K-Swiss, Inc.

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K-Swiss, Inc.

31248 Oak Crest Drive
Westlake Village, California 91361
U.S.A.
Telephone: (818) 706-5100
Fax: (818) 706-5390
Web site: http://www.kswiss.com

Public Company
Incorporated: 1966
Employees: 283
Sales: $285.5 million (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: KSWS
NAIC: 316219 Other Footwear Manufacturing

Founded in 1966, K-Swiss, Inc. is one of the fastest-growing athletic shoe companies in the footwear industry. Unlike its competitors, which include the retail giants Nike and Reebok, much of K-Swiss’s success is due not to keeping up with constantly changing styles and trends but instead to the company’s reliance on a single distinctive design in a type of shoe the company calls “the Classic.” K-Swiss appeals directly to upscale consumers, and for the first two decades of its existence did not even advertise, preferring instead to gain its reputation through word of mouth. In the past few years, K-Swiss had changed its focus from the exclusive production of tennis shoes to a broader range of performance shoes, including footwear for technical climbing and aerobics. K-Swiss has about 3,000 retail accounts nationwide, including Footlocker and Nordstrom, as well as a large consumer base in Japan and Europe.

K-Swiss’s Beginnings: 1966-86

K-Swiss was founded by two Swiss brothers, Art and Earnest Brunner, who moved to California in 1966 and promptly started their business venture. The Brunners were both avid skiers and tennis players, and together the two decided to design a shoe that would respond to and support the specific needs of the tennis player. The Brunners focused particularly on cushioning for the soles of the feet, as well as the construction of a firm upper that wouldn’t easily give way to the pressure of forceful lateral movement.

Calling their shoe “the Classic,” the Brunners introduced their design at Wimbledon in 1966 to instant success. The shoe’s design was intended for intense use, but its appearance was pointedly austere: three sturdy leather pieces constituted the shoe’s upper, which was held in place by five narrow leather strips. The shoe’s sole was a thin but strong strip of lightly treaded rubber, which allowed it to be light and relatively frictionless. Outside of a small Swiss flag on the heel of the shoe, K-Swiss’s design was entirely white in color, and thus gave the shoe a timeless, preppy appearance.

Tennis players and upscale consumers took to the shoe immediately, and soon K-Swiss was enjoying a small but growing popularity in the United States. Because K-Swiss was located in California, the company’s products were particularly visible along the West Coast, an area that attracted a great number of Japanese residents and tourists. In the 1970s, K-Swiss’s shoes began to gain an almost cult-like status in Japan, and during the course of that decade the company opened up dozens of accounts in that country. As the company’s U.S. market grew, it began to have its shoes produced in Southeast Asia, where labor costs were low, thus making K-Swiss products even more readily available to Asian markets.

Much of K-Swiss’s success was paradoxically based on what the company did not do: it didn’t advertise on radio, in magazines, or on television; it didn’t put out new styles of shoes every season, and it made no attempt to create consumer interest through eye-catching logos or colorful designs. The shoes were worn by athletes, and gained their popularity primarily through a reputation for durability and reliability. K-Swiss’s quiet but steady presence kept the company small, but also allowed it to maintain a stable niche in the growing athletic footwear industry. Such a strategy held the young company in good stead throughout the 1970s, when athleticwear was reserved exclusively for the courts and the track, but when trends began to change in the next decade, K-Swiss found itself faltering.

In the 1980s the athletic apparel industry exploded, with companies such as Nike, Reebok, and Adidas popularizing everything from sweatshirts to basketball shoes. Athletic gear was no longer just for working out: it became a fashion statement. The simple sneaker was no more, as footwear became increasingly specialized, as styles for cross-training, running, walking, basketball, and aerobics took the place of what was once a relatively generic design. Simplicity gave way to flashy and colorful styles, with companies like L.A. Gear becoming more popular than the staid lines offered by K-Swiss. By the mid-1980s, K-Swiss was still enjoying some success, particularly in Japan, but its sales had slowed.

The Renewal of K-Swiss, Mid-1980s to the Mid-1990s

In the mid-1980s a retail executive named Steven Nichols took an interest in K-Swiss that was to change the shape of the company’s future. Nichols was aware that K-Swiss’s sales were stumbling and thought the company’s founders might be amenable to being bought out. At the time, Nichols was president of Stride Rite Corporation, maker of the famous Sperry Top-Sider, and as president he encouraged his company to buy K-Swiss. When Stride Rite refused, Nichols resigned, convinced that with the proper backing he could acquire K-Swiss himself and take advantage of the rapidly expanding athleticwear market.

Nichols’s dramatic exit from Stride Rite was proof that risk takers are needed in the business world: within eight months, the executive had raised more than $116 million, and in January 1987 he purchased the company and assumed the role of CEO. Nichols thought that much of the company’s success lay in its snob appeal. It was a popular label with wealthier consumers—the average price of a pair of K-Swiss shoes was well above that of many of its competitors—and in a sense its almost anonymous styling was what made the shoe so desirable. Year after year “the Classic” endured, while trends came and went. However, Nichols also knew that in the increasingly competitive arena of athletic footwear, K-Swiss needed more visibility in order to survive. The trick, then, was to maintain the label’s “country club” appeal while simultaneously broadening its targeted market.

