Happy Days

Luke Chen, COO of Alegria, discusses how the comfort brand’s happy premise is delivering smiles and sales to its expanding base of retailers and creating millions of loyal, elated consumers along the way. By Greg Dutter

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Alegria’s debut clog sold more than 1 million pairs within its first three years and shows little sign of slowing down, as the style is refreshed seasonally with an array of colors and innovative materials that brighten store shelves, as well as the faces of its dedicated consumers. COO Luke Chen calculates that the success actually equates to millions more smiles—from consumers who find enjoyment in the brand’s unique “color therapy” design, to those who bask in its patented comfort footbed construction, to the countless passers-by who get a kick at seeing such a bright, whimsical fashion statement. And let’s not forget the growing number of smiles being generated inside the brand’s Pomona, CA, headquarters, as well as by Alegria’s expanding roster of retailers who are all benefiting financially from the company’s approximately 25 percent annual sales gains the past four years. Add up all of those smiles and the brand name is truly apropos—“alegria” means “happy” in Spanish.

What’s Alegria’s secret to generating happiness for pretty much everyone who comes in contact with the brand? Chen says there are no secret formulas or matrixes being used. It’s far more simplistic than that—as successful concepts often are. Alegria’s pursuit of happiness involves both mental and physical aspects. “We ask our customers, ‘What does happy look like?’ Our fun patterns and colors—what we call color therapy—makes them feel happy,” Chen explains. “And when they put on a pair of our shoes, it makes them feel happy.” He says the physical comfort is mainly the result of the brand’s interlocking removable footbed that is made of a combination of memory foam, laytex and cork. “It’s extremely supportive and also features grooves on each end so that it secures firmly into the shoe,” Chen notes. In addition, the mild rocker outsole design offers wellness benefits associated with the construction (like improved posture and an easier gait), but without the severity.

The decision to stick with a mild rocker outsole, in particular, has been fortuitous for the brand, according to Chen. At launch time, rocker soles were all the rage—and the higher the better. That severity was often tied to touted wellness and weight loss attributes by brands that adopted the extreme outsole. With sales skyrocketing in the hot new category, it was hard not to enter the fray. But as history quickly proved—as with many a fad diet—the promised benefits were more of the snake oil variety and, subsequently, sales have tanked. Chen credits his executive team with the foresight and willpower to avoid that road. The company refrained from making wild promises and kept its designs more aesthetically pleasing. “I think our profile looks more like a normal shoe, which has turned out to be very advantageous for us,” he confirms.

Beyond those factors, Chen says the team just knew they were on to something when the prototype clog (since dubbed the “Classic”) first hit the table in their offices. Chen’s father John, a footwear veteran, came back from one of his Chinese factory trips with a design he had been working on for about two years. “The first thing that struck us was all of the colors—everybody just felt cheerful and happy in the room,” he recalls. “And then the rocker outsole and the unique footbed, which is where all of our magic lies, just made everyone smile more.” Specifically, Chen credits his father and longtime industry veteran Nate Lebman, president of Alegria, for sensing that this was going to be a big shoe. In fact, as Alegria lore goes, when the debut clog’s 22 initial colors were arrayed on the table, his father turned to his son and said, “We are going to sell a million pairs of these shoes.” Chen confesses that while he, too, thought the shoe had potential, he didn’t believe his father. Well, as the saying goes, father knows best, and it was proven so last year. “While I have seen my fair number of shoes, my dad and Nate are old shoe dogs who have really seen their share,” Chen says. “They just said this shoe was something unique, and the response has been pretty amazing.”

At last count, there’s a whopping 32 colors and material options available in the brand’s Classic clog for Fall ’12. The line has also expanded to 15 styles in all, including its first boot styles and a few heel silhouettes launching this fall, as well as select men’s styles. Designing and marketing comfortable shoes as if they were ice cream flavors, Chen says, has simply been a dynamic, enjoyable and profitable strategy. And while Chen credits his father with the product vision, his father is the first to credit his son for taking Alegria beyond an item and turning it into a brand, thanks largely to his innovative happiness-themed marketing platform.

