Rahul Vira, CEO, Skechers South Asia, likes to push his walking shoes to the limit every morning. It’s one activity he won’t give up easily for it energises him in more ways than one. Be it his early morning walk or the walk to the metro, which he takes to get to work occasionally, he likes to put himself in other people’s shoes. Okay, at least watch other people’s shoes. Walking, after all, has been the secret sauce in Skechers’ impressive growth in India, since the company’s launch in 2012, as a joint venture with Future Group. Skechers has been a relatively late entrant in the Indian footwear story. In just six years of being in India, it has become a Rs.3.4-billion brand. India makes for 1.2% of its global revenue and the company is hungry for more.
Finding its feet
Once upon a time a shoe was just a shoe. Now, the consumer is flooded with options depending on usage, age and type of feet to just name a few. Phrases such as ‘performance’ and ‘lifestyle’ are now commonly used to reach out to the more-conscious buyer.
However, when Skechers came to India, it simply took a leaf out of its global strategy template — a distinct positioning around comfort, a range specifically for women and a wide collection of styles in many colour combinations. The strategy has worked well for it in some of its biggest markets.
When Skechers was launched in the US in the early 1990s, the market was focused on performance with shoes sold for specific categories such as walking, running or for any kind of sport. Matt Powell, senior industry advisor, sports, NPD Group — a market research company headquatered (headquartered) in the US — says that Nike was aggressively going after this opportunity. “As a new entrant, Skechers quite smartly focused on creating an athletically inspired shoe. It never spoke of performance. It created a new segment called athleisure,” he says. Globally, the athleisure footwear segment is at $50 billion, with 40% — $20 billion — coming from the US. In India, it is close to Rs.10 billion.
In India, too, after wetting its feet for a year, Skechers recognized the uptapped opportunity — walking. It smartly brought in its GOwalk range, encouraged by positive customer feedback on its forte — of lightweight and comfortable products.
According to Rajiv Mehta, founder director, KAN D:FY Sports and former head of Puma India, the big sports brands left the walking space open in India by their own rationale. “Walking is not a sport globally, but in India it is. Besides memory foam offered a comfort that no other brand did,” he says. All this was helped in no small measure by the crisis at Reebok, after the top management got embroiled in a financial scandal. Nike and Adidas were positioned on performance, while Puma was moving towards lifestyle. After 2012, Reebok scaled down substantially in India, and there was an opportunity for a casual, stylish sports brand. That year, Skechers made an entry — swooping down to capture the walking segment. Mehta says that a significant chunk of “Skechers consumers are middle-aged Indians who don’t actively pursue any sport.”
Another segment of customers Skechers managed to win over is women. Its wider variety draws more buyers especially among women and children. Historically, the women’s shoes segment was not looked at seriously because rival brands never had too much even in their global portfolio. It was quite the opposite for Skechers, with its portfolio almost equally divided between men and women, as against other brands which never had more than 30%. Currently, almost 50% of women users pick Skechers. A maximum of 30% pick competing brands.
Admitting that Skechers got it right, Dave Thomas, managing director, Adidas India, said in an earlier interview with Outlook Business that Reebok, a brand that Adidas now owns, will focus on walking as a segment as well as women.
Alluring women into the brand had many an advantage. Says Marvin Bernstein, managing partner at Skechers S.a.r.l, the company’s Swiss unit and one who has worked across continents, “Skechers’ strength globally in kids’ footwear was on the back of creating a robust portfolio for women. Women are the influencers.”
Unlike several other multinational companies that have seen little success transplanting their global strategy template in India, Skechers has executed its global template with perfection and succeeded.
Vira, who joined the company in mid-2015, says the approach was simply about getting the brand proposition right – the product
Pricing it right
Initially, Skechers launched its international range of both walking and running shoes, priced around Rs.3,000 and upwards, cheaper than Nike and Adidas by a wide margin. The latter were priced between Rs.6,000 and Rs.8,000. This again was no different from its global pricing strategy. Says Powell, “Skechers globally is known to offer moderately priced products. The average price for entry level Nike shoes in the US is $75. Skechers’ range starts at $60. The gap only widens as the price increases.”
