BOSTON — New Balance wants to reclaim the lead in running.
This past year, the firm has been making strides with several product launches — including the barefoot-inspired Minimus collection and the 890, a lightweight cushioning sneaker — in a bid to grab a bigger share of the market it once controlled.
But it has not been an easy road. When President and CEO Rob DeMartini first joined the company in 2007, Chairman Jim Davis said he wanted to achieve $3 billion in annual sales by 2012. But New Balance has since revised that goal, due in part to economic volatility and the recession. It now is aiming for $2.5 billion by 2013.
“Three years ago, our running product was not our best work. We had unintentionally lost focus on that market,” said DeMartini, the company’s president and CEO. “So we reorganized and we recruited new people to that organization who were, quite frankly, younger — and runners.”
The efforts are paying off. “We expect to grow by more than 15 percent this year and become a $2 billion company for the first time in our history by 2012,” DeMartini said.
Outside of running, DeMartini is optimistic about other channels, too. New Balance is seeking to fuel growth in its comfort portfolio through the new DryDock Footwear division, headed by Bob Infantino. In the lifestyle realm, the company debuted a collection of footwear and apparel with supermodel Heidi Klum this summer. And on the retail front, it unveiled a 4,000-sq.-ft. experience store, which opened in Manhattan’s Flatiron District earlier this month. The new advertising slogan — “Let’s Make Excellent Happen” — seems to reflect the firm’s upbeat feeling.
Doug Smiley, footwear buyer at Boston-based City Sports, hailed the new look of New Balance. “They knew they needed to change or evolve. They always had some smart people, but they brought in some new talent with fresh ideas — and they got a second wind,” Smiley said.
The brand really started taking off with City Sports consumers this spring, when New Balance delivered its first Minimus product and the 890 style.
“That really opened their eyes to New Balance being an aggressive brand,” Smiley said. “They’ve had a phenomenal, record-breaking year.”
Analyst Matt Powell from SportsOneSource said New Balance has the roadmap and the experience to meet its goals, but he cautioned it will take time. “If you go back in their history, in the mid-1990s, New Balance was the premium brand in the industry. They’ve done a good job of moving themselves back up the premium ladder, but they’re not where they were,” he said.
Sourcing challenges and prices are a huge issue for everyone right now. What’s your take?
RD: The escalating cost of raw materials and labor in all three major producing markets [is a big concern]. China is obviously the worst, but Vietnam had 20 percent inflation [in May] and Indonesia is also experiencing increased labor rates. That’s going to have an impact one way or another: Wages are going to change, or work is going to stop. But I don’t know of a shoe company that’s not talking about how consumer prices need to go up. And our retail partners have the real challenge because they have to present those prices to consumers.
Is it a problem for the retailers to sort out?
RD: We’ve got to make sure their businesses are strong and healthy. We’ve got to create exciting product, and they need to present it in exciting ways.
Overall, the athletic industry has been resilient despite economic uncertainty. What’s working?
RD: We’re very excited about minimalism, and our Minimus initiative is very strong. There’s a lot of product out there, but we’re confident that ours fits the foot uniquely well. And our Revlite product is 30 percent lighter than the competitor product that’s out there.
How much long-term opportunity is there in minimalism?
RD: The look is definitely what the consumer wants. She wants to be lower to the ground, to have more feel and she wants less bulk. Will it be a big segment? It’s too early to tell, but it could be. And I expect the less-is-more idea is going to go beyond minimalism. We’re looking at every shoe we make and saying, ‘Are we putting that part on there because it does something?’— and if it doesn’t, asking, ‘Do we need it?’
Beyond incorporating more minimalist looks into the line, what else are you doing to fuel running?
RD: We have always been overdeveloped with men and underdeveloped with women. We needed to bring more sense of style and sense of color into the line. It has just taken us a little bit longer than we’d like.
How focused are you on independent running stores?
RD: With our objective to be No. 1 in running, if we’re not winning there, we’re going to be kidding ourselves. [Three years ago], we were a solid sixth. Today, depending on what month you look at it, we’re either in the third position or, for a lot of stores, second. There’s no question there are a lot of good competitors, but we don’t believe anyone has a right to [the top spot] any more than we do. Still, we’re going to have to earn it. And we are still struggling in shoe chains and moderates because we’re not differentiating our product enough across the board.
How has your new advertising campaign been received?
RD: The first challenge of the new campaign was to find an idea that worked in running, but could also work in other categories. “Let’s Make Excellent Happen” does that, we think. It is driving our lifestyle business. It’s driving non-running sports in baseball and the Australian football team.
Baseball has been a bigger focus of late. Why are you putting so much effort there?
RD: We [chose] baseball for a couple of reasons. For one, speed matters. The concept we’re going after is running shoes [with] spikes. With the Americana positioning of baseball and the domestic manufacturing position of New Balance, we thought it was a great fit.
How is the lifestyle segment performing?
RD: From a pure volume standpoint, it’s far bigger than any other segments. And we still have a lot of upside. It also depends on the country. In Asia, our lifestyle business is extremely strong, and it’s retro running shoes that are leading that lifestyle effort. [In the U.S.], we’ve got a very good boutique business, but our mall business has not caught up with it. We want to see it grow organically. We don’t want to force it. When you force it, it’s too fleeting. It just doesn’t last.
How much potential do the DryDock brands have?
RD: Bob [Infantino]’s got a lot more experience than I do in footwear, and certainly in brown shoes. His reputation and his track record are the best out there. We’ve got both [of the brands] growing right now, so we’re handing him two healthy businesses. I have no doubt that he will be able to dramatically accelerate those brands.