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We’ve been positive on the athletic footwear and apparel space for a while now, with our views primarily expressed through our focus on NKE and FL.  One of the key underlying themes to our thesis is product.  Innovation, excitement, and importantly marketing dollars being pumped into the space is a favorable dynamic, especially when it coincides with an overall pick up in consumer demand.  Importantly, we believe that it is not just the 800 lb. gorilla that will dominate the space over the next couple of years.  Instead as we have said before, we believe innovation, R&D, and marketing will be stepped up across the competitive spectrum. 

This morning we came across a telling article outlining the growth strategy for one of specialty running’s premier brands, Brooks Sports (owned by Berkshire Hathaway).  At just $200 million in global sales with goals to move toward $1 billion, this certainly adds validity to the future growth of specialty running.  Highlights below:

  • The company is taking an aggressive stance on growth after ending 2009 with $200 million in annual revenues.  Brooks’ new and aggressive strategic plan, as outlined by the CEO, calls for a five-fold increase in sales to $1 billion over the next ten years!  Underlying this growth will be a huge step up in marketing, R&D, and promotional activity.  We expect that to achieve these goals, new retail partnerships will have to be made.  RUN by Foot Locker would certainly be a start.
  • In 2010 alone, Brooks’ marketing budget will increase by 42%, R&D will increase by 33%, and promotional spending will increase by 21%.  Clearly Nike isn’t the only company investing in its growth.  Keep in mind that while public data is largely unavailable for Brooks, the company did see a mid-single digit gain in sales in 2009.  Comparisons are not what’s driving these increases.
  • The company believes that innovative product, design, materials, and aesthetics are key to growth, especially in an industry where “everybody is copying everybody.”
  • In another sign that the premium/technical running category remains robust, Brooks’ CEO indicated that U.S footwear sales are up over 25% through early April and their backlog for the remainder of the year is up double-digits. Another positive data point for techinical running, a key category for FINL and increasingly so for FL.

Eric Levine

Director