The Finish Line, Inc. - Company Profile, Information, Business Description, History, Background Information on The Finish Line, Inc.

3308 N. Mitthoeffer Road
Indianapolis, Indiana 46236

Company Perspectives:

Finish Line's mission is to create and operate a superior athletic specialty retail entity--by combining conceptual innovation which includes an entertaining and exciting retail environment, the most current information technologies and systems, capable and focused management, and a dedicated and motivated work force empowered with the proper resources--in order to provide customers a beneficial and unique shopping experience.

History of The Finish Line, Inc.

The Finish Line, Inc. is an athletic specialty retailer, carrying men's, women's, and children's brand name footwear, apparel, and accessories. The company operates more than 350 stores, which are located primarily in malls, in 39 states throughout the Midwest, Southeast, and South. The average size of a Finish Line store is more than 5,000 square feet, which is substantially larger than its competitors and which allows for a broader and deeper merchandise mix. Sales of footwear bring in approximately 70 percent of the company's total revenue, with apparel and accessories making up the remainder.

1976--86: Franchise Beginnings

The Finish Line's founders, David Klapper and Alan Cohen, first became involved in athletic retailing in 1976 when they opened an Athlete's Foot franchise on Monument Circle in downtown Indianapolis. The Athlete's Foot was a Pittsburgh-based athletic footwear retailer that had begun franchising in 1972. By 1976, when Klapper and Cohen signed their ten-year franchise agreement, there were almost 100 Athlete's Foot stores located in malls throughout the country. Although athletic wear was not a major retail force at the time, Cohen and Klapper, long-time friends and fervent athletes, both believed in the potential of the nascent market.

Under the terms of the franchise arrangement, the duo had a ten-year license with the Athlete's Foot for the state of Indiana. Within four to five years, Klapper and Cohen had added nine more stores, located in the state's larger malls, to their operation. It was at that point they decided it was time for a change. As franchisees, Cohen and Klapper were constrained by the dictates of the Athlete's Foot on every front--from product mix to store size to merchandise presentation. The partners, however, believed that the athletic specialty business was taking a new shape, and they wanted the latitude to respond to the changing market. They decided to start their own company--the Finish Line.

To begin the new venture, Cohen and Klapper brought in two more full partners: Larry Sablonsky and David Fagin. Sablonsky, who was also from Indiana, had a department store background, and Fagin had previously been a sales rep for an athletic wear manufacturer. From its first days, the Finish Line was conceptually different from the Athlete's Foot. Whereas the standard Athlete's Foot store was fairly small--between 1,500 and 2,000 square feet--and located in an enclosed mall, the early Finish Line stores were located in strip malls and outlet centers and, at 3,000 to 4,000 square feet, were substantially larger than the norm. While the smaller Athlete's Foot stores had focused almost exclusively on athletic shoes, the Finish Line's extra space allowed for a much broader mix of merchandise, specifically apparel and accessories. This broader product mix let Finish Line target a broader market, offering shoes and apparel for the whole family, whereas athletic retailing had catered traditionally to young males aged 12 to 24.

Another difference between the Finish Line and the Athlete's Foot was the type of merchandise they carried. The Athlete's Foot focused on new, high-profile merchandise from big-name athletic vendors. As an unproven entity, the Finish Line could not always stock the latest, hottest products carried by its competitor and instead often carried value or closeout merchandise. Although begun out of necessity, this merchandise mix proved to be serendipitous, as it mirrored a trend toward closeout and outlet shopping that was just then taking shape in the United States.

Although the partners continued to operate their existing ten Athlete's Foot stores through the term of their ten-year agreement, the lion's share of their energies were focused on growing their Finish Line chain. By 1986, when Klapper and Cohen's franchise with the Athlete's Foot expired, they already had established between 25 and 30 Finish Line stores. The stores were concentrated in areas where the outlet shopping craze was most deeply rooted, such as North Carolina, Texas, and upstate New York.

