Brooks Sports Inc. Business Information, Profile, and History

Company Perspectives:

If your feet aren't happy, you're not happy. If you're not happy, we're not happy. So what do we do? We simply make the most comfortable running shoes imaginable.

History of Brooks Sports Inc.

Brooks Sports Inc. is a small yet well-recognized athletic footwear and apparel manufacturer, best known for its running shoes, which ranked as one of the top three brands in the United States during the late 1970s. Success during the late 1970s sent the company reeling during the 1980s, as it failed to sustain its market leadership and floundered. A refocused market strategy during the 1990s, targeted toward serious runners in the 35- to 54-year-old age bracket, reinvigorated Brooks, prompting diversification into apparel in 1997. The company designs and manufactures a full range of running and fitness footwear and apparel, maintaining a global presence in the athletic market.

Origins

Founded in 1914, Brooks began business as a maker of ice skates and cleated sports shoes, but the company did not distinguish itself until more than 60 years later, when it thrived as a manufacturer of running shoes. During the 1970s, the popularity of jogging swept across the United States, carrying with it the popularity of Brooks footwear. Led by its signature Vantage brand, Brooks rose to dizzying heights in the fast-growing athletic footwear industry, securing a large share of the ever increasing revenues and profits that helped transform an upstart rival named Nike into a multibillion-dollar business empire. Like Nike, Brooks emerged as a favorite among the burgeoning ranks of running enthusiasts who embraced the sport from coast to coast. By the late 1970s, Brooks ranked as one of the top three running shoe brands in the country, seemingly bound for the same size of fortune that the much younger Nike would later claim. The comparisons between Nike and Brooks ended shortly after the late 1970s, however; to the chagrin of Brooks's management, Nike was able to sustain the momentum generated during the late 1970s and develop a sprawling business with a domineering presence in the athletic market. Brooks, meanwhile, faltered quickly, tripped up by the confidence instilled during its meteoric rise into the industry's elite during the late 1970s. Industry pundits later theorized that the cause of Brooks's sudden collapse came from the company's errant attempts to ape the strategy used by Nike. Ironically, Nike, albeit indirectly, later intervened as Brooks's savior, but during the intervening period separating Brooks's collapse and its resurrection, the company teetered precariously on the brink of insolvency. Although the company was founded at the start of World War I, the story of its success truly began in the wake of the disaster that followed its late 1970s rise to prominence.

Caught up in the fervor created by the running craze during the late 1970s, Brooks overextended itself and quickly paid the price for its zeal. The company expanded into other athletic footwear markets, using its success in the running shoe market as the basis for diversifying into an array of footwear markets, including basketball, aerobics, and baseball. As Brooks diversified, it also entered the expensive realm of securing celebrity endorsements from well-recognized, professional athletes. Signing big-name athletes was a marketing strategy employed by Nike, and Brooks, eager to keep pace with the rising giant of the industry, followed suit, signing athletes such as football quarterback Dan Marino and basketball star James Worthy to endorse the company's $70 shoes. Problems began to surface when Brooks's business began to slacken, leaving the company overexposed to the business downturn and unable to operate efficiently or effectively. In response to the financial difficulties that subsequently beset Brooks, the company trimmed operating costs by using cheaper materials for its footwear. In a further bid to stanch the mounting financial losses, the company slashed prices and began distributing more and more of its merchandise to deep discount chains such as Kmart, where Brooks footwear retailed for as low as $20. Consequently, the brand lost credibility, its image tarnished by inferior products and a marketing strategy that repelled the company's original customers, joggers.

Behind the scenes, Brooks had a parent company that endured the perennial losses posted by its subsidiary. Rockford, Michigan-based Wolverine World Wide Inc., best known for its brand of Hush Puppies shoes, acquired Brooks in 1982, operating the company as a subsidiary named Brooks Shoe Inc. During the 1980s, Wolverine World Wide felt the sting of Brooks's pervasive problems, guilty itself of perpetuating the problems by supporting Brooks with what critics described as weak marketing. During Wolverine World Wide's decade of ownership, Brooks racked up $60 million in losses, recording eight consecutive years of unprofitability. By the early 1990s, Wolverine World Wide was ready to unload the burdensome drag on its earnings, and in early 1993 the company found a willing buyer. Ownership of Brooks changed hands in February 1993, marking the beginning of a new era for the troubled shoe manufacturer. To Brooks's new parent company fell the difficult task of injecting the 79-year-old concern with the vitality it had lost during the 1980s.

