Triple Threat

On April 11, 2005, Angel Martinez became president and CEO of Goleta, CA-based Deckers Outdoor Corp., parent of the Teva, Simple and Ugg footwear brands. While the move is certainly a positive one, Martinez will face some big challenges.

For starters, Deckers, a publicly held company, had disappointing revenues of $214.78 million in 2004, and as of June 2005, was still not meeting Wall Street's expectations. (In late spring, Deckers warned that second quarter earnings would fall below expectations; this followed a similar announcement in April.)

The main problem can be attributed to Teva, which has suffered from inconsistent sales and was not putting enough effort into energizing its product and leveraging its authenticity in the outdoor market. Moreover, the industry continues to view Teva and Ugg as seasonal brands, which has limited their growth potential. (Nevertheless, Ugg's U.S. sales hit a high of $102 million in '04.)

But Martinez, 49, is armed with a mandate to restore product innovation, excitement and growth to all three brands, and is already hard at work. Prior to joining Deckers, Martinez, a branding and marketing expert, served as CEO of Keen Footwear, where he helped the start-up brand achieve a nearly meteoric rise. Earlier in his career, he spent many years as a top executive at Reebok.

Here, Martinez discusses how he plans to move Deckers, and its three brands, forward.



SGB: What state is Deckers in right now, and what changes are in the works?

MARTINEZ: Generally speaking, the brands are very strong and very healthy. Ugg is coming off an explosion of demand. We have a great opportunity now to solidify the foundation we built, and really bring more men into the franchise. We've got a tremendous retailer network out there that's all premium and quality distribution, which is very important. We don't anticipate expanding our distribution in the U.S. at all. We have a big upside internationally with Ugg?it's totally undeveloped internationally.

On the Teva side, we got caught with a couple of seasons of lack of innovation and lack of color, and we're addressing that aggressively. This is very important to the brand. We should see a revitalized Teva brand. That being said, the brand is still very strong and very important to retailers. It is still one of the icon brands in the outdoor industry. There is already a lot of good stuff coming for Spring '06, and retailers will see this ramping up as we move through '06 and into '07.

[As for state of the company], I'm amazed at how many well-kept secrets there are in this building. By that I mean how many good ideas have been floating around here and have, for whatever reason, not been fully developed or fully exploited. I've been sort of going through and dusting off all these gems that I keep finding in terms of products and ideas, and bringing them to fruition. That's really accelerated the development cycle, because we're not starting from scratch?we're simply taking great thinking and refining it and making it market-ready; commercializing it.

On the Simple side, I'm floored by what's coming. We just had a great sales meeting and the product line looks spectacular. Simple is back in a big way?probably in a better way than it's ever been. The market is ready for Simple?in many ways, more than it was ready for Simple a few years back. There's been an ongoing kind of dissatisfaction with what's happened in the over-proliferated general athletic market, and what Simple represents is more of a casual market inspired by athletics. It's good quality and great value for the money. Plus, it's fun product.



SGB: How do the three brands stack up in the market today, and where would you like to see them a year from now?

MARTINEZ: Ugg certainly has developed a tremendous following among women. We do a very significant men's business in slippers, and some men's business in the classic boot area. We've introduced our cold weather package and that has appealed to men. But we're still very undeveloped when it comes to men's. I'd like to see us move down that path with some great product.

A year from now, I would expect Ugg to have successfully become a four-quarter brand versus a two-quarter brand. This is important for the business, but more importantly, I think that there's a lot of exciting new product that will be shown at the [WSA] show, which is going to show people that sheepskin is about comfort as well as warmth. Also, we've done some sandals and other things with sheepskin trim that look really great.

I think Teva obviously is a Spring brand?Q1, Q2?and it needs to fully evolve as a full-blown footwear brand, not just a sandal brand. I would expect a year from now that we will have successfully launched some closed-toe footwear and some performance footwear that's pretty innovative.

For Simple, I just want to see [the brand] reborn from its roots. I want to see Simple as important as it once was, and more so to the independent retailer and the outdoor specialty retailer. I think that certain sporting goods retailers have a need for this kind of product line that is not everywhere, but it is premium-quality, good-margin product.



SGB: Who is the Simple consumer?

