New Balance Athletic Shoe, Inc.

New Balance Athletic Shoe, Inc.

61 North Beacon Street
Boston, Massachusetts 02134
U.S.A.
(617) 783-4000
Fax: (617) 787-9355

Private Company
Incorporated: 1906 as The New Balance Arch Company
Employees: 1,600
Sales: $555 million (1997)
SICs: 3149 Footwear Except Rubber, Not Elsewhere Classified; 3021 Rubber & Plastics Footwear

A leading second-tier athletic footwear company, New Balance Athletic Shoe, Inc. manufactures running, hiking, tennis, basketball, and cross-training shoes, offering its footwear in a broad range of width sizes. New Balance, in contrast to its larger competitors, manufactured nearly all of its footwear in the United States, as opposed to manufacturing its merchandise overseas. The company’s five, company-owned manufacturing facilities during the late 1990s were all located in Massachusetts and Maine. In addition to its lines of footwear, New Balance also produced a variety of athletic apparel.

Early 20th Century Origins

New Balance was founded in 1906 in Belmont, Massachusetts, where the company began operations as The New Balance Arch Company. Initially, the company manufactured arch supports and orthopedic shoes and, in fact, for much of the 20th century it continued to focus on this narrow, niche-oriented business line, rarely expanding and never moving beyond the boundaries of its native state. Like its physical growth, The New Balance Arch Company’s financial growth occurred at a crawling pace as well, inching nearly imperceptibly forward as the decades passed. About the only notable achievement during the company’s first half-century of existence was the establishment of a solid reputation, a renown forged by the quality of its specialty shoes and buttressed by decades of consistent high-quality craftsmanship. Though the work of the company was held in high regard, there was only a small circle of customers who could profess to the quality of New Balance’s footwear. Beyond this tight circle, the company was unknown; it was a small, Northeastern enterprise blanketed in anonymity.

Widespread notoriety and a worldwide customer base eventually would come New Balance’s way, but it would take roughly 70 years before the New Balance brand name stormed onto the national stage. One important step in this direction was taken sometime before the 1950s, when New Balance began manufacturing specially designed orthopedic footwear for baseball players and track and field athletes. The foray into the athletic market was a pivotal one, moving the company into a business area that years later would provide plenty of fuel to drive its financial growth upwards. It also was an entry most likely forced upon the company by special requests from the athletes themselves, rather than arising from management’s own initiative, but however the diversification originated, its occurrence planted the seed for further involvement. In 1955 the seed flowered, this time under management’s directive, when New Balance applied its experience in producing specially designed athletic footwear to a new shoe dubbed ‘Trackster,” a ripple-soled running shoe for men. The Trackster was unique, manufactured in a range of widths ranging from AA to EEEE, which set it apart from all other competing brands. Like its predecessor New Balance models, the Trackster gained a loyal following, winning over wearers who admired the workmanship and tailored fit of the shoes. But, like all New Balance models before it, the Trackster enjoyed only a limited customer base. The majority of Trackster sales were made through mail order purchases from local high schools and colleges. No other attempt was made to market the shoe. Although New Balance had moved into a promising market, one that offered a greater potential for growth than the market for orthopedic shoes and arch supports, the personality of the company had not changed. New Balance remained tied to its demure roots, preferring a corporate existence in the shadows rather than a more ambitious life as an innovative trendsetter with mass-market appeal. New Balance’s mellow and staid existence persevered for years after the introduction of the Trackster, but in the early 1970s an abrupt change took place, sparked by the arrival of a new owner, James S. Davis.

New Ownership in the 1970s

A 1964 graduate of Middlebury College, Davis was 28 years old when he acquired New Balance in 1972. Academically, Davis’s interests were in biology and chemistry, but he only pursued these disciplines tangentially as a professional. His chief interests were in marketing and sales, and he learned these skills while working as a sales representative for a high-technology medical electronics company. After two successful years in sales, Davis was promoted to sales manager, but he did not linger long in his new position. By the beginning of the 1970s Davis was ready to fulfill his next dream: owning and managing his own business. A friend of Davis’s suggested that he talk to Paul Kidd, who wanted to retire and sell his company, New Balance Shoes. Davis talked with Kidd and spent some time investigating the company by canvassing New Balance’s small band of customers. His findings piqued his interest. “I felt that leisure-time products would be a high-growth market,” Davis remembered, recalling his thoughts prior to purchasing the company, “and I found that New Balance had a good product. After running in them myself, I was very impressed with the shoe. I got the same reaction from other runners. The company had relied entirely on word-of-mouth advertising and I was confident that with some marketing, sales could be expanded substantially.” Using his savings and money obtained from a long-term bank loan, Davis bought New Balance in 1972 for $100,000, the same amount the company was collecting in sales per year.