What makes Alegria’s run even more impressive is it has occurred amid a debilitating recession, where new brands are often stuck at the start line and many established brands have struggled mightily. “The product, obviously, sets us apart,” Chen believes. “We have stuck to our message, which is a little different than those of traditional comfort and wellness brands. We also have a great sales team that works very close with our retailers—one that is really strong and unique.”

Not bad insight for a computer network administrator by education who had no intentions of joining the family business after earning his MBA. In fact, Chen first went into business with friends on an ecommerce venture selling automotive parts. But his computer skills were always in demand at Alegria’s parent company, PG Lite. “Whenever they had computer issues, they would come to me to try and solve them,” Chen says with a laugh. As time went by, he grew more interested in joining the company full time. “As I learned more about all of the intricacies of running my own business and witnessed the experiences that my dad had in running his, I suggested to my parents that I could be an asset to the company,” he says. And, you might say, the Chen family has since been living happily ever after.

Are you happy?
Yes.

Why, specifically?
For many reasons. I love our product, I think we have a tremendous team of employees and I enjoy working alongside my family. My father founded the company, my mother is vice president and my wife is our controller. I believe everybody here truly cares about our company, which I think is very important. We all eat, sleep and drink Alegria. That’s coming from the bottom of my heart; we truly are all working toward the same goals. It’s a true American family business.

Surely the success of the company makes you happy as well?
Absolutely. It’s still a relatively new brand, so our growth has been exponential. The only challenge that we really have had was in the beginning with supply chain issues—we didn’t make enough shoes. It’s not a bad problem to have, but we needed to get our supply chain up to task, which we have since been able to achieve.

What’s the outlook for sales in 2012?
We believe we have introduced two great lines this year for Alegria. There are a lot of new flavors in our core styles and we are also introducing several new outsole constructions. For example, our new boots feature a low heel, which have received a tremendous reaction during the recent round of shows. We are trying to expand our product line beyond the mild rocker sole construction, but the footbed will be the same throughout the collection—that’s the heart of our shoes. Overall, the brand is forecast to grow at a high rate. We don’t believe we have hit any plateau yet. We expect to continue to grow similar to the same pace as the last four years.

Where is that growth coming from at retail?
We sell to leading comfort independents nationwide, as well as department stores like Belk and nationally via online dealers such as Zappos and Online Shoes. We have also discovered a healthy sales niche within the occupational market—nurses, in particular, love wearing Alegria. It’s been pretty much a new retail distribution channel for us and it has been an important avenue of growth.

If you had to issue an APB on the Alegria consumer, how would you describe her?
Our research shows that we have a pretty broad range of customers. From the fashion perspective, our colors and materials reach an audience ranging from about 25 to 65 years old. But if I had to pick someone out specifically, a nurse would be a really good description of our typical customer. She works 12-hour shifts and is often on her feet all day, so she seeks something that is extremely comfortable. She also has to wear a uniform, so her shoes are the only aspect of her outift that can express her personality.

Would you describe Alegria as a wellness brand?
We call it a hybrid comfort-wellness brand. Our parent company, PG Lite, owns a long-term comfort background with respect to footwear design and manufacturing. My dad has been in that segment of the business since his first job decades ago. So everything about Alegria has comfort in its DNA, for sure. And while we incorporated wellness attributes in our design, we didn’t go off the deep end in that regard. Overall, I’d say we are a comfort company and our unique footbed plays a major role in that process.

Was it ever tempting to position the brand as a wellness one when sales of the category were going through the roof?
We thought about it, but it’s just not who we are. It’s hard to create something that you are not. And while I would love to take the credit for making that decision, there really wasn’t one person that did. Collectively, we just didn’t want to go down that road. Back then, with all these claims flying around that we didn’t know how to prove if they were even true, we decided it was just better to stick to what we know, which is making comfortable footwear. It turned out to be the right call.

What’s your take on the wellness category going forward?
Well, it has backfired to some degree. But, overall, I think it’s good when brands create innovative designs. Otherwise, you can look at shoes being very basic: They’re just shoes, right? But to create different categories and offer innovative designs puts excitement into our industry overall.

While we’re at it, what’s your take on the minimalist movement? It comes with a lot of claims, too.
Coming from a comfort background, we believe shoes should absorb stress when you walk. The minimalist philosophy is basically saying that is not true. Whether or not that is correct, I think it’s going to follow the same path as the shaping and toning category’s claims. But, like I mentioned, I give credit to these companies that are trying to create innovation and make our industry exciting.

