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Mr. Nichols contends

Time:2017-10-09 23:46Shoes websites Click:

K-SWISS INC MARKET PLACE (TIMES COLUMN)

WHILE the rest of the world is watching the Olympics, Steven Nichols has his sights on the United States Open tennis tournament later this summer.

As president and chief executive of K-Swiss Inc., maker of classic white-on-white leather tennis shoes favored by preppies and college freshmen, Mr. Nichols is sitting the Olympics out, determined not to stage a footwear industry version of the basketball game between the United States Dream Team and Angola.

"We'll probably sell twice as many shoes in our booth at the U.S. Open as either Nike or Reebok," Mr. Nichols said. "That's our territory. That's what we're good at."

K-Swiss is a company known for sticking to its knitting. Between 1966, when the company was founded by Swiss brothers who were World Cup skiers, and 1987, K-Swiss made only that classic white tennis shoe, crafted from three pieces of leather, metal rings for lacing and a heavy, durable rubber sole.

Although Mr. Nichols has been introducing canvas shoes, children's shoes, and shoes for walking, hiking and basketball since he and some investors bought K-Swiss in a leveraged buyout in 1987, it has never developed the sexy image cultivated by most growth companies hyped by Wall Street.

Even its double-digit increases in earnings fail to impress the analysts, who use Nike and Reebok as yardsticks. "Over all, they're up about 18 percent in the second quarter," said Gary M. Jacobson, a footwear analyst at Kidder, Peabody. "That's O.K., but it's not anything to get excited about."

In comparison, he noted, Nike's second-quarter profits rose 20 percent. K-Swiss closed yesterday at $18.00, down 75 cents, in over-the-counter trading. Its price-earnings ratio is about 12; Nike's is about 17.

While most analysts expect K-Swiss to earn about $1.50 a share this year, a 12 percent increase over last year, much of the gain will come from a more favorable tax rate and lower interest payments. The company's minuscule size in comparison to a Nike or an L.A. Gear can present problems in its dealing with overseas factories, which may produce for all three companies.

K-Swiss's relative lack of clout with its suppliers, in fact, has hampered distribution recently, according to analysts.

"At a slightly lower price, this is an attractive growth company," said Alice A. Ruth, a footwear analyst with Montgomery Securities. "But they're small, and that has great disadvantages in this business."

The comparisons are frustrating to Mr. Nichols. With an advertising and promotional budget this year that is less than one-tenth the size of Nike's and one-twentieth that of Reebok, K-Swiss does not even try to contend with the industry's Goliaths. Together the two shoe giants control more than 50 percent of the $5.5 billion-plus domestic market for athletic shoes; K-Swiss has about 1.7 percent.

Instead, the company's sit-it-out strategy is a textbook example of niche marketing.

"The world doesn't need another Nike or Reebok," Mr. Nichols said. "It has two spectacular ones already."

K-Swiss deliberately aims at the blue-blooded end of the athletic shoe market, leaving Nike and Reebok to contend for the huge -- and fickle -- teen-age and fashion set. K-Swiss's Surf and Turf nautical shoe, a canvas version of its classic leather tennis shoe that sells for about $35, was the official shoe for the America's Cup this year.

Its first television advertising was shot in gritty black-and-white film with arias from "Madame Butterfly" as background music. And at $75 and $85 a pair its Si-18 tennis shoe is a best seller, thanks in part to tennis-playing matrons in places like Greenwich, Conn.; La Jolla, Calif., and Chicago's North Shore. "If it's upscale and snooty, that's just where we want to be," Mr. Nichols said.

While the company's refusal to get into high-tech, neon-encrusted athletic shoes frustrates many analysts, it protects K-Swiss and its retailers from the vicissitudes of fashion. Nike and Reebok change styles every few months, dictating demand by building in obsolescence.

That strategy means retailers may have to cut prices on old inventory, which puts pressure on their profit margins. K-Swiss's shoes rarely change, which, Mr. Nichols contends, means shoppers and retailers get a better value because K-Swiss prices are rarely marked down. A pair of men's Classics sells for about $55.

"Every once in a while we'll miss a little trend like neon or buckles and Velcro on the uppers," he concedes. "But our retailers know there's not a new innovation coming down the pike that is going to make their inventory worthless."

Eschewing fashion also means a smoother manufacturing cycle. In the first month of production of a newly designed shoe, about 25 percent of the output is defective, Mr. Nichols said. It takes about three months for a factory to get the process right.

Sales of K-Swiss shoes abroad grew 57 percent last year, and Mr. Nichols sees good growth opportunities in Europe and Japan, where the Classic has become a best seller.

"We're putting down stakes in territory we can be very good on," Mr. Nichols said. "Someday, we'll have a stake at the Olympics, too."

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