Fleet Feet's Annual Report For 2004 APRIL 04, 2005 -- Fleet Feet posted a record high of $43.1 million, representing 19.4 percent growth over 2003, according to its annual report. Comparative stores sales rose 12.4 percent. Average sales per store (more than two years old reached $900,000, resulting in a average sales per square foot of $591. Total Fleet Feet square footage reached 133,000. Fleet Feet noted that it its first-ever $4 million month in July 2004, followed by August and September exceeding $4 million. August was the company's highest ever sales month at $4.5 million. Fleet Feet opened 12 locations last year, ending with 61 stores nationwide. This marked a record number of openings for one year. 2004 Openings Bozeman, MT - January Redding, CA - January Huntsville, AL - February Tucson, AZ - March Northfield, OH - Converted in June Rochester, NY - July Laguna Niguel, CA - September Santa Monica, CA - September Vacaville, CA - September Coeur d'Alene, ID - September Bonney Lake, WA - October Columbus, OH - December Davis Aquatics, Davis, CA - December VENDOR PERFORMANCE Regarding the footwear category, Fleet Feet said Asics posted a 40.8% gain and solidified its position as Fleet Feet's top footwear vendor, representing more than 22% of our business. Brooks posted a 42.6% gain and took over the number two position behind Asics. Both brands were helped by strong products in the stability category. Asics and Brooks were the only two vendors to exceed Fleet Feet's overall growth rate of 19.4%. New Balance was a solid number three in footwear, followed by adidas, Nike, Saucony and Mizuno. Nike's apparel market share declined on 8.4% growth in 2004, but they were able to hold on to the top position representing more than 21% of the business. Driven by the strength of its core basics product program, Hind remained a solid number two, followed by Brooks, Sugoi, adidas and Moving Comfort. Overall, total footwear sales with major vendors grew 20.2% while total apparel sales grew 11.6%. Combining footwear and apparel sales, Asics and Brooks have overtaken Nike, who now holds the number three spot, followed by Saucony/Hind, New Balance, adidas and Mizuno. STRATEGIC INITIATIVES Fleet Feet said it attributed much of the footwear gain to its focus on the Personal FIT Process for footwear. Fleet Feet noted that as the program expanded throughout 2004 - training 50 new and existing stores - the Process was further refined. For example, additional training resources were developed in order to reach out to more franchises via in-store clinics, training seminars and educational materials. Fleet Feet noted that the Personal Fit Process expands on the customer evaluation techniques used in Fleet Feet stores today. The Process enables Fleet Feet owners and staffers to recognize potential signs of instability in the feet through observation and measurements, and make the appropriate product recommendations. The Process is also a platform to become better educated on the structure and function of the foot and ankle as well as improve customers' experience while shopping with Fleet Feet. A residual, yet hugely beneficial result of this training is the ability to better communicate with the local medical community, increasing customer referrals. Formalizing the Personal FIT Process last year involved the creation of its own logo and advertising materials, a series of training programs for franchisees with vendor partner, Superfeet, and ongoing training sessions in stores and at conferences. Another initiative has been improving communication, especially as the number of franchisees grows. , Fleet Feet said it reorganized the functioning infrastructure of the company and added staff resources to focus on those initiatives that will have the greatest impact on the success of franchise owners. Fleet Feet noted that even new store development - a mainstay of many franchises' corporate efforts - evolved into a development process for all stores, whether just opened or in business for 10 years. The corporate staff also instituted a Franchise Satisfaction Survey that asked franchisees for detailed feedback on the performance of Fleet Feet, Inc. and to suggest ways the company could be more responsive. Said Fleet Feet in its report, “Although feedback can be hard to hear, the corporate staff wasted no time in isolating areas in need of improvement and putting a plan in place to address them. Communication between franchisees and corporate staff was identified as needing improvement, precipitating the creation of a monthly newsletter. The electronic newsletter complements the organization's ongoing communication resources such as electronic discussion groups, an expanded Franchise Advisory Council, and the interactive National Conference and Regional Conferences. It also provides a venue to highlight and share the franchisees' successful business practices, such as marketing and customer service programs.” As an extension of the communication initiative, Fleet Feet created a mechanism to gather information and report on key business issues facing franchisees. By collecting and synthesizing detailed information about franchisees' personnel practices and financial performance, for example, the corporate staff was able to provide valuable insight into and define best-practices around these key business issues. Finally, Fleet Feet noted that franchisees demonstrated a commitment to communication with customers in 2004. By year's end, 53 stores had active, information-packed websites, while 42 franchisees were sending newsletters to their customers on a regular basis. “Regular communication allows Fleet Feet stores to promote their community-specific efforts as well as inform and educate customers on the latest technologies and products,” Fleet Feet said in its report. “A customer loyalty program, called Personal Rewards (PR), spread like wildfire through Fleet Feet franchises in 2004. When a customer joins the PR Program, each transaction is recorded in his/her “account.” When the customer spends a certain amount of money in the store, he/she is awarded a gift certificate. It's simple for customers to participate, and easy for stores to administer. The benefits have exceeded initial expectations with increased overall per customer purchases and brand loyalty.” The following is Tom Raynor, chairman and CEOs, annual note to franchisees: As interesting as reflections on the past year are, of even greater interest to me is attempting to document the future. Working with known variables, you can optimize the outcome by making “best practices” decisions that are prioritized, starting with the most important. First and foremost is great leadership. Over the past three years, we've all benefited from the emergence of Jeff Phillips as the leader of Fleet Feet for the future. His promotion to president in 2004 is the result of his disciplined management style, absolute belief in people and the power of a positive attitude. I've known Jeff, both personally and professionally, for 20 years. In every undertaking, he's demonstrated enthusiasm, a hunger to learn and grow, and a fierce competitive fire burning inside. Our future will hinge on his leadership. Great leadership requires great people working together to accomplish a common goal. The staff at Fleet Feet, Inc. has continued to evolve and grow. We have more depth and breadth of knowledge and experience than ever. The “veterans,” combined with the new team members, comprise an outstanding platform on which to build our business. We'll aggressively pursue the addition of new staff members and the continuing development of the existing staff. In addition to the staff at Fleet Feet, Inc., we're unbelievably fortunate to have a tremendous group of franchisees, store associates and vendor partners. The running specialty business has been a wonderful environment to attract, foster and reward so many outstanding people. I'm proud to work in this business and look forward to our future. Leadership and a strong team of people don't make much difference without a tremendous opportunity and a clear vision for maximizing that opportunity. The focus we've brought to this business has positioned us for financial success, personal satisfaction and customer benefits. Running and walking will continue to provide exceptional rewards for our current customers and for all those people we'll reach in the future. Our opportunity is only limited by our vision, our energy and our belief. Leadership, people, opportunity, vision and commitment will take us to new heights in 2005 and beyond. The influence of Fleet Feet is expanding, along with our responsibilities to lead this industry. We've welcomed the challenge to redefine the interdependent, focused franchise organization and infuse ourselves into our local communities. Our brand management strategy is starting to move the needle on a different, more contemporary, sales, service and operational organization for both Fleet Feet and our vendor partners. Finally, to optimize Fleet Feet, we need to encourage and promote change, not for the sake of change alone, but for the new vistas change can bring to our organization. We'll think with clear minds, reflecting on past successes for a moment and energized by future challenges and unexpected successes. Our business embraces a wide range of people, personalities and talents. It celebrates individuality and rewards cooperation. In the future, we'll reflect on these days as bright and sunny, filled with the recollection of good friends and meaningful work. Enjoy every moment.