Q&A With Timberland’s Jeff Swartz

NEW YORK — Jeffrey Swartz is tired of excuses.

After a tough couple of years for The Timberland Co., the CEO said the company’s missteps can only be attributed to one thing: ineffective leadership.

“I’m not interested in the conversation that says the weather wasn’t good, so Timberland didn’t do so well this quarter. And I’m not interested in the conversation that said fashion changed. That’s blaming it on an externality,” he said in a candid interview with Footwear News last month.

“My view is, every time we haven’t performed in the last five years, it’s because we — starting with me as the leader — didn’t do a good enough job of making clear visions, completing the strategy and connecting the execution.”

With that in mind, Swartz — who has been at the helm since 1998 and is the third person in his family to run the company ­— has spent the last several quarters refocusing the brand’s strategy, refreshing product and shaking up the executive ranks.

His efforts are beginning to pay off. Even though global footwear revenues fell 3 percent in the fourth quarter, and the Asian and North American markets continued to be challenged, the firm reported a 69 percent increase in profits and handily beat Wall Street estimates. (The company is expected to report first-quarter 2010 results next week.)

New product initiatives, including the high-end Timberland Boot Co. and Abington lines, have helped the firm build fashion cred and garner placement in important doors, including Saks Fifth Avenue and Colette in Paris. The reaction to Timberland’s fall ’10 outdoor lines has also been positive.

“Foot Locker looks to Timberland as an important vendor that is able to bring us great new ideas for the outdoor-oriented customer, as well as a strong base of the heritage product that customers know them for,” said Ken Hicks, CEO of Foot Locker Inc.

Delivering on-trend styles to retailers is a clear priority for Swartz, but he’s just as committed to advancing the firm’s sustainability mission. In addition to rolling out more green-oriented product, the company continues to lead the industry in sustainability-related causes. Next month, for example, Timberland will plant its millionth tree, in China.

Overall, Swartz said he’s encouraged by Timberland’s progress, but is not declaring the turnaround a success yet.

“We will not be satisfied until we’ve put several years into the rearview mirror where Timberland’s earning double-digit returns on sales and high double-digit returns on equity,” he said. “We’ve done it before. Some of it was fortune, some of it was good execution, but it always was good intentions, always was good values. Now we need to line those things up.”

FN: How would you rate your progress in turning around the business?
JS:
If we were doing C work, now we’re doing B+ work. We are inching our way toward the honor roll. There’s been a real focus in these last two or three years on short-term progress, to demonstrate progress to shareholders, to demonstrate progress to retailers. But there’s also a conviction that short-term fixes without making the right long-term choices is not a way to ride the cycle. I’m finished with that. I don’t want to do that anymore.

FN: How would you sum up your vision for the firm?
JS:
The vision is actually relatively simple: I want us to build a for-profit, publicly traded business enterprise that demonstrates that commerce and justice are not antithetical notions. In particular terms, I want us to be the No. 1 outdoor brand on earth and the most responsible company in our space.

FN: How has that vision changed over the past five years?
JS:
It hasn’t wildly changed, but our strategy is much sharper and our execution is therefore much better.

FN: What have been your biggest missteps?
JS:
Three years ago, I [looked at] Timberland Pro — an extension of the brand, created with an autonomous team that has had 11 years of extraordinary results — I thought, “Maybe the reason we’re not making enough progress in the outdoor business is because it’s part of the overall brand.” So I said to my colleagues, let’s leverage the insight of “small beats big,” that an autonomous group of people beats an interconnected group of people.

And we organized what are infamously known as the verticals: vertically integrated businesses that were aimed at segments of the Timberland consumer, with an outdoor business, a casual business and a youth business. We put three smart people in charge of those businesses and told them, “Act like the Pro team.” But these grownups — smart, serious people — instantly decided, instead, let’s have endless debates and power-point presentations. Let’s not talk to the customer, let’s not market to the consumer, let’s fight turf wars over our verticals. And that went on for close to two years. We are coming out from the end of that binge, that really nasty party. [And it took] a complete change in leadership of the company and a reintegration of the brand.

