Sweet Sixteen

Blake Krueger, CEO of Wolverine Worldwide, discusses why the acquisition of Sperry, Saucony, Stride Rite and Keds positions the company’s entire portfolio for tremendous growth in the decades ahead. By Greg Dutter

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The way CEO Blake Krueger describes it, Wolverine Worldwide has been acquiring brands over the past 20 years, so its latest acquisition of Collective Brands’ Sperry, Saucony, Stride Rite and Keds is nothing out of the ordinary. The decision by management back in the early ’90s was to evolve into a footwear conglomerate beyond its tight core of Wolverine (the brand born in 1883 and listed on its stock note), Hush Puppies (1958) and Bates (1969). Slowly but surely they began to do just that through a combination of license deals and acquisitions. There was Caterpillar, Merrell, Sebago, Patagonia and Harley-Davidson, to name a few. And in most, if not all, cases, they were start-ups or small brands with unknown potential. (No one in their right mind suspected Merrell would zoom from around $20 million to around $500 million in the span of 10 years.)

But then comes this latest multi-brand acquisition—one that appears to be on steroids in comparison to any of the previous ones. This is a proverbial grand slam that puts Wolverine Worldwide in a league of its own. “This is clearly transformative,” Krueger says of the still-pending acquisition. “Our combined companies will market and sell about 100 million pairs of footwear around the world annually.” That’s big. So big, in fact, that it would make Wolverine Worldwide the largest non-athletic footwear company in the world, noting the asterisks for Saucony and Merrell, which both make athletic styles.

Sperry alone is a $335 million business and on a significant growth curve. Stride Rite is in the same ballpark sales-wise, which includes its coveted retail arm that opens a host of opportunities for the entire Wolverine portfolio. Saucony is a $280 million business and one that kicks open the door to the lucrative athletic arena with a pure running brand. And last, but surely not least, is Keds, an $80 million business everyone knows and many believe has enormous untapped potential in the casual, vulcanized sneaker world. For those keeping score, that amounts to more than $1 billion in sales. No small potatoes by any means. But, according to Krueger, digestible for Wolverine: “It’s a portfolio of brands of the size and heritage that we understand and love. The four brands alone have 380 years of brand equity,” he notes.

With astounding numbers like these, the question is: What is there not to like? “It was a perfect dovetail fit of brands,” Krueger says. “We are comfortable operating a portfolio of brands and these four filled in five targeted growth areas for us: women’s, athletic, children’s and casual. And of course, there’s the retail operations.” Strategically it makes sense, and Krueger says the collective management teams are a solid cultural fit with Wolverine as well. “I think the people at PLG (Collective Brands’ Performance and Lifestyle Group) were thrilled to have Wolverine come out the winner,” he offers. “We’re pretty much a what-you-see-is-what-you-get Midwestern company. We understand better-grade brands and we understand international partnerships as our brands are sold in more than 190 countries around the world.” Krueger adds that it’s been a “perfect fit” sentiment held by many of the company’s key retailers, international partners and factory groups as well as within its existing employee base.

Then there are the incredible growth potential reasons to make the deal, particularly coming from abroad. “When we looked at the strength of these four brands and businesses, they’re substantially sold (more than 90 percent, in fact) in the United States,” Krueger offers. “And today we sell about 65 percent of our overall pairs overseas, so there’s a tremendous opportunity through our long established international distributor network and partners to really capitalize on these brands internationally.” Specifically, Krueger notes that Sperry is currently the number one casual brand in the U.S., yet less than 4 percent of its sales are from overseas.

Not surprisingly, there were several suitors vying for these brands. While Krueger likes to believe Wolverine won out based on the perfect and desired fit status, he is a realist who understands that the company that bids the most usually wins. It’s also why the deal, when completed in the coming months, will have taken more than a year to close because of intense competition. “It was simply a long process, where a lot of companies as well as private equity money was interested and we just operated with patience and persistence,” Krueger says. “Eventually, we came out the winner for these brands.”

