About five years ago when Rocky Brands decided to double its annual sales volume in one full swoop with the acquisition of EJ Footwear (led by Durango and Georgia Boot brands), it was viewed as a significant undertaking with plenty of risks involved. There was a healthy share of skeptics who viewed the approximately $100-million merger as a lot for a company of similar size to chew off as well as a potential duplication of brands targeting small, mature markets. The Nelsonville, OH-based company was entrenched in its primary low- to no-growth hunting market (as well as dabbling in work and western markets), and the decision was made to expand its footprint further into work and western.
David Sharp, who will become CEO beginning July 1 when Mike Brooks becomes chairman of the board, says the move definitely turned out to be the right one—but that doesn’t mean it went seamlessly or relatively quickly. It took five years to fully digest the acquisition and realign the company for growth going forward. And then there was that little recession along the way that turned out to be a mixed blessing. “The recession made it very difficult for us, but it also helped put us ahead of the curve when it came to implementing cost savings,” Sharp says. In 2007, the company’s SG&A (selling, general and administrative expenses) was $96 million and this year it will come in around $70 million. “We’ve taken a hell of a lot of costs out of the business, but, at the same time, we have improved our operations,” Sharp maintains, noting the cuts include incorporating better technologies as well as employee efficiencies. Sharp believes the belt-tightening was a necessity. “We now have an organization seasoned by the recession and better able to negotiate the impending growth that we have planned,” he says. What’s more, Sharp says that if Rocky Brands had not made the acquisition it could have very likely been in “dire straits” today. The merger gave Rocky Brands a year-round base of business that was more reliable, even in a recession. “When we bought EJ Footwear, all of a sudden we became 60 percent work footwear, which is a far more dependable business than our seasonal third- and fourth-quarter hunting business,” he says.
Sharp believes now is a very good time to be at Rocky Brands. “Having right-sized our organization, fine-tuned our operational platform and honed our solid balance sheet, we are now focused on growth,” he says. “We’ve been playing defense for the last three years and now we’re prepared for offense.” The company is coming off a solid 2010: through the first three quarters, overall sales are up close to 10 percent over 2009. Leading the way is work boot sales: Georgia Boot is up 12 percent and Rocky 31 percent. On the western front, sales have been flat, but Sharp is optimistic that its latest collections will be well received by retailers. In particular, he is excited about the prospects for Rocky’s “Long Range” collection, which he describes as incredibly durable work boots available in 6- and 8-inch cowboy and ranch Wellington silhouettes. “We are backing up our durability claims by offering consumers a six-month outsole, 60-day comfort and lifetime orthotic insert guarantees,” Sharp notes.
While Rocky Brands may reside in low-growth markets where market share battles are inevitable, Sharp is confident the company’s stable can grow. “Our top-line growth year-on-year for the next three years is projected to be 10 percent, organically,” he reports. Beyond that, Rocky Brands is open to another, albeit smaller, acquisition that extends the portfolio into the casual market. It’s a no-brainer taking into account that the company currently plays in only 13 percent of the overall footwear market. “We are very interested in finding a complimentary brand and are in a financial position to do so,” he says. “We are looking for something that has a little girth from the get-go and doesn’t need to be incubated for a long period of time.” The other growth avenue is the international market, which the company entered about three years ago. “We plan to double our international sales (outside of North America) in 2011,” Sharp says, adding that there are already strong indications that the goal will be met. “In Europe, the growth is very much built around Rocky’s hunting styles. We are also getting some nice penetration in South America with Durango.”
Sharp says assuming the role of CEO will enable him to become more strategic and less operational which, he adds, is his dream job. It’s the culmination of a successful footwear career that began as a retail merchandiser at Mercantile Stores and later crossed into wholesale, starting with marketing stints at Genesco, then Converse, Acme Boot Company and H.H. Brown. Sharp joined Rocky 10 years ago in the “unlikely, split-personality, dual role in manufacturing operations and marketing.” Shortly thereafter, he managed sales and eventually became executive vice president and COO. In 2005, when the EJ Footwear deal went down he added the title of president to his business card. Sharp is quick to credit his employees for helping him climb the corporate ladder as well as the example set forth by current CEO Brooks. “Mike is very tenacious and competitive,” Sharp offers, noting that sales have increased about 100-fold during Brooks’ tenure. “When he came aboard, Rocky was a small, family-run business and now it’s a respected public company with a growing global footprint.” Sharp adds, “One can’t help but respect his humbleness, sense of community and insistence on the long-term view for his company. His achievements speak for themselves.”
What do you think was the greatest lesson learned in this entire acquisition process?
