Just Do It YourselfBy Larry Barrett | Posted 2003-11-01 Email Print
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New Balance had nearly faded into irrelevance six years ago. Then, accurately forecasting demand for its shoes became a sport for the entire company and its retailing partners. Now it's making up ground quickly, in its footrace with Nike.Just Do It Yourself
That's driving Nike executives crazy.
"Nike is a manufacturer, but really it's just a marketing company," says Wells Fargo's Shanley. "New Balance is a pure manufacturing company and, in my opinion, that's why they're gaining on Nike. They understand how to use technology to gain an advantage on their competitors."
Retailers say Nike has been on top for so long that it no longer feels the need to be responsive to its customers' demands. In fact, Nike operates much like the playground bully.
"Nike tells its retailers what shoes they're going to getin what styles and sizes and colorsand retailers just have to accept it," says one athletic-shoe industry analyst based in California. "New Balance works with the retailers and calls them partners. Nike never refers to anyone as a partner. They determine what the retailers are going to get and if they don't like it, what are they going to do?"
Where "Just Do It" is Nike's tagline, New Balance's philosophy might be described as "Just do it yourself."
Take Holland, as an example. She didn't start out as a champion of new methods of gathering, presenting and acting on statistics. But she doesn't shy away from doing whatever it takes to get an answer. At her previous job, for a consulting firm that designs compensation packages for overseas employees of multinational corporations, she traveled the world "comparing the cost of Skippy peanut butter in Boston versus Bangkok," she says. Only with precise local data could she calculate the appropriate cost-of-living adjustments for each country.
Holland joined New Balance partly so she wouldn't have to travel so much. But she also bought into the take-charge culture, which she felt chairman and chief executive officer Jim Davis had created. For example, a single product manager and two assistants now "take charge" of more than 200 different styles of cross-training, tennis and basketball shoes.
It's that kind of focus that has helped New Balance surpass Reebok and Adidas to stand second only to Nike in the sale of running shoes. For all types of athletic shoes, New Balance ranks third, behind Nike and Reebok.
New Balance's core customersserious runners and middle-aged weekend warriorsaren't swayed by superstar endorsements and fancy advertising campaigns.
Moreover, because it had started talking to its retailers, New Balance discovered that the sweet spot of sales had shifted from the $120-to-$160 basketball shoes that Nike dominated to less-expensive, multi-purpose shoes that cost between $60 and $90 a pair. So it flooded the market with styles of all widths in that price range.
New Balance also shows more responsiveness to retailers' own timetables. Nike requires retailers to take ownership of shoes after they are shipped to its distribution center in Memphis. New Balance allows retailers to take possession in the Far East, where most shoes are made. That allows retailers to cut transportation costsand get shoes into their stores faster. This is no small consideration for back-to-school and holiday shopping seasons, when shoe retailers make most of their profits.
"Nike wants to control everything," Shanley sayseven how its best customers sell its product in their stores. "That's just the way they do things. It's not a collaborative process with Nike."
Nothing illustrates this disconnect more than Nike's ongoing tiff with Foot Locker. In late 2002, Foot Locker, recognizing customers weren't as willing to pay for high-priced sneakers as they had been in years past, began reducing the shelf space for Nike's high-end shoes in favor of lower-priced shoes from New Balance, K-Swiss and Adidas.
Instead of providing more shoes in this new sweet spot, Nike's response was punitive. The company stopped supplying Foot Locker with its most-popular shoes, including the Jordan IX model.
"That sums up the difference," Shanley says. "We're talking about Nike's biggest retailer here. New Balance does everything they can ... to get retailers what they need. Nike tells retailers what they're going to get."