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There's Something Afoot at Skechers

Analysts say the footwear company, led by a father-son team, has hit its stride

June 16, 2002|LESLIE EARNEST | TIMES STAFF WRITER

A decade after being pushed aside by footwear maker L.A. Gear, the founders of Skechers USA Inc. have impressed Wall Street and industry insiders with a resounding comeback.

Chief Executive Robert Greenberg and his son Michael Greenberg, the company's president, have created a footwear company that, by flouting industry formula, has boldly strode into the No. 3 U.S. sales slot behind Nike Inc. and Reebok International.

The Manhattan Beach-based company has gained traction in a slippery economy by designing for all kinds of shoe buyers--men, women, teens and kids--and all kinds of tastes with 1,500 styles, including athletic shoes, clunky boots, basic brown shoes, trendy platforms, steel-toed sneakers, fuzzy slippers and even shoe skates. By comparison, the average shoe maker has 100 to 200 selections and usually is identified with a specific type of shoe, analysts say.

Overall footwear sales have been sluggish to negative for 18 months, according to the American Apparel & Footwear Assn. in Arlington, Va. But Skechers' sales grew 42% in 2001 from the previous year and rose about 8% in the first quarter of 2002, compared with the year-earlier period.

While broadening its base and often selling shoes at lower prices than its competitors, Skechers has paid special attention to young women, who tend to buy shoes for all members of the family while shopping for themselves.

"So you're outfitting the whole family," said Michael Pachter, a Wedbush Morgan Securities analyst. "It's a brilliant strategy, and I'm absolutely shocked that no one else has figured it out."

But some analysts remain cautious about Skechers, because this is an industry in which styles shift rapidly, a brand's cachet can dim suddenly and even a seasonal fluctuation will pluck profits from the bottom line. Skechers is competing against a daunting array of rivals, including Adidas-Salomon, Steven Madden Ltd. and C&J Clark International Ltd.

Further, Skechers aims its styles mainly at teens and young adults, always a dicey prospect, said Roz Bryant, an analyst with Morningstar Inc.

"That's a group whose taste can swing rather widely," she said. "So that is definitely a risk in looking at Skechers as a stock. The share price is likely to move up and down as the company hits and misses with its customers."

And it's been mostly hits. Skechers stock closed at $22.10 on Friday, down 5 cents on the New York Stock Exchange. The share price has climbed about 50% this year, but still is down 28% compared with a year ago.

Earnings, meanwhile, tumbled about 50% in the third and fourth quarters of 2001, prompting the footwear maker to implement cost-cutting measures, including firing about 5% of its work force of 2,000.

But with sales nearing $1 billion, Skechers has pulled into an enviable position within the industry, analysts say. It logged a strong first quarter and has boosted financial projections for the year. A recent report by Smartmoney.com named Skechers one of 16 attractively valued small-cap companies with "solid growth prospects." This month, Skechers made Business Week's top 10 list of "hot growth companies."

Skechers "has done a very good job of really becoming a big player in this market," said Steven Richter, an analyst with Wellington Management. That's partly because it is quick to react to consumer sentiment, retail experts say.

When clunky shoe styles cooled last fall, Skechers immediately launched a "sexy and frivolous" line called Skechers by Michelle K, targeting trend-conscious 18-to-34-year-old women, said Ellen Campuzano, president of the Committee For Colour & Trends, a New York trend-tracking firm. The line retailed at $60 to $250 a pair, while a new juniors line launched about the same time sold for $20 to $70.

"Stupid they're not," Campuzano said, adding that the footwear maker, which also operates 85 stores, has become so adept at mimicking hot new styles that other companies increasingly copy theirs. "Everybody wants to knock off their good shoes."

CEO Robert Greenberg, 62, says Skechers "interprets categories" but doesn't "knock off styles."

In any case, the Greenbergs are having an effect on the industry, said Fawn Evenson, vice president of the American Apparel & Footwear Assn. "To take this company and make it a premier brand, I think people just look at it in awe."

Clearly, the Greenbergs are resilient. And plentiful. Robert Greenberg's four other sons and a daughter also work for the company, along with a niece and a nephew.

The siblings, who live in Manhattan Beach, socialize and vacation together. But shop talk often dominates and they can be a bit single-minded, said Jeffrey Greenberg, 34, a company director who is in charge of TV advertising. If they gather at a restaurant, for example, "we watch feet as everybody's going out," he said.

Retail a Tradition

in Greenberg Family

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