Gaining a (Distribution) Toehold

As a long-time triathlete, I take an interest in shoes that help avoid repetitive stress injuries. So I paid close attention to a recent Times article about the new breed of  “barefoot”-wear that aims to reverse the quarter-century trend toward more padded, more complexly engineered training shoes and return footwear to thin soles and lean structures. The idea is that feet have gotten lazy and out of shape when set in Cadillac-sized immobilizers, and this lack of foot fitness percolates up to create problems in our calves, knees, hips, and backs.

I was intrigued. But where would I be able to try on a pair of these toe-fitting things that look like what pre-teen girls wear to sleepovers? Could I find them at Footlocker or Sports Authority? It seems doubtful. Shoe companies have grown to big businesses by convincing us to buy bigger and more structured (and more expensive) shoes. Their proposed ideal has become the shoe equivalent of an SUV.
How could a sales rep say “more shoe structure is better” when talking about 95% of the store’s inventory, then turn around and pitch a “less is more” barefoot-style pair? It would be like trying to sell eco-friendly cars on a Hummer lot. Or like introducing radial tires at a Firestone outlet way back when; you had to wait, years, for Firestone to finally make their own.

As a distribution strategy guy, I started to wonder how Terra Plana, the fledgling business behind these new shoes, could get mainline retail exposure. In a sense, it’s the same problem that Red Bull and many other revolutionary product faced. How can an upstart get traditional distributors to market innovations and overcome loyalty to legacy core revenue products? (Say what you will about offering customers a range of options, but behind the scenes in quarterly management meetings with vendors that view seems not so much enlightened as crazy).

Product transitions are tough because changing entrenched distribution patterns is tough. Yet it can be done. The most feasible, least risky ways to do it require sound analysis. Not big expensive studies or, initially, even pilots. The simplest, and best, step is simply to start talking and selling to growth-minded retail partners, in depth. 

You’d be surprised at what you find out just by smart questioning of innovative retailers. And persistent selling. For more insights, see my earlier post on joining the new generation of marketing and distribution leaders.

M&A Watch: Should Bass Pro Shops Acquire Brunswick?

I was asked recently what I thought about the possibility of Bass Pro Shops acquiring struggling boat and recreational products maker Brunswick Corporation. I would be very supportive.

With Brunswick's stock in the tank it's certainly a good time to buy. But the strategic opportunity is what's most intriguing. Retailer-owned Corporate Brands are becoming a more popular and attractive growth path in sectors dominated by 'sleeper brands' and slow-moving independent national incumbents. It would appear that the recreational products marketplace, and boating specifically, would benefit most from a shake-up in its go-to-market models.

Here's some interesting background on why a Bass Pro-Brunswick marriage might make sense. Consider the mood at Brunswick before the recent recession even got started in force (as reported in a June 30, 2008 Plastics News article by Rhoda Miel):

The sluggish U.S. economy is prompting recreational boat builder Brunswick Corporation to shutter most of its fiberglass-boat production for the month of July, while the firm also prepares to close four plants for good by the end of 2009. Brunswick already has cut eight other plants from its North American manufacturing, through sales of noncore brands and by closing other plants.
"Simply stated, in light of the well-known difficult economic conditions existing, we are downsizing Brunswick so we can be profitable even if these conditions continue, and be positioned to grow earnings when conditions improve,'' said Chairman and Chief Executive Officer Dustan McCoy. "We believe it prudent to plan as if no catalyst for growth exists...'' he said.

And then compare that to the mood at recreational powerhouse Bass Pro Shops, whose optimism was reported on by Sarah Butrymowicz and Jayne O'Donnell in USA Today:

The line between retail and entertainment blurs further among such stores as Adrenalina and Bass Pro Shops. About 30% of each of Bass Pro Shops' 50 stores are dedicated to a theme associated with its location, bringing in elements of a natural-history museum, an art gallery and an aquarium. Each store is singular, from the Florida shop that features the hull of a sunken ship to a 30-foot-long blue whale displayed in Massachusetts. And each receives more than 3 million visitors a year, the company says.
Bass Pro Shop stores have assumed the status of a tourist destination, the company says, and some people are spending vacations driving from store to store. Malls, or even whole cities, will often help pay for construction, investing in the store to help attract customers as well as other retailers. Bass Pro Shops typically pays the money back over time through rent. "A lot of malls come to us to be the anchor for them, like a Sears or a Penney's used to be," says Larry Whiteley, manager of communications for Bass.

We're bullish about Bass Pro using this buyers' market to buy Brunswick and use the assets to create a product development and brand engine. They clearly have the skills and competencies that this industry craves - and are best positioned to create an alternative to the broken boat dealer go-to-market system.

But most importantly, consumers would relish a little more fun and entertainment in the category!

