Sprint for Market Share : New Owners Double Sales, Aim for Further Growth at Pacoima-Based K-Swiss
K-Swiss isn’t exactly L.A. Gear. Pacoima Gear, maybe.
From an industrial park on Montague Street on the east end of Pacoima, the sneaker manufacturer is trying to emerge from a pack of some two dozen also-rans in the sports shoe business to challenge the industry’s giants--Reebok, Nike and the hottest and flashiest sneaker company, L.A. Gear.
In recent years, success in sneakers has come by selling thousands of styles of brightly colored shoes promoted with big advertising budgets and endorsements from sports superstars. In addition, the companies with the biggest growth have sold themselves as the shoe to wear for fashion or for one kind of exercise, such as jogging, aerobics or playground basketball.
For nearly 20 years, K-Swiss made one basic shoe. It was popular among tennis buffs, but virtually unknown to most people. That’s the way its founders, Swiss-born brothers Arthur and Ernest Bruner, wanted it.
“The company never changed and never varied. It opened at 8 in the morning and closed at 4:30 in the afternoon no matter what,” said Preston Davis, K-Swiss vice president of marketing.
Two years ago, K-Swiss was bought for more than $20 million by a group led by shoe industry veteran Steven Nichols, backed financially by John Hancock, the giant insurance company, and the Bank of New England.
At the time K-Swiss was sold, sales had leveled at about $20 million a year. In the two years since Nichols took over as president, sales have more than doubled to $45 million. Instead of one basic shoe, K-Swiss has five styles with about 150 variations, mostly in color.
Sold Nationwide
The company is the 16th largest in the nation’s $4.2 billion-a-year sports shoe business, according to the newsletter Sporting Goods Management News in Yardley, Pa. K-Swiss, for years a shoe that was primarily sold in the West, is now sold nationally in such chains as Foot Locker and The Athlete’s Foot.
“They are really doing quite well and are perceived by many people as one of the real ones to watch in the industry,” said Dick Silverman, editor of Footwear News, the industry’s main trade publication.
Lately, K-Swiss has been getting the kind of sales push it has never received before. A $1-million advertising campaign, small by industry standards but big for K-Swiss, is under way, including full-page ads in such major circulation magazines as Sports Illustrated.
The company also is trying to attract attention through low-budget, and sometimes offbeat, celebrity endorsements.
Signing up celebrity athletes is standard operating practice for the big sports shoe companies. But K-Swiss can’t afford the millions of dollars asked by athletes with the status of basketball superstar Michael Jordan, who works for Nike; Los Angeles Lakers star Magic Johnson, who runs up the court in Converse sneakers, or tennis wonder Steffi Graf, who wears Adidas shoes on her feet and the company’s logo everywhere else.
K-Swiss has in its celebrity stable Los Angeles Lakers rookie David Rivers, who wears the company’s shoes while averaging less than 10 minutes playing time a game as Magic Johnson’s backup at point guard. Another K-Swiss celebrity is Bud Collins, a bald, middle-aged tennis writer for the Boston Globe and a television commentator who was once voted the game’s worst announcer in a poll of fans conducted by a tennis magazine.
Davis said that most celebrity endorsements of shoes are ineffective. Most people, he argues, don’t know what shoes the top athletes wear, except for superstars such as Jordan. As a result, he said, K-Swiss is trying to be different by using people such as Collins.
“It’s a little bit of what we call guerrilla warfare. It makes you stop and think,” he said.
Uses Swiss Names
K-Swiss does things differently, not the least of which is giving its shoes, which retail for $30 to $75 a pair, names that come from places in Switzerland, even though the company has as much in common with that nation as Pacoima does. A shoe for tennis is the “Gstaad.” One for basketball is named for a Swiss mountain, the “Bristen,” not the most intimidating, in-your-face name on the playground these days.
Although K-Swiss has grown rapidly in the past two years, being No. 16 in the sneaker business doesn’t carry much cachet. It’s about as impressive as being the fourth largest auto maker with headquarters in the United States. In autos, there’s the Big Three--General Motors, Ford and Chrysler--and not much else. In sneakers, it’s the Big Two.
