Friday, October 21, 2011

Case Study: Decathlon

In Spain, sporting goods has become synonymous with Decathlon. Guided by a mission to bring sporting goods to the masses, the French company sells everything from dry-fit apparel and footwear to camping gear, surf boards, and scuba equipment. Stores are in every major city (with 75 stores, Spain is Decathlon’s largest foreign market).

Decathlon’s competitive advantage is its private label branding. There is a separate brand for every segment. For instance, there’s the Quechua brand for hiking and camping gear, capitalizing on outdoorsy associations with the Andean region (where Quechua is spoken). There are also brands for track and field, tennis, water sports, and so on.

Store-branded products are manufactured in China and Taiwan and sourced through a distribution facility in Aragon. Decathlon also stocks premium brands but they only account for about 5% of stocks and 10-15% of revenue. Competitors such as Intersport report the exact inverse ratio of premium brand to store brand sales. It’s like Wal-Mart on steroids, and it’s permitted Decathlon to realize double digit year-over-year sales growth for the last 5 years.

In fact, Decathlon isn’t just growing its own sales – it’s expanding the size of the pie for everyone. It’s easy to see why. A camping tent that was once impossible to find for less than 300 € now costs 100 € at Decathlon. Or, say you’d like to start running regularly. Compare a 7 € dry-fit Kalenji (Decathlon) tank top to an ostensibly identical product from Nike or Underarmor which costs 25 €.

Here are a couple other strategic and operational hurdles Decathlon has passed on its way to capturing 60% of the Spanish sporting goods market:

Quality Matters
Many value brands forget that budget consumers still expect a minimum level of quality. All the products I have tried from Decathlon brands meet expectations. That includes running shoes, dry-fit shirts, hiking shoes, and running accessories.
The running shoes probably illustrate best the minimum quality principle. They cost 35 € and I wore them out over 6 weeks of intense use. Though perhaps they lasted less than branded options, I put a lot of miles on them and found no fault in their comfort or performance. For me, they met my mimimum quality standard – and I was confident enough to wear them in a 10k run, where a defect in the footwear would have had serious implications. Compare that to Nike shoes at 120 € apiece and it’s easy to see the writing in the sand. Decathlon even offers an ultra-cheap 15 € running shoe, though frankly I wasn’t willing to take the risk.

Inform & Educate
Many of the new consumers Decathlon brings into the sporting market are not familiar with product features so it becomes the store’s job to educate them. In footwear, for example, display placards indicate which shoe is right for different sporting situations. As someone that had never hiked before, I found this information helpful in choosing the right pair of shoes for the Camino de Santiago. The practice also funnels traffic to the store brands since the premium brands sit off to the side without any fanfare.

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