K-Swiss Strategic Analysis: Footwear Industry Position

Company Overview and Market Position

K-Swiss is an American footwear company traded on the NASDAQ exchange under the ticker symbol KSWS. The company is a niche player in the industry. The athletic footwear industry in the U.S. was worth $12.39 billion in 2008 (SGMA, 2009). K-Swiss had U.S. revenues of $99 million, implying a 0.8% market share. The company also had international sales of $110 million, for total revenues of $209 million (2009 Annual Report). Compared with its competitors, K-Swiss has a relatively limited product line. The company competes primarily in Tennis and Classic segments, and has recently added Running to its lineup (2009 Annual Report).

K-Swiss has its roots in tennis shoes and considers this to be its strongest category. It recently re-introduced its Classic shoe in order to compete in the industry's second-largest segment. The company attempts to compete as a differentiated producer, positioning itself somewhat apart from the major brands. Brand positioning tactics include styling and exclusivity. The company does use celebrity endorsement within its niches, a common practice in the athletic footwear industry.

Financial Performance and Declining Revenues

According to MSN Moneycentral (2011), the company lost $68.21 million in 2010 after earning revenues of $216.99 million. K-Swiss has seen declining revenues in each of the past five years, attributable to a combination of a general industry slowdown (SGMA, 2009) and firm-specific weakness. Sales in 2006 were $489 million, so the most recent figure represents a decline of 55.6% over five years.

The company has failed to downsize its operations in response to this revenue decline. Its selling, general, and administrative (SGA) expense was $131.91 million in 2010, compared with $130.81 million in 2006. The 2010 figure represents 60.8% of revenue, while the 2006 figure was just 26.7% of revenue. The company has lost money in each of the past two years and has seen its profits decline in at least five consecutive years (MSN Moneycentral, 2011).

K-Swiss currently trades at $11.55, which is in the middle of its 52-week range of $8.75–$14.53. In 2009, the company stopped paying a dividend to its shareholders, reflecting its ongoing weakness (Marcus, 2009). The current stock price therefore reflects some degree of investor optimism regarding either future dividends or future stock price appreciation, neither of which is consistent with the firm's performance over the past five years.

The company does have a healthy balance sheet, however. Its current ratio is 7.13, and K-Swiss carries no debt. The company's equity represents 81.5% of its capital structure. This balance sheet strength is out of character for a company that has struggled as much as K-Swiss, but it demonstrates that the company successfully saved for a rainy day. While it has struggled for a couple of years, it retains the financial ability to sustain that position — a key source of internal strength. K-Swiss's conservative approach to finances will help buy it time to fashion a turnaround strategy.

The U.S. Athletic Footwear Industry

The athletic footwear industry was worth $12.95 billion in the U.S. alone in 2008 (SGMA, 2009). The industry is global in scope, with international markets worth at least double the U.S. market and probably much more. The U.S. industry is relatively concentrated, with a handful of major companies dominating. Nike is the industry leader, with Adidas, Puma, and a few other companies competing at that level. Firms such as K-Swiss are forced to compete as niche players in just a few footwear lines.

With respect to footwear lines, the industry is segmented — often by sport, with Classic being a non-sport addition. The leading segment is running/jogging, which was worth $3.16 billion in 2008; Classic was second with $1.98 billion, and kids was third with $1.78 billion. Sport-specific segments, including tennis, basketball, soccer, skate/surf, outdoor/adventure, and sports sandals are smaller but can be high-growth segments. Many of these segments are intensely competitive, and the major players tend to compete vigorously across all of them. Thus, while K-Swiss has attempted to carve a niche for itself, it still faces intense competition from other differentiated providers.

References

2009 K-Swiss Annual Report. Retrieved April 2, 2011 from

Marcus, M. (2009). K-Swiss run down. Forbes. Retrieved April 2, 2011 from http://www.forbes.com/2009/03/05/kswiss-dividend-footwear-markets-equity_earnings.html

MSN Moneycentral: K-Swiss. (2011). Retrieved April 2, 2011 from

SGMA. (2009). SGMA says sales of equipment, shoes & more exceed $66 billion. Sporting Goods Manufacturers Association. Retrieved April 2, 2011 from