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Sunday, Dec 3, 2023

CORPORATE FOCUS—Healthy Apparel Sector and Marketing Drive Shoemaker

Business has been anything but sketchy of late for hip footwear fashioner Skechers USA Inc.

The stock of the Manhattan Beach-based shoe peddler has been on an upward trajectory for the last several months and the company recently started selling its own shoes in Europe, a step it hopes will triple its overseas revenues.

Riding a wave that has lifted many stocks in the apparel sector, Skechers’ shares hit a 52-week high of $32.20 apiece on Feb. 26. The stock has been on a meteoric climb since hitting its 52-week low of $5.56 a share exactly a year ago this month. Shares in the 9-year-old company, which went public in June 1999, were trading at around $27 apiece last week.

Skechers has benefited from investors’ skittishness about the downturn in technology stocks and an economic slowdown, according to analysts.

“For one, the footwear market has been safe for investors,” said David Turner, an analyst with Ferris, Baker Watts Inc. in Baltimore. “You’ve got money coming into footwear stocks and this is an outperforming stock (compared to others in its sector).”

Ferris Baker has issued an “aggressive buy” recommendation on the stock.

Allison Malkin, a Skechers’ spokeswoman, said the company is winning by trying to appeal to a wide audience.

“Skechers has taken the approach that great product that appeals to young trendsetters can also have appeal to the masses,” Malkin said. “It’s basically wearable footwear with much of it that’s liked by the trendsetters.”

Another key to the company’s success has been its ability to keep prices low. Malkin said that Skechers shoes average $60 a pair, while competitors such as R. Griggs Group Ltd.’s Dr. Marten’s, casual shoes by Kenneth Cole Productions Inc. and sports shoes by Nike Inc. and Reebok International Ltd. can cost more than $100 per pair.

“(Low price) is not the main reason people buy the (Skechers) footwear, but the price is attractive,” she said. “The product has done well previously, but brand awareness has grown, sales have gone well and retailers are giving them more space in their stores. A lot of this came together at the right time.”

For the fourth quarter ended Dec. 31, Skechers reported net income of $43.8 million (26 cents per diluted share), compared to net income of $19.8 million (8 cents a share) in the like year-earlier quarter.

Fourth quarter revenues were $74.5 million vs. $42.3 million in the fourth quarter of 1999.

Skechers President Michael Greenberg attributed the growth to product innovation, aggressive marketing and the company’s ability to react quickly to fashion trends.

Malkin said that Skechers prides itself on “in-your-face” marketing techniques, which this year will include pitchmen Rob Lowe and Matt Dillon pushing men’s shoes in America and teeny-bop phenom Britney Spears doing likewise for the girls in Europe. The Spears ad campaign will be accompanied by the opening of Skechers retail outlets in London and Dusseldorf this month and Paris in May.

The company has been distributing its shoes in Europe for years through distribution and licensing arrangements with outside third parties. The new stores will increase the company’s brand presence in the markets where they open.

At the end of 2000, Skechers had more than 50 retail stores in the United States and the company had an aggressive expansion plan to deliver another 20 to 25 stores worldwide this year. The company also plans to open retail operations in the United Kingdom and Ireland, and aims to run that business through a European subsidiary to be based in London.

There are also new product lines being prepped for the market this year, including Somethin’ Else from Skechers (a line of dress/casual shoes for juniors), and Skechers by Michelle K (a high-fashion designer line for trend-savvy young women between the ages of 18 and 34).

Turner said that Skechers’ marketing strategy sets it apart from its competitors because the company reinvests 10 percent of its sales into marketing, where the industry norm is 5 percent.

Skechers was founded by Greenberg’s father, Robert, who previously had been a co-founder of the now-marginal L.A. Gear footwear of the 1980s. That company, which also relied heavily on marketing to establish market share, was at one time third to Nike and Reebok, but suffered losses of more than $140 million in the early 1990s. The Greenberg family controls about 80 percent of Skechers Class B voting shares.

The company expects revenues from European sales to climb from 10 percent to 30 percent of its total within three years, Turner said.

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