Straight Talk

Industry veteran Steve Lax, CEO of Yaleet, distributors of Naot, offers a no nonsense lay of the land: the good, the bad, the ugly—and why, despite it all, sales continue to boom for the comfort fashion brand.

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CEO of Yaleet

CEO of Yaleet

When asked for a word to describe the current state of our industry, Steve Lax, without hesitation, responds, “turmoil.” The overriding reason for this assessment from the 25-year shoe veteran is the ongoing worldwide economic uncertainty and its resulting wet blanket affect on just about everyone.

From a broad perspective, Lax sees everyone—from John and Jane Does living in Baton Rouge, LA, to Butte, MT, as well as close personal friends residing in his leafy Long Island suburb—as still suffering from the fallout of the great financial collapse. If people aren’t filing unemployment forms and struggling to find new jobs (most likely for less salary and fewer benefits if they do), then they are living in fear that they might get the pink slip. The result: Consumers have drastically altered how they thought the rest of their lives might turn out financially and, not surprisingly, it is having an enormous impact on what and how much they are currently spending. “A lot of my friends were movers and shakers and now they’re unemployed and unemployable—they’re aging and overqualified,” Lax offers. “Some are even going bankrupt.” It’s real scary stuff, Lax says, and despite pundits that report that the economy is on the mend, he sees it differently. “I hear all the news about how the economy is improving, but I don’t think it’s translating to the average consumer,” Lax says. “It seems like our government took care of the extremely wealthy but the people who are really in need are becoming more and more alienated.” Lax believes that the increasing divide doesn’t bode well for the country long-term.

Take health care, for example. As a business owner, Lax wants to provide adequate coverage to his employees, but says rising insurance costs are “killing” him. So much for President Obama’s health care reform cure: “Health care plans are getting worse,” Lax says, noting he was rooting for the reform act at first. “I just don’t think we have good leadership in the country,” he adds.

In addition to the worldwide economic uncertainty and national crises like health care, unemployment and budget deficits, Lax also points to several industry-specific problems causing turmoil. For starters, there are the trade show wars. Lax believes that the ongoing lack of a clear national show is adding to exhibiting and travel costs for brands and creates confusion among retailers. “The retailers simply don’t know where to go,” he says, adding that working in smaller booths is both difficult and limiting because entire collections can’t be showcased properly.

Then there’s the skyrocketing cost of raw materials. “Pricing is out of control, and no one knows what tomorrow is going to bring,” Lax says. Blame China, he adds—specifically its explosive growth as a consumer nation. The immediate effects are production delays, lost orders and price increases that manufacturers are passing on to retailers. Long-term, Lax predicts footwear manufacturing will move to other parts of the world. “There’s going to be a huge adjustment on how and where a lot of goods will be made,” he expects. And while Naot products are predominantly made in Israel and Europe, the brand is not completely immune because certain components, like jewelry, are made in China—and those costs keep rising and the deliveries are sketchy at best.

All these troubles culled together have the makings of a perfect storm: “I think the industry is in absolute chaos. The retailers don’t know what’s going on, fashion is all over the place and so is pricing,” Lax warns. “Costs are going up, but the average consumer is not making more money.” Lax adds that any attempt to increase prices is met with an instant backlash—first from retailers and then from consumers. “It is getting more and more difficult to make a quality product for a reasonable price,” he adds.

Despite the gloomy assessment, Lax still says he’s an optimist, particularly about Naot’s prospects. It helps when growth continues to defy the stingy market conditions: Sales are up 30 percent this year over last and Lax reports there are already 30 percent more orders booked for 2011. He credits much of the success to remaining focused on what the company can control and believes a Golden Rule approach to doing business pays enormous dividends. “I keep a positive outlook for my company and the people that work for me,” he says. “I can’t control anything else, except to continue to do what we do well in addition to trying to make the world a better place.” Lax adds, “Personally, I’m not depressed. [Editor’s note: Lax laughed off the “Debbie Downer” accusation.] It’s just that everyone around me is screaming, ‘The sky’s falling, the sky’s falling!’ and, after awhile, you start to say to yourself, ‘Well, maybe the sky is falling!'” Other people’s misfortunes remind Lax how thankful he is for his company’s continued good fortune. “Every time we hold a company meeting, I open it up by saying, ‘We are so blessed and we cannot, for an instant, take our success for granted.'”

Despite a weak economy, rising costs, delivery delays, scared consumers and trade show wars, Naot continues to do quite well. What gives?

The reality for us has always been, even in difficult times, that we consistently do very well. The past few seasons have been no different.

What’s your secret?

One, we manufacture most everything in Israel and, as a result, we aren’t as dependent on what’s going on with China’s production issues. Yes, some items are delayed, but we are not nearly as affected. Two, we spoonfeed our retailers so they can re-order, re-order and re-order within a season, and we ship every order out the day it comes in. Now that gets harder to do as we grow, but we are still better at it than most. Basically, we ship goods when our retailers need it, and we don’t force them to buy huge amounts upfront.

Has the past year been unlike any other in your footwear career?

Yes. But it does remind me a bit of how the industry was in the early ’90s. Back then the country was in a recession and the industry was pretty much in shambles, but then the Euro comfort craze started happening. All of a sudden everyone realized they should be selling comfort shoes. Everybody in that segment of the business was in for geometric growth and we all just went along for the ride. I remember hearing how things were really bad, yet we were doubling our business each year.

What was the catalyst?