Would you say Alegria’s growth has come most at the expense of other brands, or is it more organic?
When we started, we believed this was a new category. Since then, several other brands have taken notice and begun to mimic what we do. That happens. For example, we exhibited recently at a uniform show and there were a lot of companies copying what we are doing. On the one hand, it’s flattering because we are still a relatively small player in the industry, but at the same time it serves as a caution for us not to get too complacent.

At the very least, being knocked off has to make you unhappy.
Well, they say imitation is the sincerest form of flattery, but we are not thrilled about it. We just have to work that much harder with respect to introducing new colors, materials, patterns and styles. We have to be at the frontier. Having said that, we know the colors and the patterns are always going to change. One year, for example, blue is going to be hot, but that may not be the case the next year. That’s why our success, over the long term, ultimately comes down to our shoes being comfortable and a good fit. That’s where our footbed has been the difference maker. And those comfort aspects are never going to change. Everyone wants a comfortable pair of shoes, right? So if we stick to that product expectation and showcase new flavors of fashion each season—just continue to be who we have been—we believe that’s the successful way to go.

Who makes the color and material selections each season?
Our designer, Megan Gold, is great at pinpointing all of these colors and materials. She’s an extremely optimistic person (laughs). She always brings in way too many tempting colors and patterns to choose from during our develepment phases. We have to work really hard at trying to weed a bunch of them out. It’s not easy. For this fall, we decided to go with 13 colors for our Classic clog, but she presented more than 45 options. And she likes them all. Unfortunately, we don’t have a warehouse big enough to stock all of those colors.

It’s hard to get most to buy beyond black and brown with regard to any style, so what do you think has made retailers receptive to your “color therapy” approach?
Well, it was really difficult in the beginning to get retailers to buy into those original 22 colors for our clogs. It was out there, especially for an unknown brand. However, the retail success stories steadily passed on from store to store. Also, whenever we landed a new account, we would let them know which colors have worked in their channel. And because of our continued success, retailers trust us more to place additional colors. While black is still the most popular color, we are also introducing different interpretations with stitching details and materials that are catching on. Our dealers are really changing their assortments—they no longer want to carry just a pair of solid black clogs. For example, we have a black embossed rose print version that gives the style an added touch of sophistication that has done very well of late. Increasingly, our retailers want to go with different textures.

Are there popular colors in certain regions of the country?
Last season we introduced a floral inlay print that was huge in the South, but not so much in California. So there are regional tastes. Of course, Manhattan prefers black. Here, in Southern California, I think it’s a mixture. It‘s not really wild, but they are a little more open to different colors. I would say our customers in the Southeast—in Atlanta and Charlotte—like really bold colors. We also have a very big distribution in that region, which probably helps with the broader assortment of popular colors.

Beyond the comfort and the colors, what are some other factors that have helped Alegria gain traction at retail?
Good margins have been an important aspect to our success as well. We also try to keep items in stock, which can seem like an impossible task with so many colors and materials in our collection. But we work very hard on maintaining our inventories to make sure we have shoes so retailers can keep selling.

Are your margins noticeably better than your competitors?
They are a little better. And, from the beginning, we have tried to establish a Minimum Advertised Price (MAP) policy for our retailers. We want the brand to have consistent value and we never want it discounted. While we understand that some of our shoes go on sale when closing out a season, we work really hard with our dealers to make sure that no one is starting a price war with Alegria. In the beginning, there was some resistance to the policy—some retailers felt that we were trying to tell them what to do. But after we explained that we were trying to maintain a certain level of value, which bodes well for their business too, they have since become receptive. Plus, they are making money selling our shoes, so it helps with our argument to maintain those prices. We also try to be as flexible as possible. If a certain style is not working in their stores, we will take it back.

What is your take on the comfort market that was once Euro-brand dominated?
That is not so much the case anymore. Ironically, it was one of the reasons we went with Euro sizing, because we believed it had a cache to it. But the comfort market is changing. A lot of the recent innovations with regards to wellness and minimalism are forcing Euro comfort companies to break out of their traditional molds. Many have been reluctant to do so and are now viewed as a little old and boring as a result. That’s why I believe it’s important for us to always evolve.