New Ownership for the 1990s

Brooks's new parent company was the Rokke Group (later Aker RGI ), a privately held Norwegian investment group with interests in shipping, real estate, commercial fishing, and sporting goods. Led and founded by Bjorn Gjelsten and Kjell Rokke, the investment firm paid $21 million for Brooks, a deal that included Brooks's U.S. operations and its worldwide licensing and distribution network. Following its acquisition by the Rokke Group, the company was renamed Brooks Sports Inc. and relocated near the Rokke Group's U.S. headquarters in Seattle. Brooks's international headquarters in Grand Rapids, Michigan, and its domestic headquarters in Hanover, Pennsylvania, were consolidated in Bothell, Washington, a Seattle suburb, as were the finance and accounting office in Michigan and the company's sourcing office in Taiwan. At the time of the acquisition, Brooks was generating roughly $100 million in annual, worldwide sales, although company officials would later contend that the financial figures reported by Wolverine World Wide were inflated. What was beyond argument, however, was the anemic domestic performance of Brooks. Sales in the United States had plateaued at approximately $25 million annually. Further, the eight years of consecutive financial losses were compounded by the deteriorated strength of the Brooks brand name. The company that had once ranked as one of the top three brands in the United States had plummeted to 25th place by 1993, when Brooks controlled 0.4 percent of the domestic market.

Profound changes were clearly needed, but in the midst of the reorganization and consolidation that occupied the company's attention throughout much of 1993, there were few signs that sweeping reforms were underway. In fact, the company appeared to be regressing rather than pressing forward with a restorative plan, as the launch of a new shoe dubbed 'The Truth' fell victim to numerous delays and the lack of a marketing campaign. The problems stemmed from Brooks's senior management, which was in disarray following the Rokke Group's acquisition of the company, thereby delaying the implementation of any program designed to cure Brooks's ills. The cloud hanging over Brooks's managerial ranks was cleared away substantially in August 1993, when three of the company's senior executives--including the president--departed, each leaving the company, according to various, contradictory accounts, either after being fired or after voluntarily stepping aside. With the departure of what the July 1, 1994 Puget Sound Business Journal described as 'a faltering management team,' stewardship of the company devolved to Rokke Group's chairman and CEO, Bjorn Gjelsten. Gjelsten's leadership of Brooks was a temporary solution to the company's most pressing problem. Gjelsten assumed day-to-day control over the company while he searched for a permanent replacement. By the end of 1993, he had found such a person, a well-regarded executive named Helen Rockey, who at the time was working for Nike.

Raised in Seattle, Rockey graduated from the University of Washington with a bachelor's degree in economics in 1978, ending her academic career two years later, after she had earned her master's degree in business administration. Rockey joined a production management training program at a plywood and sawmill in Oregon, spent one year working as vice-president of marketing for a Tacoma, Washington, company called Big Toys Inc., and then found a lasting position at Nike. Nike hired Rockey in 1984 as a special sales manager of the company's then small apparel division. She quickly distinguished herself at Nike, ultimately earning promotion to the position of general manager of the company's sport graphics and accessories divisions, which marketed merchandise such as hats, T-shirts, and water bottles. Rockey spearheaded tremendous growth at the divisions, highlighted by a four-year period in which she increased sales from $8 million to $500 million. Gjelsten was impressed, convinced that Rockey was capable of marshaling Brooks towards profitability and restoring the company's brand image to its former luster. In January 1994, Rockey was named president of Brooks, becoming the first female to head a major athletic shoe company in the United States.

Comeback Beginning in 1994

Upon assuming control over Brooks, Rockey implemented sweeping changes, announcing her intention to increase sales and profits by 25 percent during the ensuing three to five years. Her plan centered on reengineering Brooks's products rather than restructuring the company itself, an approach that focused the company's attention on serious runners--the core of the company's traditional success. Other sports categories were discontinued, eliminating any traces of Brooks's attempts to present itself as a 'mini-Nike.' After sharpening the company's focus on the running shoe market, Rockey turned to redesigning Brooks's footwear, as she desperately sought to distance her regime from the company that sold its cheaply made products in Kmart stores for as little as $20.

By June 1994, Rockey had delivered 'The Truth' to retailers, a back-to-basics running shoe that retailed for $109. Concurrently, Rockey began circuiting the country's retail establishments, concentrating on the specialty running stores that had always served as Brooks's strongest distribution channel. In trying to restore confidence in the Brooks name, Rockey articulated three corporate objectives that assuaged retailers' fears of dealing with the Brooks brand. First, she preached product excellence, promising revamped products with a drastically reduced defect rate. She stressed operational execution, promising on time delivery of the company's merchandise. Lastly, she promised better sell-through support, detailing plans to provide marketing support that incorporated individual retail establishments. Part of the program involving closer ties between Brooks and retailers included the sponsorship of athletes--in the new Rockey era, expensive celebrity endorsement deals were eliminated. Instead, Brooks began building a stable of 200 runners grouped into four sponsorship categories: world class, national, regional, and local. Sponsorship deals in many cases were restricted to free gear, rather than cash payments, and required the athletes to forge a relationship with their local retailer by making promotional appearances and conducting running clinics at particular stores. Because of the company's policy to eschew celebrity endorsement deals, Brooks gave up its chase of the hotly pursued youth markets, in which success was heavily dependent on the fame of the athlete who endorsed a particular shoe. Instead, Brooks concentrated on 35- to 54-year-old customers, the strongest market niche of serious runners.

