HOOP DREAMS
Oakley Takes Aim at Nike’s Basketball Shoe Dominance
By JENNIFER BELLANTONIO
Ask Colin Baden, president of Oakley Inc., what he thinks of the media hype about his company and what he calls the “big dog up north”,Beaverton, Ore.-based Nike Inc.,and he chuckles.
“We’re a gnat,” he says. “We’re a $450 million dollar company and they’re $9 billion. I’m always confused about the hype.”
Gnat or not, Oakley is on Nike’s radar.
The companies are notorious for swapping lawsuits in years past to protect their sunglasses designs. And their respective founders,friends turned acrimonious rivals,aren’t afraid to mince words.
The talk is likely to amplify with Foothill Ranch-based Oakley’s foray into the basketball shoe market,a $2.8 billion chunk of the $15.4 billion yearly athletic shoe industry dominated by Nike and its Jordan brand. The Nike line is inspired and designed by basketball legend Michael Jordan, who is, incidentally, a member of Oakley’s board of directors (though he plays no part in Oakley’s footwear program).
But Baden shrugs off the competition. He said Oakley doesn’t want to be “a big player” but rather “a legitimate player.”
“We have no interest in being the next $9 billion, 800-pound gorilla,” he said. “There’s lots of opportunity underneath that umbrella.”
There are undeniable parallels between the brands.
“A common thread for both Nike and Oakley is the brand strength that both companies exhibit,” said Robert S. Drbul, an analyst with New York-based Lehman Brothers Inc.
Nike holds about 40% of the U.S. athletic shoe market, according to Drbul, and has expanded into other categories, such as sunglasses and golf clubs to “capitalize on its brand.”
Oakley is building on its strength in sunglasses,it holds 9% to 10% of the U.S. market,and is looking to other categories, such as athletic footwear, apparel and watches, he said.
As the companies stretch out, they’re bound to touch toes.
This fall, Oakley plans to launch two styles of basketball shoes, the Snake Belly and Anti-Sole, which are set to cost about $80 to $100. They’ll be sold in Oakley’s concept “O” stores as well as in footwear outlets including Footlocker, Champs and Finish Line stores. In 2003, Oakley intends to build on the line.
The company worked with Shane Battier, a rookie forward for the Memphis Grizzlies and former star at Duke University, who contacted Oakley to help develop the shoes.
“Shane was looking for a company he could develop a long-term relationship with,” said Scott Bowers, Oakley’s vice president of sports marketing. “We’re not known for being a company that pays huge athlete endorsements. Shane knew this. But he was interested in developing a relationship where he felt involved in our business.”
Battier is under a three-year contract, with a two-year renewal option, Bowers said.
“We’re not ready to starting throwing out say $8 million to sign up a Kobe Bryant,” Bowers said. “So we rely on what’s made us successful in the past, and let the product carry the day.”
Oakley spent thousands of hours to fine-tune the basketball shoe designs and its new midsole system, known as “Red Code,” a material with seven zones across the bottom of the foot. The company claims each zone addresses a different performance function, such as stability and shock absorption.
The technology is Oakley’s ticket to making other sport-specific shoes, according to Jamie Oman, manager of Oakley’s research and development lab. He said Red Code can be adapted for athletic shoes in other sports, such as soccer and running.
Running captures the greatest share of yearly spending,$4.5 billion,on athletic footwear, according to NPD Group Inc., a Port Washington, N.Y.-based research firm.
“The doors are wide open for us now,” Oman said.
Oakley declined to divulge immediate plans but said it’s looking at other “things” to do with the midsole system.
“Basketball just happens to be the first sport we’re using it in,” said Carlos Reyes, vice president of research and development.
Oakley’s work on Red Code “will never end,” Reyes said. This past year, in its final launch push, the company’s footwear team of about 23 workers spent up to 20 hours a day gathering data and analyzing it.
“We used digital technology to develop this entire shoe,” Oman said. “Instead of letting a certain object dictate our technology we let biomechanics and the environment of the specific sport dictate how we would develop the specific technology.”
The company’s lab, with more than $2 million in equipment, never went dark.
Researchers and scientists used computers to study three-dimensional images of the shoe and the geometry of the midsole material. High-speed cameras captured an athlete’s motion during basketball, and the team analyzed the video.