MARTINEZ: It's probably the kid who is in college or just out of college. A guy?or woman?who wants great-looking, athletic, casual product, but who's burnt out on the high-tech and the faux-tech. This is a customer who perhaps grew up in skate shoes and now wants something a little more sophisticated than skate. She wants something a little different, really cute, with great colors and design. The brand has a bit of an attitude. It's not for everybody. It's a bit of a counter-culture brand.



SGB: How would you characterize Ugg? The brand has spanned trends from surf to fashion.

MARTINEZ: It's really about a customer who wants premium luxury comfort. They know luxury when they see it. They tend to want a luxurious car; they spend money on the things that make them feel really good. It's about taking care of yourself. The thing that we found about an Ugg customer is that once they've discovered the comfort of the product, they don't go back to discomfort. It's kind of true of everybody. We know that men are going to discover that rapidly, and already have, certainly on the slipper side of the business.



SGB: Teva has had its ups and downs. What are the key initiatives for the brand?

MARTINEZ: Becoming a year-round, performance footwear brand, not a sandal brand. That's important. The number one priority at Teva is innovation and great product. As far as I'm concerned, we'll do whatever we have to do to get to that point as rapidly as possible. I'm feeling great about the design direction and the things I'm seeing so far.

The second thing we have to do is tell people who Teva is as a brand. We've been very quiet with advertising and marketing over the last few years. In some people's minds, as a brand, Teva is a middle-aged white guy wearing white socks and Tevas. That's fine?I'm a middle-aged guy?but the bull's eye of the Teva consumer is 22 years old. They're outdoor enthusiasts, they like adrenaline sports, they have time and resources to participate in outdoor activities. They tend to look forward to time off as an opportunity to participate. These are very active people whose idea of sports and fun is outdoor performance activities. Teva is a brand that should fit right smack in the middle of their closets.



SGB: Are there any plans to broaden distribution for Simple and Teva?

MARTINEZ: For Simple, we now need to expose the product to more people. Certainly, the independent retailer, the outdoor specialty retailer and the Nordstrom customer are very important for Simple. We've got nothing but upside, and given the existing distribution that we have already with Ugg and Teva, we just need to show this customer the Simple line.

There's no plan to broaden distribution for Teva. We're already in all the places that we need to be. We just need better product, more innovation and more color. Generally, there's a lot of product in the Teva line that's a little bit stale and that hasn't been revitalized in a few seasons. As a result, competition has been able to take a bite out of Teva's market share, and that's something we're addressing very quickly.



SGB: What are your advertising and marketing plans for the three brands?

MARTINEZ: We're ramping up our marketing spend for 2006 on the Teva side. It will be significantly higher than it's been in the last few years?we're minimally tripling our spend. We will be able to tell our story and get the consumer to understand what the Teva brand is all about. [Editor's note: Deckers Outdoor recently told Wall Street that Teva will spend $2.9 million in measured media in 2006, up from $800,000 this year.]

[Regarding Simple and Ugg], I'm a product and marketing person, so I believe the most important thing is to upgrade product, and the second most important thing is to tell people that you have great product. You do that at point-of-sale and you do that in media. We will be doing a better job on the Ugg side of controlling our brand message. It's very important for Ugg to work in partnership with retailers to show the new product, show the new colors, and to create momentum in the market and pull that product through.

Simple is just one of those secrets I've been talking about, and I don't think it's a secret we should keep. We're looking at all kinds of clever, yet non-conformist, approaches to telling the Simple story. The brand's marketing has to be consistent with the brand's character.



SGB: What are your plans regarding the opening of a retail store?

MARTINEZ: Primarily, the store will be an Ugg Australia store and it will be in the Camarillo Outlet mall [near the company's Goleta headquarters]. For a brand like Ugg, it's very important to control the quality of our distribution. We're going to start with one store and then as we refine the formula, we'll roll out a few others. There's no firm plan yet on how many stores we'll open. The first one should be open by mid-October, and we'll probably have three or four stores within the next year or two.



SGB: How do the brands play outside the U.S., and are there plans to expand in foreign markets?

MARTINEZ: They all play really well outside the U.S. As a matter of fact, the biggest market outside the U.S. for Simple in its heyday was Japan. We did a very large chunk of business in Japan and the Japanese consumer really understood Simple.