It doesn’t hurt that the timing for such an acquisition is ideal. “Honestly, any time would have been good given the perfect dovetail fit between the two companies, but now was a very good time,” he says. “Financing is cheap today. We are at an all-time low in that regard and that also made the deal attractive.”

Next up the real work begins—incorporating the brands into the fold and giving them the support to let them flourish. Krueger is confident that is exactly what will happen. “Every one of our acquisitions has become a success,” he says. “We’ve kept them distinct, we’ve given them a centralized support network and we’ve let them concentrate individually on sales, marketing and product development.” Krueger cites Merrell as an example: “Most people don’t realize that the same management team that gave us the opportunity to buy the brand when it was $23 million was the same one that quickly grew to $300 million under us.”

Krueger, ever the strategist, notes the acquisition allows Wolverine to cover its bases. What will soon be 16 brands sold in nearly 200 countries covers a ton of ground. It’d be a dominant position if it happened to be a game of Risk. “The advantage is we are not subject to any single consumer trend or country, region or consumer group risk,” he says. “Our business model inherently takes risk out of the equation. Having that kind of a global spread across a range of brands lets us perform very well in weak, so-so and great times.”

And Krueger is confident great times lie ahead for Wolverine. “We will quickly be $2.5 to $3 billion in sales with 16 powerhouse brands that have the ability to acquire global talent,” he says. “If you just look at our supply chain leverage—sourcing 100 million pairs a year—even the most pessimistic person has got to be pretty optimistic about Wolverine Worldwide.” Krueger adds, “The opportunities across the portfolio are pretty spectacular. It’s going to be a wonderful 10- or 20-year run for our company, for sure. It’s a great time for our people, our company and our international partners.”

What are some of the attributes of Sperry, beyond the international growth potential, that you are excited about?
First of all, they have a superb management team that is focused on fresh product, innovation and expansion of the brand into new footwear categories beyond boat shoes. Most people don’t appreciate that the majority of their pairs today you would not consider to be boat shoes or boat shoe derivative. They are also expanding the brand beyond footwear. The consumer is inviting Sperry to participate, whether it’s socks, eyewear, apparel or bags, to become a true lifestyle brand.

Sperry has that strong American vibe along the lines of Ralph Lauren.
Yes, it’s a strong, authentic brand. Over the years, it’s built pretty fierce consumer loyalty and it’s got a market position that is young. They also have a wide variety of price ranges as well as different product categories so the table of Sperry shoes that you see outside a Journeys store is different to the table you see in a Nordstrom or a Macy’s. The brand has stretch.

How does Sperry not cannibalize sales, say from Sebago, particularly with respect to boat shoes?
If you had to pick two brands that leap into consumers’ minds as a dominant in boat shoes it would be Sperry and Sebago. But we need to recognize that a lot of brands sell boat shoes—virtually every brand does today. Beyond that the brands are different: Sebago, the heritage going back to 1946, is a more premium, classic brand. Certainly, in international markets where Sebago is much stronger and bigger than in the U.S., it’s a more premium brand than Sperry. Sebago would skew substantially more men’s than women’s, and Sperry is more women’s than men’s. Today, Sperry has a wider variety of price points and is targeted at a younger consumer. But a number of people have asked me, “Why would you keep both brands?” It’s probably for the same reason that we keep more than one work boot brand to service the market here in the U.S. We like having more than one arrow in our quiver to address a particular consumer segment or product category. Sperry and Sebago certainly gives us a one-two punch as much as Cat, Bates, Wolverine and Harley-Davidson give us that one, two, three, four punch in work boots.