When Davis acquired New Balance, the company employed five workers who worked in a Watertown, Massachusetts garage producing approximately 30 pairs of Tracksters per day. Davis was intent on dramatically magnifying the scale of the company’s operations, but first he needed to establish a nationwide sales distribution system to support such growth, and he spent much of his first year establishing a network of geographically based sales representatives. After doing this, forces beyond Davis’s control swept the company toward prolific growth, making his tenure of ownership overwhelmingly successful soon after he took control. The era of recreational jogging exploded with widespread excitement in 1973 and 1974, as vast multitudes took to the streets and parks and began logging miles in earnest. In a matter of months, running transformed from an activity that attracted only serious racers and physical fitness enthusiasts into major leisure-time activity. The timing of Davis’s acquisition had proved superb. Amid the sweeping passion for running appeared a collection of new magazines that catered to the jogging enthusiast, one of which was Runner’s World, which in 1975 published its first annual supplement that rated the leading running shoes. In the first issue, New Balance placed third, an encouraging result in itself, but the following year, in October 1976, the New Balance 320 was judged to be the best running shoe in the world, with two other New Balance entries placing third and seventh. The notoriety received from being billed as the best tied New Balance to a rocket; at company headquarters in Watertown the telephone did not stop ringing with urgent requests for the New Balance 320. “Our biggest problem,” Davis noted, “was getting enough of them out the door.”

Energetic Growth Begins in the Mid-1970s

Quickly, Davis found himself marketing a highly popular product, the success of which forever altered the face of the once sleepy New Balance. As the company struggled to meet demand by increasing production, an order backlog swelled with each passing month. Annual sales leaped upward, jumping from $221,583 in 1973 to more than $1 million by 1976 and eclipsing $4.5 million in 1977. Everything was changing at the company that labored 70 years to achieve a sales volume of $100,000, but there were aspects of the company that did not change and, in the years ahead, would stand as hallmarks of New Balance. Chief among these qualities that tied the company to its 1906 origins were its attention to craftsmanship (something Davis continued to preach as his staff frenetically endeavored to meet demand) and to making shoes for a wide range of width and length sizes. Marketing shoes with widths stretching from AA to EEEE and lengths up to size 20 was something no other athletic footwear manufacturer did, not in the 1970s and not 20 years later when the athletic footwear industry represented a nearly $10 billion business. Another thread of continuity was the company’s long-time presence in New England. As the athletic footwear industry grew by leaps and bounds from the early 1970s forward, registering robust growth through the 1980s and into the 1990s, nearly all of the manufacturers moved their production overseas where labor costs were an infinitesimal fraction of labor costs in the United States. New Balance did not make such a move. Davis, through the years, was steadfast about his refusal to establish manufacturing operations in Asia, preferring to keep his production operations close to home where he believed he could exert greater control over manufacturing quality. As New Balance moved forward from the early 1970s on, its domestic production operations and width-sizing choices would stand as two of the most distinctive qualities describing the company.

Company Perspectives:

The company maintains a steadfast commitment to the founding product ideals of performance, fit, technical superiority and superior manufacturing. New Balance is the brand of choice for millions of people around the world who are serious about their sport—from elite athletes to weekend warriors. Because feet don’t come in one or two widths, and because shoes that fit better perform better, New Balance takes pride in being the only athletic shoe company to offer a full range of width-sized athletic shoes—from 2A to 4E, and sizes from 4 to 20 for adults, and 8 to 6 for grade school and pre-school children, and infants. While the company’s heritage is that of a strong running brand, over the years New Balance has branched into several other footwear categories, growing its consumer awareness and loyalty in athletic walking, cross training, basketball, tennis, hiking, golf, casuals, and kids.

The massive surge in the popularity of running that began in the early 1970s and swept up New Balance in late 1976 pressed forward into the 1980s, never losing much of its energy. Though the intensity of the running craze suggested it might be a fleeting fad, the athletic footwear industry recorded numbing growth throughout the 1980s, distinguishing itself as a legitimate multibillion-dollar business. As the industry expanded at an annual pace of roughly 20 percent, New Balance shared in the riches, registering great gains in its revenue volume. By 1982, a decade after Davis acquired a $100,000-a-year-in-sales company, New Balance was collecting $60 million a year in sales, with its future prospects as bright as they had been during the previous six years. Three years later the company was generating $85 million a year in sales, but it was at this point that the perpetually growing athletic footwear industry and New Balance parted company. Though the industry continued to expand at an exhausting rate, New Balance no longer was sharing in the riches. The company faltered, and Davis blamed himself. “We lost our focus,” he later mused, recalling the years when industrywide growth pushed the company forward. “Growing that dramatically, you’re behind the eight ball all the way. It was out of control. We didn’t execute well... we tried to chase Nike and Reebok in terms of design, which we never should have done. The result was a lot of closeouts, a lot of selling below the recommended wholesale price.” Between 1986 and 1989, New Balance’s prolific financial growth all but vanished, leaving Davis searching for answers.

