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Talking Points

Fueled by the firm belief that everyone wants to be sold something, Angel Martinez, CEO of Deckers Outdoor, discusses why the portfolio continues to do just that: sell a ton of shoes. by Greg Dutter

 

CEO of Deckers Outdoor

CEO of Deckers Outdoor

Ask Angel Martinez any question across a wide range of topics and you can expect a candid, intelligent and in-depth reply. Whether it be in response to politics, society, the economy, consumer behavior, war, Hollywood, America or the obvious subject of shoes, Martinez owns a wealth of knowledge and isn’t shy about voicing his personal opinions. Take his unique advice for President Barack Obama: “Tell the American people that you are going to be a one-term president—the best one-term president there has ever been.” By doing so, Martinez theorizes, Obama would be able to tackle the real issues at hand without having to cater to special interests or make concessions just to get re-elected. Martinez believes such a novel approach to leadership would ring true with an overwhelming majority of Americans sick of the status quo. “The broad cross section of America is very wise, and that’s a [collective] voice that needs to be heard,” Martinez offers. “It’s a silent majority, which is very pragmatic and not reactionary, and sees both the extreme right and left elements as absurd.”

This novel approach to presidential leadership is highly unlikely to occur any time soon, which makes Martinez more concerned about the country’s current dire straits. “We are in a gigantic crisis of leadership in this country, and that’s probably more detrimental than Hurricane Katrina, the BP oil disaster or the economic debacle,” he says. “It’s a system that allows people to lead from mediocrity. They sell out so much and are left with an inability to lead.” Which brings Martinez’s to another of his original ideas: “We need a benevolent dictator for about four years.”

While Martinez waits for those political hypotheticals to come to fruition, he remains as grounded as ever in the business of making and selling shoes. Now in his fifth year at the helm of Deckers Outdoor, manufacturer of the Ugg Australia, Teva, Simple, Ahnu and Tsubo brands, Martinez has found his stride professionally and believes the portfolio has, too. Despite whatever hand the recession and its consumer spending fallout has dealt, the company remains on a solid growth trajectory. Specifically, Ugg continues to post record sales quarters on a regular basis and Teva has scored impressive sales gains—21 percent growth in the first quarterof 2010—that Martinez believes signals a genuine turnaround. His quick take on Teva: “If it took 10 years for the brand to degrade, it was going to take five years to fix, but we have done it in four. The response to our new products has been exceptional.” In addition, Martinez cites how Simple is being repositioned as a great-looking casual brand first and an eco-friendly one second, while the fashion-forward Tsubo and outdoor lifestyle Ahnu are niche brands by design yet poised for solid growth in the seasons to come.

“We are very bullish on everything we are doing,” the CEO says, mindful of the shaky economy. “We’re on a good path, but we have to earn our success every day and continue do a better job of satisfying our wholesale customers so they can make money. That’s what it’s all about.” Martinez adds that unlike the big banks that were deemed “too big to fail,” Deckers doesn’t have such a safety net. “The club called ‘too big to fail’ is exclusive and tiny. Deckers is certainly not in that club, and neither is Nike,” he offers. “We still have to make great stuff that sells or we’re done.”

Overall, Martinez says keeping focused on each brand’s long-term vision within a corporate structure that allows tweaks to be made quickly is crucial to the company’s continued success. “You have to focus on the fundamentals, stay very clear on your customers’ needs and make sure your products are great,” he says. “And you must be very consistent, because you then become a rock when everything else is changing.” Martinez also believes that constant pressure—be it financial, intellectual and manpower—applied on a good idea will always yield a positive result over time. “So long as one has a coherent management team and a singular vision, you can accomplish incredible things,” he offers. “We haven’t thrown everything out each year and tried to start over.” Martinez adds, “Imagine if our government behaved like that. That’s called China, by the way. And while I don’t want their system of government, there’s a lot to learn about the ability of an entire economic power focusing on select goals for the benefit of everybody.”

But back to the shoe business: Martinez, who retired once before, has no plans to check out anytime soon. With a handful of exciting brands to oversee as well as the ongoing search for a few more to admit into the Deckers fold, he remains busy and entertained. “I’m having fun,” Martinez asserts, adding that he wasn’t sick of the footwear business before, just burnt-out on his former company. “It’s like if you play the saxophone, and the band you’re in is grinding on you. But you still like playing that instrument. The footwear industry is my saxophone.”

Are you at all surprised by the solid growth of Deckers in the midst of this recession?

