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A Bigger Playing Field: Active Brands Tackle Growth by Going Mass

In a radical shift in the way sports apparel is marketed and sold, big-name activewear brands are entering the mass channel in a major way.

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NEW YORK — The mass market is getting more active.

While retail powerhouses such as Wal-Mart and Target have offered sports equipment from major brands for years, they haven’t sold that much activewear or footwear. Now, in a radical shift in the way sports apparel is marketed and sold, big-name activewear brands are entering the mass channel in a significant way.

The brands have little choice. Sports retailers like The Sports Authority are focusing on fewer vendors, there continues to be consolidation in the sports and department store channels and mass retailers are becoming ever-more dominant.

As a result, active brands have to explore new avenues for growth — and Wal-Mart and Target are their tickets.

Nike jumped into the mass channel with its purchase of Starter in August; Danskin has started selling Danskin Now at Wal-Mart and also sells a line called Freestyle, A Danskin Company at Target, and Champion debuted its C9 Champion activewear line in Target in July and is aggressively marketing the collection on television and in magazines.

Wal-Mart and its mass discount brethren are the “last big frontier for these athletic brands,” said Matt Powell of athletic consulting firm Princeton Retail Analysis. “None of these guys has any kind of footprint in the largest retailer in the world. There is a huge opportunity to expand share overall and to build a market that doesn’t really exist today.”

The three big players — Wal-Mart, Target and Kmart — together sell about $8 billion worth of athletic apparel, although not many big-name brands, and $2 billion worth of athletic sneakers, representing a mere sliver of their combined annual sales volume, Powell said. The three stores combined have annual sales of $327.5 billion, dominated, of course, by Wal-Mart.

“That [volume] really says you need to be in mass,” said Charles O’Shea, bond analyst with Moody’s Investor Services. “Wal-Mart is only going to be doing more and more with apparel, so if you can finesse a brand into mass, and do it without diminishing your core brands, that’s important.”

Brands sold in Target and Wal-Mart almost inevitably grow sales volume annually, since both retailers have been expanding their selling space by 10 to 12 percent a year for decades. Wal-Mart, for example, will add 50 million new square feet of selling space in fiscal 2004. To generate equivalent growth, a vendor would have to open several major accounts every year but the reality is that, with industry consolidation, there are fewer options for such aggressive growth.

“Anybody moving into mass can move in lockstep with whatever company they’re in,” O’Shea noted. “It’s no secret that Levi’s [Signature brand] is hoping to do that with Wal-Mart.”

Wal-Mart has been selling brands such as Hanes and Jerzees, a Russell-owned athletic brand, its proprietary Athletic Works and recently introduced Danskin Now. Target, in addition to the new Danskin and Champion lines, sells activewear from its in-house Mossimo brand as well as its proprietary Pro-Spirit brand, and Kmart has its proprietary Athletech brand, which launched about a year ago.

The moves by Nike, Danskin and Champion to grow in the mass channel are shaking up the activewear industry as established players alter their distribution strategies and smaller brands jockey for position.

“These are significant developments in the activewear industry,” said Norm Zwail, president of The Marika Group, which makes Marika, Shiva Shakti and other brands that don’t sell in the mass channel. “These companies moving into mass risk losing their regular distribution. The better customer now shops in Target for household goods and disposable clothing. I think these moves may open up certain upper channels for my company since these stores may think the mass stores look too similar to them, and they may want to alter their merchandise offerings.”

This movement into mass is another sign that active brands are looking beyond the traditional sports arena for growth. Puma, Reebok, Adidas and Nike have all been developing their businesses in department stores and specialty, nonsports chains either through collaborative lines with musicians and pop stars like Missy Elliott and Jay-Z, or with new, more fashion-forward offerings. Adidas, for example, has linked with designers Stella McCartney and Yohji Yamamoto to develop collections to be sold mainly through department and specialty stores.

