Milestone: Puma’s Kering Connection

Kering is using Puma as a pillar on which to build its sports and lifestyle business.

Todd Hymel, the division’s COO, said that based on that foundation, it will grow its portfolio of brands, which also include Volcom, Tretorn, Electric and Cobra.

“We’re clearly working on developing Puma, but at the same time, benefiting from its global footprint, its purchasing power and know-how to add [smaller brands to develop] the division and turn those into global brands as well,” Hymel said.

That strategy mirrors the one used by Kering’s luxury division, which grew out of its Gucci Group purchase in 1999, said the executive.

“Gucci was a brand that wasn’t at its full potential at the time of the acquisition, but we used that as a basis to build the brand itself, while putting other brands around it that together form the global footprint and luxury powerhouse that Kering is today. Based on the great success we’ve had, we’re [using] the same philosophy in our sports and lifestyle division,” Hymel said.

When Puma SE bought Cobra in 2010, it was to beef up Puma’s golf segment, which launched in 2005. Now called Cobra Puma Golf, the label is a bright spot in Puma’s accessories business, which grew 11.9 percent in the first quarter of 2013.

Puma also has helped Volcom — the Costa Mesa, Calif.-based skate and snowboard brand acquired in 2011 — to create a full-fledged footwear line, which launches next month.

“One of the great success stories of the Volcom acquisition is helping them with closed-toe footwear that Volcom never would have pursued alone,” Hymel explained. “Within four months of our closing the transaction, Puma had already worked with Volcom to design and prototype a shoe.”

But, he noted, Kering (formerly PPR) is not relying solely on acquisitions to build its sports and lifestyle portfolio, as 80 percent of its growth is expected to be organic.

“We’re constantly monitoring the market to see if opportunities arise to fit the portfolio, but they’re more ‘nice to have’ than ‘must have,’” Hymel said. “Our top priority is to continue to develop Puma and Volcom.”

Meanwhile, Electric, a premium sport and lifestyle accessories brand, and Swedish rubber bootmaker Tretorn are going through the brand-building phase, growing from small businesses to much larger players, he added.

But Puma’s financial performance has been a drag on Kering’s results in recent quarters. Analysts were disappointed by lower-than-expected sales in the first quarter of 2013, which they attribute to a lack of great product and an overinflated cost structure. And the brand lowered its full-year sales and profit guidance as recently as May. Meanwhile, Kering’s total revenue in the same period advanced 1 percent, driven by 4.5 percent growth in the luxury division.

“Kering’s restructuring strategy for Puma, focused on brand rejuvenation in performance footwear and cost reduction [has to be executed together with] continued cost and capital discipline, and reduced leverage to pursue further strategic acquisitions,” Citigroup analyst Thomas Chauvet wrote in a note.

Luca Solca, managing director of luxury goods at Exane BNP Paribas, agreed: “Puma has to reinforce its product lineup and product appeal. It has lagged competitors in this field [where] it was once setting the pace. It also has to find a clearer identity in performance. The fun, anti-establishment personality [it used to have] is more difficult to perceive today.”

Hymel acknowledged there is work to be done. The focus, he said, is on clarifying the brand message and going back to its heritage of being “edgier than the rest and pushing the envelope in terms of design.”

He added, “Don’t forget, Puma is a brand that had enormous growth over the last 15 years, [maybe to the point where it] never had an opportunity to create an infrastructure that was needed [to run smoothly]. So what we’re doing right now is focusing on ensuring the business has what it needs to simplify and uncomplicate things. That’s what we can really work on this year with the change of management.”

Hymel said that while he and Kering’s group managing director, Jean-François Palus, will be working closely with incoming CEO Björn Gulden, stewarding the brand toward faster growth and better profitability will be Gulden’s responsibility.

“We want our brand CEOs to feel they’re running the business, because that’s how they take charge of their brands,” he said. “At the end of the day, it’s about the management team’s control of the brand, and it’s our goal to challenge and push and encourage them. Sometimes we have to hold hands to go down a path together, and that’s our role.”

Jay Piccola, president and GM of Puma North America, noted he has been pleased with Kering’s increased interest and involvement with the label.

“In the past, I was oftentimes asked how much [our parent company] was involved in our business, and I would simply say, ‘I don’t really know that they exist,’” he said. “[Kering] clearly exists now. They’re very involved, and in a very positive way.

“They love this brand [because] it has tremendous growth opportunity, even from where we’re at today. So their involvement … and their encouragement of the proper investments [have] been very exciting.”

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