The changes implemented by Rockey created a more focused, leaner company. Profitability, conspicuously absent during the eight years preceding Rockey's appointment as president, was restored after her first year of stewardship, putting the company on firm footing. Initially, the aim was to strip down the company and narrow its focus, eliminating all expenditures that did not address Rockey's three objectives. Once profitability had been restored and the Brooks brand name began to exude some of its former strength, Rockey could assume a more aggressive posture. Accordingly, the full effect of her influence did not materialize until Brooks's exited the mid-1990s and began building on its distribution base of specialty running stores.

Sales during the late 1990s rose energetically, driven upward by the palmy mood pervading Brooks's Bothell headquarters. Having re-established the brand in specialty running stores, Rockey endeavored to win back the business of regional sporting goods stores and department stores, and registered quick success. In 1996, for instance, Nordstrom Inc. carried Brooks footwear at just one store, but a year later, the department store chain carried the company's shoes at 30 locations. As the number of retail locations stocking the company's footwear increased, sales increased as well, particularly in the United States, where the company had incurred its greatest damage prior to Rockey's arrival. Against the backdrop of a 48 percent increase in domestic sales in 1996, Rockey unveiled her next plan of attack, announcing in mid-1996 that Brooks would enter the apparel business. The company introduced a full-line of technical running and fitness apparel for women and men in the spring of 1997, adding a substantial revenue stream to Brooks's business. After a 29 percent increase in apparel sales in 1998, the company's apparel business accounted for 15 percent of total sales by the end of the decade.

Despite the undeniable resurgence of Brooks, Aker RGI--Brooks's parent company--decided to cut its ties to the footwear and apparel manufacturer. In November 1998, the Norwegian holding company sold controlling interest in Brooks to Stamford, Connecticut, venture capital firm J.H. Whitney & Co. for $40 million. Aker RGI, which had decided to pay more attention to its commercial fishing and real estate holdings, retained a 20 percent stake in Brooks, selling 60 percent to J.H. Whitney. The remaining 20 percent interest in Brooks was purchased by Rockey and 70 other Brooks employees, giving management a substantial stake in what promised to be a promising future. In early 1999, orders from specialty running shops were up 84 percent, punctuating the strident success of the company during the latter half of the 1990s. Between 1995 and 1999, sales increased an average of 30 percent annually, fueling confidence that Rockey, who now had a substantial, vested interest in Brooks's success, would spearhead commensurate growth as the company entered the 21st century. In March 1999, such expectations were shattered when Rockey made a startling announcement.

In March 1999, Rockey announced she was leaving Brooks to join Birmingham, Alabama-based retailer Just For Feet Inc. as president and CEO. Insiders and outsiders were shocked by the news, coming a few short months after Rockey had led an employee buyout of the company. Rockey saw her chance to join a higher profile company, and took it, leaving Vice-President of Sales and Marketing Bruce Pettet, a Brooks executive since 1995, in charge of running the company. Pettet took over the titles of president and CEO from Rockey, promising a continuation of the policies and strategies developed and pursued by his predecessor. In November 1999, Pettet presided over the acquisition of Total Quality Apparel Resource Inc., a National City, California, company that had previously served as an independent apparel contractor for Brooks. The acquisition, organized as a subsidiary of Brooks, strengthened the company's presence in apparel, which company officials projected to be a 25 percent contributor to the company's overall sales. With the change in leadership and consistently strong financial performance behind it, Brooks prepared for the decade ahead, resurrected by the Rockey era and confident that Pettet's tenure of leadership would engender further success in the 21st century.

Principal Subsidiaries: Total Quality Apparel Resource Inc.

Principal Competitors: Nike, Inc.; adidas-Salomon AG; Reebok International Ltd.; Fila Holding S.p.A.

Chronology

• Key Dates:

• 1914: Brooks is formed.
• 1982: Wolverine World Wide acquires Brooks.
• 1993: Norwegian investment firm The Rokke Group purchases Brooks.
• 1994: Former Nike executive Helen Rockey is appointed president.
• 1997: Brooks introduces a full line of apparel in the spring.
• 1998: J.H. Whitney & Co. acquires controlling interest in Brooks.
• 1999: Bruce Pettet is named president and CEO after Rockey's departure.