I have a tremendous confidence in what we can do, and I’m not surprised when we are successful because I expect it. But I’m a little surprised by the traction that we have gotten in this economic environment. I expected it to be a harder road—looser gravel, if you will. But that’s not to say we are expecting our growth to continue at this pace, because I’m not convinced we are in any kind of a turnaround economically. I think we are in a flat spot where we could just as easily go down or up. It depends on quite a lot of things, with employment being the biggest one. We’ve got to get people investing again and creating jobs, introducing new ideas and aggressively pursing
opportunities.

Have businesses, by and large, been frozen?

I think there’s a new normal, and what we are going through right now is no different than the way business was before the wild growth of the last 20 years. It used to be very difficult to start up and drive a business. The dot-com craze made it seem like any apple off the tree could start a business. Suddenly, a guy finds $50 million in venture capital for some bogus idea that was never even vetted? That’s the extreme case, but we have been through an era where once-difficult things became very easy to do. And it made us lose our discipline and forget that there are some fundamentals that are core to success.

Such as?

Training and development of employees. That’s an old idea that’s coming back. The idea of late was you didn’t need to do that because you were only going to have them for three years. People now want stability and want to grow with a company. All of a sudden, training and development are important topics again and are being considered as essential in a not-so-easy period—a time where you have got to pay attention to detail, build relationships with consumers and retailers, focus on what true customer service is, make sure your product quality standards are legit, and on and on. Too many companies were paying lip service to all of that and it was camouflaged by easy growth. Now we are back to how hard it always was to be successful. You also have to take into account consumers’ assumption that they already have what they need, and something better be special if they’re going to part with their money.

Isn’t all of that really a good thing?

I think so, because it makes us all stronger. If you survive this period and can actually grow, then you are really well set up for the future. When the atmosphere becomes less difficult, we can be very powerful.

Teva is growing again. Is the brand now on a meaningful growth curve?

Oh, yeah. I think the brand will be stronger than it has ever been. It’s a year-round brand now. And I think our position in premium sports sandals is back to where it should be as the No. 1 brand in the category. Both of those aspects are really important and give everyone here a sense of pride. In addition, we just held the Teva Mountain Games again and approximately 40,000 people attended. There were tons of young families at a cool event with a lot of excitement about our products. We’ve been investing heavily in Teva and now it’s paying off.

So what was wrong with Teva before?

The biggest problem was that there was not a culture of innovation. The brand had grown stagnant and didn’t have a vision for its own future. I’ve always said that it takes a hell of a lot longer to turn a brand around than it does to start one. In Teva’s case, there had been a long ongoing consumer following that valued the brand, but it had not grown or expanded to more consumers. So we started by understanding where the brand was and then thought about where it could expand so that we could invite more people into the franchise with better and more relevant product.

Do you foresee Teva breaking the $100 million annual sales mark in the near future?

Realistically, Teva is a multi-hundred million dollar worldwide brand. I fully expect that’s what it will be. It could be more, but that’s what we have been gearing towards. And it’s not based on hope—that’s a bad business strategy. It’s the expected outcome.

It’s refreshing to witness a revival.

It is. And I don’t care who you are, if you are not coming out with new stuff, you’re dead. New product gives you a story and lets you become part of a conversation again. Retailers want a story to tell their customers. The footwear industry is like that. People were fretting about the big-box format killing the business, but footwear’s real environment is between a sales clerk and the customer. “Let me try this on,” “What do you think of this shoe,” “Do you have this in widths,” “Why does this shoe look like this,” “What’s the benefit of this feature,” “How does this work.” Those are all things people love to talk about.

One might argue that a customer gets more interaction these days online than they do in a lot of brick-and-mortar stores.

Well, whose fault is that? That’s not the customer’s fault. That’s the retailer abdicating a core element of their business. Those who complain that the online dealer has got them beat: shame on them. You’ve got a customer in real time standing before you and those online dealers are out-selling you? What’s the matter with you? That is more a lack of execution, vision and a fundamental approach to salesmanship. People love to be sold.

That love affair certainly applies to the wellness category these days. What’s your take on that market segment?

It’s good for the footwear industry. It makes for good conversation—people are talking about those shoes, their functionality, and are curious to see if they’ll work for them. So Vibram FiveFingers and MBT are good for the business, and so was Crocs, for that matter. I don’t know for sure if toning shoes will deliver a tighter butt and firmer legs—although I doubt it, because I’m still waiting for running shoes that make me run faster and basketball shoes that make me jump higher, like the PF Flyer commercials advertised back when I was a kid. None of that happened, but that didn’t stop the quest. Similarly, women want shoes that make them look pretty. We’ve got to give them the option to try and find that. It’s all an ongoing story of innovation, and like I said, people love to be sold. Even people who say, “I hate to be sold,” or “You can’t sell me”… That’s actually a challenge: “Go ahead and try to sell me.”