1986--94: Gathering Speed

With the expiration of the Athlete's Foot franchise agreement, the partners had to decide whether to renew the contract or to convert their existing Athlete's Foot stores into Finish Line stores. They opted for the latter. Applying what they had learned from operating the two types of stores, the foursome determined to combine the best of both concepts for future expansion. They believed that the Athlete's Foot's strongest points were its high-profile products and its mall-based location strategy. The Finish Line's strengths lay in its larger store size and its combination of new and value merchandise. Blending the concepts, Klapper, Cohen, Sablosky, and Fagin decided to take their stores back into the malls, but to make them much larger and to carry a wider variety of merchandise, including both the latest, high-profile products and discounted, value items. Little by little, the company began closing its strip and outlet mall stores, becoming ever more entrenched in enclosed malls.

Meanwhile, the U.S. market for athletic footwear was booming. From 1982 through 1991, retail sales of athletic footwear had climbed from $3.88 billion to $10.73 billion. Much of this growth was directly attributable to an Oregon-based athletic shoe manufacturer named after a Greek goddess--Nike, Inc. Throughout the 1980s, the popular Nike shoes--characterized by the signature "swoosh"&mdashøok the nation by storm, showing up on feet of every age. When its footwear proved so wildly popular, Nike built a line of apparel and accessories that met with a similar consumer response. Soon, Nike was the Finish Line's largest vendor.

By 1991, there were 105 Finish Line stores operating primarily in the Midwest and Southeastern states. In June of the following year, with 120 stores up and running and sales at $98 million, the four partners took the company public. Then, using the IPO-generated capital and a concept that was proving highly successful, the company expanded rapidly for the next several years. With the steady addition of more stores, revenues rose predictably each year, climbing to $129.5 million in 1993 and $157 million in 1994. By the end of fiscal 1994, Finish Line had 164 stores located in 22 states stretching from New York to Texas.

1994--96: Bigger Is Better

Not only was the company growing the number of its stores--it also was growing its store size. Of the 30 new stores opened in the company's fiscal 1995 (February 1994 to February 1995), the average size was 4,100 square feet. This brought the overall average store size up to 3,641 square feet, a 5.6 percent increase from the previous year's average. "Our stores are getting bigger, a strategy we believe will allow us to maintain a competitive edge against our mall competition, and better position us to compete against large box athletic retailers located outside of malls," wrote Alan Cohen in the company's 1995 annual report. These larger stores were laid out with a "track" around the perimeter, which served to draw customers through the various categories of shoes. Apparel and accessories were displayed inside the track.

The company also rolled out three new large-format stores for testing. Sprawling over 7,000 to 9,500 square feet, the monster stores were divided into separate departments for men's, women's, children's, licensed product, and activewear. The flashy new stores also incorporated new color schemes, lighting, signage, and video and audio screens. Aside from the three new formats, all Finish Line stores were formatted as either "rack" or "backroom" stores. The 33 rack stores, which ranged in size from 3,000 to 5,500 square feet, were the older store designs, with stock stored on the sales floor in original boxes. The more common backroom format had a sales floor with display and try-on areas and an adjacent stockroom used to store inventory. The stores became known for their trademark "wall of shoes," a large, often curving wall display holding hundreds of shoe styles.

Cohen's team followed through on the larger store strategy in fiscal 1996 and 1997, opening 69 stores over the course of the two years, with an average square footage of almost 5,000. At the end of fiscal 1997, the company's 251 stores had an overall average size of 4,336 square feet, as compared with 1994's average of 3,449 square feet. In addition to the overall jump up in size, the company unveiled a "large format" store in fiscal 1996, which dwarfed virtually all of its other stores. Located in downtown Indianapolis, the 20,000-square-foot behemoth was stocked with approximately 1,300 styles and 30,000 pairs of athletic shoes, as well as large lines of apparel and accessories. The store was an immediate success, reaffirming the partners' belief in their superstore concept. Based on the encouraging performance of the Indianapolis store, the company began to plan for a 1997 opening of three more large-format outlets--in Buffalo, New York; Denver, Colorado; and Memphis, Tennessee.

Because the larger stores cost $1.7 million, as opposed to the $375,000 needed to build an average-sized store, the company needed extra capital. It raised it in a 1996 secondary stock offering, selling 1.3 million newly created shares and grossing more than $35 million. In addition, Cohen, Klapper, Sablosky, and Fagin together sold 1.3 million shares of their own stock.

