K-Swiss Keeps Apace With Focus on Classic Marketing By CARLOS MARTINEZ Staff Reporter Out with the old and in with the new doesn’t apply to K-Swiss Inc. Its 36-year-old K-Swiss Classic athletic shoe is boosting the Westlake Village-based company’s bottom line today as much as ever. With its stock hovering near its yearly high and sales growing at a steady pace, K-Swiss is expected to reach record revenues this year, according to analysts who track the company. “They’ve been very smart in their marketing and focusing on their niche market instead of trying to compete with Nike and Adidas,” said David P. Campbell, an analyst for Davenport & Co. After seeing a drop in revenue in 2000 and 2001 due to the closings of a number of its sporting goods retailers which were suffering from a slump in overall sales, the company regrouped. It revamped its supply chain and signed new deals with new sporting goods retailers. The change helped bring the company from $237.4 million in total revenue in 2001 to $290.4 million in 2002 a record for the firm. Net income also improved, going from $23.3 million in 2001, to $28.7 million in 2002, while the per share earnings rose from $1.14 to $1.46. In its most recent quarter, ended Dec. 31, the company reported net income of $4.8 million ($0.25 per share) on revenue of $54.4 million, compared with $4.5 million ($0.24 per share) on revenue of $44.6 million. “The company was very smart in developing a strong core of sporting goods stores that carry its brand,” Campbell said. By staying away from discount chains and shoe stores that carry every major brand, K-Swiss was able to attract customers who are serious about athletic training and are willing to spend $60 to $120 for a pair of tennis shoes. Steven Nichols, K-Swiss chief executive, said his strategy has been to keep his brand away from brands that have mass market appeal. “We’re very protective of the brand and are mindful that it wouldn’t suit us to put our brand in places that carry every brand under the sun,” said Nichols, who acquired the company for $20 million in 1987 and took it public in 1990. So far, the strategy has worked. For all of 2002, the company shipped 11.3 million pairs of shoes, compared to 8.8 million pairs of shoes in 2001 a 28.1 percent increase. The Classic accounted for 70 percent of all sales and it figures to do the same in 2003, the company said. Altogether, the K-Swiss Classic’s sales jumped by 27 percent last year, selling nearly a million pairs the quarter ending Dec. 31. Not bad for an all-leather shoe that was the company’s only product for nearly 20 years. Simple but successful “They seem to be very successful in marketing a shoe that is very simple but that remains very up to date,” Campbell said of the company founded in 1966 by two Swiss skiers, brothers Art and Ernest Brunner. Much of K-Swiss’s success is due to its effective ad campaign last year that featured young people picked at random off the street who spoke about which clothes they like to wear with their K-Swiss athletic shoes. “It was a great campaign that really seemed to resonate with people and get the brand out there in people’s consciousness,” said Virginia Generaux, an analyst with Merrill Lynch. The campaign was featured on MTV, the WB Network and ESPN, along with other stations that cater specifically to a young demographic, but without the expensive athletes who hawk other athletic shoe brands, Nichols said. While other companies are having troubles with a finicky public that can quickly abandon expensive trendy shoes for low-end sneakers amid a tough economy, K-Swiss has managed to keep its market share and grow it, Campbell said. “I see them continuing to grow the rest of the year, if all things stay the same,” said Campbell, who is giving K-Swiss stock a $30 price target. Last week, the stock was trading near $25 a share. Its 52-week high of $27.75 was reached on Dec. 2 and a 52-week low of $16.80 was reached on July 24. The company’s fortunes also are expected to improve due to last year’s acquisitions of two independent shoe companies, National Geographic and Royal Elastic, which cater to young people and skateboard enthusiasts. “They’ve been very strategic in these acquisitions and are areas of potential growth,” Campbell said.