Big-name active brands are emulating what branded firms in other categories are doing at the mass channel. Sara Lee has long sold its innerwear Hanes and Playtex brands at mass, while Levi’s sells its Signature line at Wal-Mart and Target.

For Danskin, the move into Wal-Mart and Target represents a “significant opportunity,” said Carol Hochman, Danskin’s chief executive officer. “This is a way of getting our products and our brand out to costumers who may not have had the ability to have it.”

The move into mass was part of a strategy Hochman and her team put together when she joined Danskin about five years ago. “We did some research and found that a lot of women didn’t want to spend a lot to sweat. We also wanted to verticalize our company and go to as many channels as we thought could benefit from a Danskin brand.”

Nonetheless, Hochman said the company is differentiating the product it sells at the mass level from its core Danskin offerings, which are sold at stores such as the Sports Authority, Lord & Taylor, Marshall Field’s, Paragon and Nordstrom. She stressed the design for the core Danskin line is different than the mass offering, and the mass lines have a separate design and sales team.

“The consumer who buys activewear and bodywear in the upstairs market is very different, there is not a huge crossover market,” she said. “The Danskin brand that we sell to sporting goods stores is higher-performance with the highest quality piece goods and is meant to be worn to work out. The products at Wal-Mart are lifestyle offerings that have an active essence.”

The products at Target, for example, are made primarily of cotton and cotton and spandex combinations and retail for about $15 to $24. This collection offers trendy prints and colors in athleisure silhouettes. The Wal-Mart Danskin Now products also feature cotton, as well as some polyester and Lycra spandex blends and feature looser silhouettes. The collection sells for $8 to $17. The core Danskin line has bright colors and performance elements such as CoolMax, Supplex and its proprietary StretchFit and 02 technology and other performance elements, and retails for $28 to $50.

Hochman declined to give any sales projections on how big the new mass businesses could be for Danskin, apart from saying that she views these developments as a big opportunity. The company has overall wholesale volume of about $120 million.

Target has been upgrading its athletic offering. The new C9 by Champion at Target is an exclusive athletic line that includes women’s and men’s apparel, men’s socks and underwear and women’s, men’s and children’s sneakers. The presentation focuses on looks such as reversible mesh shorts, warm-up suits, waffle-wick shirts and bra tops.

C9 products sell for about about $14 to $22, according to the Target Web site. Company executives at Sara Lee, Champion’s parent firm, declined to comment on C9 after repeated calls, and Target officials also did not return phone calls. But clearly C9 is a major initiative: It is being advertised in women’s magazines such as Self and in bus station kiosks in major cities. Champion has estimated sales at retail of about $500 million.

Meanwhile, Nike’s purchase of Starter last month for $43 million and its move into the mass arena marks a new channel of growth for the athletic giant, which until now has focused on big-name sporting goods chains and department stores.

Analysts said the deal has upsides for both Wal-Mart and Nike, with little risk to Nike’s flagship brand since the company doesn’t plan to sell products under its core label. Nike executives declined to comment on the Starter acquisition, but commented on the purchase in a conference call earlier this week. “[The move] will allow us to expand our distribution into the value channel, a large and growing market and one in which we have not participated,” said Charles Denson, president of the Nike brand.

Starter, considered the strongest brand in the acquisition package, racked up $700 million in mass market sales in 2003, Group 3 Design president Mary Gleason told WWD’s sister publication, DNR, last year, although analysts have estimated the company’s sales at a more conservative $350 million. While Nike has been tight-lipped about how big they expect this business to be, analysts said the company is projecting a major impact.