Baden, donning Oakley basketball shoes, black shorts and a T-shirt, all with reflective sensory balls, demonstrated some of the testing at Oakley’s shareholder meeting earlier this month.
A real-time video of Baden played in the giant stadium-like meeting room as he did a lay-up on the company’s indoor basketball court, equipped with floor plates that tracked his movement via sensory balls on his shoes and clothing.
“We’re very obsessive about how this goes down,” Baden said. “It’s a precision-engineered invention, and we combine great art with a great piece of food for your mind.”
Oakley says it is serious about growing its footwear program, as well as its other new products: watches, prescription eyewear and apparel. The categories grew 80% last year to $100 million. In the first quarter, the categories collectively grew 51% to $32.9 million. Sunglasses still are Oakley’s bread and butter.
“It’s serious as a heart attack that we’re going to be successful in these new categories,” Baden said. “You can see from the lab, from the technology and how we go about it that we need therapy.”
The footwear category continues to build steam. The company has been expanding its sandal, golf and casual shoe lines.
Footwear sales were 7%, or $30 million, of Oakely’s 2001 sales of $450 million. That’s up from 2000, when footwear sales represented about 3%, or $10.4 million of Oakley’s sales of $384 million.
Still, Oakley concedes nothing is a sure thing, especially fickle consumers.
“You don’t always know how the consumer is going to adopt something,” Baden said. “My aspirations are that the right people find (the basketball shoes), and that the program will evolve from the right place, a grass roots place.”
Plus, he said it helps to have the right people in sports marketing wearing the product.
“They can translate Oakley speak into other languages that people sitting further back from the front row can understand,” he said. “They get the jokes we tell. They’re laughing and can explain it.”
Oakley already knows what it feels like to shoot an air ball.
The company’s first casual athletic shoe, launched a few years ago, was “an oddity in the marketplace,” Baden said.
“Although now I think we could sell the out of it,” he said. “We were too far ahead of the curve and we’re slow to back up because it’s not in our nature.
“There are products that we would just do that are scary. That’s OK,” Baden said. “As long as we’ve got other products that people can accept.”
Oakley has turned the once money-losing category around,after some changes.
In 1999, Jim Jannard, the company’s founder, resumed his role as chief executive, after former Gatorade marketing executive William Schmidt resigned from the position. The two had clashed over the future direction of the company, and Schmidt had wanted to pull the plug on the footwear program, which Jannard flatly refused to do.
Lehman’s Drbul said that Oakley is “taking a very disciplined and controlled strategy to build its athletic footwear business” and is “at the very early stages of capitalizing on its opportunities.”
“High-quality product is the ultimate driving force,” he said. “If the shoes do well at retail, the retailers will warm up to the product.”
The competition is cutthroat.
Within the athletic footwear industry, Drbul said various players are boasting “performance-enhancing technologies,” such as Nike Air and Reebok DMX.
And they’re also spending a bundle to promote them via advertising, which raises awareness.
But Drbul said the most effective way to have consumers accept a technology is to have an athlete endorse and use the product.
“This helps establish credibility,” he said. “For example, Michael Jordan helped establish the Air technology for Nike, a significant driver of revenue and market share growth, which remains a true competitive advantage for Nike. Oakley is utilizing Shane Battier in a similar manner.”
But Oakley doesn’t come close to rivaling the big bucks Nike has spent to nab Jordan, or what Adidas pays to sponsor Kobe Bryant.
Bowers said Oakley spent about 5% of its 2001 sales on marketing. Sports marketing accounted for less than half of that amount, which pales in comparison to a typical sports company that allocates 7% to 15% of its revenue on sports marketing, Bowers said.
“Other brands, such as Nike, Adidas and Reebok have been in this category for so many years and have so many dollars budgeted for impact in basketball that as a newcomer in this category it’s an obstacle that we have to overcome,” he added.
But it hasn’t been a problem for Oakley in the past.
Take sunglasses.
In 1984, cyclist Greg LeMond bought a pair of Oakley’s first sunglasses, the Eyeshade, originally intended for the ski industry. He wore them in the Tour de France and they became hot in the road cycling market.
“We didn’t spell it out. We didn’t write a road map to that. It certainly was an elegant result,” Baden said. “I just hope the same elegance occurs in our footwear program.”