I don’t know whom to quote but it goes something like this: “Just because you can make and sell something doesn’t mean you should.” I think we learned the need for getting closer to the consumer and making our products more relevant. If you can do that with one product then that is far better than having a dozen products that are maybe 80 percent there. Many brands, like Rocky, were built on one great product. Ours was an all-Cordura fabric waterproof hunting boot. Nobody had done that before and we still do hundreds of thousands of pairs of similar boots today. So it’s all about getting the right product and about establishing consumer intimacy.
When you think about it, an amazing amount of error gets introduced industry-wide each season.
Yes. One of our internal operational themes going forward is fewer and better. Underneath that we have two objectives: First, to infuse the voice of the customer into our products. We’re working on getting much closer to the end consumer so that our product development is better and more relevant. Second, [we want] to maximize our product portfolio, and by that we mean almost minimize it. We have the same amount of product development people working on a lot fewer products so they are able to spend more time getting those right. It’s a process of working earlier to weed out the bad ideas and focusing on the better ones so that [products] are fantastic by the time they reach the market.
Isn’t this approach really common sense?
It is. The temptation is to just make more when you are in low- and no-growth markets to try and increase sales. But what the sales guy often sees as the answer is not always the most profitable strategy. Instead, we are doing more with fewer. It’s really about product excellence. It’s better to focus on making fewer great products than a lot of OK ones.
Less can be more—and that goes for designing as well as the number of brands and styles retailers carry.
Exactly. When you shop, do you really have the time to search everything that’s on the market? I think the reason you shop specific retailers is because they are aligned with your lifestyle and taste level. They have already done a lot of the pre-selection for you. With what little time that we have available to shop today, we need someone to do that for us. There is a theory that, at some point, our brains kind of self-combust when looking at too much selection. We say, ‘Screw it, we’ll figure it out another day.” I do that in the supermarket all the time. When I first came to the States in 1972, the local ice cream aisle had 12 to 15 feet of brands on display. Now it’s a couple of aisles and there are tons of ice cream flavors and brands.
As an industry veteran, have you seen it all before, so to speak?
I’m a veteran but one thing’s certain: I definitely have not seen it all. I think the best and the worst are probably yet to come. What hasn’t changed is the need for creative and driven people, because products and brand communication are what it’s all about. Along those lines, I think the footwear industry navigated this recent downturn pretty well. Even in the most desperate months, we saw consumers respond to fashionable and functional footwear styles. Never mind the economic climate—great products and brand stories win every time. And that takes creative minds along with the right inspiration and leadership.
Might your brands be more suited to succeeding in a difficult economic climate? For example, people don’t stop hunting because of a recession. And work boots are a job requirement for those lucky to still have a job.
Exactly, they don’t stop hunting or working. As for us succeeding in this climate, we believe it’s all about getting the price/value relationship right. At their core, the Durango and Georgia Boot brands have always been about a great value for the working guy. I think that played well for us over the last couple of years. Maybe Red Wing was getting too expensive so they shopped for Georgia Boot. And Rocky has always had an aspirational appeal. The one great aspect about Rocky is that most people discover it for the first time while hunting—when they are in most need for a product to keep them dry, warm and comfortable. If the product surpasses expectations—at a time when they are doing something that they really enjoy—that’s when we hook them on Rocky. Also, there are a number of consumers that, during a downturn, actually seek out better-grade product because they seek longevity and more bang for their buck. The tradesmen, farmers and ranchers that know our brands generally live from day-to-day. They either are going to go down market or up, and we have both covered with Georgia Boot and Rocky, respectively.
Where does Georgia Giant fit into this story?
Georgia Giant is our lifestyle brand. We have high hopes for it as we leverage Georgia Boot’s all-American heritage and its reputation for great quality and value. The Giant collection is built to appeal to males who are enamored with the current authenticity trend. Unlike many competitors, however, we are priced at $99 to $119 retail, whereas Red Wing and Wolverine 1000 Mile products come in around $250 to $450. We believe our pricing is more in touch with consumer budgets today. In addition, we see a lot of poorly executed product in this niche. We’ve been making these kinds of boots for almost 80 years, so it comes naturally. Finally, we are much more focused on growing the brand. We are more organized, the line has been upgraded and we now have a sales force on the road. We expect to make it happen a little quicker now.
What’s your take on the western market?
In the States, we’re seeing a sustained undertone of western fashion in footwear and apparel for the last three or four years. Based on this, we’ve had a pretty good run on our Durango women’s collections and have expanded them to respond to this demand. About a year ago, we defined two new segments: Flirt by Durango and Crush by Durango. Flirt attempts to reach new consumers in the core western market with colorful, fun, lightweight boots (features include an EVA outsole construction) to wear with skirts and jeans. Crush defines edgier, urban looks with tattoo-inspired details. Both collections sold in well and are performing well at retail. We are following up with new collections for fall. Also, having Durango in our portfolio allows us to offer a more moderate price point than Rocky. It’s the same thing with Georgia Boot and Rocky in work. It gives us a two-tier approach in the marketplace.
