Nike betting on specialty stores to run up sales

LOS ANGELES, Nov 20 (Reuters) Nike Inc is creating specialized stores focused on sports like basketball and soccer where shoppers can hang out, a strategy the world's largest athletic shoe maker sees translating into extra sales at a time of weakness at the American mall.

The retail push comes during an athletic footwear slump in the United States that Nike has largely avoided. Still, analysts say the retail choices by the dominant player in the market are smart, proactive steps to counteract problems that are affecting those retailers that carry its shoes.

''House of Hoops,'' Nike's co-branded store with retailer Foot Locker Inc , its largest U.S. customer, opened its first outlet in New York's Harlem on Monday. Some 50 House of Hoops stores are expected within three years. Another to-be-disclosed retail project with its second largest U.S.

customer, Finish Line Inc, is in the works.

''We're trying to really bring a sense of specialty back into the specialty store,'' said Trevor Edwards, Nike's vice president of brand and category management said last week.

House of Hoops stores offer the opportunity to watch sports clips, read magazines, customize T-shirts and choose limited-edition footwear along with Nike's namesake, Jordan and Converse basketball shoes, apparel and equipment.

Nike, known for its trademark swoosh, has also been opening outlets for its shoe personalization service in its Niketown stores. Called NIKEiD Studios, the retail venues for the virtual service allow shoppers to personalize their Nike shoes, and has been popular with groups of friends, Edwards said.

Moreover, Nike has stayed mum about details of its plan to open an additional 100 stores worldwide in premium shopping areas in the next three years as part of a push to increase direct-to-consumer sales to 15 percent of total sales from 12 percent today.

''It represents a complete transition and new opportunity for the way the brand can interact with the consumer,'' Charlie Denson, president of the Nike brand, told Reuters in a recent interview.

Denson called the ''House of Hoops'' idea ''the first of what are many, many to come.'' Nike will partner with other retailers, and a soccer concept is close to debut, he said.

Running clubs at its large Niketown stores, meanwhile, have resulted in increased business and traffic at those stores, Edwards said.

By stressing customization and giving sports enthusiasts a place, whether physical or virtual, to share, Nike hopes to lock in loyalists at a time when sales gains are getting harder and harder, as one analyst pointed out.

''Gains when you're up in the stratosphere, where they are, become tough,'' said Susquehanna Financial analyst John Shanley.

Citigroup analyst Kate McShane said the measured pace Nike is taking in its retail push was to be commended.

''It's definitely a turn in their strategy,'' she said, referring to Nike's new retail initiates. ''I think this is just the next frontier for them in how to market the Nike brand.'' SHRINKING PROFIT MARGINS? Denson stressed that more personal service in the stores won't reduce profit margins via higher costs, but rather will boost sales, which are lost when store staff do not adequately explain Nike technology to shoppers.

''This is not a marketing exercise. This is a commercial exercise,'' Denson said. ''It doesn't mean you have to make less money.'' Although Wall Street agrees that Nike's coffers are full enough for its retail endeavors -- the company will have some LOS ANGELES, Nov 20 (Reuters) Nike Inc is creating specialized stores focused on sports like basketball and soccer where shoppers can hang out, a strategy the world's largest athletic shoe maker sees translating into extra sales at a time of weakness at the American mall.

The retail push comes during an athletic footwear slump in the United States that Nike has largely avoided. Still, analysts say the retail choices by the dominant player in the market are smart, proactive steps to counteract problems that are affecting those retailers that carry its shoes.

''House of Hoops,'' Nike's co-branded store with retailer Foot Locker Inc , its largest U.S. customer, opened its first outlet in New York's Harlem on Monday. Some 50 House of Hoops stores are expected within three years. Another to-be-disclosed retail project with its second largest U.S.

customer, Finish Line Inc, is in the works.

''We're trying to really bring a sense of specialty back into the specialty store,'' said Trevor Edwards, Nike's vice president of brand and category management said last week.

House of Hoops stores offer the opportunity to watch sports clips, read magazines, customize T-shirts and choose limited-edition footwear along with Nike's namesake, Jordan and Converse basketball shoes, apparel and equipment.

Nike, known for its trademark swoosh, has also been opening outlets for its shoe personalization service in its Niketown stores. Called NIKEiD Studios, the retail venues for the virtual service allow shoppers to personalize their Nike shoes, and has been popular with groups of friends, Edwards said.

Moreover, Nike has stayed mum about details of its plan to open an additional 100 stores worldwide in premium shopping areas in the next three years as part of a push to increase direct-to-consumer sales to 15 percent of total sales from 12 percent today.

''It represents a complete transition and new opportunity for the way the brand can interact with the consumer,'' Charlie Denson, president of the Nike brand, told Reuters in a recent interview.

Denson called the ''House of Hoops'' idea ''the first of what are many, many to come.'' Nike will partner with other retailers, and a soccer concept is close to debut, he said.

Running clubs at its large Niketown stores, meanwhile, have resulted in increased business and traffic at those stores, Edwards said.

By stressing customization and giving sports enthusiasts a place, whether physical or virtual, to share, Nike hopes to lock in loyalists at a time when sales gains are getting harder and harder, as one analyst pointed out.

''Gains when you're up in the stratosphere, where they are, become tough,'' said Susquehanna Financial analyst John Shanley.

Citigroup analyst Kate McShane said the measured pace Nike is taking in its retail push was to be commended.

''It's definitely a turn in their strategy,'' she said, referring to Nike's new retail initiates. ''I think this is just the next frontier for them in how to market the Nike brand.'' SHRINKING PROFIT MARGINS? Denson stressed that more personal service in the stores won't reduce profit margins via higher costs, but rather will boost sales, which are lost when store staff do not adequately explain Nike technology to shoppers.

''This is not a marketing exercise. This is a commercial exercise,'' Denson said. ''It doesn't mean you have to make less money.'' Although Wall Street agrees that Nike's coffers are full enough for its retail endeavors -- the company will have some $2 billion in cash at the end of this year, according to Shanley's estimates, while capital spending will be $475 million per year -- they disagree as to the level of risk.

Shanley said Nike could have a hard time trying to match at retail the same mid-teens operating profit margins it sees in its wholesale business. Most specialty retailers see operating profit margins in the mid-single digits.

McShane, however, called the House of Hoops stores a ''win-win'' for Nike, as they assume no real estate risk. While Foot Locker will operate the stores, Nike pays for its design and fixtures.

''I think this is going to be a slow growth initiative with them,'' said McShane. ''Since this is somewhat understated ... it shouldn't be viewed as a risk.'' REUTERS DKS RN0717 billion in cash at the end of this year, according to Shanley's estimates, while capital spending will be 5 million per year -- they disagree as to the level of risk.

Shanley said Nike could have a hard time trying to match at retail the same mid-teens operating profit margins it sees in its wholesale business. Most specialty retailers see operating profit margins in the mid-single digits.

McShane, however, called the House of Hoops stores a ''win-win'' for Nike, as they assume no real estate risk. While Foot Locker will operate the stores, Nike pays for its design and fixtures.

''I think this is going to be a slow growth initiative with them,'' said McShane. ''Since this is somewhat understated ... it shouldn't be viewed as a risk.'' REUTERS DKS RN0717