Bases Loaded

Larry Schwartz, CEO of Aetrex Worldwide, discusses how the company’s vertically integrated approach—spanning shoes to orthotics to foot scanning devices—is knocking it out of the park.

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CEO of Aetrex Worldwide

CEO of Aetrex Worldwide

If you build it, they will come.

That mantra worked wonders in the movie Field of Dreams, and a similar philosophy—of relentless comfort footwear brand-building and related product extensions—continues to pay enormous dividends for Aetrex Worldwide. Just in the past year, the Teaneck, NJ-based conglomerate has launched two new footwear brands, expanded two recently introduced ones, opened its first flagship store in the nearby town of Englewood (with more on the way soon) and introduced new software for its revolutionary in-store iStep digital foot scanning devices that accurately measure feet and determine foot type and pressure points. What’s more, Aetrex designed the program’s software in-house—just another diverse product extension achieved by the talented workforce residing within its headquarters.

While one could argue the recent variety of efforts, which also include expansion of its Lynco over-the-counter orthotics program, all fall under the realm of comfort footwear (“They are all cousins,” says CEO Larry Schwartz.), few companies go to such lengths to do it all themselves. Call it the Aetrex way, and one of the main reasons Schwartz believes the company has scored 19 straight years of growth. “Our diverse talents allow us to be nimble, financially stable and react quickly,” he says. “We couldn’t have achieved all the different launches that we’ve done the last few years if we weren’t as vertically integrated as we are.”

In addition to the product diversity, the rapid-fire frequency of Aetrex’s brand extensions is impressive, even by the most aggressive industry standards. But Schwartz shrugs it off with a self-deprecating “all in another year’s work” assessment of the fast-growing company. “We are pretty relentless at always trying to improve,” he says. “Over the past couple of years, we’ve been able to build a comprehensive footwear program.” He adds, “That’s our dream: to build something that is both unique and great that delivers to the consumer. We have big ambitions.”

Much of the company’s recent success has been generated by its branded division, which includes this year’s newly launched Berries and Essence labels as well as Sandalistas and Bodyworks. Collectively, they span men’s and women’s, from athletic to casual to dress categories. The way Schwartz sees it: Comfort should be a feature in every shoe regardless of style. It’s one of the reasons why the company has incorporated a “by Aetrex” tagline with each brand. “Aetrex is the stamp of approval for all of our collections that it meets a certain level of comfort, wellness and health,” he says, adding the name ref lects the company’s heritage in the orthotics and biomechanics industries. “That’s where our dad and grandfather started the company 46 years ago [as Apex Footcare]. Our DNA consists of all these pedorthic principles that we integrate into our designs.” For example, Schwartz says, when Aetrex [the company was re-branded six years ago to reflect its product diversification] designs a pump, features include a built-in orthotic, memory foam and metarsal cushioning among other comfort-based constructions and materials.

It’s a design philosophy that is increasingly resonating with consumers: Why suffer for fashion—or anything, for that matter—if you don’t have to? But it requires that the fashion not be sacrificed in the process. “There are ways to make shoes more comfortable and still keep them fashionable,” Schwartz says, admitting that there was a learning curve for the company. “It took us a while, but we have figured out that formula and that has been driving a good portion of our growth.”

Heading into 2012, Schwartz says Aetrex will shift its attention somewhat away from new launches. Instead, the focus will be on expanding the existing portfolio. “We have introduced our first generations in a lot of categories,” he says. “Now it’s more about expanding those categories and making them even better.” That means plenty of new shoes as well as new orthotics and foot scanning programs. “We have exciting new products coming out in the next six months,” Schwartz maintains. “We just received our first previews of Fall ’12, and the shoes look terrific.”

Despite the continued economic uncertainty, Schwartz remains bullish about Aetrex’s continued growth both short- and long-term.With thousands of iStep devices now installed in comfort specialty stores across the country, Aetrex continues to pick up sales in orthotics as well as crossover sales of its shoes. Schwartz says it’s been a win-win for Aetrex and its retail partners. “We believe our iStep program creates add-on sales, offers store differentiation, is core to their needs and provides a unique customer experience,” he says.

To that end, Schwartz says it’s only the beginning for Aetrex. “We feel we have a long way to go and don’t plan on slowing down any time soon,” he says, noting that his brothers (Evan and Matt) and the rest of the senior management are not ones to shift to neutral. “It’s very difficult for us to stay home—except maybe if there’s a Giants game on.” He adds, “We are excited about our future. We think we have the best sales team and have built a great product line, and we will continue to do everything we can to be a great company.”

What does the Aetrex brand represent the marketplace?

We believe the Aetrex name means consumers get more with our shoes. It’s a more technical construction, including increased support, a higher quality of materials and customization options. Our newest Essence heels collection is perhaps the best example of that. While it’s been one of the biggest surprises in terms of sales this year, maybe we shouldn’t have been surprised because when you designed a women’s pump that features built-in arch support, memory foam and anti-microbial linings—in a design that is appealing to the end user—it makes sense that sales were strong.

