The rumbling of the 1972 Porsche engine pierces the afternoon silence in the serene town of Goleta, Calif., a Santa Barbara suburb known for its beaches and bluffs. It’s early December and the car’s driver, Angel Martinez, is racing to show off the newly built headquarters that his company, Deckers Outdoor Corp., will occupy later this month.
The corporate campus, spanning an impressive 280,000 square feet, is a dramatic departure from the airport hangar the company has called home for more than a decade. The new digs feature all the popular perks: open meeting spaces, a cafeteria, gym and yoga studio, as well as basketball courts and jogging paths.
“It was important to move because we are completely out of space,” said Martinez. “We are scattered in several buildings here in Goleta. It became hard to maintain a culture when you’re not all in the same physical environment. Now it’ll be easier to communicate. You’ll see people at lunch, you’ll see them working out in the gym, you’ll see them walking around the building.”
For Martinez, who’s been running the company and refining its culture for the last nine years, the relocation is also about creating an environment that’s ripe for innovation — and much like his vintage Porsche, one that shakes up the market.
“You have to be disruptive. You have to have visual differentiation, you have to stand out from everyone else,” said the Deckers chairman, president and CEO. “Only after you do that successfully can you begin to get to the next level.”
In the last few quarters, Deckers has achieved that goal. After a punishing 2012 and early 2013 on Wall Street, the firm bounced back with a more balanced strategy, acquired a small running brand called Hoka One One and benefited from tough winter weather that has boosted sales for its Ugg Australia label.
Sterne Agee analyst Sam Poser predicted that Deckers’ strong sales in December and through January, combined with a focus on lean inventory levels, should lead to a solid performance in 2014. “Right now, their product has gotten better and the cold weather has helped them dramatically,” Poser said.
Here, Martinez discusses how the company got its mojo back.
Deckers experienced tough times in 2012 and the early part of last year. What were the keys to your turnaround?
AM: The weather cooperating has had a big impact. Back East, as soon as the weather turns quite chilly, that’s Ugg weather. That’s not the case here in California because all we need is cool evenings. And all year here we have cool evenings. So Ugg is a staple. But more important than that is the way we’ve approached design and merchandising. The product line has evolved to be far more than the original classic product. Ugg Pure, [the lower-priced transitional product], is one example. That lessened our dependence on the wild swings in sheepskin pricing that have occurred.
How hard have you been pushing company employees to innovate?
AM: I believe any problem in business can be overcome by innovation. It is one of the key Deckers values, and it has to be internalized. There is no Department of Innovation. You’ve got to create an environment so that ideas can be experimented with and tested. One of the [benefits] of going through the difficulties of the last few years — the economic debacle, sheepskin pricing, warm winters — is that it forces you to not take anything for granted. It forces you to innovate. If you’re just sitting there waiting for things to swing back in your direction, you could be waiting a long time. We became very aggressive about finding solutions to all the issues we had to confront. It changed the company.
When the stock price was getting hit, you were quite vocal about Wall Street’s treatment. What’s your take on the Street today?
AM: Any CEO who says they have a lot of friends on Wall Street doesn’t know what they are talking about. I understand Wall Street has their job and I have my job. My job is to prove them wrong. I think we’ve managed to do that. Our focus always was the brand, the brand, the brand, especially in regard to Ugg. For a lot of folks on Wall Street — and by that I mean the investment community, though I even hesitate to call them that, it’s more like a stock trading community — there was a lot of talk about whether Ugg had met its end. Throughout this entire time, our sales were growing. We set out to build on the one place we have lots of friends, which is the consumer population — the people who love our brand and our retailers.
How exactly did you do that?
AM: We started doing a better job merchandising the product line, creating more diversity of product, diversity of price points, higher-quality product. If we did that we’d become very difficult to compete with in the shoe business, not [just] the sheepskin boot business. Yes, that’s part of our business, but we are in the shoe business. Our shoes have to perform against everyone else’s best shoes, and we wanted to make sure we did that. We feel the sheepskin is a singular advantage, but you can’t rest on that. And I’m a very competitive person. I took it all as a competitive challenge.
Are you concerned that Ugg accounts for so much of your portfolio?
AM: It’s still 80-plus percent. But the goal is to drive growth from the other brands to give us another leg on the stool. The fact is that Ugg keeps growing. Our other brands are chasing it. Nike Inc., I’ll remind you, is about 85 percent Nike brand — maybe it’s 80 because Converse has done really well lately. But Nike [the company] continues to grow, and it’s $24 billion.
Last spring you acquired Hoka One One. What did it contribute to your portfolio?
AM: We wanted for a long time to have an athletic brand. We looked at acquiring other running brands … but a lot of athletic names lost their way because they started chasing things that were not authentic. Hoka is a running shoe brand. Those are its roots, in the same way Nike was a running shoe brand when it started. The future of Hoka will evolve beyond running.
Would you consider adding other brands?