Nautilus Fitness Plummets After Distribution Miscues

Stock analyst Eric Wold has had a hard getting access to Nautilus executives and decision-makers. Apparently he was too concerned about the dramatic distribution moves that have decimated the company's once-proud Direct-to-consumer distribution system:

...in April 2002 most of the company's products, especially Bowflex, were promoted in television infomercials and sold directly to consumers...in July 2003, Gregg Hammann was hired as chief executive, succeeding longtime boss Brian Cook. Mr. Hammann, with a background that included stints at Procter & Gamble Co., Coca-Cola Co. and Levi Strauss & Co., shifted the company away from its direct-sales model to also selling products through retailers...by early 2006, sales growth had started to stumble...it was then he realized the new strategy was "cannibalizing existing sales and shifting sales from high-margin channels to low-margin channels...retail checks that showed "Bowflex sales down to zero in some stores...

After an Analyst's 'Sell' Call, Nautilus Flexes Its Muscles',
By HERB GREENBERG, WSJ, July 14, 2007; Page B3

All of this is a big dissappointment to us given the exciting product leadership moves the company made in 2005 (see our post here). It brings into focus the increasingly critical role of distribution in enabling, supporting and driving essential product innovations.

Life Fitness Mistakenly Ignores Channel Disruptions

Fitness product manufacturers are achieving tremendous success building new products. Especially leading fitness brands such as Hammer, Life Fitness, and Parabody. As a result, these companies have a virtual stronghold in both strength and cardiovascular oriented products sold into commercial (primarily direct sales) and customer (primarily specialty retailer) markets.

Like most businesses today, the fitness product marketplace – and specifically the premium product segment - is exposed to a number of discontinuities that are having profound implications for new product entrants and the overall fitness product competitive landscape.
Direct selling efficiency has improved as health club consolidation continues, yet this channel approach makes for difficult and expensive coverage of smaller chains and independent “B” and “C” clubs.

Retailers targeting the customer marketplace are blurring “class of trade” distinctions by moving aggressively into wholesale sales to health clubs and other commercial accounts.
Chain fitness product retailers (e.g., Busy Body/Fitness Warehouse) are gaining strength and trying to leverage their increased power and influence over product manufacturers (e.g., demanding product exclusives, territory protection, merchandising support, etc.).

Strong “vertical” commercial markets are emerging that require unique value propositions and raise similar coverage issues as are found in the health club marketplace.
Customers are increasingly starved for time and are putting greater emphasis on convenience, raising the specter of non-traditional fitness product channels playing a greater role in attracting future shoppers.

Upstream manufacturers such as New product manufacturers are under increasing pressure by retailers to offer broader and deeper offerings across core cardiovascular and strength product categories.

Overall channel sophistication in the customer marketplace is relatively low, with only a small number of large regional or national players.As a result, new product manufacturers must create a overall go to market roadmap for both commercial and customer markets by developing new distribution channel approaches and improved customer experiences

Baseball Ignores Customers at its Peril

Baseball – once America’s national sport – is sadly falling prey to the same flawed, internally-focused strategy driving so many once-proud US companies into failure. For example, let's look at how baseball's leaders are deciding on start times for games, especially during the crtical post season. Here’s the dilemma: advertisers pay more for night games during prime time; consumers, not surprisingly, like earlier games (especially children and even parents who have to work the next day).

What to do? Apparently Major League Baseball’s leaders are opting for short-term gains from selling lucrative prime time air rights – even though they are sure to continue losing an entire generation of fans. Who can enjoyably watch a World Series game when the opening pitch isn’t even thrown until 8:40pm eastern time?

How ironic that Major League Baseball recently commissioned a group of leading business thinkers to reflect on ways they could ramp up enthusiasm for the sport, especially among young people. Ideas were bounced around about ways to make the game more enjoyable for these young fans, including shooting t-shirts out of handheld bazookas, playing louder music, and incorporating noise-making devices and other entertainment.

Here’s a novel idea. How about giving kids what they really want: drug free heroes and shorter games during times they are awake to watch them.

Nautilus Flexes its Customer Advocacy Muscles

Like most consumer products businesses today, the fitness product marketplace – and specifically the premium product segment - is exposed to a number of discontinuities that could have profound implications for product manufacturers aiming at the consumer/home opportunity:

• Chain fitness product retailers (e.g., Busy Body/Fitness Warehouse) are gaining strength and trying to leverage their increased power and influence over product manufacturers (e.g., demanding product exclusives, territory protection, merchandising support, etc.).


• Consumers are increasingly starved for time and are putting greater emphasis on convenience, raising the specter of non-traditional fitness product channels playing a greater role in attracting future shoppers.


• Premium product manufacturers are under increasing pressure by retailers to offer broader and deeper offerings across core cardiovascular and strength product categories.


• Retailers are blurring “class of trade” distinctions by moving aggressively into wholesale sales to health clubs and other commercial accounts.


• Overall channel sophistication in the consumer marketplace is relatively low, with only a small number of large regional or national players.

Here's a winning response from Nautilus, Inc.: give consumers the opportunity to design a treadmill that best suits their personal fitness requirements. Nautilus Sport Series treadmills give individual consumers the ability to choose from three platforms, three electronic displays and three software packages, and create a treadmill specially tailored to their needs.

"Customization is a powerful opportunity because consumers tell us that customization leads to higher levels of motivation in incorporating fitness into their weekly routine," said Tim Hawkins, chief marketing officer for the fitness company. "It also creates greater consumer confidence because consumers can select what they will use for years to come, while components can be updated as family fitness patterns evolve."