Puma Sharpens Its Claws

Savvy marketing turns a sleepy shoemaker into a fashion icon

Meeeeeyow! Did you see that little black catsuit on Serena Williams? The faux leather outfit, part of an apparel line the top-seeded tennis star is promoting for Puma, set the Flushing Meadows grandstand abuzz when she wore it on the first night of the U.S. Open in late August. "It makes me run faster and jump higher," Williams told reporters after winning her match against Corina Morariu.

Well, that may be stretching things a bit. But Puma, a venerable German athletic-shoe maker that nearly collapsed in the 1990s, sure seems to be defying gravity. The brand with the leaping-cat logo is winning over fashion-conscious young shoppers with sports-inspired gear that sells for as much as $250 a pop. The company expects sales to rise more than 40% this year, to at least $845 million, with pretax profits up 70%, to more than $100 million. Puma's far-bigger rivals, Nike (NKE ), Adidas (ADDDY ), and Reebok International (RBK ), by contrast, are plodding along with single-digit growth. Puma's share price is soaring, too. "We are only beginning to capitalize on the full potential of this brand," says Puma's 39-year-old chief executive, Jochen Zeitz.

How did Puma get such a lift? To break free of sluggish 4% annual growth and narrow margins in the athletic-shoe business, Puma has reinvented itself as a purveyor of style as well as sports performance. It's teaming up with designer Jil Sander on a hot-selling $195 signature sneaker and with model Christy Turlington on a line of yoga apparel dubbed Nuala. The sexy Serena Williams line features midriff-baring tank tops and hot pants that can be worn on or off court. And Puma has cultivated a retro image with offerings such as a 1950s-style boot rollerskate updated via fluorescent wheels.

Puma is by no means the only sports-shoe maker trying to fatten its margins with a fashion infusion. In July, Adidas signed designer Yohji Yamamoto to launch an upscale apparel line. And Reebok is selling a limited-edition sneaker by British designer Paul Smith. But, says John G. Horan, editor of trade newsletter Sporting Goods Intelligence, "Puma was really the first one to position itself this way. They've taken some chances and have really connected with the consumer."

The wonder is that Puma survived at all. It was founded in 1948 when Adidas chief Adi Dassler quarreled with his brother Rudolf, who left the company to set up Puma. Until the 1970s, the two companies--which both maintain headquarters in the Bavarian town of Herzogenaurach--vied for global leadership in the athletic-footwear business. But Puma didn't update its products and was left in the dust by Adidas and Nike.

When Zeitz, a German-born former Procter & Gamble Co. marketing executive, took over in 1993, Puma had been losing money for five years. The then 30-year-old CEO slashed costs by shuttering inefficient factories and streamlining production. Once the red ink stopped flowing, Zeitz began pumping 70% of profits into marketing and product development. Puma placed ads in Vogue, cut off sales to discount retailers, and peddled the brand to trendy chains such as Urban Outfitters Inc. It also opened boutiques in major cities from New York to Hong Kong.

Puma also spun gold from its relatively small budget for celebrity endorsements. It put Williams under contract four years ago--long before she became a top-seeded player. Marketing executives liked the 16-year-old's flair for the unconventional, such as wearing bubblegum-pink tennis shoes and a diamond tiara on the court. "She is a great personality, but at the time, people couldn't understand what we were doing," Zeitz recalls.

The question now is whether Zeitz can keep the impressive results rolling in. The new emphasis on style carries risks: Fashion trends and hot celebrities can lose their sizzle fast. Remember L.A. Gear Inc.?It had a hot line of pseudo-athletic footwear but collapsed when the trendoids went elsewhere. Moreover, Puma still draws 60% of sales from Western Europe and needs to raise its profile in the all-important U.S. market. With $530 million in sales last year, less than 10% those of industry leader Nike, it could still get lost in the pack of also-rans. But, says analyst Peter-Thilo Hasler of HypoVereinsbank, Puma is wisely hedging its bets with a product mix ranging from athletic gear sold in traditional sports outlets to its dressier Platinum line of $250 leather shoes found in upscale shops such as Henri Bendel Ltd. And Zeitz says he's in no rush to expand. "Growth is easy," he says. "Growth based on the continued desirability of our brand--that's the challenge." With luck, Puma investors will keep purring for a while.

By Carol Matlack in Paris

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