34.99 running sneakers. The styling and performance attributes also seem to have been beefed up. Running shoes tout Nike-developed technology called “G-Zone,” a honeycomb gel that compresses on impact to cushion the heel.
The biggest difference is that Nike hasn’t been as shy to note its association with the brand. At a press conference in New York on Monday, soccer stars Brandi Chastain and Hope Solo and world-renowned volleyball player Logan Tom were brought out to launch the collection. All three athletes will be featured in print ads to promote the brand and a standalone, e-commerce enabled website, tailwind.payless.com, featuring the three stars expounding on the philosophy of the brand was also launched.
“We saw the need to go in and create a premium experience in this value space,” said Exeter president and CEO Clare Hamill. “There are other players and people, but we very specifically saw a need to bring a premium experience through innovation, messaging, and athletes. So we went for it.”
But Nike also seems to be taking on some risks. Well known for being obsessed over preserving its brand integrity, Nike famously pulled its product out of Sears in the aftermath of the Kmart merger, and the quiet rollout of Nike Starter product seems to have echoed these concerns over possible dilution of the Nike name. Touting Nike technology and rolling out Nike endorsers behind the Tailwind launch seems to be some measured risk the brand is willing to take to succeed at mass.
Discussion Questions: What do you think of Nike’s new approach to reaching the mass channel? What will the new Tailwind line mean for Payless?
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What’s not to like? Mass market exposure without diluting brand equity is a goal that many (formerly) exclusive lines have attempted, but I think Nike has the right approach.
It’s not clear how the expected margins for Starter compare to Nike’s other lines. Nike’s financial success depends on growing sales at decent margins. Some private label efforts have such low margins that the volume gained isn’t worth the effort.
As I understand it, Nike’s purchase of the Starter line was originally intended to be their ‘mass merchandiser’ brand. It was already well established at Kmart and the quality of the Starter brand was surprisingly good.
With Nike being the dominant name in the U.S. men’s athletic shoe category ($75 and up), the purchase of Starter seemed like a perfect way to tap into the already established mass market for men’s athletic shoes ($60 and under) for which Nike had no designs available for sale. By owning Starter, Nike could sell a larger cross section of income demographics and never jeopardize their main brand. At the same time, they could use their advanced R&D methods to improve Starter’s value proposition as well as their distribution network to merge costs.
Since that time, however, I haven’t heard much about expansion plans until now with the women’s shoe version under the name “Tailwind.” I would have thought that they could have come out with a “Starter for Women” line “by Nike”…instead of trying to introduce a whole new brand.
While the typical shopper at PayLess is not a Nike target, she definitely could be a Starter target. My gut feel is that this will be a learning experience for Nike on many levels. I will be curious to see when they come out with the children’s and men’s versions for PayLess as stated in the article, if they continue on with the Tailwind name.
An interesting side note: more women’s athletic shoes are sold in the U.S. than men’s according to a study done in 2000. That was a surprise to me.
Nike has a great idea. However, if they are launching the product under a new brand name, then that brand name needs to be promoted. A “quiet” introduction probably doesn’t promote many sales. Identifying the brand with Nike negates the reason for using a different product name. The idea is great. The execution may be presenting mixed messages.
I feel the venture is a risky one. Tailwind has clearly identified a ‘running’ shoe as part of the assortment. If consumers can fulfill their running needs with Tailwind for thirty dollars, why would anyone move up to Nike’s higher priced shoes that retail for $80-$130? I think they are undermining their brand and risk the potential of alienating some of their core, higher end retailers.
If successful, they undermine their profit margin as core Nike users switch to lower priced models they can find at Payless. They’ll need to sell triple the volume to make up the loss of a consumer switching from Foot Locker to a Payless Nike shoe!
If Nike attempts to shore up margins by cutting corners, the moment a Tailwind sole comes unglued or stitching wears out too quickly, the Nike name could be damaged beyond repair.
I don’t have a good feeling about this one.
Call me the skeptic, but I think Nike is approaching the “trying to be a little bit pregnant” risk threshold here. They tried a clearly disassociated line and failed, but they maintained their first priority of keeping the Nike brand “clean.” Now they want to try again, but with “a hint of Nike.” What if that doesn’t work either? Do they take the next step on the slippery slope of branding and do the “Tailwind by Nike” approach?
To paraphrase Grandpa: “Never sell the Swoosh!”
Nike dominates the mainstream high-end athletic shoe market. Getting market share gains and incremental volume is a constant struggle.
Nike enters the mass market channel with a new brand that is known and advertised as being associated with Nike. Their entry is done through a shoe retailer versus a GM store. Customers can buy into the brand’s integrity because of who sells it and who makes it.
I am in the camp that feels this approach is very likely to succeed. I wouldn’t want to be an athletic shoe buyer at a big GM retailer if this thing gets legs.