“We think it’s going to be very significant in the long term,” said John Shanley, an analyst at the Susquehanna Financial Group, based in Bala Cynwyd, Pa. “We think we will see a noticeable contribution [from Starter] to Nike’s U.S. revenues within a year, and in two years, we believe these mass channel brands could be an important bottom line contributor to Nike.” Shanley said Nike is getting four brands that are largely apparel-focused, and he sees potential for Nike to develop the footwear end of the business

Marshal Cohen, co-president of NPD Fashionworld, a research company in Port Washington, N.Y., described Gleason as a “dynamic product manager” who has done a solid job of reinventing Starter as a mass market brand. Wal-Mart and Kmart began carrying Starter merchandise in 2000 after the company filed for bankruptcy protection following its high-flying days as one of the giants of licensed sports apparel. Now, with its hangtag proclaiming “Look for the Star,” Starter is one of the core brands in Wal-Mart’s athletic offerings.

The label competes for floor space with Russell’s Jerzees mass market brand, and Wal-Mart’s private label Athletic Works for women and men. Based on anecdotal evidence, Starter was positioned as a higher-end line with a focus on performance fabrics and true athletic styles (mesh shorts, warm-up suits) rather than basic fleece sweats and knit Ts. A $14.66 men’s Starter poly-blend golf shirt, for example, touted “stretch and wick” fabric. The shirt fetches a premium price for Wal-Mart, which sells most cotton-knit polos for $9 to $12.

Kmart has also been focusing on activewear, although it doesn’t carry many mainline brands. Lisa Schultz, Kmart’s senior vice president and creative director, said Athletech was one of the brands that made the cut in the retailer’s recent attempts to whittle its offerings back to its strongest properties. Kmart designs and sources the brand, which is about a year old. “It’s a great name and a great new brand we’re excited about,” Schultz said.

While the introduction of these brands will likely help lift the profile of active at the mass channel, the retailers need to overcome stigmas about mass athletic brands, which have been considered to be not as functional, comfortable or durable as those sold by specialty athletic retailers.

“The adult community is snobbish, temperamental when it comes to athletic wear and sneakers,” said NPD’S Cohen. “That’s certainly a challenge these retailers have to overcome.”

Marty Lillis, president of Denver-based Franklin Resource Group, which consults with sports chains on merchandise presentation, said mass marketers need in-store service, particularly with footwear, to help gain credibility as sources of athletic product. “After you get past the greeter, the game is over,” he said.

He said the major sports chains don’t perceive Wal-Mart as significant competition, to their detriment. “If I were Garts, The Sports Authority or Dick’s, I would be asking a lot of questions about what Nike intends to do,” he said, referring to questions about whether Nike would eventually create an exclusive line “from the makers of Nike” for one of the mass discounters. After all, Levi Strauss & Co. for years resisted going into the mass channel but then last year launched Levi’s Signature specifically for those retailers.

In addition, this channel often has lower margins, since prices are lower, noted analyst David Campbell of Davenport & Co. “Nonetheless, this is a huge opportunity for Nike,” he noted.

Still, not all active brands are looking at the mass channel. In addition to Marika, Everlast doesn’t plan to sell its brand in this arena.

George Horowitz, chairman at Everlast, said while some licensed Everlast products have been sold at mass in the past, his company is completely focused on selling to mid- and upper-level sporting goods chains. “There is a lot of juggling going on now and these changes are impactful,” he said. “It’s a tricky situation because if you are a brand and you are selling to Wal-Mart, you can’t sell the same products in the upper channels. It’s difficult for retailers and vendors to find the right balance.”

Russell Corp., which has a large portfolio of brands crossing various distribution channels, sells its Jerzees brand in the mass market but most of its brands are sold in specialty stores and department stores such as Kohl’s.

“We are watching all the changes closely and considering our strategies as the market evolves,” said Cheryl Barre, president of women’s brands for Russell. “We think the brand mix will shift in both the mass and the midtier channels, and we think there could be opportunities there for some of our other brands.”

She said the Moving Comfort brand could do well in the midtier since it hasn’t been sold in that arena and has primarily been offered in running specialty shops. But she noted that apart from Jerzees, Russell doesn’t plan to sell its other brands in the mass channel.

“Companies are struggling to find growth through product innovation but it’s not easy,” she noted. “Many brands are looking to extend into the mass arena to build their business.”

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