1. MASTER INTERNATIONAL
FRANCHISING IN CHINA Ryan Duff
Alex Glazer
Jack Grover

2. THE ATHLETE’S FOOT, INC.
 Based in Kennesaw, Georgia
 Foremost franchisor of athletic -footwear operations
 800 corporate and franchise stores in 40 countries
 1978: Expansion globally begins in Adelaide Australia
 1980’s: Bought out by the Group Rallye where more emphasis
was put on customer service and product design balancing the
rapid expansion

3. THE ATHLETE’S FOOT, INC. CONT.
 Reorganized structure:
 Two Divisions
 Marketing Team  Serviced Franchises
 Store Team  Operated Company-Owned Stores
 Rapid expansion continues throughout the 1990’s: More than
650 stores
 Competitive Advantage through customer -oriented technology:
FitPrint System
 Focus Points: Customer Service, Aggressive Marketing, Control
of Pipeline from Point of Sales

4. RETAILCO INC.
 CEO Rick Wang
 Young entrepreneur looking for a new venture
 No prior athletic-footwear retailing experience
 CMO of Foremost Dairies Ltd.: short-shelf-life consumer goods
 Trip to HQ in Georgia to learn
 Impressive inventory control system
 Became the Master Franchisor of The Athlete’s Foot, Inc. in
China.

5. FRANCHISE STRUCTURE IN CHINA
The Athlete’s Foot, Inc.
(Franchisor)
Retail Co. China
Holdings
(Franchisee)
Corporate Store Corporate Store Corporate Store Sub-franchises
Branch Branch Branch
Store Store Store

6. FRANCHISING STRUCTURE IN CHINA CONT.
 Monthly Royalty Fee: 2.5 percent of net sales
 Other Fees (Franchising, MIS, etc.):
 $2000-$5000 per store
 Wang visited Atlanta HQ for “New Owner Training” and
completed “On Site Training” learning how to run an ef ficient
franchise of The Athlete’s Foot, Inc.

7. FRANCHISING STRUCTURE EXPLANATION
 The Athlete’s Foot, Inc. sold franchise rights to Retail Co. in
exchange for royalty and service payments
 Retail Co. opened several corporate franchise stores
 One partnership was made to 12 sub -franchise The Athlete’s
Foot, Inc. stores in Nanjing and Wuxi
 Sub-franchise: franchises granted within the territor y of an
existing Franchisee, that are usually allowed to be granted
when the original Franchisee reaches a point in business
development whereby they cannot sustain any fur ther growth
from the one outlet

8. GOALS AND STRATEGY FOR CHINESE
 Segment the Market into three Regions
 East China, North China, South China
 East China was thought to have most potential followed by North
China
 “New Owner Training Program” complete
 Employees learn to work internal-control systems and marketing
procedures
 September 1998: first franchise open in Parkson Department
Store in Shanghai, East China
 Young Demographic 20-35 Years Old
 Devoted to Brand Names
 Style Conscious

9. INITIAL SUCCESS
 Before 2000, Wang opened a new store every 22 days
 Reached volume of $14 Million USD in sales in 2000
 Had all the most popular brands and an inventory
management system that allowed for ef ficient and aggressive
pricing
 No market penetration by other companies

10. PROBLEMS ARISE
•Loss of First Mover Advantage
•Failure to maintain necessary
inventory levels
•Decreasing cash flow

11. LOSS OF FIRST MOVER ADVANTAGE
 China prepares to enter the W TO and the global financial
community made preparations for increased potential in this
new market
 Increase in Foreign Domestic Investment (FDI)
 Size of department stores grow, but so does Athlete Foot’s
competition, making their space seem minimal
 More footwear retailing players enter the market

12. INVENTORY LEVELS/INCREASED
COMPETITION
Local National Inventory
Competitors Brand Names Levels
National brands
decreasing supply
Nike, Reebok,
Quest Sports because they are
Adidas
opening own
outlets
Competitive pricing, Selling direct to
Cash flow struggles
enhanced customer consumer instead
prevent full
service, increased of through retail
inventory capability
product quality location

13. CASH FLOW PRESSURE
 Need to commit large amounts of capital upfront to obtain
popular retail venues
 High-traffic upscale locations were desired
 Quality location lead to increased sales performance and
success
 24-36-month leasing agreements were needed requiring large
amounts of upfront capital
 Tried expounding to more department stores, but increased
competition hindered this

14. SOLUTIONS
1. Decreasing amount of store front locations
2. Reposition its products from athletic -footwear to athletic
products to dif ferentiate from local and global competition
3. Reposition to dif ferent target market
4. Leave China all together

15. DECREASING AMOUNT OF STORE FRONT
LOCATIONS
SOLUTION 1
 Slow down expansion in China
 Approximately cost $75,000 per store (Based on 3,000 square meter
stores)

16. REPOSITION FROM FOOTWEAR TO
SPORTING GOODS
SOLUTION 2
 Reposition its products from athletic -footwear to athletic
products to dif ferentiate from local and global competition
 Basketballs
 Tennis rackets
 Apparel

17. REPOSITION TO LESS-BRAND CONCIOUS
DEMOGRAPHIC
SOLUTION 3
 RetailCo has a supply issue regarding the fact that national
brands will no longer provide lots of inventory or
trendy/current products
 Last season products can be taken advantage of – of fer for
less to a more price sensitive consumer who is still interested
in brands
 New Consumer: Brands are still important but not number one
priority, motivated by price
 Will also attract loyal fans looking for deals
 Maintain superior customer service: when customers may
have the choice, we want them to still pick going to RetailCo
over corporate stores, “bang for buck” aspect

18. PULL FRANCHISES IN CHINA
SOLUTION 4
 Don’t go global unless you have to!
 Too many problems emerging with this market
 Refocus ef forts on domestic franchises
 Find another market that fits model better – not every country
is the right fit
 Wang expanded too quickly: no time to plan exit strategy or
long term goals, too much focus on sales volume & size of
company

19. THE ATHLETE’S FOOT, INC. TODAY
 The athletes foot today is not able to compete
 The only available sector is high discount segments of the
market, targeting middle income families
 This change in focus would require too much cash
 The company can no longer stock the products that
consumers want to buy, and therefore cannot compete in the
higher end segment like it has don e since its inception.