Master International Franchising in China: Athlete’s Foot, Inc. 513informed and powerful in this market as
Wang had hoped. The Athlete’s Foot Inc. had
been successful in the American domestic
market, and had also done well in Australia
and parts of Europe; however, it had almost
no substantive experience in or knowledge of
the Chinese market. The Athlete’s Foot Inc.
did support Wang by providing an efficient
business model, a superior operations sys-
tem, and some basic retailing knowledge, but
this was all they could offer. The Athlete’s
Foot Inc. did not have corporate stores in
China, nor did it have any other experience
in the Chinese market. Wang and his compa-
ny would have to bear the sole responsibility
for success in this immense and uncertain
business environment.
Ironically, even while Wang’s local branch
stores in Shanghai were losing revenue, his
sub-franchisees, mostly in smaller cities like
Nanjing, Wuxi, etc., were still doing quite
well. They were making profits and enjoying
the results of increased customer traffic and
brand-consciousness. This disconnect was
primarily due to a lag in the maturation of
their different sub-market niches. Major
brands were, at that time, focusing on build-
ing market share in the larger cities, and what
would come to be called the “single-brand
trend” had not yet extended to those smaller
cities. As was the norm in other internation-
al markets, market transformation in smaller
cities tended to be 18 to 24 months behind
that in the largest cities. It was for this reason
that Wang’s franchisees were thriving even as
he faltered.
On the other hand, even as his franchisees
celebrated their survival in these smaller
Chinese cities, they were becoming aware—
through Wang’s experience—that they faced
an uncertain future once the single-brand
giants came to compete with them in these
less-mature markets. It was likely that these
profitable franchisees would come to face the
same problems that Wang was encountering
in his more-mature market. Current success
does not guarantee future survival, so even
these franchisees had an interest in Wang’s
strategies.
TRANSFORMATION
Wang’s attempts to rescue his Athlete’s Foot
stores from crisis had failed. To avoid bank-
ruptcy, Rick Wang eventually made a painful
decision: he would terminate his contract
with the franchisor. He recalled: “I took a
gamble, and I decided that we would restruc-
ture our company.” He chose to convert his
retailing stores from the Athlete’s Foot to
Adidas, from a franchising structure to a
“pure” retailing operation. He chose to con-
centrate on single-brand rather than on
multi-brand retailing, following what he per-
ceived as structural changes in the market-
place.
His decision was painful as well as adven-
turous. The termination of the franchising
relationship could lead to costly legal action
if he could not negotiate with the Athlete’s
Foot Inc. He understood the need for
extreme caution at this point; otherwise, the
company would be beaten down before it
could be rebuilt.
Calmly and carefully, Wang began the
process of exiting the franchise relationship
by communicating with the franchisor—
always professionally—about the intricacies
of the crisis facing the sports footwear mar-
ket in the current Chinese environment.
Wang tried to convince the franchisor that
great efforts had been made to build and
maintain the brand; the Athlete’s Foot could
succeed ifthere were no changes to the mar-
ket that they had entered together. However,
as the market changed, the retailer was forced
to change its marketing strategy to deal with
these changes. Wang specifically pointed to
the franchisor’s inability to corral suppliers,
which ultimately deprived him of a responsi-
ble way to address change and guarantee the
survival of The Athlete’s Foot in China.
As he considered his exit strategy, Wang
also communicated with his own franchisees,
hoping to have them join him as he trans-
formed his company. He made clear to the
franchisees the problems he was facing—and
those that they, too, would soon face: chang-
ing market trends, the reluctance of big-