Payless and Nike Team Up to Market Less-Expensive Running Shoe

Discount shoe retailer Payless ShoeSource Inc. (PSS) has paired up with a subsidiary of Nike Inc. (NKE) to market a high-performance, $34.99 running sneaker, a move that both companies hope will take advantage of a highly lucrative market.

Under the terms of the multiyear deal, Exeter Brands Group LLC, a wholly owned subsidiary of Nike, will design and produce the shoes under the Tailwind collection, while Payless will serve as the exclusive retailer.

Company executives, who were showcasing Tailwind products Monday for the press, declined to comment on potential sales volume, but Marshal Cohen, chief analyst at NPD Group Inc., a Port Washington, N.Y.-based market research company, said that the Tailwind shoe is breaking new ground in the $3.5 billion mass market athletic shoe market because of the footwear's technology.

"This takes the low end to a new extreme," Cohen said, noting that what's being offered in the high-performance athletic footwear sold at mass chains isn't high-tech.

But customers still have to pay more for Tailwind. Tailwind's running shoe, which uses a honeycomb gel that compresses on impact, is about 20 percent more expensive than footwear without much technology, according to Clare Hamill, president and CEO of Exeter.

The Tailwind collection, which consist of five styles, including one running version as well as athletic sandals and slip-ons, hit 400 Payless stores on Monday, and will be expanded to 1,500 Payless stores by July. By year-end, executives said they plan to have the collection, which includes a $19.99 athletic sandal, in all 4,600 Payless stores. Footwear and accessories for girls will be added in July, and the partners are considering plans to expand the Tailwind brand to men's and boys performance footwear.

Nike's athletes Brandi Chastain, 38, a World Cup champion; Hope Solo, 25, Olympic soccer goalie; and Logan Tom, 25, an Olympic volleyballer, are the spokeswomen for the brand and will be featured in its marketing materials and videos on the Web site tailwind.payless.com.

The Nike-Payless partnership, which began 18 months ago, comes at the right time for both companies. Nike has aimed to further develop athletic footwear for mass chains through its Exeter Brands Group. Meanwhile, under the stewardship of Matthew Rubel, chief executive and president of Payless, the shoe retailer has started to see a big payoff from its big push to update its offerings. Among its athletic-inspired brands, Payless has exclusive rights to sell Airwalk, a skateboard-inspired shoe, for the discount channel, and exclusive rights to sell Champion footwear.

"This is a huge opportunity ... We needed to have an offense in this space," said Hamill.

Two and a half years ago, Nike created Exeter to carve out a niche in the low-price athletic shoe market and has such brands as Starter, which is sold mostly at Wal-Mart Stores (WMT) Inc. and SHAQ, a basketball shoe that is sold to multiple mass retailers. But Hamill said that Tailwind, which was created in Nike's Sports Research Lab, pushes the edge of technology.

Rubel, who approached Nike with the idea of collaborating on a high performance shoe almost two years ago, said it fits Payless' strategy of "democratizing" fashion. While there are other low-price athletic performance sneakers out there, Tailwind stands apart from the rest of the rivals in the discount arena, Rubel said.

"This is not about slapping an athletic name on a shoe," Rubel said.