Are there plans for Deckers to enter the wellness category?

We have to understand what’s at the core of people wanting those products and not just knock off the other guys. We have to determine the next opportunity and be at that intersection. Whether wellness has sustainability depends on if it delivers beneficial value to the consumer. If it’s just a style, it will eventually run the way of fashion and may not be here down the road. These brands have to ask the question: Are you delivering something that people feel they got their money’s worth from and would buy again? Reebok’s EasyTone ads are very overt: You will look sexy and your butt will firm up. In contrast, MBT has been built on this strange-looking shoe and the curiosity of why people are wearing them—the same way Earth shoes did way back in the day.

That’s exactly what Vibram FiveFingers is doing.

Yes. There is a segment of the population that is not so much driven by fashion as they are by innovation. The athletic market was built around that premise, and then the innovation itself became fashion. Beyond wellness attributes, a rocker profile also means that a platform type of shoe is now more contemporary, and from a design perspective we can now do other things because the visual envelope has opened up a bit. And in the case of FiveFingers, things that might have looked weird may not look as strange in comparison. A shoe with a split-toe design, for example, doesn’t look so odd anymore.

The reinvention never stops.

That’s the beauty of footwear. We have an advantage over other forms of worn items because footwear combines functionality with fashion, performance, comfort and materials—all aspects available in the palette of designing shoes that are not as much so with respect to apparel. And the extent that you remain open to those possibilities is key to the survival of your business.

Where does Ugg stand in its ongoing evolution?

At one point I would have described Ugg as premium luxury comfort, but I think we have moved beyond that to personal luxury. When times are tough, there’s nothing that makes you feel better than slipping on a pair of Uggs. You feel that you are indulging yourself. And I believe this idea of personal luxury is here to stay. Once people discover a little of it, they will always want a little more. Human beings don’t voluntarily move from comfort to discomfort.

So it’s not a ‘bling’ brand?

Not at all. Ugg is about great value for the money. The idea of personal luxury is that it has to be accessible. We believe the very nature of the word “luxury” is changing. It used to be caught up in bling, but Ugg was never that kind of brand. Ugg was for the enlightened who discovered its incredible comfort. They didn’t care if it looked good with any outfit. And that’s still true. Now we have more diverse offerings of styles that bring more people into the franchise. But the core items are fashion-proof, just like jeans.

Or a Converse Chuck Taylor.

Yes. It’s become iconic for an attitude and point of view. If a 40-year-old walks up to you wearing Chucks versus tassel loafers, it says a lot about that person right away. Not that there’s anything wrong with tassel loafers—they are just two different kinds of people. I can tell you what country a person is from just by looking at their shoes. I’m pretty good at spotting Germans, Italians and Spaniards, and I’m really good at identifying Americans, because they are the only ones in the world wearing athletic footwear. If I were a sociologist, I would do a thesis on this subject.

So what does someone in the airport wearing Uggs tell you?

They are not going to compromise their comfort. They are very practical and not too hung up on what other people think. They are just going to be comfortable in their environment. The Teva wearer tends to be an outdoor enthusiast and would rather be outside doing something active than stuck in an airport. Or, they are going to a place where their Tevas will be essential to an activity.

And Simple?

Sustainability is important to them. They have a choice of buying other types of sneakers, but they like what Simple stands for. You recently asked me if Simple has deemphasized its sustainability message. The answer is we have not with respect to how we make our product. What we have discovered, however, is that sustainability has become confusing as so many people are making bogus eco-friendly claims to the extent that it’s not a good handle anymore. There’s been too much green washing. So we’re back to the fundamentals with Simple: just great-looking shoes and, by the way, they are the most sustainable footwear that you can buy. The headline now is: “Wow, Great-Looking Shoes.”

But hasn’t that always been the headline, no matter the category?

Yes. But for a little while we had that sustainability headline to ourselves. I also think we started drinking a little too much of our own Kool-Aid on the green issue. It became a hindrance in design. We couldn’t do certain things because it wasn’t green enough. Well, how green is green enough? We could go so far that we couldn’t even source the materials. So we’ve got to be practical, and you will see the advent of that in the next few seasons. I think in 2011 you will see some breakthrough stuff, particularly in the fall.

Where does Tsubo fit into the mix?

Tsubo is almost diametrically opposite from Simple. Tsubo offers a very sophisticated statement of comfort and technology where style is No. 1. We are going to make the most stylish comfortable shoes in the world. That’s a big statement, but I think an important one for Tsubo because its customer is a very sophisticated style maven. They are early adopters of shapes, colors and materials, and they value that above everything else. At the same time, they feel the brand delivers an unexpected form of comfort because in the past, style always yielded less than comfortable shoes.