After Nichols took over at K-Swiss, the company began to advertise for the first time. Eschewing television ads as too mainstream and expensive, K-Swiss began a print campaign in athletic magazines, utilized billboard space, and bought radio air time in select cities. The ads quietly emphasized quality, simplicity, and durability, and did not follow the trend set by Nike in which high-profile athletes donned company sweatshirts and shoes emblazoned with slick logos.

Nichols’s strategy worked, and between 1988 and 1989 the company increased its revenues by a phenomenal 72 percent, bringing in over $60 million in sales. In addition, K-Swiss discontinued all of its Japanese accounts with the exception of certain exclusive department stores, and within a year revenue was up in Japan and comprised 31 percent of its sales. By 1990 K-Swiss shoes were selling for the U.S. equivalent of $100 in Japan, a price that made the shoe desirable as a “luxury” item.

In 1990 K-Swiss went public at $17.50 a share, and within a year its share price rose to $21. Nichols had gambled and won: in 1986, K-Swiss had sales of about $21 million; only three years later the company had almost tripled that number. In November 1991, K-Swiss opened a 251,000 square foot distribution center in Fontana, California, which allowed the company to keep up with its rapidly increasing pace. In 1991 K-Swiss began to cultivate a customer base in Europe, forming a partnership with the 175-year-old company C & J Clarks to distribute K-Swiss shoes to selected department stores in Britain and continental Europe.

The early 1990s brought other successes as well. In February 1992 K-Swiss was granted the patent to two designs, the Cushion Board sole construction and the D-R Cinch lacing system. The former patent was a design in which a shoe’s padding was moved from the heel of the shoe and redistributed throughout the shoe’s sole, allowing for more support and shock absorption in high-impact exercise. The D-R Cinch lacing system was a multi-ring design in which the shoe’s laces were wrapped all along the upper of the shoe, which gave the wearer more support during lateral movement. Such a lacing structure had been used by K-Swiss since the company’s inception, and after 1992 no other company could copy it.

Around this time K-Swiss began to expand its inventory and make overt attempts to compete—or at least keep up—with competitors such as Nike and Reebok. In 1993 the company introduced three new designs made specifically for basketball and made a foray into the crowded aerobics gear market, offering two styles, “the Belais” and “the Belais-LT,” which at about $70 a pair were priced to compete with other upscale shoes. The early 1990s also saw K-Swiss make a transition from being an exclusively “indoor” footwear company—producing shoes intended only for the courts or the track—to being a producer of footwear for the trail as well. In the fall of 1994 K-Swiss premiered twelve new designs, most of which were intended for light hiking or walking. The company’s “Davos” collection, consisting of five different styles, was intended for hard-core technical climbing. K-Swiss started advertising in magazines such as Outside and Backpacker, expanding its reach to different types of athletes.

Company Perspectives:

A wise man once said, ’build a better mouse trap and the world will beat a path to your door.’ However, nowadays, it seems that building a mediocre mouse trap and spending over a hundred million bucks on advertising will do the trick. Well, call us crazy, but we’d rather build better shoes. That’s why we don’t pay high ticket athletes to wear K-Swiss. That’s why we don’t change our color schemes every six weeks. And that’s why we don’t have a planet named after us. We have more important things to worry about. Like making athletic shoes that help you win. Help you excel. Help you get to that would-be ace and pound it back across the court. There’s only one reason to wear K-Swiss. They’re the best. If you don’t believe us, just ask someone who wears them, or a try a pair on for yourself.

Changing Image for Changing Times: The late 1990s

In 1996 K-Swiss began advertising on television for the first time, expanding its target market beyond its traditional upscale customer to a younger, more active market. By the next year K-Swiss, while not anywhere near such companies as Nike, Reebok, or Adidas in sales, was carving out a higher profile, with sales at $116 million and stock trading at $28 a share.

By the late 1990s K-Swiss had more than 2,000 accounts and was sold in such stores as Footlocker, Just for Feet, Footaction, Finish Line, Champs, Nordstrom, and Dillards. While it kept its products highly visible to the consumer, the company was methodical about limiting its inventory. By introducing certain styles for a limited amount of time, or making only a certain number of a particular design available, K-Swiss ensured its reputation for making quality shoes which weren’t “mass produced.” So even when K-Swiss began to advertise and expand, it sought to preserve its exclusive image. In a 1999 interview with Sporting Goods Business, Nichols stated, “Many of our shoes we introduce for a very short period of time and then at some future date we reintroduce it and we reintroduce it on allocation to make sure that nobody buys too many. … When a retailer sells out virtually to the last pair, that’s when we’re the happiest.”

Selling to the last pair, however, took more than reputation in the highly competitive athleticwear environment of the 1990s. In 1998 K-Swiss launched a $17 million ad campaign which the company called “Club K-Swiss.” In this campaign, the company utilized professional athletes as spokespersons for the company and produced commercials in which hip-hop music and fast, flashy images of sports events were interspersed with pictures of K-Swiss products. The revamping of the company’s image worked, as 1998 sales soared to $162 million. K-Swiss stock continued to climb, prompting the magazine Footwear News to maintain that K-Swiss “epitomized the little athletic footwear company that could.” At millennium’s end, K-Swiss’s future looked bright from every angle.