That said, Skechers’ main success was in creating shoe that is not exactly cheap but offers a lot more for the price paid. Vira says, “Putting in features such as memory foam, which evenly distributes the balance of the foot, really clicked.” GOwalk, priced at Rs.4,299, was not inexpensive but sold well.
It is a point acknowledged by the competition too. Says Adidas’ Thomas, “Skechers is not cheap, but it’s also not a brand priced exorbitantly. It’s about comfort, not pricing.” Other brands too offer low-priced shoes, but not as much value for the money as Skechers.
Getting the mind space of customers in a segment where mighty brands are already well-entrenched is no easy task. Yet, Skechers has stayed away from spending serious money on advertising unlike its rivals and did not sign on any brand ambassador. Skechers’ advertising-to-sales ratio still stands at 3-4%; it’s 7-8% for its competitors. A calibrated retail expansion helped.
For all the success the brand had in the US and other larger markets, it was largely unknown here. Nike, Adidas and Reebok had been around for more than a decade when Skechers walked in. Buyers identified with existing brands which had a retail presence. Skechers had its task cut out.
Early conversations with mall owners were difficult and the inevitable question was: “Why do we need another footwear brand?” Vira says, till 2014, Skechers had a dozen outlets, all of which were company-owned. The first store was 1,400 sqft, located in the central Mumbai suburb of Ghatkopar. “Space was otherwise hard to come by. The average store size was restricted to 500-700 sq ft.”
Also, high rentals at malls instilled a discipline in running a tight ship and put in place two things — each store would be a revenue generator and not one would ever shut down. To date, of the 189 Skechers outlets, only one has closed after the mall that housed it into went into litigation. “We saw many players opening huge stores and then downsizing,” points out Vira. Towards the end of 2016, Nike shut down 35% of its stores to bring the count down to around 200 and cut its losses.
In early 2015, Skechers, which had outlets only in Mumbai, Delhi and Pune, set foot in the South. Again, it took only baby steps. By the end of that year, there were 19 outlets across six cities. The malls did miss the brand which was making its presence felt as a walking shoe. GOwalk and its subsequent variations had Skechers inching to the Rs.1-billion mark. By early 2016, the decision to go the whole hog on retail was taken, doubling its outlets from 66 to 135 at the end of 2017 (see: Racking up). Vira is hopes to close this year with 235 stores and add another 100 next year.
Of the 189 stores today, 138 are owned by franchisees, with the rest owned by the company. Unlike in the US, Skechers has adopted the franchise model to grow in Europe, China and India. Says Vira, “It works better for a heterogeneous market like India. The franchisee brings in a sound understanding of the local, usually small market, and is a key influencer.”
Besides the count, the size of the stores has also increased sharply. They are now in the 1,200-1,500 sq ft range. Skechers was able to sell more because of the larger format stores.
They helped stock a wider range. The stock-keeping units (SKUs) for Skechers, which measures its design and colour variety, is at least 2x that of the competition; typically it is 400-450 SKUs, while the average number for a Nike or Adidas is 200-225. This range is possible because unlike its rivals, Skechers is chiefly a footwear company. “We do sell apparel and accessories but at least 80% of the space is occupied by footwear,” says Vira.
But, Vira admits, one of the prime triggers for ‘going large’ was that the smaller stores were getting too crowded, and customers had to wait to be served. “We decided in early 2017 that the size now was ready to be doubled,” he says. Today, barring a handful of stores in the 500-700 sq ft range, Skechers has moved on to the larger format, which now includes a 5,000 sqft flagship store in south Mumbai. This means higher rentals but Skechers believes higher sales will absorb that cost.
Skechers has consciously focused on building its retail presence rather than pushing sales through e-commerce, which brings in just 5% for Skechers as compared to at least 20% for its rivals. “With online sales there was the danger of being discounted with respect to perception,” says Vira.