Nike can’t lose! Low-end retailers can execute contracts with off shore manufacturers and get practically anything they want, direct. Nike can use its established product development, sourcing and distribution systems to provide a secondary label to these guys at a price that is below what they could get going direct. Additionally, by throwing more volume into their supply chain, they decrease the overhead (per shoe) on every shoe they sell.
I think Nike’s strategy is a winner. I can’t really see any downside. Essentially they’re getting into the private label business but unlike most P/L products, Nike is identifying that they’re the manufacturer behind the Payless “Tailwind” brand. For shoppers (mostly female/moms) at Payless, if the Nike connection helps, great; if not, Payless still has a premium source in Nike, for a branded shoe line that’s value priced for Payless’ demographic. Presumably, volume comes in from Tailwind that helps keep Nike’s factories running at optimal capacity, Payless has a new line of athletic/lifestyle shoes and everyone’s happy.
If you don’t like change, you’ll like irrelevance even less. And budget conscious Payless customers like change in their pocket. Way to go Nike, always pushing the bar that needs to be pushed and looking to tap into the untapped.
This is an aggressive strategy. It proves that the market is ripe for new initiatives. Let’s watch others follow.
Nike’s new approach to reaching the mass channel is solid. The company is smart to partner with an organization such as Payless, a retailer with tremendous name recognition and name respect, and overall success in the mainstream marketplace. They have succeeded in attracting a strong client base that will go hand-in-hand with Nike’s attempt to preserve its brand identity, and increase sales.
So far, there are noticeable differences in this partnership, vs. the previous Wal-Mart and Sears/Kmart relationship. According to the author of the article “Nike for Wal-Mart was quietly launched in 2005 with limited assortments and little fanfare.” And, the Sears/Kmart deal fizzled because of the merger. In this case, Nike seems to be giving Payless the attention it needs to give the partnership the attention it needs (and deserves) to make the deal work by creating excitement, bringing in famous celebrities for marketing, and pouring in crucial marketing dollars. This effort must still be sustained as the process continues.
Payless has been lauded lately for its success with mainstream shoppers. They should be a good fit for Nike who hopes to penetrate this growing market.
Of course there are potential pitfalls for Nike. The designs may not appeal to the audience and the information available on the benefits of the sneakers (regardless of the brand name connections and whether or not they’re made) may be insufficient.
My experience of Payless is limited but from what I saw in various branches on different days, there is virtually no information available. As it happens, I was buying sneakers for the first time in well over 30 years and had no idea what the differences were between the styles and brands. There was also a confusing assortment of sizes and prices depending on whether I looked at ladies’ or children’s shoes.
Whether customers associate Tailwind with Nike or not depends in part on their marketing strategy but also partly on whether this particular audience gives a couple of figs for such things. Nike needs to decide why customers are likely to be buying sneakers and focus on that. If other women who shop at Payless are as ignorant as I was, just knowing that Nike makes Tailwind will mean absolutely nothing.
Nike’s making a good move in taking this approach in marketing to the mass channel. Payless will give Nike the breadth to make this a success without diluting or competing with Nike’s other channels.
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What’s not to like? Mass market exposure without diluting brand equity is a goal that many (formerly) exclusive lines have attempted, but I think Nike has the right approach.
It’s not clear how the expected margins for Starter compare to Nike’s other lines. Nike’s financial success depends on growing sales at decent margins. Some private label efforts have such low margins that the volume gained isn’t worth the effort.
As I understand it, Nike’s purchase of the Starter line was originally intended to be their ‘mass merchandiser’ brand. It was already well established at Kmart and the quality of the Starter brand was surprisingly good.
With Nike being the dominant name in the U.S. men’s athletic shoe category ($75 and up), the purchase of Starter seemed like a perfect way to tap into the already established mass market for men’s athletic shoes ($60 and under) for which Nike had no designs available for sale. By owning Starter, Nike could sell a larger cross section of income demographics and never jeopardize their main brand. At the same time, they could use their advanced R&D methods to improve Starter’s value proposition as well as their distribution network to merge costs.
Since that time, however, I haven’t heard much about expansion plans until now with the women’s shoe version under the name “Tailwind.” I would have thought that they could have come out with a “Starter for Women” line “by Nike”…instead of trying to introduce a whole new brand.
While the typical shopper at PayLess is not a Nike target, she definitely could be a Starter target. My gut feel is that this will be a learning experience for Nike on many levels. I will be curious to see when they come out with the children’s and men’s versions for PayLess as stated in the article, if they continue on with the Tailwind name.
An interesting side note: more women’s athletic shoes are sold in the U.S. than men’s according to a study done in 2000. That was a surprise to me.
Nike has a great idea. However, if they are launching the product under a new brand name, then that brand name needs to be promoted. A “quiet” introduction probably doesn’t promote many sales. Identifying the brand with Nike negates the reason for using a different product name. The idea is great. The execution may be presenting mixed messages.
