In a winning streak worthy of the French Open, sneaker maker K-Swiss has seen its sales and earnings double in the past two years, to $53 million on sales of $439 million. Driving that performance has been a trend toward retro styling, in sneakers as in just about everything.
The company's 38-year-old K-Swiss "Classic" shoe is still its top seller. But K-Swiss (KSWS) has capitalized on popular trends with shrewd marketing, which has helped it land at No. 15 on the latest BusinessWeek Hot Growth list. However, on Apr. 28, it announced that new orders from retail giant Foot Locker (FL) would be down more than 30% this year, prompting K-Swiss to reduce its estimates for the year.
BusinessWeek Los Angeles Correspondent Chris Palmeri recently spoke to K-Swiss Chairman and President Steven Nichols about the company's background, the Foot Locker issue, and the challenges of going toe-to-toe with a bigfoot like Nike (NKE). Edited excerpts from the conversation follow:
Q: What's the history of K-Swiss?
A: It was founded in 1966 by two Swiss skiers. There were dramatic changes in ski equipment going on at the time. The brothers were also tennis pros, and they figured they could upgrade the tennis shoes of the day.
In 1966, the people who played Wimbledon wore canvas shoes that cost $7.98. [The brothers] introduced a leather shoe at the unheard of price of $20. It was made with shock-absorbing materials. This didn't look like any other shoe. They advertised it as the world's best tennis shoe.
Q: How did you become involved?
A: I came across the company when I was president of children's shoes at Stride Rite (SRR). We owned Keds and Sperry Topsider. I tried to convince our chairman to buy [K-Swiss]. He said it didn't fit. So I bought it myself for $20 million, raising venture money from John Hancock, the Bank of New England, and others.
The first three years were hell. We had to pack shoes on Saturday so we could bill shoes on Monday and borrow against our accounts receivable. But after three years, we went public and got rid most of the debt.
Q: What did you do to increase sales?
A: I stopped advertising [our product] as the No. 1 tennis shoe, because it wasn't. I positioned it as lifestyle shoe, because it had a preppy, upscale, country-club look to it. We positioned it as an aspirational brand. It was selling for $39 then. Now it sells for $60.
Q: You've changed your marketing since then?
A: Nine years ago, I brought in a professional marketing team. These are people who came from Harvard Business School and Procter & Gamble (PG). They focused on the 14- to 24-year-olds, the one-seventh of the population that buys 50% of the sneakers. It's very efficient to advertise and design against this group.
Q: Foot Locker and Nike have patched up a dispute they had, and that means Foot Locker is buying fewer shoes from other brands like K-Swiss.
A: Future orders for all of our customers, excluding Foot Locker, were ahead 32%. With Foot Locker, they were down 35%. We'll still have our best year ever.
Q: Where's the growth coming from?
A: Europe is growing faster than the U.S. -- Asia even faster. We have other shoes. We have the Ramli, which has splash of color across the bottom, and the Gorzell, which is a lightweight, jogging-style shoe with colored stripes. We introduced both at the end of last year.
Q: How do you compete against a giant like Nike?
A: Nike is a $10.4 billion company. We're 0.4% of their size. What they pay each one of their marquee athletes exceeds our annual advertising [budget] of $30 million. We have a very different assignment and opportunity.
Q: Aren't you worried that the retro look may be falling out of favor?
A: Retro means that they went away and got brought back. This shoe never went away.