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TheCor oration Brand Buildin
SOLESURVIVOR Nike
limits AFI runs to pique
demand
All the Rage
Since R~n
Nike's Air Force 1, introduced in the '80s, still
grabs attention-and huge margins
NCE THE WORD HITS
the street, hundreds of
teens start lining up at
stores. So strong is demand
that new releases happen
only on weekends-so kids
won't
skip school. When the doors open, they sell
out in hours. Tickets for the current Eminem
tour? The new iPod music player? Nope.
We're talking about a basic basketball
sneaker, Nike Inc.'s Air Force 1.
Launched in: 1982, when Ronald Reagan
was in the White House, the sneaker is
almost pathetically low-tech. Yet the Air
Force 1 remains the definition of urban cool.
And while Nike Shox runners, Air Jordans,
and the Cole Haan and Converse
brands helped drive record earnings of $1.2
billion on sales of $13.7 billion in the fiscal
year ended June 27, the AFI played a big
role, too, helping Nike reach No. 48 on the
BusinessWeek 50 list of top corporate
performers. AFI racked up an estimated $1
billion in sales and generated profit margins
of 70%, say analysts-double that of other hit
sneakers. Says Tashala Spellman, a
16-year-old AFI devotee: "I like the style."
She'd better: Spellman owns 10 pairs.
How do you keep a basic sneaker hot for a
quarter-century? Nike's genius is
68 I BusinessWeek I July 25. 2005
that it has managed to market a classic
without alienating teens. At the same
time, Nike creates consumer longing by
keeping supplies tight and releasing collectible versions with minimal hype.
"Air Force 1 is maybe the most
dominant basketball franchise in this
industry,"
Gary
M.
DeStefano,
president of Nike U.S., says. "But
there's a way to keep it fresh."
The Air Force 1 hit the basketball
courts and urban play
grounds in the '80s and
quickly
caught
with black
youth, thanks
to on
basketball
star
endorser Charles Barkley. But
soon Nike began building
mystique-eschewing regular
wide, and each store gets about 25 to 30.
"Nike continues to control the marketplace
so diligently they create pent-up demand for
the shoe," says John Shanley, analyst for
Susquehanna
Financial
Group,aninvestrnentbank.
Analysts say retailers caught discounting
Air Force Is receive a smaller allocation the
next time or none at all. And retailers are
happy to play ball: After all, the Air Force 1
makes money and drives traffic. Retailers
get full price for the shoe, basic versions of
which sell for $85 to $100. Collectible
versions, such as one designed by famed
gnifitti artist Mr. Cartoon, retail for $180.
And the AFI boosts demand for other Nike
footwear, says Shanley. Nike's sell-through
rate-how fast a product flies off shelves in
the first week-averages 20%-plus of
inventory, compared with an industry
average oflO%. The sell-through rate for
AFls is 100%.
The Air Force 1 is a Nike profit machine.
Shanley estimates that the company sells
each pair to retailers for about $48.50
butpays just $12 to make them in
Asia. Since the design has re- ~
mained essentially un-:;;: changed,
there are few devel-
I
~
~
opment costs; all of the molds
~
~
a
nd lathes have been fully de- ~
p
marketing channels even as it The Best Performers
restricted supply. AFI adver.
tising is minimal today. Mostly, Nike lets
the customers-and the rappers-do the
talking. In 2002, for example, hip-hop's
Nelly rapped about "my Air Force Is" and
generated a No.1 hit. And such is the shoe's
cult status that teenagers hang out at
NikeTalk.com and other chat rooms to find
out when the next AFI is coming.
Every two months or so, Nike unleashes
a newly tweaked shoe-a camouflage version,
say, or one timed for Mardi Gras. Each
release involves roughly 350,000 to 500,000
pairs of shoes shipped nation
~
reciated. And, of course, ~
N
ike no longer pays anyone to
promote them. "It drives a
much richer margin because
~
1;;
:>."
it doesn't carry an endorsement fee," ~
~
Shanley says.
~
There's no telling how long the Air ~
Force 1 will remain hot in the faddish ~
sneaker business. "If they ever get greedy E:
with the Air Force 1, or ifkids feel they're ~
being manipulated, you can see a prof- ~ itable
business disappear in a hurry," says 2 Jefti-ey Bliss,
president of sports marketer:
Javelin Group. Until then, take a number ~
and stand in line, as Nelly says, "So I can ~
get to stompin' in my Air Force Is.". S
-By Stanley Holmes in Seattle 2