“It’s Nike, Reebok and the 20 dwarfs,” said John Horan, publisher of Sporting Goods Management News.
Last year, Reebok’s sales were $1.8 billion, with Nike’s at $1.2 billion for the fiscal year ended May 31. Reebok’s share of the U.S. athletic footwear market was 27%, with Nike’s at 23%, according to Sporting Goods Management News. A long way back is the rest of the pack, led by Converse, with about 6% of the market, and L.A. Gear, with about 5%.
A longer way back is K-Swiss. Even with its strong recent showing, it holds a mere 1.1% of the sports shoe market.
Still, the company hopes to join the ranks of the fast-growing challengers to Nike and Reebok, notably L.A. Gear and British Knights, a popular shoe among inner city youths.
Stresses Simplicity
Nichols plans get there by keeping it simple. No need to make thousands of styles and colors, which often leaves stores stuck with shoes they can’t sell. K-Swiss uses simple styles that are made using only three pieces of leather per shoe so there are fewer seams.
“We come out with one model a season. We don’t have to do it with fluff,” Nichols said.
Horan, the newsletter publisher, sees simplicity as one of K-Swiss’ strengths. Consumers are being bombarded by ads for high-tech shoes with high prices that use various air cushions or, as a Reebok ad claims, “energy return” during exercise.
“After a while, consumers and retailers start to glaze over it. You’re not selling the space shuttle here. It’s just sneakers,” Horan said.
Nichols’ simple approach says something about his personal style. He’s not a fashion expert or flamboyant marketing whiz, but a veteran shoe dog who started in the business working in his grandfather’s store in Brooklyn and ultimately operated his own chain of children’s shoe stores.
Nichols, 45, was lured away from his stores by Stride Rite, a children’s shoe maker based in Cambridge, Mass. He left when he bought K-Swiss from the Bruners, who founded the company in 1968 to import Swiss-made sporting goods and started manufacturing shoes in 1972.
At K-Swiss, Nichols is borrowing some of the same approaches to manufacturing that companies such as Reebok, Nike and L.A. Gear have used successfully. One is to have a distinctive logo on its shoe that also serves as a trademark. Reebok has a Union Jack, while Nike has a swirl that looks like a comet. For K-Swiss, the look is five stripes (as opposed to three for European giant Adidas) and a red, white and blue shield.
Uses Foreign Plants
Another important move Nichols has made is to hook up with low-cost shoe manufacturers in Asia that can make the shoes quickly using leather from Argentina. The company makes some of its shoes in Pacoima, but that is quickly changing.
As big as they are, Reebok and Nike don’t own factories. They are essentially marketing companies that design shoes made under contract by manufacturers in Korea, Taiwan and other Far East countries.
Companies such as Reebok and Nike don’t cut and dye leather and don’t have a huge manufacturing force to support. They can act quickly because their decisions about dropping or creating a new shoe do not have to be made based on how best to use aging factories.
So what do they have?
“They have a telephone,” Nichols said. “And on the other end is Korea or Taiwan.”
Nichols’ most recent introductions have been a children’s line, boating shoes and a line of clothes. The company is putting a lot of effort toward selling teen-agers on its shoes, particularly at youth tennis tournaments.
Horan said that K-Swiss is close to breaking away from the also-rans and joining the second-tier of companies under Nike and Reebok. But to become a huge seller, he said, it will have to do a couple of things.
Needs Partner
One, he said, is to hook up with a company with deep pockets that can act fast. Nike had a Japanese trading company that backed it, while Reebok had a British firm. He said the market moves too fast for banks and other conservative lenders.
Another thing K-Swiss needs, he said, is to find the kind of identity that made the other major companies in the sneakers business so successful. Nike was the shoe for joggers, Reebok rode the aerobics craze and L.A. Gear built itself by selling fashionable shoes worn with jeans and other casual clothing.
If K-Swiss can find that sort of identity, he said, the company may soon be among the top sports shoe companies in the nation.
Davis said the company will continue to push simplicity. He believes that retailers are growing tired of having to pick from among thousands of styles and colors.
“They have to guess every six months what is going to be hot and what is not. If they miss, they will have a lot of shoes that will have to be marked down. We believe in keeping everything as simple as possible,” he said.
