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New Balance Athletic Shoe, Inc.

New Balance Athletic Shoe, Inc.

20 Guest Street, Brighton Landing
Boston, Massachusetts 02135-2088
U.S.A.

Telephone: (617) 783-4000
Toll Free: (800) 343-1395
Fax: (617) 787-9355
Web site: http://www.newbalance.com


Private Company
Incorporated:
1906 as The New Balance Arch Company
Employees: 2,400
Sales: $ 1.3 billion (2004 est.)
NAIC: 316210 Footwear Manufacturing


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 produces 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 in the 1930s, 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 1961 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. However, 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 was 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, either in the 1970s or 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:

Which would you prefer? Athletic shoes built around the belief that the marketing prowess of an NBA superstar can sell anything? Or athletic shoes built around the belief that better fit and technology mean better performance?

We prefer the latter; that's why we adhere to a unique "Endorsed By No One" philosophy. Instead of paying celebrities to tell you how great our products are, we invest in research, design, and domestic manufacturing and let our products speak for themselves. By adhering to this philosophy, we are able to celebrate the true stars: every day athletes who choose New Balance footwear and apparel because they fit and because they perform.


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 growthcompanies 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 and Beyond

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 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.

Key Dates:

1906:
The New Balance Arch Company is founded in Massachusetts.
1961:
New Balance introduces the Trackster running shoe.
1972:
The company is acquired by James Davis for $100,000.
1975:
A new model, the 320, is worn by Tom Fleming during his winning run in the Boston marathon.
1982:
Sales reach $60 million.
1991:
Sales reach the $100 million mark.
1997:
A new manufacturing facility in Maine is constructed.
2004:
New Balance becomes a sponsor of major league lacrosse and purchases a manufacturer of lacrosse equipment.



By the end of 1998 New Balance had transformed into one of the top five players in athletic footwear. Demand for New Balance shoes had increased such that in order to fill demand, the company had subcontracted a good portion of its manufacturing work overseas. Chairman and CEO James Davis planned to more than triple the amount of money put in to advertising New Balance shoes, focusing the ads on lifestyle and still steering clear of celebrity endorsements. In June 1998 New Balance made its first offering in the private placement market. Interest was so pronounced that the transaction rose from $50 million to $65 million. Come September 1998 New Balance purchased the Dunham brand name and prepared to launch into the business of boots, specifically outdoor, hunting, work, and sports boots. Davis announced that Dunham would become a new brand under the New Balance umbrella. Dunham would continue to manufacture their product, but New Balance would increase its distribution. All of Dunham's 33 boot models would endure.


Throughout 1998 athletic shoes were in a near universal slump, and all companies that produced them except adidas and New Balance were losing money. New Balance was up 15 percent from their profits in 1997. While they enjoyed fiscal health, New Balance, like other show manufacturers during this time, found itself accused by the Union of Needletrades, Industrial, and Textile Employees (Unite) of contracting out to Chinese workers employed in sweatshop-like conditions, in direct contrast to the claims of New Balance. A spokesman for New Balance countered that the company employed consultation firms to ensure that human rights were not violated in any of their production plants, that many of the shoes made overseas were sold overseas, and that some 70 percent of its manufacture still occurred in the United States, a comparatively high rate.

During this time, New Balance surged forward to become the fourth largest athletic shoe company. In March 1999 the company launched a new marketing campaign for their kid's line of athletic shoes on Nickelodeon. Ground was broken on the company's new corporate headquarters in May 1999, although the company remained in Boston. By August 1999 it relaunched the Dunham boot brand with variable widths, one of the company's most successful features in its athletic shoe line. January 2000 saw two important additions to the company: a California manufacturing plant employing 250, and a new president and chief operating officer, Jim Tompkins, a vice-president with New Balance, who reported directly to CEO Davis. In fall of 2000 New Balance seemed poised to achieve some success with a new line of apparel. The market for apparel had been universally soft, but New Balance remained optimistic.

New Balance announced in April 2001 that a newly created division, Aravon, would specialize in the production of orthopedic shoes, product to be available by spring of 2002. As part of expansion efforts, CEO Davis also signed several licensing agreements for the New Balance logo, though, unlike Nike and other popular rivals, he and his company declined to sign sports stars to multi-million-dollar endorsement deals. Instead, Davis stayed the course that had built the company, emphasizing the quality and design of New Balance shoes rather their stylistic appeal. Nor did New Balance target young consumers with the same zeal of its rivals. By 2003, the company was ranked third among athletic shoe manufacturers, capturing an 11 percent share of the market. In February 2004, the company acquired lacrosse equipment manufacturer Warrior and became a sponsor of major league lacrosse in the United States.


