Outpace Nike and Adidas? Maybe not, but the world's fourth-largest sportswear brand wants to stretch beyond its rep for performance shoes
Quick, name the four largest sportswear brands in the world. Nike (NKE), Adidas and Puma immediately spring to mind. But the fourth-ranked brand is likely to be a bit of a head-scratcher for most: Asics.
The Japanese brand has nowhere near the cachet cultivated by its gargantuan rivals. And why would it? The $2.1 billion company is about a tenth the size of Nike. Asics's annual revenues are roughly equivalent to what Nike spends on advertising and sponsorships, which makes Asics's own ad budget of around $150 million seem miniscule. Small wonder you will probably never see big-name stars such as David Beckham or LeBron James donning Asics gear.
And yet there is one sport where Asics is miles ahead of its bigger rivals: running. "Asics are worn by serious runners," says Marshal Cohen, an analyst at Port Washington (N.Y.) market research firm NPD. The preference for Asics shoes—which are technically designed for specific types of running—over other brands holds true for Olympic stars, such as Italian marathoner Stefano Baldini and Swedish high-jumper Stefan Holm, as well as for amateurs. The company's own surveys in 2006 and 2007 showed more than half the runners in the New York City Marathon who crossed the finish line did so in Asics shoes.
Unfortunate Timing for New Chief
Brand loyalty and the popularity of running partly explain why the company's revenues are up 50% and operating earnings have doubled in the past five years. Still, the strong numbers were no shield against angry investors who sent Asics shares into their biggest one-day decline after executives on Feb. 8 blamed unfavorable foreign currency swings and higher ad spending for disappointing third-quarter profits and lower full-year earnings forecasts. Shares lost 15%, wiping out more than $374 million of the company's value, with losses continuing for several days before prices rebounded slightly. The company now predicts net profits will rise 5%, to $135 million yen on double-digit sales gains in the fiscal year through March, instead of its earlier projection of $140 million profit.
For Motoi Oyama, the timing was unfortunate. On the same day the company revised forecasts it named Oyama as its new chief executive. He will take over in April. But a week later Oyama, a trim, silver-haired, 57-year-old, betrayed no sign the stock sell-off had shaken him. He seemed relaxed as he mixed with staff and visitors at a running convention a few days before the Feb. 17 Tokyo Marathon where Asics set up a temporary shop.
Despite the backdrop of marathon paraphernalia, Oyama's mind was on topics other than running. Yes, Asics has benefited as more people have taken up running to stay fit, and running shoes tend to sell for higher prices than ordinary sneakers, Oyama said. But he wants the brand to be known as more than a running outfitter. Asics can learn from Nike, Adidas, Reebok, and Puma—their T-shirts, bags, warm-ups, and hats are a powerful tool for spreading brand awareness. There's one thing Oyama wants to do first, though: change Asics' image. "Asics isn't cool. It's not hip," he said, in an interview. "We need to work on that."
Fashion Is the Key Driver
Asics' business already extends well beyond running. Snowboarders and wrestlers, volleyball and basketball players sport the brand's logo of interlocking stripes, also featured on the company's Onitsuka Tiger line of retro streetwear and shoes. But nearly all of Asics' overseas sales come from running shoes.
Lately, running shoes, which once dominated footwear sales globally, have been losing out to fashionable sneakers, known in industry-speak as low-performance shoes. In the U.S., for instance, less than a quarter of people who buy running shoes will actually train in them, according to NPD. They want comfort but not at the expense of looking nerdy, which is why fashion is now the key driver in the U.S. market for athletic footwear. Last year the U.S. market grew by 2.6% to $19.8 billion, but sales of running shoes flatlined at around $4.7 billion, NPD estimates. That's a concern for Asics, which sells more than $400 million-worth of merchandise, accounting for a fifth of total revenues, in the U.S.
A New Executive for Design
To demonstrate what's in Asics' future Oyama props one of his black dress shoes on the table and points to the sole. There's a tiny window there meant to show it's a direct descendant of Asics running-shoe technology, which the company hopes to replicate in other areas—such as walking shoes—targeting baby boomers. "We haven't expanded in this category in the U.S. or Europe, so there's potential for us to go into this casual sportswear category," he said.
Improving design is one of Oyama's pet projects. In the next year he hopes to create a design center at the headquarters in Kobe and hire a world-class designer who can give Asics products a hip makeover. No executive currently oversees design, he said.
Analysts have high expectations for Oyama. He is widely credited with diversifying Asics' European business in non-running sportswear before returning to Japan in 2005. Macquarie Securities' analyst Duane Sandberg figures brisk sales of running shoes and other footwear should lift the company's net profit 21.4% to $172 million next fiscal year through March, 2009, on an 18.5% gain in revenues to $2.5 billion.
Collision Course With Big-Name Brands
Even so, Oyama acknowledges, there are pitfalls. He cites New Balance as an example of a running-shoe company that got temporarily sidetracked by focusing on casual sneakers. A bigger challenge will be creating buzz. Asics tried to do that in the 1990s by signing up star athletes, but it lost many to a bidding battle with Nike, Adidas, and others.
A better strategy, said Oyama, is to open more directly-managed shops (now numbering 70) under specific themes, such as Asics walking stores or Onitsuka Tiger boutiques. Feedback from those shops in Tokyo, London, and Paris, might even spawn new product ideas. "I don't think we should try to compete with Nike," he said. Maybe not. But eventually Asics' transformation from technical athletic wear to fashionable sportswear could put it on a collision course with the big-name brands.