New step for Nike

VANCOUVER, Wash. — After long arguing that its brand would be devalued if it sold in discount chains, Nike, Inc. has made it to Wal-Mart Stores. But you won’t find its trademark swoosh anywhere.

Customers at over 400 Wal-Mart stores nationwide can buy a pair of $37.64 Starter sneakers engineered by Nike and introduced last month. The world’s largest maker of athletic apparel bought the Starter brand last year with the specific aim of entering the value end of the retail business.

Consumers purchased about $1.5 billion worth of athletic shoes at discount stores last year — a market Nike has been yearning to tap, since it makes up the bulk of unit sales. Seventy percent of the athletic footwear sold in the United States in 2003 cost less than $45, according to market research from NPD Group cited by Nike.

The sneaker maker wanted a piece of the market, but feared jeopardizing the cachet of its core brand, said Scott Olivet, senior vice president of Nike subsidiaries and new business development.

“Nike’s positioning is really as a premium performance brand,” said Olivet. “And what you always worry about with a brand is extending it too far.”

The Starter brand, which Nike acquired last August for $43 million, has a working-class image and has been one of the top-selling sneaker brands in Wal-Mart since 2000 when the partnership began. Its shoes sell for around $20, an average price for discount stores.

The Nike-engineered Starter sneakers, which sport a sleeker design, sell for nearly $40 — far below the $110 tag for a top-of-the-line Nike shoe. But at nearly twice the cost of the sneakers just down the aisle, the new Starter shoe is scraping the ceiling of what many penny-pinching customers are willing to pay.

“Price is very important to me because I’m a tightwad,” said Pamela Anderson, 50, of Camas, Wash., who bought a pair of the new Starter sneakers for her 17-year-old son at a Vancouver, Wash., Wal-Mart.

Revamping the shoe and then offering it at the highest price the value market will bear is vintage Nike, said analyst Jamelah Leddy, who tracks the company for Seattle-based McAdams Wright Ragen.

“It’s fairly consistent with the Nike image. They’re going to be the best in their class, regardless of whether they’re competing in high-end fashion on Madison Avenue or in Wal-Mart,” Leddy said.

Olivet acknowledges that the company is “really pushing it” by offering the shoe at close to $40.

But Olivet said he and others at Nike spent nearly three years studying the discount world. One of the dynamics they discovered is what he calls the “BMW in the Target parking lot” phenomenon.

Discount shoppers are evolving, a change which is mirrored in the discount chains’ merchandise, he said. For instance, the Vancouver, Wash., Wal-Mart sells a 14-carat white gold ring for $589 in and a 52-inch high definition TV for $1,586.

That change signaled to Nike that there was room to introduce improved products such as the Starter shoe, and sell them in the higher price bracket, said Olivet.

That said, Nike is adamant that the products it will offer in Wal-Mart — as well as Kmart, Payless ShoeSource, Target and other discounters in coming years — will always be swooshless. By buying Starter’s parent company, Nike also took on the Shaq and Dunkman shoe brands, sold at Target. It plans to have more discount shoe offerings in coming years, as well as apparel and equipment made specifically for the value chains.

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