What about Keds? There’s a brand with Converse-like name recognition, but certainly not the sales of it.
I love the Keds brand. I think when you look at the growing presence of vulcanized footwear around the world—with Converse on one side of the continuum with rock ‘n’ roll and on the other side is Vans in skate and surf, there’s this big space in the middle where I think Keds could be a very big business. And Keds used to be a large business. Today, it’s probably a much larger brand than it is a business, but still a wonderful opportunity. It has a top 10 brand consumer awareness among women. What is also interesting is that during our recent sales conference in May I expected a strong degree of interest in Sperry and Saucony from our international partners but what surprised me was the interest in Keds. They all remember it when it was a substantially larger business and category-defining brand. There is also a new management team in place that is very talented and has a great strategy for growing the business back to its full potential.

Why do you think Keds hasn’t clicked, despite the popularity of vulcanized footwear?
Like everything in life, it comes down to people. You need the right team in place with the right strategy and, over a long period of time, you have to let them do their thing. I think over the last 20 years Keds has been a bit of a revolving door when it comes to leadership and strategy. Each new leader had a different strategic approach or market position for the brand. That has hurt. But now they have brought in Rick Blackshaw, who has a lot of experience in the footwear industry, including a considerable stint at Converse.

What does Saucony bring to the Wolverine fold?
As a company, we needed a true athletic brand. I say that knowing we have categories in the athletic arena with Merrell, be it barefoot or trail running, but we needed a real athletic brand. We love Saucony in particular because it’s in the running category and ranked number three in independent running specialty shops in the U.S. Every town has a handful of these shops—they are wonderful, full-service and devoted to their sport. There is also a tremendous opportunity for the Saucony brand internationally as well as to expand their minimalist and lightweight running categories.

Do you see Saucony expanding into other athletic categories?
Well, we don’t have plans to introduce a basketball shoe next season (laughs). But I believe there is stretch within the brand, but there is so much upside just in the running and immediately adjacent categories that there’s plenty of room for growth in those for the time being.

What is it about running that has made the sport and the look so popular of late?
One: Coming out of the recession, running has been the biggest growth category in athletics. Why? Because a person can spend only $100 on a new pair of running shoes and enjoy the sport. And you can enjoy it for 10 minutes or you can go run for an hour or more. It’s a true athletic category that has had a great run in the past three years and it continues into this year. Two: A macro trend in consumer soft goods that has been growing for the last year or so and is hitting full stride now is color. And if there’s a footwear category that particularly lends itself to color, it’s the athletic category, especially running and minimalist running shoes. That has come on at the same time as the surge in people running.

Could the minimalism category be the next shaping and toning bubble?
I certainly don’t believe minimalist, barefoot running is a flash in the pan. Every specialty running shop in America today has their minimalist running wall where it might be 0 mm drop or a 4- or 8-mm drops. But the focus overall is on lightweight and I do not see that going away—I see that as a permanent subset category of running. In fact, it’s been the fastest growing segment of running for the last two years.

What differentiates it from shaping and toning?
Shaping and toning is totally different. The minimalist trend is based on how people ran and walked for tens of thousands of years. If you go back to the book, Born to Run, which was written by an avid runner, he asked why he was always hurt and solved his problem by studying the biomechanics of natural motion. It was a well thought out book that opened a lot of people’s eyes. Of course, it may not be for everybody. Personally, I like to run in a 4 mm drop in our Merrell Mixmaster category instead of pure barefoot. Of course, with their color pops and unique silhouttes, these shoes are being worn by a pretty large segment of the population just for fashion because consumers love the look and the feel.

What is there to like about Stride Rite?
It’s a children’s brand and, while we have had pockets of success in our existing brands in that segment, Stride Rite is in a dominant position in the U.S. market in better-grade toddler and kids’ shoes. And about half of their pairs are sold through their 300-plus retail stores largely based in the U.S. It’s also got a great heritage yet is another brand that only has 4 percent of its sales outside the U.S. It has a tremendous global opportunity. Also, their existing product development infrastructure makes the Sperry and Saucony children’s product, which presents a great marriage of talent for our other brands. It gives us critical mass in children’s product knowledge and talent that we can take through various collections around the world. Finally, it takes our overall retail sales from 7 to 14 percent in one swoop, which is another key strategic focus of ours.