On the Ugg side, everyone wants luxury comfort?that's universal. We just haven't made the product available to people outside the U.S. in what I would consider a coherent way. And Teva has historically been a well-respected, core brand in outdoor performance worldwide.

We are building an international division of the company, which we have not had. We've been a company that's been selling product internationally, versus a company that builds global brands. They're two very different things. We're going to help manage these brands with our distribution partners and we're going to build these franchises around the core brand personalities that we have here, and they are all very authentic brands, which is the key to success worldwide.



SGB: What's it like competing against Keen?

MARTINEZ: In my mind, I'm not competing against Keen. I'm trying to bring the best out of what's coming from Teva. It's like growing up as a competitive runner. When you stand on that starting line, sure, you're going to run a race against a bunch of other guys and you want to win. But the race isn't really run right there. The race is run in all the miles you've put in to get to the starting line.

What's happened is that we haven't been putting in the miles?we haven't been doing enough hill running and we haven't been doing enough sprint workouts. We're starting to do all that now. If you want to compete, it doesn't matter if it's against Keen or anyone else. I don't think of only Keen; I think of the whole industry and the opportunity that each of these [Deckers] brands have.



SGB: Are there any plans to expand the brands via licensing, such as with Teva apparel?

MARTINEZ: We had an apparel license in the U.S., and that relationship will not be going forward. We have [a Teva] apparel license in Canada, which I'm really excited about. For the time being, we will be developing product for the Canadian market, and we will probably be selling some of that product in our stores as we roll them out in the U.S. And we'll certainly use the product for promotional purposes on our athletes. But for now, we've got to focus on our footwear.



SGB: How important is it for Teva to have sponsored athletes?

MARTINEZ: When you have a brand like Teva that [at its core] is defined by the river, you have to make sure that you're authentic to that core. For example, you might say that Nike's a brand that, no matter what, will always have to have athletes on the track. I would say that Teva is a brand that always has to have athletes on the river, no matter what, because that's our home. It's where the brand comes from and where it derives its authenticity. Certainly, that's where it derived its innovative approach to product. We'll continue that way, and we have a great group of athletes.

That's very different than my previous life [at Reebok] dealing with high-level professional athletes in the major sports, some of whom feel as if they're doing you a favor by just talking to you or showing up for a million-dollar commercial shoot. This is a different animal here [at Teva].

[The outdoor ethos] is different, and it's refreshing. It's about enjoyment and access to the outdoors. It's not about posing, it's not about a fashion statement, and it's not about hook-ups. And it's not about mimicking or emulating an endorsed athlete. The value is simply that the brand just has to be present in those environments that define those outdoor sports.



SGB: What is your mission going forward?

MARTINEZ: My mission here is to provide vision and leadership so that we can get the most out of these brands. We were in need of strategic direction, and I feel good that we've got that now. People needed to see a path to the future that was achievable. They could see themselves as a $500 million company pretty easily?it's a set of goals and objectives that we can all aspire to.



SGB: What is your biggest challenge in all this?

MARTINEZ: My biggest challenge is the overall economy. We need to have a good economic climate in which everybody feels confident that business is going to be improving. Secondly, there's always the product challenge. You have to keep driving toward innovative product; you can't let yourself stand still or dry up. If you get complacent, you're dead. These brands are like a shark. The minute they stop moving, they die.



SGB: Where would you like Deckers to be five years from now?

MARTINEZ: Five years from now, I see us as a $500 million company worldwide.

I find it fascinating to now have operated brands in all facets of the industry. I've been in the sporting goods world, the brown shoe world, and now I'm in the outdoor industry. One of the things that people need to appreciate is how rare great brands are across the board. It's important to understand the power of brands and how they can influence consumers.

Too many times, people have mistreated their brands. Their brands have been used as just a way to generate short-term sales, and a lot of brands get destroyed in the process. Great brands are rare?they're hard to find, hard to create, and hard to sustain. The consumers are out there, wanting product they can rely on from brands they can believe in. That's what makes this whole industry work, and we've all got to work hard to protect that. The day you lose that, you become a commodity. And that won't be fun for anybody.