STEPPING ON SELLERS' TOES; NIKE'S DOMINANCE STEPPING ON SELLERS' TOES.

Byline: Jennifer Steinhauer The New York Times

Slouched in their chairs, eyes fixed on a table littered with shoes, they give their grim assessments. A sneaker by Fila? Overpriced. A pair of new Reeboks? The group is more charitable, though one person says the bubbled soles look like ``something for NASA.'' A pair of skateboard shoes? Booed off the table.

Finally, out comes Nike Inc.'s new shoe, named for Anfernee ``Penny'' Hardaway, the star guard for the Orlando Magic. The room, filled with high school students, breaks into applause, undeterred by the Penny's $180 price tag.

If Nike is the Chicago Bulls of the athletic shoe market, retailers are holding their breath for a strong underdog player to emerge.

There is no question that shoe merchants have raked in profits right along with Nike during its near decade of dominance. And if the applause from the students, gathered here recently for a focus group, is any indication, they will continue to do so.

Yet the sheer size of Nike has also meant that retailers are beholden to it in ways they would rather not be, from the prices they are forced to charge to the miserly way in which Nike often doles out supplies. Most unsettling is the degree of their exposure to Nike's fortunes. Indeed, most athletic-shoe retailers blamed a slowdown in Nike sales for a sluggish first quarter.

No retailer wants its fortunes to rise and fall with one vendor. So the shoe merchants are crossing their fingers, hoping that one or more companies with significantly less than Nike's 43 percent market share will pump out a product that makes them a contender.

``This is a boring time,'' said Keith Daily, the senior vice president and general merchandise manager for Footaction, the athletic shoe retail unit of Footstar, which sponsored the recent focus group to assess merchandise bound for its shelves. ``I would rather see the established players become more aggressive again.''

If only it were that simple. In late May, Nike, which last year led United States footwear sales with about 42 percent of all sales to the tune of $3.2 billion, announced that revenue growth had slowed a bit and earnings for its fourth quarter would be below expectations. The news, which sent the company's stock down 13 percent, was the first solid evidence that others were nibbling in Nike's kitchen.

And in fact, Reebok International Ltd., Fila Holdings SpA, Adidas AG and Converse Inc. have all made small inroads in the last year through new product introductions and technological advancements. Several smaller players have gained ground on the fashion front. And designer companies like the Tommy Hilfiger Corp., Donna Karan International Inc. and Polo/Ralph Lauren have all extended their names, which are so hot in apparel, to sports shoes.

Still, Nike, based in Beaverton, Ore., is simply too far ahead - with plenty of kick left in its legs, not to mention cash in its advertising and research budgets - to be overtaken any time soon, many in the industry say.

Beyond Nike's sheer muscle is the fact that the shoe business may be the most difficult segment of apparel to succeed in. The business of developing and selling athletic shoes is simply far more complicated than the larger world of fashion, in which one hot color or one incredible style trend can change a company's fortunes overnight.

Research and development, an expense usually associated with high-tech rather than apparel companies, has increased greatly in recent years, as companies have competed to offer the latest in footwear technology, which supposedly enhances athletic performance.

These products must not only perform well but also look cool to the likes of the young people in the Footaction focus group, whose shifting tastes are hardly the most predictable.

And while slices of the market used to be divvied up - one company tightly held high-end basketball shoes, another dominated the soccer business - Nike, with itsI global image shaped by an immense marketing budget, has dipped into all areas of the athletic footwear business, leaving everyone in the dust.

``This business has truly become a game with fewer people because costs have come up so much,'' said Bob McGee, editor of Sporting Goods Intelligence, an industry newsletter. ``The difference between what the No. 1 and the No. 15 shoe maker spent on advertising 10 years ago was relatively small, and now it is huge.''

Though it has been criticized for charging high prices, Nike has cashed in across the diverse worlds of soccer, aerobics, basketball, golf and the catty hallways of high schools where brand names are everything.

Others that have tried this diverse approach have not been able to match Nike's success. L.A. Gear Inc., for example, which went public in 1989, quickly rose to fame with shoes aimed at women. Its stock zoomed that year, and in 1990, it became the No. 3 player, with an 11 percent market share.

Emboldened, the company introduced a performance basketball shoe. But that year the shoe literally fell apart on live television during a crucial moment in a college basketball game.

Further, said John Horan, the publisher of Sporting Goods Intelligence, the company distributed its goods mostly to department stores, causing the athletic footwear stores to give it the cold shoulder, making distribution to teen-agers a problem.

The company now commands a mere 1.8 percent of the market, with $140 million in sales in 1996. (L.A. Gear's stock, which hit a high of $49 in 1990, closed Friday at $1.50.)

L.A. Gear, under new management, said that it is now heading back to its roots in the women's and children's markets, and no longer has dreams of kicking sand at Nike.

``In this day and age you have to be very aware about how far you can take one brand name,'' said Bruce MacGregor, the company's president. ``We could have the absolute best basketball shoes designed today and if it said L.A. Gear on the label, how successful Iwould it be?''

Companies like Converse, Adidas and Puma AG have cobbled together similar strategies of returning to their roots, although one manufacturer, Fila, is heading in the other direction, trying to move from a fashion brand to a high-tech player.

But for a shoe company to compete on the technical front, it has to have a major research and development budget. Nike has put aside $46.8 million for R&D this year, a figure that dwarfs the total United States revenues for companies the size of Puma. In 1986, Nike spent just $5.2 million on research.

`Figuring out ways to make new shoes gets very hard because of R&D,'' said Horan of Sporting Goods Intelligence. ``Phil Knight once said that anyone with a glue pot could get into the shoe business,'' he added, speaking of Nike's chairman. ``He would be the last person to say that now.''

The only company truly in a position to threaten Nike is Reebok, which last year commanded 15.8 percent of the shoe market with $1.1 billion in sales. After a few years in the 1980s when it ate Nike's lunch, Reebok has been struggling to remain a strong No. 2.

Among the newest of the nibblers, though, are such fashion brands as Donna Karan, Nautica, Ralph Lauren and Tommy Hilfiger. Barakett at Salomon Brothers anticipates that these brands will have a total of $155 million in revenues this year, or about 2 percent of the market.

Retailers clearly have deep feelings for Nike. But as in all love affairs, there are sticky issues over one partner's craving for some autonomy.

At a number of major retailers, including Finish Line Inc., the Footaction unit of Melville Corp. and the Foot Locker division of Woolworth Corp., Nike accounts for nearly 60 percent of the sports shoes in stock.

If Nike wants to inch up prices, as it has recently, retailers say they have to go along because the company prefers not to ship to outlets that discount its products. Nike has also been known to micro-manage the way its goods are displayed.

Many retailerIs are rankled, analysts say. ``Because Nike has been so big, they have been able to dictate a lot of things to retailers, and retailers are not too comfortable with the situation,'' said Faye Landes, an analyst at Smith Barney. ``They realize that Nike is the best company in the industry, but they would love to have alternatives.''

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Chart: Wholesale sales of athletic footwear in the United States

The New York Times

Photo: HARDAWAY