BOSTON — When Robert DeMartini took over the CEO slot at New Balance last year, he did it with his eyes open.
“Anytime you make a jump, you need to do some due diligence,” he said. “But the opportunities I expected to find are here, and quite frankly, they’re more than I expected.”
DeMartini hasn’t wasted any time capitalizing on those opportunities. Since joining the company in April 2007, he has led an internal reorganization to help his selling teams focus on their markets and has rededicated the company to elite runners and the specialty running channel.
But DeMartini’s ambitious plan isn’t all about running. He also is expanding the company’s outdoor market share and working to become a major competitor in the newly reinvigorated cross-training category.
On the advertising front, New Balance has doubled its overall marketing budget for 2008. The cornerstone of the advertising effort is the Love/Hate campaign, launched to cement the firm’s relationship with its loyal customers, as well as attract newcomers. And in a radical departure from its former business strategy, New Balance plans to enter into an international partnership next month with a major retailer to sell women’s lifestyle looks.
The CEO is spearheading the new initiatives as he works toward an aggressive goal: doubling sales to $3 billion over the next five years.
Despite the pressures, DeMartini seemed relaxed and confident in New Balance’s corporate offices in Boston recently, when he spoke with Footwear News about new consumer opportunities, the tough economic market and the company’s big lifestyle push.
FN: You celebrated your one-year anniversary on April 30. Did the first year unfold the way you expected?
RD: We’re encouraged by the fact that we’re going to reach our year-one, top-line goal of 10 percent sales growth year-over-year and that we’ve got our business growing in a tough economic time. Could we do better? Absolutely. [But] the brand has got an incredibly loyal consumer base, and for the people who don’t use us, there’s nothing in the way [of reaching them].
FN: As you enter year two, how would you characterize your relationship with [Chairman and Vice Chairman] Jim and Anne Davis?
RD: Jim and Anne remain very involved at the strategic level. Obviously, anytime you step in and follow an industry icon, there’s concern: Is [Jim] ready to provide enough space? Am I ready to fill the space that he creates? From my perspective, the first year couldn’t have gone any better.
FN: The economic news of late — particularly in the athletic market — has been dismal. With so many negative factors affecting the economic picture, how are you coping?
RD: We’re trying to ensure that our product is strong enough to help our retailers deal with contracting consumer spending. There are some businesses at key price points that we’re trying to be very careful with so we don’t unintentionally damage our [retail] customers’ business, while also navigating our way through what everybody is facing, which is higher costs across the board. We’ve made some [price] adjustments, as well — they’re probably closer to 5 percent than 10 percent.
FN: Have you seen any resistance to the higher prices from your retailers?
RD: I wouldn’t call it resistance, but we’ve certainly encountered concern. They’re concerned about their businesses, and so are we. But we continue to think that great product and great branding is what’s going to win in great times and in tough times, so you don’t really change your play too much because of it. Luckily, people aren’t going to go barefoot.
FN: Rumors of an internal reorganization have been swirling about New Balance, and earlier this month you confirmed some of the changes, naming a GM and a strategic business unit manager for a new lifestyle division. What are you hoping to accomplish from the shakeup?
RD: We built an organization to do certain things — which they do very well — but [in some] areas, applying the same solutions won’t work. We have built a sales structure that deals with big-box, high volume. So we’re trying to build a capability in the specialty categories. There was some restructuring around key categories [running, kids’, sport/outdoor and lifestyle], and we put some leadership in place fully dedicated against those spaces. We started to restructure six months ago, and it will be evolving over the next two months, when we will clearly break out those investments.
FN: One of those changes made your fashion offering its own division by combining top-level New Balance product, the PF Flyers business and a soon-to-be announced international lifestyle partnership. [New Balance’s previous lifestyle effort, the NB Inside collection, originally scheduled to launch for fall, will not be moving forward.] Why this push now — and what do you hope to get out of it?
RD: To a great degree, the lifestyle business we have had was more driven by the consumer. If you look at college kids’ feet today, you see a little bit of a renaissance for New Balance, and we want to take that energy and develop it further. In the coming months, we’ll be making some more announcements about our lifestyle and fashion business and its leadership.
FN: Where do you anticipate these restructuring changes will bear fruit in the lifestyle arena?