It just doesn’t seem as easy for Euro comfort brands to succeed at premium price points.
It’s not as easy. I believe the Internet has played a big part in that shift. A little boutique on a corner somewhere can no longer get away with charging that high price just because they are the only ones who carry the brand.

What is Alegria’s price range?
We range from $100 to $180 for boots. It’s not even close to the Euro comfort range. We’ve always made sure our product came in at a more affordable price point. However, sourcing costs continue to rise dramatically out of China. It’s at a really crazy rate, to be honest. We have had to make a few adjustments. I think our clogs in the beginning were priced originally at $89.98 and now they go for $109.95. That’s a big increase, but it reflects our cost increases, which pretty much everyone has been experiencing.

Is there a breaking point to how much more you can pass on to your customers?
Well, I hope there is a limit to the sourcing price increases soon. There’s going to be a certain point that you will not be able to pass on those increases.

Your price increases are actually amazing in that they haven’t curtailed your sales. How many new brands, amid a recession, can pass on a $30 increase in their core style and still report 25 percent annual sales gains? Few could ever have gotten away with that.
I can’t argue with that; we’ve done quite well despite the increases. I think that’s a real testament to our product. We offer a lot of value for that price. I should note that as the business has grown, we have invested in resources and marketing to support the brand, which has contributed to a portion of that price increase.

How do you see China’s sourcing woes shaking out?
Right now, we are looking into different countries to get our shoes made. We have a men’s line that will be out later this year that may be made in Mexico. It would be at a $129 price point and up, which is in line with our Chinese-made products. But being based in California, I can receive the product much quicker—three days after it’s made. That’s a very attractive aspect. Also, there are duty implications that work in our favor. Mainly, we are trying to find ways to reduce our costs. China is just getting too expensive. My father, who has been in this business a long time and knows the ins and outs of working in China, agrees that it’s getting ridiculous to do business there with the costs rising so rapidly.

What other countries are you looking into?
We’ve tried Vietnam before with our Peppergate brand, so we have a relationship there and might do some production. Basically, we are willing to get out of our production comfort zone and look at new areas. I’ve also heard about Ethiopia as a potential sourcing partner. Actually, I have a pair of Oliberte shoes that were made there that I like. We’ll see how it shakes out. It could be a great opportunity for those countries. With steady jobs, they can earn money and begin to see their futures.

At the rate it’s going, production may wind up coming back to this country. Mexico is pretty close…
I would love to see shoes made in this country. Downtown Los Angeles, which is 30 minutes from our offices, has factories where they still make shoes. I would love to do it if the costs could be within reason. Consumers might accept a $10 increase—but $70, maybe not.

What’s your take on the economy—recovering slowly or gasping?
I think the overall industry vibe is that the market is starting to bounce back. In particular, we hope our retailers have a better year. The last thing we want to see is a retailer struggle or go out of business. Even though our shoes may be selling, if they fail it’s one less customer of ours. That’s why it’s important for us to do what we can to help our retailers. Along those lines, we are putting a big emphasis on retail marketing with POS and co-op programs this year. Our shoes are performing well and we are starting to own that space, but where we are lacking is making that space our own and getting our brand message across further to customers. We want to put more emphasis on our brand so more consumers notice it which, in turn, should increase sales. By supporting our retailers that way, we hope that will translate into a better year for them.

Is it fair to say that the success to date is a dream come true?
Definitely. Four years ago, before Alegria, we weren’t the most exciting company, but we were very steady. The growth of this brand has changed all of that. It’s become a very exciting place to work.

What has been the most valuable business lesson you have learned from your father?
He has the foresight to see the market many years down the road, and that’s something I’m always trying to pick up on. I consider him a true visionary. He’s a real shoe guy, so every time he comes back from the factory he brings back a new and different concept that we talk about. It’s always a great learning experience.

Do you know a good shoe when you see one now?
I’m learning that skill more and more. Before, I’d see a shoe on a shelf and say, ‘That looks really cool,’ and that’d be that. Now I bend the outsole and check the the entire shoe closely to see just how it’s made. It’s becoming second nature. So much so that my wife is finding it annoying to shop with me. I’m taking way too much time to get through a shoe store.

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