FN: So small doesn’t beat big after all?
JS:
The insight that small beats big is right, but we didn’t create a strategic framework within which to execute that. And we have little to show for that except a bruise. The consequences of a vision that’s not tied enough to strategy — and therefore not executed well — means pain for shareholders and pain for customers, but it also means pain for employees. There are things that we should have anticipated that we didn’t. I made it more confusing than it needed to be and I set good people up to work harder than they needed to. And we recognized that within six months of having made the shift.

FN: How did those internal issues impact the product?
JS:
We were not discriminating enough. [We had] lots of SKUs you would look at and say, “Were you sober? Where’s the No. 1 outdoor brand on earth in that shoe? Where’s the discipline, folks?”

FN: At the same time, fashion was shifting away from urban to more athletic styles. How did that hinder you?
JS:
Does fashion change? Yes. And are we accountable to know about it and respond to it? Absolutely yes. And did we do a good job? Absolutely no. But I can’t claim that as an excuse. We were having too much internal conversation and we weren’t investing in the area of strategic execution that we should’ve been. That kind of failure you get to do once in your career. I sure as heck want to earn my way back from that mistake.

FN: What steps did you take to set things right?
JS:
The first thing we did is have a wholesale, radical reinvention of our leadership team. The team that’s here now is not the team — with the exception of me — that was involved in those challenging days. And we went back to ask, “Is the vision still worth fighting for? And if the vision is still in place, let’s look at where the connection is between vision and strategy.” Our brand definition wasn’t strong enough, so we spent considerable time with consumers and customers on a global basis sharpening our brand definition.

FN: What did you learn about Timberland in those conversations?
JS:
The biggest lesson that came out of it for me was that we have a global brand, but a local consumer. More than 50 percent of our sales come from outside the U.S., so we tend to think about the European business [or the Asian business or the American business], but the feedback that’s loud and clear is, “I’m a U.K. consumer, but I live in Manchester, not Glasgow, and what I love about the brand is different in Manchester than it is in Glasgow.” They want Timberland to stand for one thing globally, and they want it to be on their terms locally. So one of the very sharp consequences of that was a real investment of money and thought aimed at regional merchants, people who stand between the product teams here in New Hampshire and the sales team worldwide.

FN: Did the economic downturn impact your turnaround plans?
JS:
Our focus didn’t shift. We were already making hard choices; we were deep in that cycle. Even though the world was coming down around us, we didn’t make the standard short-term compromise choices that have been made in the past.

FN: Sales in Europe, where revenues were up 17 percent in the fourth quarter, seem to have rallied more quickly than they have here. Why is that?
JS:
We didn’t have sufficient leadership in North America. We have a new leader, [Mark Bryden], in charge of the business as of August. He was the CEO of Smartwool and we promoted him to be the CEO of [Timberland] North America. And I am very confident that under his leadership we will see real improvement.

FN: On the product front, you’ve seen success with your upscale Timberland Boot Co. and Abington collections. What role do those play in your strategy?
JS:
Timberland Boot Co. is an elite collection that is aimed at expressing — in the most elegant and simple and clear ways — the elements of our product skill, the New England aesthetic and our environmental value and action. It’s the laboratory in which we take green to the highest level and we take handsome post-industrial to the highest level. Abington is a laboratory where we take green and youth to the highest level of sophistication.

Commercially, [they’re] not big businesses. The real value of those collections to us is the buzz they create and the design directions they promulgate. So if you look at the best-selling Earthkeeper shoes we have, every one of them is a Boot Co. design — every one of them. And if you look at the revitalization of classics, it [flows] from Abington to [the fall ’10 launch] of the Newmarket collection. The progression of design goes from the elite collections through to the broad [line], which to me is a big deal. And the design team says, “I get it, this is how we express our design values at the highest level. Now I know what shoes [are in the main line].”

FN: Another key initiative was Timberland Mountain Athletics, which launched in fall ’09 as a bright, athletic-looking outdoor collection. How has that been received?
JS:
TMA was supposed to be lighter, faster, further, sexier and green. And the guys at Dick’s Sporting Goods — who I think are really good merchants — said, “Yup, that’s what your brand needs to do. That’s the consumer we want to go after, so let’s assort these [bright] colors.” And we did, and the consumer came back and said, “That was really cool-looking, but way too fast for me. Do you have one in brown?” and we thought, “Brown?” And the consumer said, “Look, I don’t mind seeing the orange and the green, but I want to buy the brown.” But what I appreciate the most about the Dick’s view is, this is supposed to be a launch-and-learn [experience].