RD: We’re aiming at the top 400 independent boutique retailers and trying to ensure that we’re bringing things that will help them grow. We would expect to see 20-plus percent of our business in that space by the end of 2009 — right now, it’s half that. We’ll be using those boutiques to advance the brand position and build their businesses, and then leverage that in lower tiers in the marketplace.
FN: Could these changes apply to other categories?
RD: We make a lot of recognized and impressive outdoor product, and you don’t see it at retail very often, yet we’ll have a number of running shoes with very little differentiation between them. We want to use our footprint — no pun intended — to show the brand at its widest view, so we can help our retailers draw in more consumers and more sales. We’ve got a number of award-winning [outdoor] products, but they’re not fully leveraged at retail.
FN: Meanwhile, you’ve also ramped up your focus on elite runners and the specialty running channel. Are you happy with your placement in that market?
RD: It’s a very crowded spot. We’re very happy with where we sit in the category, but at the same time, I hope we’re not underestimating our competition: They’re very, very good. And the addition of Under Armour [for fall ’09] is going to make it that much more challenging. It’s going to make the rest of us have to work a little bit harder. But we’re up 14 percent [for the 12-month period ended May 2008] and 24 percent [year-to-date], and we are doubling down on our investment in the channel. We’re also moving toward more consolidated representation in that channel. The idea of dedicated elite reps is something we’re looking at.
FN: Does the focus on the specialty business help offset some of the weakness of mall-based retail?
RD: We have fully felt the challenges [the mall-based athletic stores] face, but we see opportunities to grow our running business there, too. Sometimes you’ll hear generalizations that [running] is not the space the mall retailers are in, but they have a very legitimate and significant running business. Building our role there gives us a nice platform to further develop our business with each of them.
FN: You recently launched a huge new advertising effort called Love/Hate. Who are you targeting?
RD: The new campaign is younger, but it has a voice that doesn’t alienate our loyal consumer. That’s important. With some of the new entries in the market, mimicking them would not have sounded like a New Balance voice. I read [FN’s] article about Under Armour’s training shoe launch, and that’s not us. We had to find a voice that sounded like New Balance. This brand has incredible dimension and very little baggage, and it has phenomenal, best-in-class loyalty. At the same time, we have lower marks with non-users. They don’t consider the brand in their competitive set, and that’s what a lot of the campaign is about: reintroducing, if you will, the brand to non-users.
FN: Love/Hate puts a focus on training, and in fact, you’re launching a training model this October — the Downforce 840. Given that both Under Armour and Nike launched training product this year, are you optimistic there’s business to be done in crosstraining?
RD: Both of those competitors are very capable competitors, and they’re going to have legitimate, value-adding businesses. Are they going to reignite training by themselves? That would surprise me. But all three of us? I think the space will get stronger as you have three big athletic brands playing in the training space. And it has needed reinvigoration for some time, so [that pressure and that competition will] make us better.
FN: How has the consumer reacted?
RD: The market response we’ve seen is good. It’s obviously very tough to read it in the economic climate right now, but as we look at share in some key categories, we’re encouraged. Most important, we’re going to continue [our] investment level in this campaign this year and the next and beyond. You’ll see the campaign evolve, but it’ll stay based on the Love/Hate platform. In the second generation, you’ll see a more balanced view between emotion and product. We purposefully underplayed product in the coming-out party because the emotional connection, for us, was so new.
FN: What major international markets are you eyeing?
RD: We’ve highlighted seven countries [outside the U.S.] where we are increasing our investment: Brazil, China, Korea, Japan, France, the U.K. and Germany. And [total international business] should account for about 35 percent of our volume by 2012. [Today, international sales account for 29 percent of the business.]
FN: China is a hot market for every athletic company. What is your strategy there?
RD: In China, we’d been distributor-led for about 10 years, but this year we acquired our distributor and strengthened our management commitment and investment commitment in China. And we’re redoing our retail approach, looking to build 700 stores by 2012 — we have about 200 right now.
FN: Are more acquisitions part of your global plan?
RD: As it relates to reaching our five-year goal of $3 billion, there probably will be some modest acquisitions. But at this point, we’re first farming the opportunities from what we have.