Tamara Lang, owner of the Runners World, is trying to decide what she should do with her retail store and how committed she should be to her current target market. 

Tamar is 36 years old, and she started her Runners World retail store in 2009 when she was only 24 years old. She was a nationally ranked runner herself, and felt that the growing interest in jogging offered real potential for a store that provided serious runners with the shoes and advice they needed. The jogging boom helped to quickly turn Runners World into a profitable business, and Tamara made a very good return on her investment for the first five or six years. However, sales flattened out as more and more people found that jogging was hard work-and hard on the body, especially the knees. For the past three years, sales have slowly declined and Tamara has dabbled in various changes to try to recover her lost profitability. 

From 2009 until 2015, Tamara emphasized Nike shoes, which were well accepted and seen as top quality. At that time, Nike's aggressive promotion and quality shoes resulted in a positive image that made it possible to get a $5 to $7 per pair premium for Nike shoes. Good volume and good margins resulted in attractive profits for Tamara Lang. 

Committing so heavily to Nike seemed like a good idea when its quality was up and the name was good. But in the late 2000s Nike quality began to slip. It hurt not only Nike but retailers such as Tamara who were heavily committed to the Nike line. Now Nike has gotten its house in order again, and it has worked hard at developing other kinds of athletic shoes, including walking shoes, shoes for aerobic exercise, basketball shoes, tennis shoes, and cross-trainers. 

While Nike was making these changes and emphasizing engineering function, a number of other firms started to focus on fashion and style in their shoe lines. In addition, with this shift more and more consumers-including many who don't really do any serious exercise-were just buying running shoes as their day-to-day casual shoes. As a result, many department stores, discount stores, and regular shoe stores put more emphasis on athletic shoes in their product assortment. 

All of this change has forced Tamara to reconsider the emphasis in her store and to question what she should do. As growth in sales of running shoes started to flatten out, Tamara was initially able to keep profits up by adding a line of running accessories for both men and women. Her current customers seemed to be a ready market for a carefully selected line of ankle weights, warm-up, suits, athletic bras, T-shirts, and water bottles. These items offered good margins and helped with profits. However, as the number of serious runners declined, sales of these items dropped off as well, and Tamara and her sales people were "pushing" products that other customers didn't want. Further, many of the sporting goods stores in the Runners World market area started to offer similar items - often at lower prices. 

Tamara also tried adding specialized shoes for other types of athletic activities-such as shoes for serious walkers and for aerobic exercise. She was hopeful that some of the past runners would be interested in high-quality shoes designed specifically for walking or other types of exercise. However, demand for these shoes hasn't been strong, and keeping a varied line in stock-without fast turnover-is an expensive proposition. 

For the past few years traffic in the store has continued to drop. In addition, an increasing number of the customers who come in the store to browse do only that-and leave without buying anything. From discussions with many of these shoppers, Tamara is pretty certain that they're more interested in style, fashion, and economy than in the high-quality shoes designed for specific athletic activities that she carries. For example, a number of customers who came in looking for "walking shoes" left quickly when they realized that Tamara's walking shoes were in the $120 and up range. 

Part of the problem is that a number of retail chains offer lower-cost and lower-quality versions of similar shoes as well as related fashion apparel. Even Wal-Mart has expanded its assortment of athletic shoes-and it offers rock-bottom prices. Other chains, like Lady Foot Locker, have focused their promotion and product lines on specific target markets. 

Tamara is not certain what to do. Although sales have dropped, she is still making a reasonable profit and has a relatively good base of repeat customers-primarily serious runners. She worries that she'll lose their loyalty if she shifts the store further away from her running "niche" toward fashion and casual wear. Even a change in the name of the store-to pull in more customers who are not runners-might have a serious impact on her current customers.. 

An important question that Tamara is debating is whether there really is a big enough market in her area for serious athletic shoes. Furthermore, is there a market for the Nike version of these shoes that tends to emphasize function over fashion? She has already added shoes from other companies to provide customers with more choices, including some lower-priced ones. She is trying to decide if there is anything else she can do to better promote her current store and product line, or if she should think about changing her strategy in a more dramatic way. At a minimum, that would involve retraining her current salespeople and perhaps hiring more fashion-oriented salespeople. 

She thinks that a small shift in emphasis probably won't make much of a difference. Actually, that's what she's tried already. But a real shift in emphasis would require that Tamara make some hard decisions about her target market and her whole marketing mix. She's got some flexibility - it's not like she's a manufacturer of shoes with a big investment in a factory that can't be changed. On the other hand, she's not certain she's ready for a big change-especially a change that would mean starting over again from scratch. She started Runners World because she was interested in running and felt that she had something special to offer. Now, she worries that she's just clutching at straws without a real sense of purpose---or any obvious competitive advantage. She also knows that she is already much more successful than she ever dreamed when she started her business-and in her heart she wonders if she wasn't just spoiled by growth that came fast and easy at the start, 

In your group, evaluate Tamara Lang's present strategy, evaluate alternative strategies she should consider. Provide a compelling case which features a detailed financial analysis, to support a decision regarding what strategy you would recommend to Tamara for Runners World. 

Follow the Case Process detailed on Blackboard. Provide one written case report per group for grading. 

Week 12: Case 2 Worksheet 

Read the assigned case (see Blackboard) and prepare an individual case assessment for review with your team. 

1. Situational Assessment/Problem 

2. Objective 

3. Alternatives 

4. Recommendation 

Assumptions                                  Option 1         Option 2          Option 3         Option 4         Notes 

  

Quantity 

 

Selling Price 

        

VC/Unit 

           

Contribution/per unit 

Pro-forma income statement 

Sales 

COGS 

           

Gross Profit 

           

Advertising Costs 

           

Other Fixed costs 

           

Total Fixed Costs 

           

Net Profit 

Analysis 

Gross Margin  

Net Profit Margin 

Advertising as % of sales 

   

% Change in Sales 

    

% Change in COGS 

     

% Change in 18 Advertising

% Change in 19 Net Profit 

Breakeven 20 Margin of Safety 

Answer rating: 100% (QA)

1 Situational AssessmentProblem Tamara Lang the owner of Runners World is facing declining sales and profitability in her retail store The market for running shoes has changed with a shift towards fas... View the full answer