FN: Even in the company’s darker days, your green initiatives have been industry-leading. How interested are consumers in the sustainability movement?
JS:
I don’t have a great answer. We’ve banned bottled water, smoking has gone off the premises, but does the consumer want to have a conversation about that? [No], but the consumer actually does want a conversation about value and values. If the consumer says, “I’ll [only] talk to you about green on these two dimensions” — look, compared with 10 years ago, when they wouldn’t talk to you about either dimension, I’m actually really hopeful. I also believe it’s the job of the leader to be in front. So I can’t tell you about hemlines, but I can tell you about sustainability.

FN: If consumers are willing to talk about green now, what kind of role do they want you to play?
JS:
They said, “There are two things you can do about your brand that would actually get us excited and they are simple: We’re not sure about this climate debate, but your logo is a tree, and if you want to plant trees, no one is against trees.” So our business, in terms of environmental sustainability at the consumer level, is as simple as that. You know the line, “Would you like fries with that?” Well our line is, “Would you like a tree with that pair of shoes?” Next month in China, I will plant the millionth tree that Timberland planted in the last 10 years.

FN: How does that viewpoint play out on the product side?
JS:
The second thing consumers said was, “If you want to make your product less environmentally disastrous, as long as you don’t charge more for it, as long as you don’t make the thing look ugly — and it’s still green — those are things we value.”

FN: On the consumer level, you’ve also encouraged shoppers to send back their used Earthkeepers 2.0 boots to be recycled. How has that been received?
JS:
We haven’t gotten tons of them back, and we don’t think we will. We want the product to last forever. But I told our team to be really responsive to the first thousand pairs we get back because I bet 50 percent of them will come from skeptics who think, yeah, Timberland’s lying.

FN: Last year, Greenpeace released a report alleging that some leather sourced from Brazil originated on illegal cattle ranches in the Amazon rainforest that contribute to deforestation. Timberland, along with many of the other leading brands in footwear, was named. What was the fallout there?
JS:
We got 65,000 e-mails in two weeks that said, “Die, corporate scumball.” And every one of those 65,000 people got two responses. One was, “Thanks for writing, we’ll find out about this.” And then they got, “Let me tell you what we’ve done.”

Nobody in this industry had traceability in the supply chain. Nobody knew where the hides were coming from. But there was a range of responses. The standard, corporate, cautious

was, “We’ve stopped doing business with Brazilian tanneries,” and that’s what the majority of our competitors did. [Leather from Brazil] is a very small part of our leather. And it would’ve been cheap, simple and quick to say, “We’ll cut them off. We’re done.” But we didn’t say that. We actually sat down with Burton, [one of our suppliers named in the report], and we sat down with Greenpeace. And [Burton] changed their business strategy, period. We kept that business relationship, and we demonstrated the difference between rhetoric and reality with the Greenpeace guys. We dug in and we made a positive change.

FN: You’ve always made the case that corporate responsibility goes hand-in-glove with caring about your business. Do you still believe that?
JS:
Reputation is real, so human rights and the value chain are every CEO’s obligation. And I believe that, over time, when the consumer knows who those brands are [that don’t care], they’ll be as disgusted as I am. And until then, so be it. I have to sleep with myself.

FN: How will the sustainability movement evolve?
JS:
Today, it’s about compliance: Don’t include materials from a restricted substance list, don’t violate human rights, don’t burn down buildings. It’s more about don’t do the wrong thing. But there is an emerging trend that says maybe we can actually be doing the right thing, and I think 10 years from now, it’ll be very different. People will take compliance for granted. The consumer presumption is actually turning to be “It’s not good enough to not do the wrong thing; what are you doing to do the right thing?”

FN: How will Timberland, specifically, play a role in that?
JS:
We have — [I actually just] saw it yesterday — a compostable shoe. We’re ready, technically, to make that, and we’ll probably put that in some of our retail stores just to make sure that the activist consumer sees that we’re trying. But that’s not a Nordstrom conversation just yet, that’s not a Macy’s conversation. But it will be.

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