Editor’s note: The CEO of Deckers Brands commented on Hoka’s wholesale strategy during an earnings conference call last week. Read details here.
The Hoka running shoe brand is one of the best growth stories of the past several years, reaching $1.8 billion in revenue for the fiscal year ended March 31, according to parent company Deckers Brands.
The brand grew revenue by 28% for the year – far ahead of Deckers’ guidance of 20% provided at the start of the fiscal year – as it deepened its penetration in the running market and added trail, hiking, and lifestyle customers.
Hoka’s rise is evident at a wide range of national retailers – the brand has been carried at stores such as REI and Nordstrom for a while, and now has a big presence at Foot Locker, Dick’s Sporting Goods, and Bass Pro Shops as well. That’s in addition to its long history in the running specialty market, and, more recently, its big expansion in the outdoor independent channel.
The brand’s greatly increased wholesale distribution, especially at so many national chains, made me wonder: Is Hoka expanding too much at those high volume, national accounts? Can a brand stay hot if it’s so available? Is there a risk of becoming overexposed?
Expanding Wholesale Distribution the Right Way
To answer these questions, I talked to two analysts who have watched the rise of Hoka over the years, and who closely follow the athletic shoe market as well as Deckers.
“There is absolutely a danger to any brand if they expand too quickly,” said Matt Powell, a longtime analyst of the athletic footwear market and currently an advisor to BCE Consulting. “I keep saying to brands that the most important thing they need to do is to manage the marketplace. And that means putting the right shoes and the right number of pairs in the right doors. And not just banners – down to the door level.
“And you’ve got to monitor all of that, and maybe even pull out of doors that don’t perform,” he added. “So it is very much a danger to any brand that is expanding its distribution.”
However, Powell believes Hoka and Deckers have been handling Hoka’s wholesale expansion well.
“I think Hoka has done a much better-than-average job of rolling this out methodically,” Powell said. “This is not something that happened in the last six months, this has really been a three or four year process. But they have to watch themselves every day and make sure that they’re still on point with what they want to do.”
Lifestyle Product Is Where the Money Is
Segmenting product for different channels is key, of course, and Hoka has implemented those practices. For example, it makes different product for the outdoor channel compared to the sports channel, Powell said.
However, Powell believes the real magic is happening for Hoka in the lifestyle market, which is really driving athletic footwear sales overall these days.
“It’s important to understand that this brand has really tipped over from just being a running shoe brand – a shoe that solves a problem for a consumer in terms of ‘my knee doesn’t hurt anymore, I can run again’ – to really being a fashion brand,” he said.
“People are now buying Hoka shoes with no intention of ever running in them. They’re buying them because they think they look cool. And that’s where the money is in this business. Half of all athletic shoes are what we would call sport lifestyle shoes, meaning athletically inspired, but the consumer is not buying them for performance. They are buying them for fashion.”
Jonathan Komp, a stock analyst with Robert W. Baird & Co., agrees that Hoka has been thoughtful in how it has grown distribution beyond the specialty running channel.
“My impression is that they have a vision of being closer to a $5 billion brand over time, compared to the approximately $2 billion brand they are today,” he said. “To execute on that, you’ve got to move beyond just the more concentrated specialty channels while keeping your authenticity in those specialty channels. That’s never easy to execute.”
“It makes it even more important to build a robust merchandising and segmentation organization – and I think they have invested and built out those functions in the last one to two years,” he added.
Sustaining Demand While Growing Distribution
Komp also credits Hoka for resisting the urge to pump a lot of product into the market given how hot the brand is.
“They have intentionally under-supplied the market relative to consumer demand, which has kept demand high,” he said. “And they’ve been thoughtful about slowly increasing distribution in new channels. But they’ll have to keep executing on that. And the product that you see in run specialty will need to be distinct and different than what you’ve seen at Dick’s Sporting Goods or a Nordstrom or REI.”
More Growth Ahead for Hoka, On, Others as Nike Stumbles
While Hoka has grown rapidly, Powell sees even more growth ahead for the brand.
“I think Hoka still has tremendous runway right here in the U.S.,” Powell said. “Right now, Nike, the largest shareholder, and Adidas, the second largest shareholder, really look tired at retail.”
“The brands that are hot right now are the brands that look new and fresh on the wall,” Powell said. “Hoka, On, I would add New Balance to that list, I would add some Brooks product to that list, I would add some ASICs product to that list. Skechers certainly would be on that list. And they’re all taking share from Nike and Adidas.”
“You could look further at all the controversy at Nike right now – the mismanagement, they’ve gone in the wrong direction with initiatives, and they’re having to walk back a lot of the things that have been put into place a few years ago,” Powell said. “Nike’s business is not very good. What growth Nike is getting today, they’re really driving by being very promotional on nike.com, and in their own stores.”
“I’m not suggesting that Nike (a brand with $48 billion billion in annual revenue) is going away,” he added. “But they are clearly shedding share. And that’s something we haven’t seen here in the U.S. for at least 40 years or so. So this is a big change.”
Innovation, Differentiation is Key
But what’s really driving Hoka and On’s growth, Powell said, is making unique products that present a distinct point of view.
“It’s all due to the fact that that these brands are new and fresh,” he said. “So if a brand could continue to come out with compelling new products, I think there that’s where the consumer is going to want to go.”
Editor’s note: The CEO of Deckers Brands commented on Hoka’s wholesale strategy during an earnings conference call last week. Read details here.