I feel the venture is a risky one. Tailwind has clearly identified a ‘running’ shoe as part of the assortment. If consumers can fulfill their running needs with Tailwind for thirty dollars, why would anyone move up to Nike’s higher priced shoes that retail for $80-$130? I think they are undermining their brand and risk the potential of alienating some of their core, higher end retailers.
If successful, they undermine their profit margin as core Nike users switch to lower priced models they can find at Payless. They’ll need to sell triple the volume to make up the loss of a consumer switching from Foot Locker to a Payless Nike shoe!
If Nike attempts to shore up margins by cutting corners, the moment a Tailwind sole comes unglued or stitching wears out too quickly, the Nike name could be damaged beyond repair.
I don’t have a good feeling about this one.
Call me the skeptic, but I think Nike is approaching the “trying to be a little bit pregnant” risk threshold here. They tried a clearly disassociated line and failed, but they maintained their first priority of keeping the Nike brand “clean.” Now they want to try again, but with “a hint of Nike.” What if that doesn’t work either? Do they take the next step on the slippery slope of branding and do the “Tailwind by Nike” approach?
To paraphrase Grandpa: “Never sell the Swoosh!”
Nike dominates the mainstream high-end athletic shoe market. Getting market share gains and incremental volume is a constant struggle.
Nike enters the mass market channel with a new brand that is known and advertised as being associated with Nike. Their entry is done through a shoe retailer versus a GM store. Customers can buy into the brand’s integrity because of who sells it and who makes it.
I am in the camp that feels this approach is very likely to succeed. I wouldn’t want to be an athletic shoe buyer at a big GM retailer if this thing gets legs.
Nike can’t lose! Low-end retailers can execute contracts with off shore manufacturers and get practically anything they want, direct. Nike can use its established product development, sourcing and distribution systems to provide a secondary label to these guys at a price that is below what they could get going direct. Additionally, by throwing more volume into their supply chain, they decrease the overhead (per shoe) on every shoe they sell.
I think Nike’s strategy is a winner. I can’t really see any downside. Essentially they’re getting into the private label business but unlike most P/L products, Nike is identifying that they’re the manufacturer behind the Payless “Tailwind” brand. For shoppers (mostly female/moms) at Payless, if the Nike connection helps, great; if not, Payless still has a premium source in Nike, for a branded shoe line that’s value priced for Payless’ demographic. Presumably, volume comes in from Tailwind that helps keep Nike’s factories running at optimal capacity, Payless has a new line of athletic/lifestyle shoes and everyone’s happy.
If you don’t like change, you’ll like irrelevance even less. And budget conscious Payless customers like change in their pocket. Way to go Nike, always pushing the bar that needs to be pushed and looking to tap into the untapped.
This is an aggressive strategy. It proves that the market is ripe for new initiatives. Let’s watch others follow.
Nike’s new approach to reaching the mass channel is solid. The company is smart to partner with an organization such as Payless, a retailer with tremendous name recognition and name respect, and overall success in the mainstream marketplace. They have succeeded in attracting a strong client base that will go hand-in-hand with Nike’s attempt to preserve its brand identity, and increase sales.
So far, there are noticeable differences in this partnership, vs. the previous Wal-Mart and Sears/Kmart relationship. According to the author of the article “Nike for Wal-Mart was quietly launched in 2005 with limited assortments and little fanfare.” And, the Sears/Kmart deal fizzled because of the merger. In this case, Nike seems to be giving Payless the attention it needs to give the partnership the attention it needs (and deserves) to make the deal work by creating excitement, bringing in famous celebrities for marketing, and pouring in crucial marketing dollars. This effort must still be sustained as the process continues.
Payless has been lauded lately for its success with mainstream shoppers. They should be a good fit for Nike who hopes to penetrate this growing market.
Of course there are potential pitfalls for Nike. The designs may not appeal to the audience and the information available on the benefits of the sneakers (regardless of the brand name connections and whether or not they’re made) may be insufficient.
My experience of Payless is limited but from what I saw in various branches on different days, there is virtually no information available. As it happens, I was buying sneakers for the first time in well over 30 years and had no idea what the differences were between the styles and brands. There was also a confusing assortment of sizes and prices depending on whether I looked at ladies’ or children’s shoes.
Whether customers associate Tailwind with Nike or not depends in part on their marketing strategy but also partly on whether this particular audience gives a couple of figs for such things. Nike needs to decide why customers are likely to be buying sneakers and focus on that. If other women who shop at Payless are as ignorant as I was, just knowing that Nike makes Tailwind will mean absolutely nothing.
Nike’s making a good move in taking this approach in marketing to the mass channel. Payless will give Nike the breadth to make this a success without diluting or competing with Nike’s other channels.