So far Skechers has grown smartly turning around from a loss to profit. While net sales has grown from Rs.98 million to Rs.3.4 billion, its net loss of Rs.32.5 million converted into a net profit of Rs.130 million between FY12 to FY18 (see: Stretching it right). That does not look too bad considering that rival Nike, despite its phenomenal brand recall has been in the red in India. Between FY12 and FY17, Nike’s net sales increased from Rs.3.6 billion to Rs.7.94 billion, but loss went up too, albeit marginally, to Rs.840 million. Adidas and Reebok are profit-making entities though. Adidas, in the same period, has grown its net sales from Rs.7.1 billion to Rs.10.88 billion, with net profit moving from Rs.140 million to Rs.950 million. Skechers has a long way to go.
While the journey so far yielded rich dividends so far, it’s not been all hunky dory for Sketchers all the way. The initial foray into the kids segment in 2014 flopped. One of the key reasons was to sell the shoes starting at Rs.2,499, which was viewed as being steep.
It was rejected outright and the Skechers management went back to the drawing board and dug out a few insights. Around eight hours each day is what kids spend at school, where there is no option but to wear the school shoes. Being a warm country, mothers think it is more practical for children to wear open footwear like sandals. “That really leaves a very small window for shoes,” explains Vira. Besides, even if a family had the money to spend on shoes, they refrain from buying a high price as kids outgrow their size quickly. Rishab Soni, managing director of SSIPL, one of the largest footwear retailers in the country, says many brands in the past have tried their hands with kids’ footwear. “The challenge is, the top end of the market is small and most consumers look for value,” he points out.
Last year, Skechers unveiled its new portfolio, with open footwear too. That started from Rs.1,499, while the basic shoe was down to Rs.1,999. To make it more appealing, Skechers launched shoes with lights to make it look like a gizmo, striking the right chord.
The kids business now brings in 10% of revenue at over Rs.400 million. “Large players in India do not really do kids shoes in a big way. That again left the slot open for us and our strategy has been to have an affordable entry level pricing,” explains Vira.
Now, the big bet is on running. That will not just open up a new market but also reduce the dependence on walking, which is 75% of Skechers’ business currently. Vira says that they are going after beginners and mid-level runners, who may cover a 5-6 km distance regularly, and not the seasoned sprinters or marathoners. “The beginner looks for cushioning and a rebound of energy, so as not to hurt themselves. For the serious guy, speed is paramount,” he says.
Skechers has had running shoes since 2012, but it didn’t really catch on. It was competitively priced at around Rs.4,000. Rival brands’ prices were 1.5-2x that. In 2017, it launched GOrun 5 at Rs.8,999, which Vira claims did well. He does not share the actual sales numbers, but on the anvil is a new range of running shoes.
Mehta, who has just launched his D:FY brand of sneakers starting at Rs.3,800, says the value-conscious or the novice runner will not spend too much on the first pair. “Anything above Rs.5,000 for a running shoe, which is not a sports brand, is too expensive and won’t work,” he says. Vira does not open up about its pricing for their new range of running shoes.
Globally, Skechers has been successful at spotting gaps and trends. NPD’s Powell cites the recent instance of D’Lites, launched as ‘Dad Sneakers’. These bulky shoes were phased out around 10 years ago and Skechers simply revived it. Some of its users, largely the 70+ generation, who used performance shoes, now prefer the new version of bulkier shoes that are back. “Serious performance running too has been on the decline and the brand made a mark with the beginner runner,” he says. In India too, Skechers hopes to win over that segment.
In sports footwear, the organised market for international brands is around Rs.20 billion. Other Indian players and unorganised sellers have a much larger market of Rs.100 billion. Both the challenge and the opportunity lies in converting customers from the unorganized sellers by slicing and dicing the market smartly. So far Skechers has taken a brisk walk, but going after the value-driven customers with products that require higher level of sophistication won’t be a walk in the park.