The country had changed. We went from everyone wearing suits and ties to casual attire in offices. The whole mood in the country changed as well, which was helped later by the Internet boom that led us out of the bad times. People became positive and our industry responded well. Of course, that’s when I first learned about knockoffs in our industry. For me, that was a shocking revelation. I will never understand why everyone wants to kill the Golden Goose. Knockoffs just kill a good style or trend faster. My resentment is not helped by the fact that my daughter has designed some really cool shoes for us over the years and, as a father, you take pride in that. But then you see a knockoff in Wal-Mart for a quarter of the price.

It all starts with a comfortable, stylish shoe, but what else contributes to your company’s success?

I’m a throwback hippie from the ’60s—I’ve even lived on a collective farm. So I’m a big believer that if you try and make the world a better place, then good things will come to you. For example, our shoe donation program that we have run for many years is a really big part of what we are about as a company. We give away thousands of shoes to homeless people around the country every year. That’s not only helped those people in need, but it has generated good feelings and a positive atmosphere internally as well as with many of our retail partners who help in the distribution to their local shelters. I think we’ve created special relationships as a result.

Maybe goodwill helps fuel your optimism despite the industry turmoil you cite?

I’m very optimistic about my life and our business, but I’ll admit that I’m less optimistic about what’s going on around the world, especially the simmering tensions in the Middle East.

Do those tensions have a direct impact on Naot’s Israeli-based production?

Well, we were just in the midst of an experiment with Egypt to outsource some sewing production and that is now up in the air. The truth is that every shoe we make is one of peace. Naot shoes are constructed by both Jews and Muslims. We are one of the largest employers of people in the West Bank. In fact, some of those residents have been sewing for us for 30 years and, no matter what the political situation or fighting has been, they have shipped shoes every week. They are amazing sewers. We are helping the people who need jobs the most. But we don’t sell our shoes based on those associations. We sell them just as great, comfortable shoes. We avoid all the politics.

Even when the rockets were exploding nearby they continued to show up for work?

Two years ago, when the fighting in northern Israel was really intense, we were the only factory to remain open in the area and so did our sewing workshops in the West Bank. And let me add that all of our workers receive Israeli wages. I believe the best form of charity is to provide good-paying jobs, because if people have economic tranquility then they tend not to want to go to war.

Who is the Naot customer?

First off, she is getting rarer. The consumer most of our retailers have been dependent on for last 20 years or so is the baby boomer. She is growing older, having some health issues and wants to be comfortable and fashionable. She also wants value, and I think Naot offers all of those product attributes. People want to be comfortable and they also want to feel like they’re not being taken advantage of. Along those lines, Naot has been described on many mom blogs as well as in The New York Times as the “perfect shoe to take on vacation if you’re just going to take one shoe.” It travels light and you can walk all day and go out at night in the same pair of shoes. We make comfortable shoes, and we are pushing the envelope in terms of fashion. We have a 30-person design team. Most companies today are just knocking off other brands and cutting back on design.

Has your customer changed since the recession?

Well, the great thing about women is they are still crazy about shoes. For our industry, it’s a real blessing. She may not be buying a new car these days but she still wants to feel better, so she buys a new pair of shoes. Recently, we even had one customer buy 18 pairs of our shoes from two websites. At first we thought it might have been purchased by a competitor, but the shoes were shipped to a residence in Connecticut. A lot of our customers become almost exclusive to our brand, which features a unique and healthy construction topped by very stylish designs. There are worse things a woman can indulge herself on, I guess.

Where do you see Naot in three years?

We plan to continue to grow as we try to address more of our consumers’ needs. Along those lines, we just launched a new line of pumps to meet women’s dressier needs.

Will you be addressing the wellness market with any toning/shaping products?

Not yet. We have something in the works, but that category has really been hurt by the flood of knockoffs. I’m not so sure I even want to be in toning and shaping category at this point. That said I believe the natural-motion category, specifically what Vibram FiveFingers has done, is very cool and has potential. It’s the most interesting product on the market right now. It’s fun and different, and Vibram is doing a great job marketing the brand.

Any advice for retailers trying to survive in these tough times?

Make the shopping experience as enjoyable as possible and don’t treat your vendors as if they are throwaways. Understand that the vendors are dependent on you but don’t abuse them on pricing. I think that the basic department store model of lowest prices is bad for business long-term. In contrast, I am a great believer in the Golden Rule: What’s good for me is good for you. So I say be straightforward with your vendors, staff and customers. In turn, I am incredibly loyal to our retailers. We are protective of the people we do business with and that’s why we refuse to sell to everyone in one area.
I would also advise retailers that sales commissions are fine but, as the owner of the store, you should decide what you want to sell and how you want to sell it. Don’t base decisions on what the spiff or commission rate might be that particular week because you want that consumer to come back some day. If your employees are over-selling your customers—and I’ve seen a lot of that going on of late—they will lose them in the long run. The salesman may have done a great job selling a really expensive item and received a good commission to boot, but the consumer went home and then suffered buyers remorse.

Your how-to recipe for succeeding in the shoe business seems to be working quite well to date.

Yes. Last year, it was interesting to see how those retailers that really stepped up to the plate with our brand reported that they had a phenomenal year. Those who backed off a bit with us had a fair year. And those who backed away from us entirely reported that they had trouble. The results were across the board and very telling.

What do you love most about your job?

I love giving away shoes to people in need. I love making people feel good. I love the creativity involved in the making of our shoes. I also love the second and third generations coming into the shoe business. Specifically, I love seeing my kids relate to other kids that are now working with our retail partners. My children have become good friends with many industry offspring and I think it’s terrific. That’s the hope for the future of our industry, because these kids are really talented. They have good values, they are good people and they are extremely good at what they do. You might say I’m very optimistic about that as well. —Greg Dutter

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