Great interview in USA Today with John Fisher, CEO of Saucony athletic apparel. In sales dollars, Nike tops Saucony nearly 100 fold, yet Saucony's stock has risen 369% to Nike's 38%. Fisher says that Saucony is successful thanks to efficient management and building brand loyalty:
Q: But doesn't that fly in the face of the premise of this Q&A? It sounds like Saucony has to become part of a bigger company to succeed.
A: I would agree if you changed the word bigger to stronger. There are alternatives in how to get there. If we were to go into a specialty running shop and say we're going to run a $50 million ad campaign for a new shoe, they would say, "That's nice, but are you going to have a clinic Tuesday when the Happy Valley Roadrunners are coming into my store?" It's not just size, but the whole brand charisma. Smaller companies can compete by conducting technical clinics, launch parties, accompanying some customers on weekly runs, doing a lot of really grass-roots and guerrilla marketing. Our goal is to double the size of our business in five years, and we feel we can do it organically.
Q: You mentioned advertising. That seems like a huge disadvantage. Saucony allocates 8% of sales to ads and promotion. Even if you doubled that, it would be a tiny fraction of what Nike spends.
A: Nike pays Tiger Woods more money than Saucony may spend in this decade. Now, that's a challenge. We can build product with anybody. We have a management team equal to any company. We don't have enough advertising money to just go out and bang a drum and be heard. Opportunity is in grass-roots programs. We've created something called Saucony 26. We find 26 people running the 26 miles of marathons. One is a 91-year-old man who has run 10 consecutive marathons. There's a girl who was a burn victim at 3, and they said she'd never walk again. There is a blind runner. Fabulous stories. They are human interest, touchy-feely stories. It's enabled us to touch the hearts of runners. Thirty thousand people will run the New York marathon, and I'll almost guarantee that most know of the 26 program.
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Q: Why has Saucony had two great years?
A: It's basic and almost embarrassing to utter. We've undergone a 60-month program. Our goal is to be one of the best-managed companies in our subset. It sounds simple, but every decision you make you have to step back and say: Is this a best practice, or is there a better way to do it? In the last five or six years, it became evident that building a better mousetrap wasn't enough. If you look at our metrics — inventory turn, day sales outstanding, accounts receivables — all the things an investment banker or an analyst would look at, we're starting to come out at or near the top.
To my mind, the key difference between Saucony and Nike is that Saucony builds brand loyalty by making a great product (thanks to their specialization in running shoes) at a reasonable price point (efficient management); Nike builds brand loyalty by marketing an image. Frankly, image is all Nike has to market to runners, since most of their shoes are crap (excepting the Bowerman Series).
The fact of the matter is that Nike will never develop any real brand loyalty among runners because they discontinue their shoes so often. Every Nike running shoe I've ever liked was discontinued after its first or second season. (They haven't made a decent high-mileage trainer since the Air Max 180, nor a decent racing flat since the Air Mariah.) I want to stick with the shoe that I've been successful with. Companies like Brooks, Saucony and Mizuno understand this, and change their lines very little from year to year. Nike chases or leads every trend and fad so that a runner can't get the same shoe twice. Unlike a company like Saucony, Nike would rather sell two pairs of mediocre shoes to 10 million people, then move on to the next fad, than sell 10 pairs of great shoes to 2 million people. (If you think this is an urealistic example, ask any dedicated runner how many pairs of shoes they buy in a year -- I'll bet the answer is at least five.)
That's why Nike isn't the runner's choice, which is ironic given the fact that Bill Bowerman and Phil Knight started Blue Ribbon Sports (Nike's predecessor) to serve the distance running community. Of course, they may not care. But I'll give my money to a company like Saucony or Brooks -- and I have, repeatedly -- because I know that they know what's important to me.