Will you continue to sell other brands through those doors?
Absolutely. We can also envision a new multi-brand children’s concept with 8 to 10 combined brands that would be extremely powerful. And, in the same vein, you can envision a multi-brand retail concept on the adult level.

Is there one brand amid the entire portfolio with the greatest potential?
My official line is: I like all my children. Smaller brands like Chaco and Cushe, for example, are wonderful but just getting started around the world. Even Merrell is still early in its growth cycle on a global scale. Of the new brands, I like all four. But the momentum of Sperry today and the fact that only 4 percent of its sales are outside the U.S. presents a wonderful opportunity.

Hovering over all of this is a shaky global economy. Are you optimistic that it is on the mend or are we just walking along the edge of a cliff?
From a macro economic environment, it’s really kind of a crossroads time for the world. We are seeing this firsthand with Europe today, and it has the potential to have an impact on the U.S. and practically every other country in the world. Frankly, the world for maybe the past 40 or 50 years has over spent and over-promised. That pertains to countries, cities, companies and individuals. And now we are in the process of deleveraging. And any time you try and deleverage, it brings uncertainty and unrest. You see that in countries that are struggling with their fiscal viability. While I personally tend to be optimistic because of the industry we are in and just my own personality, you also have to be realistic. Today we need strong leadership willing to talk about the hard issues that we all know are out there. We are not seeing enough of it, in my opinion.

As an industry, are we better off than four years ago?
I think we are better off. During an industry event in 2009 I made a comment that you should never waste a good recession. By that I meant we had a recession, and it was a whopper, but you need to use that opportunity to be reflective, make some hard decisions, look at how you conduct business and do it more efficiently and better. I think the good companies didn’t waste the recession.

Are consumers better off than they were four years ago?
Taking a global view of the big markets, I think retailers are worried about macro economic conditions in Europe and other regions. They are taking a bit of a conservative view. Specific to the U.S., I think the consumer is feeling pretty good. It’s been a very good year for footwear and so was 2011. Europe, on the other hand, is pretty tepid consumer environment. They are looking at their own headlines every day.

Do you think Europe can get its financial house in order?
Fundamentally, the world is coming around to what it can afford. Can we afford people retiring at 55 on full salary and benefits like in Greece? The fact is that while those people might have been promised that, the country simply cannot afford it. Can the U.S. go on forever spending 18 percent-plus of our total economy on healthcare when the next closest industrial nation, with better healthcare coverage statistically, spends 10 to 11 percent? It doesn’t matter if you are a Democrat or a Republican, everyone knows that the answer is no. We will hit the wall. Some people say we have hit it already or are very close, and that’s why you need people with courage to at least talk about the longer-term issues and potential solutions.
Are our political leaders really doing that or are they kicking it down the road?
My frustration is that, collectively, they are kicking it down the road. There are a few brave people out there that are talking, be it (U.S. Representative) Paul Ryan of Wisconsin where, whether you agree with him or not, at least he’s talking about the issues. That’s what it’s going to take because we cannot kick the can down the road forever. As a businessperson, and my motto of carpe diem, I would rather address the issues, propose some solutions and, hard as though they may be to take, get on with the execution of those solutions. We all know that these problems exist, whether it’s Medicaid, Medicare or Social Security. We have a tax code today, for example, that no human being that I know of can begin to comprehend. Unfortunately, what we need are solutions across a spectrum of big issues. But, hey, we’ve got a pretty great country and I would never bet against it and I think eventually we will find a core of leadership to propose what needs to be done. Again, it doesn’t matter if you are a Democrat or a Republican, what the majority of the American people want is to see is a responsible, assertive, strategic approach to solving our long-term issues.
Does either of the candidates running for president this November possess such capabilities?
I believe one of them does. Without naming names, we need a more pragmatic business approach to solving our long-term problems. If you go back 10 to 40 years ago, we used to get that in our government by working across the aisle. Unfortunately, that’s become more difficult, but that’s what it takes. While both candidates are smart and well-intentioned, I believe we’re at a crossroads, not just for our country, but also for the world. Is bigger government and higher taxes the right way to go? Do you believe government can solve all of your problems or not? The world needs growth and prosperity, but it has to be a balanced approach. You have to try and balance your checkbook over a period of time as a country, just like families and companies have to do. We have to be better at balancing the checkbook, and we also have to be better at generating growth. It’s going to take a balanced approach for the world to get out of this mess. But if the world can get its financial house in order, I think you are going to see several decades of tremendous growth. But solving all of that is certainly above my pay grade (laughs).