I’m really happy with the progress that’s being made and we’ve had a great response to this fall’s and next spring’s lines. The business is progressing nicely and we’ve built the core of a great team, headed by Jim Van Dyne and designers Nick O’Rourke and Fiona Adams. Tsubo has always been a brand that people in the industry have rooted for because it brought fresh looks to the market. We are continuing to do that, but now we don’t have to compromise on that idea just to sell shoes. Don’t get me wrong, I love selling shoes, but Tsubo is not for everybody. We are not going to compromise our target customer because we need to do more volume. If Tsubo ends up a $60-$80 million global business and is also the coolest brand in the world, then I’m happy. Our expectation for Tsubo is that it be Tsubo, and not an Ecco, Rockport or anyone else.

So then how would you describe Ahnu?

Ahnu’s main focus going forward will be women’s outdoor lifestyle and fashion. If I had to make a correlation, I would say Ahnu is to outdoor footwear what Lululemon is to yoga. The outdoors is an important part of a woman’s life as a great respite from her obligations. Women are increasingly walking together for exercise like they used to run and do aerobics together. And they love to find a place that’s away from it all. But who says you can’t look super stylish and be comfortable while doing that? I think Ahnu has a really big opportunity in that market. Like everything else, it depends on compelling, relevant product. I believe our team is going to do that.

Having good teams at each brand frees you up to do what most?

It allows me to float at 10,000 feet, if you will; to get a bigger perspective. I don’t have to be as into the gritty details of management as I used to be. Although, some people would argue that I never was (laughs). But I’m OK with that. It allows me to focus on the evolution of markets and opportunities, and lets me guide brands from a different perspective.

Do you envision more brands coming into the Deckers fold?

Yes. We are looking at opportunities. But it’s frustrating because we are sitting on a fair amount of cash, however it’s slim pickings out there. First of all, a lot of companies are sitting on cash and shopping for the same thing. And given the economic environment, there’s not that many $100 million-plus companies doing really well and looking to be acquired. On top of that, it has to be a cultural fit, because the people are everything. Sometimes you’ll find a company where the people are ready to check out and there’s only a shell left. So the parameters of an acquisition become very narrow and difficult to access. But something is out there.

We want to find a brand that immediately drops $15 million to the bottom line to move the needle of a company our size. That said, if I see a genius startup idea, I’m all over it. I saw it in Keen. Tsubo and Ahnu are good examples, and there are others out there. The entrepreneurial side of me won’t go away, and I think it’s important that it doesn’t. It keeps us focused on bringing freshness to the marketplace. And the beautiful thing about the footwear industry is that you are always an item away from a $100-million business. Lastly, finding and developing potential great brands is a part of Deckers’ DNA. That’s what we do best. We are not hierarchical or bureaucratic. We give the entrepreneur a chance to fulfill his or her dreams.

You sound pretty bullish about the footwear market in general.

Yes. It’s grounded in the idea of innovation and the fact that footwear satisfies people’s curiosity: They love the notion of trying stuff on and feeling something new and talking about it. And essential to this mix are retailers. They cannot neglect the obligation they have to create a great environment for consumers. They have to be hands-on with the consumer and take on their responsibility of telling stories at retail. If you want to survive, you better get focused on the core idea of what makes your business unique, invest against that and be consistent. If you do not offer a point of difference for someone to come into your store, you are going to go away. And the same is true of brands. No one has time for a commodity mindset of more of the same old stuff. I believe that increasingly applies even at an entry price point. There’s a pretty sophisticated young consumer who can beat you on price by shopping online—and that includes the good stuff and not just the imitations. Innovation has to be a component for what you do across the board. For everyone’s sake, if this industry is going to continue to perform, then we can’t lose sight of that.

Why even bother to open a store if you are not willing to do that?

The mistake often made is seeing the store opening as an end of something. The day you open the store is the beginning of something. It’s a daily challenge and evolution. If you aren’t walking into your company or store every day and asking, “What does today mean, in terms of how I have to modify my approach?,” then you will suffer in the long run.

If you were to open a shoe store tomorrow, what would be the first thing you’d do?

I would make the Internet a key component. It would be on a continuum with a total consumer experience that touches them from the Internet to the store and back. They’d have to come into the store to get certain things they could not get online. I can’t drink a cappuccino online. I can’t get a person looking me in the eye and making me feel good online. I can’t touch a shoe online. I can’t have fantastic lighting celebrating the product. But, online I can get ease and convenience of a transaction. I can get information. I can get stimulated and made curious. I can become educated. I can become a part of a community. And the two are symbiotic; both help each other. Retailers are not there yet, but it’s coming. And those who figure it out will survive.

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