Further Reading

Abel, Katie, "A Balancing Act: Jim and Anne Davis Have Always Had More on Their Minds, and Hearts, than Athletic Shoes," Footwear News, December 9, 2002, p. 44.

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

Fonda, Daren, "Sole Survivor: Making Sneakers in America is So Yesterday. How Can New Balance Do Itand Still Thrive?," Time, November 8, 2004.

Gatlin, Greg, "New Balance Stepping Out from Its Sole Business, Boston Herald, April 1, 2004, p. 41.

Kurlantzick, Joshua, "New Balance Stays a Step Ahead," U.S. News & World Report, " July 2, 2001, p. 34.

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.

"New Balance is Running Around Asia," AsiaPulse News, October 8, 2002.

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
update: Howard A. Jones

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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 companys 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 Companys financial growth occurred at a crawling pace as well, inching nearly imperceptibly forward as the decades passed. About the only notable achievement during the companys 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 Balances 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 Balances 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 managements own initiative, but however the diversification originated, its occurrence planted the seed for further involvement. In 1955 the seed flowered, this time under managements 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 Balances 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, Daviss 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 Daviss 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 Balances 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 companys 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 Daviss 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 Daviss 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 Runners 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 companys 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 sportfrom elite athletes to weekend warriors. Because feet dont 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 shoesfrom 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 companys 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, youre behind the eight ball all the way. It was out of control. We didnt 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 Balances 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 Daviss leading executives urged him to shutter the companys 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 Balances biggest competitors had made the move overseas years before and were realizing startling financial growthcompanies 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 companys 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. Weve never made sizzle. Weve always made steak.

Davis reasoned that New Balances strength was its attention to quality and the companys 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 companys 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 Balances 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 Balances 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 companys five, company-owned manufacturing facilitiesall in Massachusetts and Mainerunning, 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 companys 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

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New Balance Athletic Shoe, Inc.

New Balance Athletic Shoe, Inc.

Brighton Landing
20 Guest Street
Boston, Massachusetts 02135-2040
USA
Telephone: (800) 343-1395
Fax: (617) 787-9355
Web site: www.newbalance.com

NEW BALANCE THUNDERSTORM, STAIRS CAMPAIGN

OVERVIEW

Founded in 1906, the Boston-based company New Balance Athletic Shoe, Inc., had become the third-largest manufacturer of athletic shoes in the United States by 2003. Long catering to the serious athlete, New Balance prided itself on creating a quality product in a wide range of specialty sizes—a rarity in the athletic-footwear world. In 2002 New Balance launched two television commercials: "Thunderstorm" and "Stairs." Running under the larger, long-running "Achieve New Balance" umbrella campaign, both spots focused on products for female ath-letes—the former on women's running shoes and the latter on women's cross-training shoes. Both commercials were developed by New Balance's longtime ad agency, Messner, Vetere, Berger, McNamee, Schmetterer (MVBMS).

The commercials, a central feature of the company's $19 million marketing effort for 2002, premiered in March on several cable networks and continued throughout the year. They were aimed at 21- to 55-year-olds, a slightly broader demographic than New Balance's traditional target of 35- to 50-year-olds. The campaign also included magazine ads in such publications as Shape, Cooking Light, Condé Nast Traveler, Runner's World, and Fitness. A companion set of spots for men's running and cross-training shoes debuted at about the same time. John Donovan, New Balance's marketing services manager, explained to Chris Reidy of the Boston Globe that the commercials were about "how important exercise is for citizen athletes trying to balance the stresses of life."

Both spots were widely acclaimed by the advertising industry; "Stairs" was applauded for its dead-on depiction of what made a female athlete tick, and "Thunderstorm" won praise for its witty special effects. "Thunderstorm" was named one of the best commercials of 2002 by Adweek magazine.

HISTORICAL CONTEXT

For fiscal year 2003 New Balance's sales topped $910 million; they were down from $1.16 billion in 2001 but were enough to maintain the company's third-place rank, between Reebok and adidas. In a market dominated by Nike, New Balance had deliberately steered clear of high-profile advertising campaigns that targeted the urban-youth market by featuring superstar athletes and musicians. Additionally, New Balance's strongest category had always been running shoes, which made running a natural choice for its new television campaign.

New Balance had never advertised heavily on television. For years the company had preferred a more grassroots approach that allowed it to zero in on its best customers. To this end, most of its advertising budget went toward sports magazines and sponsorship of semiprofessional sporting events. Since 1989 New Balance had been a major sponsor of the Susan G. Komen Race for the Cure, a national event dedicated to raising funds to fight breast cancer, and since 1995 the company had been a major sponsor of the International Modern Pentathlon, an Olympic sport consisting of a single day of competition in five events: shooting, fencing, swimming, equestrian jumping, and running. The company's choice to sponsor these events highlighted its dedication to serving both female athletes and sports events that rewarded personal excellence.

