Skechers Makes Strides in Running Shoe Industry
Thirty minutes later, in the town of Hopkinton, Massachusetts, the starting gun for the men’s division of the 118th Boston Marathon was fired. Meb Keflezighi, 38 years old and with a marathon PR of 2:09:08, took off.
In the two weeks that have followed, SKX and Meb have become darlings of Wall Street and Main Street.
Keflezighi went virtually from the gun in Hopkinton to a lead he would never relinquish. In the process he became the first American male to win Boston in 31 years while setting a new PR (2:08:37), both feats accomplished on legs that would soon turn 39 years old. In the subsequent days he was laughing it up on Live with Kelly and Michael, taking a congratulatory call from President Obama, and pumping up pasta-fueling marathoners in Fayetteville, Arkansas.
And, if you were an investor in Skechers, Keflezighi may have made you a little bit wealthier. He is the shoe company’s leading endorser of its nascent athletic performance line. At 4 p.m. on Marathon Day, four hours or so after Keflezighi’s 26.2-mile race, Skechers’ share price closed at $35.92, up 63 cents. Seemingly it has been climbing ever since. At the close of trading Tuesday, SKX stood at $40.42 a share.
The cause? Was it the Meb Effect? Was it irrational exuberance within a giddy running community?
More likely, the run-up after Keflezighi's run was pure coincidence. In fact, on April 22, the day after Boston, the $1.8-billion Manhattan Beach, California, company announced first-quarter earnings that were better than many financial analysts’ projections. Sales in the quarter rose 21% over the previous year’s first-quarter figures, and according to SportsOneSource, the company has overtaken New Balance as the fifth-leading sneaker seller in United States. But even wizened Wall Streeters don’t discount what Keflezighi’s win may have meant to the company’s bottom line.
Sam Poser, a managing director with the brokerage firm Sterne Agee who follows the shoe industry, called Keflezighi’s victory “icing on a very good cake.” And it can only help the company’s future earnings. “With Meb winning,” said Poser, who has a “buy” rating on the Skechers stock, “there are a lot of running stores that are probably taking a closer look” at Skechers’ performance shoe division.
It’s a division with its own story to tell.
Since its inception, 22-year-old Skechers has been known primarily for its fashion and lifestyle shoes, with celebrities such as Britney Spears and Joe Montana pitching the brand. But in 2011, the company made its first venture into the athletic performance market, introducing models aimed at runners, walkers and triathletes. It also signed Keflezighi as it top spokesperson. At the time, the 2004 Olympic silver-medalist in the marathon was an elite athlete facing an uncertain future. He was 36 and recently dropped by Nike as a shoe endorser.
Prospects for Skechers’ new minimalist-oriented shoes appeared murky as well. The company was trying to break into a running shoe market dominated by such entrenched players as Nike and Asics, to name a few. It had the image of a fashion-setter, not a sweat-abettor. And its much-maligned Shape-up shoe had recently rocked the company’s reputation. (A class-action lawsuit brought by consumers charged, according to the Federal Trade Commission, that Skechers made unfounded claims that the Shape-up “would help people lose weight and strengthen and tone their buttocks, legs and abdominal muscles.” In 2012, Skechers agreed to pay $40 million to settle the charges.)
As Rick Higgins, vice president of merchandising and marketing for the Skechers Performance Division, recalled, few specialty running shoe storeowners “wanted to talk to us. I think a lot of people in that community questioned our commitment to the category. I know that for a fact having multiple conversations with shop owners. And we 100 percent understood that. We said that we are going to prove to you that we are serious about this. We are going to build a great product. We are going to market it and we are going to support the running community.”
Kurt Stockbridge had spent 18 years at Nike before joining Skechers as its vice president of fitness technical development. He said the nay-saying he heard at the time of the launch of the company’s GOrun line, especially among running shoe bloggers, served more to motivate his staff than deflate it. “We recognize that there is a headwind,” Stockbridge put it. “When you hear that rejection, it is like, ‘I will show you. We do know how to make a good shoe.’”