Comfort and style presents significant growth opportunities. So why isn’t everyone else doing it or, at least, doing it well?

It’s really not that simple to do. And while I can’t speak for other companies, nobody has our pedorthic background, which spans more than 40 years. Our heritage is founded in making products that get people comfortable on their feet. We have integrated all of those orthotic principles into fashion-forward footwear. It’s in our DNA.

Can brands get by solely on their looks these days?

The giants who can do extensive marketing campaigns can still get away with a lot. But for most of us, especially those in the casual and comfort space, if you don’t have authentic product that
is going to provide true comfort benefits to the consumer, then you are going to find it difficult to survive.

How would you rank style, fit, brand and price with respect to consumers?

In our opinion, a product has to meet a certain fashion threshold in order for the consumer to even try it on, especially in women’s. Once they try it on, it’s comfort and fit that we believeare most important. In the athletic space, brand continues to be dominant.

Is customization becoming a must-have feature in comfort?

Customization is a feature that can lead to the most important benefit to the consumer, which is authentic comfort. We believe that customization gets us to a different level of comfort—shoes that feel better than other products on the market. For example, we’ve integrated a lot of terrific new materials—memory foams and stretchable fabrics—into our designs to address this need. And our foot scanning technology is another example of how we integrate unique adjustability features into our footwear. In addition, some of our athletic shoes feature adjustable counters. There’s no question we offer more in terms of customized comfort than anybody in the market. And there’s real legitimacy to it. The key is to deliver it in a way that’s fashion forward and exciting for consumers.

Is it safe to say that the Euro comfort segment might be undergoing some contraction right now?

It’s still a big factor, but I don’t think it’s what it used to be, and it’s not driving the category the way it once did. For one thing, we’ve seen a slowdown of new ideas and products coming from some of those particular companies. It’s one of the motivating factors behind our aggressive pace for the past few years.

The refusal to give in to the specific needs and tastes of American consumers is a recurring theme with some of these companies. But no matter how ugly it may appear, you still have to listen to your customer, right?

Oh, absolutely. The partnership is real. You have to be a good partner, starting with your retailers. If some of our competitors lack that approach, it results in us being even more appreciated. Having said that, I believe you just have to stay focused, be aggressive and do what’s core to your brand. Because you never know how the market is going to evolve. Along those lines, one of the positive aspects that we’ve seen over the last 10 years is the high level of risk-taking and fresh ideas being brought to footwear in general, which we believe has a positive affect for everyone.

One such example is toning and shaping. What went wrong?

It could have been the category. But several things happened: First, the consumer is pretty smart and if there are a lot of false claims, eventually there’s going to be a backlash. In my opinion, some of the product aspects are real and some are not.

You mean to tell me that not every woman who wears rocker soles will develop a body like Kim Kardashian?

Unfortunately, that does not appear to be the case (laughs). There aren’t really any short cuts when it comes to improving your fitness. With respect to our Bodyworks line, we refer to it as a wellness product and believe that is an important distinction. The design goes back to our pedorthic routes. It features a double rocker sole that is designed to unload pressure and stress in areas of the foot most susceptible to pain. It really does work. Pressure is transferred away from the rear and forefoot areas and toward the midfoot, which encourages healthy midfoot walking and proper body alignment. The shoes also feature a lower profile to reduce risk of injury and are significantly lighter than other similar shoes on the market. Consumer feedback on Bodyworks has been really strong.

You didn’t mention the words shaping, toning or weight loss. Was that intentional?

Yes. We do believe that these shoes, if used with regular exercise, will have some strong fitness-related benefits. And if consumers experience real benefits from wearing these shoes—if they lose some weight or improve their fitness—then most of them will probably re-buy. Nevertheless, we are positioning it primarily on its comfort and wellness attributes.

Have Bodyworks’ sales been impacted by the category backlash?

No doubt. Bodyworks did not hit its forecasted sales for this year. Going forward, it will be a slow build for us. We are going to stick with it because we believe in the product’s benefits.

So shaping and toning will survive as a category?

There’s going to be a shakeout first simply because there is so much supply sitting on the shelves of manufacturers and retailers. It’s a step back to eventually move forward. In a lot of ways, it was a toning bubble like you see sometimes in the economy. But I expect these products will continue to have a place in the market. Some of the ideas that came out of this boom have strong consumer benefits, but everybody just has to be more realistic about the claims.

Could barefoot/minimalist shoes be the next bubble?

We look at that category as also having a place in the market. There’s legitimacy to the differences in forefoot and rear foot strike running. For Aetrex, however, we have always been focused on the shoe and orthotic being big parts of the solution, so I don’t see us moving in that direction.

It’s another category that is rife with end-use confusion. Might it be déjà vu all over again?