TARGET MARKET

In a market dominated by youth, New Balance was a rarity: a footwear manufacturer that catered to middle-aged runners. "They have been after me for years to make more shoes for 14- to 15-year-olds. I don't want to do it," CEO Jim Davis told Daren Fonda of Time magazine. Unusual also was the fact that the company manufactured much of its product in the United States, years after most companies had outsourced that work to Asia. These factors worked to the company's advantage. Older consumers were very brand-loyal, and New Balance's U.S. facilities allowed the company to "respond more quickly to fashion cycles and requests from retail customers than overseas sneaker factories with long lead times," wrote Reidy in the Boston Globe.

Despite its satisfaction with its market niche, New Balance had always sought growth. By 2002 the company had enjoyed double-digit growth for several years, in part because of its acquisitions of Dunham boots, a "brown shoe" competitor to Timberland, and P.F. Flyers, a vintage brand with nostalgic appeal to baby boomers. In addition, New Balance "trail shoes" enjoyed a brief vogue among 20-somethings in the late 1990s, which further propelled sales figures. By 2001 the company's sales had topped $1 billion. But Davis, a runner himself who bought the company on the day of the Boston Marathon in 1972, had no intention to shift his main focus away from top-end athletic shoes. "We're going to continue to do what we know how to do, and we'll be gaining little bits of market share on an annual basis," he told Mark Sullivan of Sporting Goods Business.

In 2001 New Balance's $20 million advertising budget concentrated on television spots targeted at runners over the age of 45—a narrow demographic, but one easily reached through magazines such as Working Mother, Men's Journal, Prevention, and Outside. Though not as glitzy an approach as that of their competitors, targeting this niche made great business sense, according to New Balance marketing vice president Paul Heffernan. He told Hilary Cassidy of Brandweek, "We keep seeing studies that show the largest segment of the population is over 50, so we're spending some money there, and we don't think our competition is thinking about that group."

COMPETITION

New Balance also faced competition from industry leaders Nike and Reebok, mainstays adidas and Puma, and "boutique" brands such as Saucony and Brooks. In 2001 adidas announced plans to increase its marketing budget by 25 percent in a direct bid to leap over New Balance and take the number three spot behind Reebok. Adidas's ads highlighted a new technology called ClimaCool, which was used in its cross-training and basketball shoes to increase air circulation through the shoe.

In addition, adidas launched T-MAC, a new basketball shoe endorsed and named for Orlando Magic star Tracy McGrady. In response New Balance also introduced a new line of basketball shoes, endorsed by no one and aimed at the 15- to 21-year-old market. "Play to Live" was the tagline, and its grassroots "Hoop Troop" campaign included company appearances at local basketball courts to introduce the product directly to consumers. New Balance also sponsored the NBA's Hoop-It-Up tour, which featured 3-on-3 tournaments in 40 cities.

Whereas Nike dominated the field of high-tech shoe cushioning field with its tremendously popular Shox shoes, New Balance promoted its own Abzorb cushioning as the centerpiece of its superior technology. In 2004 adidas attempted to gain ground on New Balance with the $300 Adidas 1, which boasted a computer chip that automatically adjusted the shoe's cushioning level for maximized performance.

THE CHALLENGE OF FILMING IN ICELAND

New Balance's "Thunderstorm" spot was filmed in Iceland by director Agust Baldersson, though the storm that taunted the runner was computer-generated and on-site props consisted of rice and polystyrene. Real rain, in fact, preempted filming several times during the weeklong shoot. Fortunately, August in Iceland meant nearly 24 hours of daylight—plenty of time to get it right.

MARKETING STRATEGY

Unlike its primary competitors, Nike and Reebok, New Balance had long practiced an advertising strategy defined as "endorsed by no one," meaning it did not build marketing campaigns around top-name athletes. Likewise, "Thunderstorm" and "Stairs" were designed to appeal to goal-driven athletes who valued personal achievement over trendiness. "We don't want to be perceived as doing anything gimmicky," Stuart Babb, head of the company's running division, told Reidy of the Boston Globe.

New Balance's 2002 television spots deftly illustrated two modes of athletic perseverance with which its potential customers could identify. In "Thunderstorm" a runner made her way down a deserted highway as ominous storm clouds closed in on her. When the storm unleashed heavy rains, she took cover beneath a freeway overpass. As soon as she did, however, the rain stopped, taunting her with the suggestion that it was waiting for her to try to outrun it again. The voice-over asked, "What keeps you going?" and the tagline "Achieve New Balance" appeared. Shot in a similarly artistic black-and-white style, "Stairs" followed a woman as she ran up a stairway on a seaside cliff. At the top she rewarded herself with a treat—a single piece of chocolate. She continued again, down the stairs and up, to win another.

