Action Plan

David Nichols spent the last week of August meeting with retailers that sell the athletic shoes made by K-Swiss Inc., the Westlake Village sports apparel company in a state of transition. Long known for its Classic, the white leather tennis shoe worn on courts worldwide for more than four decades, K-Swiss now offers running and training shoes to make up in sales what the tennis line can no longer bring in. This year the company brought out the Tubes and Blade lines and did so with some curious advertising choices. One campaign features comic actor Danny McBride in his role as pitcher Kenny Powers from an HBO series. Tubes advertising will also be found in movie theaters, on billboards, television, and social media websites, in-store displays, and the new DVD from fitness trainer Jillian Michaels. “We are kind of over-marketing right now to get the brand into a new place,” Nichols said. The company may have Swiss in the name but it’s the emphasis on the California roots and culture that are key to how K-Swiss repositions itself in the sports apparel market that had more than $280 billion in worldwide sales in 2008. The company wraps the new approach in the tagline “The California Sports Company” with Nichols further elaborating that K-Swiss wants to be known for the values of being progressive, creative and playful. But will profitable be part of that mix? Nichols admitted that 2010 would be an investment year by the company and only in 2011 will it start to become apparent if all the effort worked. Analysts who follow the company said that K-Swiss is already beginning to get some traction from the new product lines. In the second quarter, 38,000 pairs of Tubes Run 100 were sold to help the performance footwear category grow by 40 percent when compared to the second quarter in 2009. It is the performance category that will keep K-Swiss on its feet and remain competitive. Despite the popularity of the Classic that business has had diminishing sales. While other shoes the company designs and markets are for the running aficionado that market is very limited. So come Tubes, aimed at the mainstream shoppers wanting a comfortable pair of shoes but who may not necessarily want to run in them. Initially, the volume will start small with re-orders being a telling sign of public acceptance, said Jeff Van Sinderen, an analyst in the Los Angeles office of B. Riley & Associates. “If future orders start to turn around that is a key metric that suggests that maybe the business is bottoming out and it is going to turn around and grow from here within the new product category,” Van Sinderen said. Small slice A small percentage of the running shoe market is really all that K-Swiss wants. “We don’t have to beat Nike,” Nichols said. “We just have to get in the game.” If anything, K-Swiss has been aware of the necessity of re-making itself to move forward as a company. A strong distribution network and solid business practices served the company well during its early years but that in and of itself was not enough. So then the company progressed by making innovative products but that only went so far as well, Nichols said. But then the company hit the wall in terms of a brand strategy and a lack of attention on new product development did some harm as consumers looked elsewhere for footwear. “There are not a lot of people wearing basic white shoes,” said Chris Svezia, an analyst with Susquehanna Financial Group. The current repositioning has a noticeable youthful bent to it. Why else go with a spokesman like McBride, who appears alongside Will Ferrell in one Tubes spot available at the Funny or Die website. And why else would K-Swiss acquire FORM Athletics, a mixed martial arts and lifestyle apparel company. In conjunction with that purchase a new division was created called K-Swiss Orange County that will focus on action sports and youth culture. The challenge a youth customer base brings is in reaching them with advertising. Hitting the target It used to be, Nichols said, you could run a few ads on MTV and reach the kids you wanted but not anymore. Advertising needs to be more targeted and unique enough to break through the clutter, he said. Which is another reason K-Swiss teamed up with McBride, whose HBO series “Eastbound and Down” brought in a built-in audience. For some spots the actor was paired with NFL players and mixed martial arts fighter Urijah Faber who also have appeal with the target audience. “You have to tie in to the kids interests as well.” Nichols said. The short-term outlook for K-Swiss is not a bright one. The company posted a net loss in the second quarter and is expected to do so through the end of the year. Susquehanna’s Svezia projected the company needs between $290 million to $300 million in revenues to break even or see a profit for the year. Nichols knows that the repositioning plan will take several years and is optimistic about the steps the company has taken. As are the retailers he spent time with in August. “We have great relations with them,” Nichols said. “They are rooting for us to get the consumer’s attention and sell some shoes.”