AM: No. We are good right now. I’m not looking for a basketball brand or any of that stuff. Obviously, athletic dwarfs the rest of the shoe industry as a category, and in athletic, running is the largest category. So now we have something we did not have. And given the capacity we have for innovation and supply chain management, and the quality of our factories, we can make as good a running shoe as anybody in the world and we are demonstrating that. Runners are responding. I believe it is a breakthrough product. It’s a startup brand, but it won’t be small for long. It will be a $100 million brand within a short period of time.
Why are you so confident about Hoka’s prospects going forward?
AM: Look at the top five running shoe brands in the world. They are all over $1 billion. Our team knows running. I grew up in running. We are very authentic to the sport. It isn’t like I came to it as a business opportunity. I came to running as a runner, as a serious, competitive runner. My goal is to grow the sport, for Hoka to bring more people to the sport, not push them away.
Has the athletic category done that?
AM: One of my big problems with barefoot running, which was a disaster for the running industry, was that it pushed people away. It made running harder, not easier. People were wearing some minimalist thing, pounding their legs on the pavement and getting blisters. And then somebody needed to coach them on the right form because, with the barefoot shoes, you have to learn to run properly. Well, the last time I checked, any industry that wants to grow doesn’t want to create all these barriers to entry.
Where is the biggest opportunity for Deckers?
AM: The biggest area where we’ve been making investments is people, and in the last couple of years we’ve managed to attract some very high-level talent. That’s making a difference. Years ago, I said my goal was to be the No. 1 most-desired place to work in the Central Coast. We are considered a great place to work — and that’s out of this funky facility. It’s going to be a better place to work when we have the new building.
Where do you see the most potential in the global markets?
AM: For all our brands, it’s Asia. We have significant opportunity there. It’s growing nicely now, and we know it can accelerate. We’re investing appropriately in all our operating systems — and not just IT but warehousing and distribution centers. We’re making good headway there. Our Japanese business is doing very well. In China, [it can be a challenge] because there’s no wholesale market, which in the shoe industry makes things harder, not easier.
More generally, what is your take on the state of consumer spending?
AM: The economy has turned for the footwear industry. Footwear is one of those staples that people can’t seem to do without for very long. A new pair of shoes makes you feel better. A new pair of running shoes makes you run better. Footwear is a leading-edge indicator. When you see footwear starting to get healthy, that’s a good sign. And it’s way healthier than it was.
What trends are dominating?
AM: An interesting trend is that slippers are being worn outside. It’s like the winter flip-flop. You see it all over college campuses. We’re finally getting past the retro thing that was happening in footwear, especially in athletic. We are starting to get to a place where we are making inroads from a functionality point of view.
How healthy is the outdoor market?
AM: What happens to the outdoor industry is sometimes it’s afraid of change, afraid of color, afraid of materials and everything becomes too much the same. The palette isn’t exciting at times. From a marketing point of view, if you squint your eyes and look through any outdoor magazine, every ad looks and has the same story. As an industry, that’s not a compelling story.
Where is the greatest opportunity for the industry?
AM: With young consumers, because they want authentic product and they want functional product. They’d rather buy the real thing than a knockoff wannabe — product that has heritage. The outdoor industry has a great opportunity, but if you wait two or three seasons to introduce a hot colorway or don’t introduce a new material because it’s not outdoor enough or don’t introduce a wedge because somebody couldn’t hike Kilimanjaro in it, well, the average female consumer is not going to hike Kilimanjaro. And if she is, she’s not buying this shoe for that anyway. We as an industry need to do a better job of taking risks.
In recent years, Deckers has been aggressive in the counterfeit fight. Is that still ongoing?
AM: Yes, because people are violating intellectual properties. That’s a permanent part of doing business. Any hot brand is going to face it, no matter what. A lot of these counterfeiters are building product in factories we wouldn’t touch. They’re sourcing materials from places we’d never go. They are unethical. In many cases, organized crime is involved, child labor laws are being violated and on and on. That’s what the consuming public doesn’t really understand about counterfeiting. We have an obligation to shut that down. We’re very aggressive about that and we’ll continue to be.
What worries you most about the business?
AM: We have 3,000 employees now. That’s 3,000 families. That’s what I think about when I make a decision — how is it going to impact all those people? I’m proud of being in that situation. I hope I make good decisions. I hope I’m smart enough to understand I don’t have all the answers, and that I can at least go find out who does. That’s the thing you wake up in the morning thinking about. When the share price was being hammered, I wasn’t worried about the Wall Street folks. They are going to get paid anyway. I was worried about the people who are looking forward to growth in the share price so they can send their kids to college or buy a house or start a business of some kind, doing something else if they want. I didn’t want to let them down. That’s the obligation I have. When people say shareholders, the shareholders to me are our employees, our retailers and our consumers. Those are our shareholders as well. It isn’t just this elite group of people. What’s good for our consumers and our employees is typically good for our brands and good for our shareholders.