"'Conspicuous' is not in the New Balance dictionary; 'low profile' is," wrote Davis in an editorial for the Boston Globe. Indeed, not only were the athletes in these commercials "low profile" (they were exercising alone), but they also demonstrated discipline and fortitude, qualities that typified the ideal New Balance customer.

"New Balance sneakers are still basically known for their technical aspects, comfort, stability—and dowdi-ness," Fonda commented in Time. That did not seem to bother Davis. "If we hit on fashion, that's fine … but our shoes are really designed to run up hills." Indeed, New Balance's reputation for creating a quality product, particularly for people with hard-to-fit feet, had won it many influential customers, among them podiatrists, chiropractors, and serious runners. Nevertheless, market analyst Matt Powell told Natalie Zmuda of Footwear News, "I think the consumer still sees them as the noncorporate brand." That seemed to suit the company just fine. "Technical customers are consistent, even in difficult times, and that makes them more predictable," Nick Richino, global apparel operations manager for New Balance, explained to Rosemary Feitelberg of Women's Wear Daily.

OUTCOME

Writing in Fast Company, Randall Rothenberg named "Thunderstorm" the ad of the month for September 2002, calling it "gorgeous to look at" and praising its high production value, which he said brought to mind both The Wizard of Oz and the cult film Run, Lola, Run. Rothenberg also applauded the commercial's "subtle playfulness" as a refreshing antidote to the "humorlessness" of many athletic-shoe commercials aimed at women.

The "Achieve New Balance" campaign, of which the spots were a part, was revised in 2003 into the "N Is for Fit … N Is for Performance" campaign, which featured new print ads and television spots and emphasized the technical construction of New Balance shoes more than the previous years' advertising had. Also, subsequent campaigns focused on promoting New Balance's basketball shoes; despite Nike's dominance in that area, New Balance officials believed that it was a big enough market that the company could grab a slice of market share without a splashy star-driven campaign.

As Ann Davis, the company's executive vice president and the wife of CEO Jim Davis, told Katie Abel of Footwear News, the "spirit of perseverance has been one of the company's defining characteristics throughout the past 30 years." The commercials "Thunderstorm" and "Stairs" epitomized that spirit, which was verified by the attention the spots garnered from the advertising world. "New Balance chooses to celebrate everyday athletes who set their own performance goals," wrote Jim Davis in the Boston Globe. "We don't pay celebrities to sell our product. We believe our product sells itself."

FURTHER READING

Abel, Katie. "A Balancing Act: Jim and Anne Davis Have Always Had More on Their Minds, and Hearts, than Athletic Shoes." Footwear News, December 9, 2002, p. 44.

Cassidy, Hilary. "A Balanced Foothold." Brandweek, March 25, 2002, p. 19.

――――――. "New Balance Ages Up." Brandweek, January 8,2001, p. 8.

Davis, Jim. "New Balance Maintains 'Low Profile.'" Boston Globe, February 10, 2002.

Dill, Mallorre. "Rain and Shine." Adweek, March 18, 2002.

Feitelberg, Rosemary. "Brands on the Move." Women's Wear Daily, April 5, 2001, p. 7.

Fonda, Daren. "Sole Survivor: Making Sneakers in America Is So Yesterday. How Can New Balance Do It—and Still Thrive?" Time, November 8, 2005, p. 48.

"On a Roll: Joyce Minkoff." Advertising Age, May 21, 2001, p. 29.

Reidy, Chris. "New Balance Dons High-Tech Addition to Keep Strong Position in Runners' Market." Boston Globe, October 23, 2001.

――――――. "New Balance Plots Independent Strategy." Boston Globe, August 4, 2005.

――――――. "No-Name Kid Dazzles in New Balance's Basketball-Sneaker Advertising Launch." Boston Globe, August 10, 2002.

――――――. "TV Advertisements for New Balance Athletic Shoes Target Younger Audience." Boston Globe, March 1, 2002.

Rothenberg, Randall. "Ad of the Month: New Balance 'Thunderstorm.'" Fast Company, September 1, 2002.

Sullivan, Mark. "Marathon Man: Thirty Years after Buying New Balance, Jim Davis Is Still Running—All the Way Past the $1 Billion Mark." Sporting Goods Business, April, 2002, p. 36.

Zmuda, Natalie. "Rising Athletic Fortunes." Footwear News, May 17, 2004, p. 8.

                                      Kathy Wilson Peacock

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