There are many different foot types, and some people could benefit from less footwear when they run. The problem that brands often get into is making claims of one magic bullet. Aetrex takes the contrary approach that there are many different foot types. We believe there are people with flat, flexible feet compared to those with rigid, high arches, and there are many different types in between. In addition, there are a lot of different aspects in terms of a person’s gait and running styles. So while there is a big population that may benefit from a minimalist approach to running, there is a ton of people that benefit from support and structure as well.

Aside from buying less, what do you think the biggest change in the consumer’s behavior has been since the recession kicked in?

The consumer continues to get smarter. And while obviously there’s a group of consumers that will be more price-conscious and conservative, it’s certainly not everyone. From our perspective, women didn’t slow down their buying habits as much as men. Women’s is still a very strong market and I believe always will be. Even if it is a slightly smaller pie that we are all fighting over, we are still lucky to be in the footwear business as opposed to some other industries. That said, we are planning our business under the premise that next year will be similar to this year in terms of the overall economy, but for us that’s not really a negative since we experienced low double-digit growth this year.

Is there an economic recovery really taking place?

It’s definitely a new reality. If we are actually recovering, it is certainly slow. However, it felt a lot worse in 2009 as people were much more in survival mode then. I’d say it’s only slightly better, and I don’t think that we are anywhere close to being in a boom again, but I remain hopeful that things will not get worse.

There’s an optimist for you. From a business perspective, what do you miss most from pre-2009?

Everything definitely felt easier back then. While there is still an enormously high ceiling for our company, you definitely have to be sharp today. We are interacting with a lot more people who are truly struggling and, subsequently, many are much more risk-adverse. There’s also the increasing supply side challenges. It’s just a different world. It’s a tougher game now.

What do you think has been the biggest change in how retailers decide to choose one brand over another?

Many have become smarter and are also demanding more from their wholesale partners. It’s actually one of the things that helped us once the recession began, because we’ve always been very good partners to our retailers. For example, we offer flexible return policies and six-month financing programs to help make seasonal buys. At Aetrex, those types of strategies were already in place, whereas other manufacturers had to adjust the way they do business because of the increasing demands being placed on them by their retailers. And let me say that retailers should be making these types of demands. I would if I were them. It makes sense in such a challenging environment.

You might be the only wholesale executive to go on record with that statement. When do the demands become unacceptable?

It’s OK until we say no. And there are times that we do say no. Sometimes we ask a lot from our suppliers, too. At the end of the day, retailers have to do their part. If they do, then they have
every right to ask a lot from their suppliers. I believe the market strikes the right balance.

Any advice for retailers—a soapbox moment, if you prefer?

Now it’s more important than ever to try and execute at a high level and to focus on providing better consumer experiences. It’s surely not a time to rest on one’s laurels. The retailers that really develop their personnel, create memorable in-store experiences and bring in the best products will be the ones that survive and prosper.

Do you expect online retailers to continue to play a bigger role in comfort footwear sales?

Online is certainly not going away. It requires traditional retailers to provide experiences that consumers can’t get when they go to an e-commerce site. Certainly, our iStep and Lynco programs can’t be done online. You can learn about feet online, but you can’t learn about your specific feet. It’s one of the reasons we are really excited about our concept stores, and why we will continue to roll out new ones as the year progresses. The first store is doing very well. People are walking in because they see the shoes in the window and then there’s a big technology presence that appeals to shoppers who are getting their feet scanned and learning about their specific foot types through iStep. We also have a component where gyms and healthcare professional are referring clients.

How many stores do you plan to open?

We expect to open a few more next year and then we’ll see how it goes from there. The goal is to partner with independent retailers to run them, but there will also be some company-run stores as well.

Why do you think Aetrex has done well online when the brand is built around such a tactile shopping experience?

A lot of it is just proportionate to your overall sales. If you are selling a lot of shoes, an increasing portion of it is being done online today, no question. There’s also the fact that some of those online companies have done a great job providing service. Most people today have bought a pair of shoes online—even those that work in shoe stores. It’s part of the new reality. But that doesn’t mean it’s doom-and-gloom for traditional retailers. They just have to do business differently than maybe 10 or 15 years ago. And there’s still a giant amount of business being done in brick and mortar. Most women and many men still love to shop. For example, if you walk the Garden State Plaza mall near our headquarters on an average Saturday you will feel pretty good about the prospects of retail. There’s a lot of retail still being done, but you have to deliver terrific experiences and service in order to be successful.

As you mentioned before, there are worse industries one could be in.

Shoes are a lot of people’s favorite clothing item. And shoes give us a lot of places to innovate, which makes us a unique industry in that regard. For example, you can do more to help people in providing comfort than in other aspects of clothing that are more strictly about fashion. Shoes have impact on your health and your overall well-being. Shoes are not only are an important fashion item; they can make a difference in people’s lives.

What do you love most about your job?

I’ve been in this industry almost 20 years and the most rewarding aspect is watching something go from the idea and dream phase to actual product—and then become a success story. I love seeing that evolution.

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