What are the leading factors behind a consumer’s purchase decision today?
Today, integrity and authenticity are very important. When consumers part with their hard-earned dollars, they have to feel like they are getting the “real McCoy.” And, for many people, this authenticity is something they work hard at portraying. Our brands play into this trait. For example, Rocky is all about instilling confidence. Ruggedness, temperature control, waterproof, durability, surefootedness in any environment—all are important concepts to that consumer. And there are many consumers who would rather purchase fewer, better, products—products that stand the test of time. Rocky has always delivered on this promise. We just conducted a market research project for Rocky last year (Durango and Georgia Boot are on deck) and it affirmed what we suspected all along: Rocky inspires confidence in people. It’s one of the reasons why we just completed a $27-million military contract—about the third largest contract we’ve been awarded in the last seven years. As a result, more consumers are learning about the performance benefits of our brand. We also do about $20 million annually in tactical police and paramilitary boots around the world. Again, it’s product that inspires confidence; being sure-footed is really important to those wearers. We actually got a new Rocky tag line as a result of the study: “Confidence in Action.”
Would you say we are now in a recovery mode economically?
Yes, we are in a snail-paced recovery. It seems that we’re taking two steps forward and one step back but, overall, we’re moving forward. However, I don’t think the alleged recovery has impacted us positively to date.
So those stimulus funds designed to create “shovel-ready” jobs didn’t factor into your sales increases in work boots this year?
We really don’t attribute any of our growth last year to shovel-ready jobs. We don’t think there were too many of those jobs created. The unemployment needle hasn’t moved much and, in particular, the building trades have been especially hit hard. What we have been doing is affecting the business at the point of sale. We think that we have compelling product—better actually—than our competitors. We’ve got to tell consumers and the retail associates who interact with them why our products are better. We’re spending a lot of resources on trying to make that happen. We’re being very proactive with our better dealers, helping them to create in-store excitement around our products. It’s a combination of well-informed retail associate brand champions and compelling point-of-purchase materials. We also will reward our retailers for being loyal to our brands. Along these lines, we’ll be expanding our successful Rocky Brands University educational program by making the information available to all our dealers. In addition, we plan to hold more actual events for retailers and select consumers.
Have consumers really changed since the recession and are these long-term changes?
Today, 60 percent of our business is generated from consumers who work with their hands in the building trades or as farmers and ranchers. Footwear to them is equipment, and we are seeing that they are using this equipment a little longer than they used to. And when they do buy new equipment, they want to go back to brands they know well and trust. They want good value. As for this being a long-term trend, I think our consumer has always been conservative—he’s always lived pretty much paycheck to paycheck. If the economy improves, which we think it will slowly, then perhaps his wallet will open a little easier.
What has been the biggest change you have seen of late at the retail level?
I’m still amazed by the decade-long consolidation in the sporting goods and farm and ranch channels. The expansion of Dick’s Sporting Goods, Bass Pro Shops, Cabela’s and Gander Mountain and Tractor Supply Company has been phenomenal. Despite their growth, the resiliency of some independents proves that there is still a place for single store and small chain operators that offer specialized assortments and enhanced services.
How would you describe the current mood of your retail partners?
I think our retailers are moving beyond ultra-conservatism and seem to be more open to new ideas. They still want to see that we have done all of our homework and be assured as best they can that the product will sell through before they commit. Overall, I’d describe them as cautiously optimistic. I was a retailer once and you can’t always be a pessimist and run a store. You’d shoot yourself, otherwise.
It’s been a long time since you were an actual retailer. Are you still an optimist?
I’m very optimistic with what’s going on right now with our company and the opportunity to still retire some day (laughs). The textbooks say that whenever there’s a recession, the spoils for the survivors are increased market share and enhanced margins. I saw a presentation recently where the margin enhancement is generally one to two points. Moreover, our company is in far better shape than it was going into the recession. We have a much better sense of how to run the company and what we are capable of.
Where do you see Rocky Brands in three years?
Larger yet more agile, competitive, technologically enabled and capable, and, certainly, a great deal more profitable. We will have a much larger global footprint and be sought after by the investment community for our operational excellence and creative branding and product development. Lastly, a company where all of our associates’ career aspirations can be met.
What do you love most about your job?
It’s always been working with our team and providing that opportunity for growth for our employees. The other aspect that I love is when I’m out of the office and I see someone wearing a pair of our shoes. That never gets old. —Greg Dutter