For categorization purposes, the company began to characterize its stores by size. Stores smaller than 10,000 square feet, which included the majority of locations, were classified as "traditional format" stores. These traditional format stores generally carried 600 to 700 shoe styles. "Medium format" stores were those ranging from 10,000 to 15,000 square feet, stocked with approximately 1,000 shoe styles. Stores that were larger than 15,000 square feet were designated as "large format" stores.

Size and quantity were not the only points of focus for the Finish Line during the mid-1990s. The company also was working to improve efficiency in its warehousing and distribution systems. In 1995 the Indianapolis distribution center was expanded to more than double its previous size. Shortly thereafter, new management software was implemented in the center to allow for more accurate tracking of inventory.

1997--98: Market Downturn

For most sports retailers, the second half of 1997 and all of 1998 were somewhat less than ideal. Sales growth of both athletic footwear and apparel slowed industrywide, resulting in overstocked inventories and collapsing profits for both retailers and wholesalers. Many of the Finish Line's mall retail competitors lost ground. Even the superpower Nike, which by that time accounted for more than 60 percent of the Finish Line's merchandise, had disappointing numbers.

The Finish Line initially fared better than most of its competitors, closing its fiscal year in February 1998 with a 32 percent increase in total sales and a 42 percent increase in net income. While the Woolworth Corp., the operator of the Foot Locker, Lady Foot Locker, and Champs retail chains, posted a four percent drop in same-store sales, the Finish Line reported a six percent gain. The company's management believed it was their larger store sizes that allowed them to prosper while other athletic retailers hit the skids. Whatever the reason, investors responded favorably, and the company's stock price skyrocketed--climbing more than 100 percent between February and July of 1998.

The company maintained its momentum through the spring of 1998, but stumbled during the summer months and was unable to recover. Same-store sales declined throughout the remainder of the year, as did net income. Finish Line's CEO Alan Cohen pointed to a sharp drop off in apparel and accessories sales as the culprit. "During this period, apparel fashion trends appear to have moved away from the athletic brands to other contemporary brands, which is evident by the recent sales strength of many non-athletic specialty retailers," he said in a September 29, 1998 press release. With approximately one-third of Finish Line's total sales coming from apparel and accessories, the company was harder hit by this particular decline than some of its competitors, who carried only 12 to 20 percent apparel and accessories.

Despite disappointing sales, the company continued to expand, opening 59 new stores in the fiscal year ending February 27, 1999, and remodeling or expanding 26 existing stores. At fiscal year-end, there were 358 Finish Line stores--a 19 percent increase over the previous year's total. In addition, the company's total retail square footage jumped up 32 percent to 2,095,000 square feet, as opposed to fiscal 1998's 1,587,000 square feet.

1999 Forward

Despite its slump, the Finish Line entered 1999 determined to move ahead with expansion plans, which were to include opening between 40 and 60 new stores and remodeling another 20. The company planned to continue with its strategy of opening larger stores and carrying broader and deeper product lines than most athletic specialty retailers. This, management believed, would allow them to continue reaching a broader demographic market and to maintain operating margins that were larger than traditional stores. Although apparel sales were in a slump, management expected them to rebound. "We feel apparel is in a down cycle. It will not remain down forever," Steven Schneider, the company's vice-president of finance, said, citing the cyclical nature of sports clothing retailing.

The company also planned to slightly alter its marketing tack in the coming years by moving from a local level approach to a more regional and national focus. In addition, plans were under way for marketing initiatives that specifically targeted female consumers, one of the most rapidly growing segments of the athletic retail market.

Additional Details

Further Reference

Andrews, Greg, "Finish Line Shares in Step with Hot Sector," Indianapolis Star/News, July 6, 1998."Finish Line Bets on Mega-Stores," Indianapolis Business Journal, June 3, 1996, p. 8A."Finish Line Company History,", Dan, "Finish Line Hits Stride as Olympics Approach," Indianapolis Business Journal, February 13, 1995, p. 5.Retting, Ellen, "Coaxing Women to the Finish Line," Indianapolis Business Journal, July 13, 1998, p. 1A.

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