Investor's Business Daily, March 21st, 2007
As you stroll through the Skechers store in Times Square, you can't help but notice the displays featuring Ashlee Simpson.
A huge poster showing the singer's face behind a Skechers SKX shoe adorns the window. More ads -- with Simpson wearing various styles -- are scattered throughout the shop.
Simpson has been the face of the Skechers shoe brand since late 2006. Under an endorsement pact, she'll appear in the company's worldwide ad campaign through 2007.
In addition to in-store displays, the campaign includes Skechers billboards in hot spots like Times Square and magazine ads.
Skechers USA officials are strong believers in advertising, says Chief Operating Officer David Weinberg. Skechers designs, develops and markets a diverse range of shoes for men, women and kids under the core Skechers brand and 10 unique brand names.
Lots Of Ads
It spends between 8% and 10% of annual sales on advertising. And it lines up lots of top names to get the word out. In addition to Simpson, Skechers currently has seven celebs behind its brands. One is actress Evangeline Lilly of the TV show "Lost" for its Michelle K line.
Lately, Skechers has had some star power of its own. In the fourth quarter, earnings more than doubled to 33 cents a share, topping views. Sales rose 36% to $304.5 million.
"The key factor is kids seem to be gravitating toward nontechnical footwear in favor of brands like Skechers," said analyst John Shanley of Susquehanna Financial Group.
Technical shoes are designed for a specific sports activity. Consumers buy brands such as Skechers for the styling and look of the shoes rather than the technical aspects.
Although most technical athletic shoes are worn as street attire, says Shanley, consumers pay a premium for them because they can be used in a sports activity. The average ticket price for a technical shoe is about $80.
"There seems to be moderation in terms of consumers' willingness to pay for the high price point 16roduct," Shanley said.
That works well for Skechers, with most shoes going for less than the technical products, he adds.
The company's Skechers brand costs between $39 and $69, while some of its fashion brands go higher, says Weinberg.
The move away from technical athletic shoes has been a plus for Skechers, he adds. Skechers offers more than 2,000 styles. It's a lifestyle brand that spans many categories. Among its Skechers men's offerings are casual "black and brown" boots, shoes and sandals with a rugged urban design. The women's lineup includes dress casual boots and shoes, which may come with adornments like a faux fur trim.
"We're a very versatile company that can play in many fields," said Weinberg. "We offer a quality product that's fashion right. That seems to play in our favor."
The shift away from technical athletic shoes started during last fall's back-to-school season, says Shanley. And it's gaining momentum.
Many shoe retailers had a disappointing 2006 last half, he adds, because they had a lot of high-price technical footwear by makers like Nike NKE that didn't sell well. Now they're starting to up their assortment of other brands. And Skechers is getting a big lift.
Shanley says Skechers' shoes will be in over 1,200 Foot Locker FL stores this spring, up from about 300 last fall. Also this spring, Skechers will be increasing its presence to all Finish Line FINL stores.
Skechers' shoes are distributed mainly in family shoe stores. The Famous Footwear chain, owned by Brown Shoe BWS and Shoe Carnival SCVL are its top customers, says Shanley. "Our bigger customers, like DSW DSW, Famous Footwear and Shoe Carnival, are doing well and expanding their base and our base," said Weinberg.
Key to Skechers' success is the fact that it's been successful at staying abreast of fashion trends, says analyst Jeff Mintz of Wedbush Morgan.
"Sales of fashion brands tend to be sticky," he said. "When a brand is working, it tends to show accelerating growth because the consumer buys the brand and retailers see the consumer is responding, so they buy more. As long as the consumer keeps responding to the brand, the growth perpetuates itself."
Skechers also has gotten a boost from the growing popularity of its fashion and street brands. They're marketed separately from the Skechers brand. Among them are brands it designs and develops under license from Marc Ecko Enterprises, the company headed by urban fashion designer Marc Ecko. They include athletic casual brands Unltd. by Marc Ecko for men and boys and Rhino Red footwear for women and girls.
Licensed brands are sold in department and specialty stores.
Skechers also owns fashion brands such as Michelle K, a line of edgy sneakers, sporty boots and sandals geared to stylish women ages 18 to 34.
Last year, sales of fashion and street brands roughly doubled to more than $100 million from about $50 million in 2005, Weinberg says.
"The fashion brands continue to grow quite well and we think they'll grow significantly this year," he said.
Michelle K
The fashion lineup helps Skechers get into different retail venues -- and different price points -- than where Skechers is sold, Weinberg adds.
Skechers' Michelle K line, for one, is sold at upscale department store Nordstrom JWN, says analyst Mintz.
Last November, Skechers inked a licensing pact with Marc Ecko to design, develop and market footwear in the U.S. and key overseas markets for the aviation-inspired apparel brand Avirex, a line of athletic and skate-inspired sneakers and slip-ons. The Avirex line is starting to ship now.
Watchers see the company keeping up its momentum. Analysts polled by Thomson Financial expect earnings to rise 25% from last year to $1.99 a share, then another 18% in 2008.
A key growth opportunity lies in expanding overseas, says Weinberg. Last year's sales from abroad were just under 20%. He expects that number to rise to between 30% and 35% in the next four or five years.
Copyright 2007 Investor's Business Daily, Inc.