New Balance Falters During the Late 1980s

The bleakest point during the anemic late 1980s occurred in 1989 when Davis’s leading executives urged him to shutter the company’s domestic manufacturing operations and move production overseas. The benefits of such a move were easily identifiable. Instead of paying $10 an hour plus benefits to its U.S. workers, New Balance could conduct its manufacturing in Asia and pay manufacturing workers $1 dollar a day or less. Moreover, all of New Balance’s biggest competitors had made the move overseas years before and were realizing startling financial growth—companies such as Nike, which was hurtling past the $1 billion sales mark while New Balance was beginning to flounder below the $100 million sales mark. Despite the overwhelming evidence, Davis could not be swayed. He insisted on keeping his production facilities close to the company’s headquarters and, in fact, did the opposite of what his management team was prodding him to do. Davis began pouring money into his U.S. manufacturing facilities, entrenching his position as others persuaded him to move abroad. ‘The sizzle of the 1980s is gone,” Davis proclaimed, “and the steak of the 1990s is here. We’ve never made sizzle. We’ve always made steak.”

Davis reasoned that New Balance’s strength was its attention to quality and the company’s ability to respond quickly to retailers’ needs, both of which would diminish if the company began subcontracting manufacturing thousands of miles away across the Pacific Ocean. His goal, as the 1990s began, was to shorten significantly the time required to roll out a new shoe model, slashing development time from one year to four months. Toward this objective Davis began investing heavily in capital improvements to increase efficiency and lift capacity. “What always sold,” he remarked, “were our core running products and our tennis shoes. But we never had enough of them because we had spread ourselves too thin in all these peripheral areas.” Accordingly, Davis narrowed the company’s focus and began funneling money into its manufacturing facilities in Massachusetts and Maine. In 1991, as sales approached $100 million and profitability returned, Davis set aside $2 million for new equipment, spreading the investment over two years. In 1993 $3 million was earmarked for high-technology equipment such as automated cutting and vision-stitching machines. By the end of 1994 $6 million had been spent during the previous three years on new equipment, including a new computer-assisted design system that, along with other new machinery, enabled New Balance’s research-and-development team to cut the required time for new product introduction from one year to four months. In addition, the investment in new equipment helped boost New Balance’s gross profit margins from the mid-20 percent range averaged in the 1980s to the mid-30 percent range by 1993, a figure that compared favorably to the 38 percent reported by Nike, whose labor costs were much lower.

Flourishing in the 1990s

By the mid-1990s New Balance was again a thriving enterprise recording encouraging financial gains. Revenues in 1995 were up to $380 million and successful forays into apparel and a variety of athletic footwear niches had been completed. At the company’s five, company-owned manufacturing facilities—all in Massachusetts and Maine—running, walking, cross-training, tennis, basketball, and hiking shoes were assembled, giving the company wide exposure to a variety of popular recreational activities during the 1990s. When annual sales jumped to $474 million in 1996 and New Balance ranked as one of the top six best-selling footwear brands in the world and one of the top five domestically, Davis set his sights on reaching the $1 billion sales mark by 2000. Toward this end, the company made encouraging progress in 1997, when sales increased to more than $550 million. During the year, as many of the company’s competitors recorded lackluster growth, New Balance exuded confidence that years ahead would bring continued success. The company established a new factory in Norway, Maine and opened a $15 million distribution center in Lawrence, Massachusetts. To reach its goal of $1 billion in sales by the beginning of the new century, the company intensified its advertising efforts, setting aside $13 million for advertising in 1998 compared with the $4 million spent in 1997. On this ambitious note, the company prepared its plans for the future, confident that the awareness of the New Balance brand name would increase as sales climbed toward the $1 billion goal.

Further Reading

Finegan, Jay, “Surviving in the Nike/Reebok Jungle,” Inc., May 1993, p. 98.

Melville, Greg, “Balancing Act; Bolstered This Year by Innovative New Products New Balance Continues To Buck the Odds in the Flagging Athletic Industry, Footwear News, December 15, 1997, p. 9.

Tedeschi, Mark, “New Balance Looks To Double Sales,” Footwear News, January 28, 1991, p. 73.

——, “New Balance Targets $200 Mil. Sales,” Footwear News, June 29, 1992, p. 15.

——, “The SGB Interview,” Sporting Goods Business, February 4, 1998, p. 38.

—Jeffrey L. Covell