Its guinea pig was Keflezighi. According to Stockbridge, just days after Keflezighi was signed to a shoe deal, he had the runner atop his office desk measuring his feet. The design team looked to Keflezighi for input. “We interviewed Meb for over an hour about every little thing about his shoe, from the laces to the fit to the lining to the hardness to the thickness,” said Stockbridge. “Every spec you could think of we asked him—and he told us.” Within eight weeks Keflezighi was running in pair of GOruns that would take him to a sixth-place finish at the 2011 New York City Marathon.
The performance division expanded its offerings over the succeeding years, but specialty running shoe retailers—the shoe sellers most in touch with the hard-core running community—remained wary even as the brand was beginning to get better PR.
For instance, Brian Shelton, owner of Foothills Running Co. in Cookeville, Tennessee, said by 2012 he was reading more positive reviews of Skechers running shoes. Still, with limited shelf space, he was not ready to allot real estate to a product that had not caught on with the wider running population. “In my market, which is not a huge urban market—we are an hour from Nashville—I just knew the perception of the brand would not be awesome even if the product felt viable,” said Shelton, who opened his store in 2011. “And it hadn’t been long since there was press coverage of the lawsuit of the Shape-up. I know it is a different product, but it’s still in some people’s mind. So, I just knew the brand image wasn’t where it needed to be yet.”
An antidote for a shaky image is a positive story, and that came about on April 21, Patriot’s Day in Boston. With the Boston Marathon gaining even more attention than in previous years due to the bombings in 2013, the eyes of the running community and the general public zeroed in on the race. In what turned out to be a fortuitous decision, Skechers placed multiple commercial spots on Universal Sports, the network carrying the race nationally. The ads featured Keflezighi and the brand’s latest shoe, the GOmeb Speed 3. Seemingly, each time Universal cut away from coverage of the Keflezighi-led race, viewers at home saw ads of Meb, running in his Skechers. “We tried to play up his equity in the race,” said Higgins.
Stockbridge, the technical development chief, was at mile 25 during the race. (He had sent Keflezighi his race-day shoes three weeks before Marathon Monday.) He watched as Keflezighi ran by, in the lead but with Wilson Chebet on his tail.
“I honestly did not expect Meb to win,” Stockbridge said. “I expected [Chebet] to catch him. He had just passed us and we were trying to watch the race results from the phone. The gal next to me said, ‘This really means a lot to you?’ I said, ‘Yeah, how can you tell?’ ‘Your hands are shaking like crazy.’ I looked down and they were. It meant lot to me knowing that I had a small part in enabling his success.”
Once Keflezighi closed out his win, Skechers’ marketers moved into action. Within an hour, Higgins said, the company had congratulatory messages up on its website. It pushed out Meb-centric tweets and Facebook posts. It was even gaining publicity without much direct input. A Washington Post headline the day after the race read, “Skechers Beats Nike in Boston Marathon.”
The company would stay in the news over the coming weeks. First, on May 2 it sent out a press release stating that the company “will explore acquiring an interest in the Los Angeles Clippers basketball team.” (Following the announcement the company stock price fell nearly five percent before recovering on the next trading day.) Then, in a move connected more to its performance division, Skechers announced Monday that it had signed another elite marathoner, Kara Goucher, to a shoe sponsorship.
First Keflezighi, now Goucher. Is Skechers building an elite team? “We are always looking to add to our roster,” Higgins said. “When opportunities present themselves, that is when we look at them. We are also constantly listening and talking to guys that Meb has close relationships with. And I see Kara helping us as well with her network of athletes.”
Poser, the financial analyst, said the Goucher signing is likely a positive move for the company, but does express caution: “[Skechers is] realizing they can probably build out the performance line over time. I just hope they take it easy, they don’t try to do it too aggressively and just try to put product into the market and sign a whole lot of people.”
Of course, the test to determine whether Skechers’ marketing—and Keflezighi’s victory—is paying off is if more runners are running in the company’s shoes. While not revealing the number of specialty retail stores carrying the brand, Higgins said, the roster has increased “exponentially” in the past 15 to 18 months. And, he adds, “the past week has helped that quite a bit.”
One owner still on the fence about Skechers is Shelton, though he admitted he is thinking more and more about adding the line to his shelves. “To maintain the image of the store and the appropriate amount of edginess,” Shelton said, “I feel it is important and beneficial for us to make more room for those-up-and-coming brands.”