More to your pay grade, you’ve seemed to have positioned Wolverine Worldwide well.
Coming out of the recession there were some macro trends that had benefited our brands in particular. The global consumer became interested in authentic brands—ones that had withstood the test of time. Consumers were also interested in value, but that doesn’t necessarily mean cheaper. It’s why we have seen premium-priced, made-in-the-U.S.A. product like our Wolverine 1000 Mile collection perform well in the U.S. and around the world. I would also say coming out of the recession, there has been a strong global trend toward Americana styling—preppy, for example, is a strong, global macro trend that continues. There has also been a very strong trend in boots around the world. I’m not talking about one item or strictly about fashion or weather boots. Rather, the general boot silhouette continues to be very strong.

If a certain boot brand cools off, what impact might that have on the overall market?
I don’t like to comment on individual brands, but the industry has gone through times before where there’s a hot, high-priced item at retail for a period of time that levels off or goes away. It can put some pressure on retailers to substitute it by selling two or three pairs to get the same level of sales of that one item. But we’ve lived through this before as an industry and we will live through it again many times over.

Like warm winters.
Yes. I try to never let our brand presidents use weather as an excuse but, of course, I use it all the time when talking to investors. But let’s not kid ourselves: Weather can be a very important factor in our industry. Some years you have a good season and some years you don’t. It all balances out over time.

There’s been a lot of talk about China’s sourcing woes. What’s your take on that issue?
Everyone asks me, “What’s the new China?” And I answer, “China is the new China.” While a lot of companies have been looking to diversify from that country, two years ago 87 percent of all footwear consumed in America came from China and, despite those diversification efforts, in the most recent 12-month period it was still 85 percent. There are some countries on the rise (Indonesia, India, Bangladesh and Vietnam), but I believe China is going to be the primary country from a sourcing standpoint for a substantial period of time in the future. Nonetheless, we have been diversifying our sourcing mix and today less than 70 percent of our pairs are made in China.

What can’t be overlooked is the humongous growth market in terms of selling shoes in China.
Absolutely. For example, Hush Puppies, Caterpillar and Merrell have been performing very well in this market. It’s a tremendous consumer market. China has a middle class that can afford western brands that is substantially bigger than the entire population of the U.S.
What’s the main goal for the rest of the year?
Our main goal this year is to integrate the PLG brands into the company and get started on our international expansion together. Also, as a company, to stay flexible. One of my main focuses over the last 5 years has been on people. We’ve invested a lot of money developing the talent that we have as well as in attracting new talent. The PLG acquisition gives us an East Coast base. Now we have the ability to attract people to our Lexington, MA, headquarters as well as those in London and Montreal.

What do you love most about your job?
I certainly enjoy coming to work every day. First and foremost, it’s our people. We almost never lose a mid-level or senior-level executive. We’ve got a great team that works together. And it’s really a transformative time for our company. We’ve got the ability to develop and put people in different assignments across a 16-brand portfolio. They can develop their careers within a single company. What I also like about our company is the accessibility and ability to interact with 190 countries around the world. The different cultures, languages, people, consumer tastes… The sheer variety of things that cross my desk every day keeps it very interesting and very fun. And when I make a trip and interact with our customers around the world—when I walk the malls in Chile, for example—I always come away learning several things that will help me in our business that I wouldn’t have gotten by sitting in my office, staring at a computer.

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