Shoe Brands’ Secret to Success? Going Slow

Hoka sneakers, On shoes, Ugg boots and Birkenstock sandals don’t look very much alike, but they do have one thing in common: They have all been flying off the shelf. What are they doing right?

Getting a shoe’s comfort, performance and style right is important. But these brands also have taken a page out of luxury brands’ playbook by being choosy about where they make their shoes available and pacing growth.

Deckers Outdoor , which owns both Hoka and Ugg, has seen healthy growth at both brands. Sales at Ugg, its largest brand, rose 16% last fiscal year and are expected to grow by a further 7.4% in the current fiscal year. Revenue at Hoka, its second-largest brand, has managed an impressive compound annual growth rate of roughly 50% over the last four years, while its competitor, On, averaged compound growth of more than 65% over the comparable period. Revenues for both On and Hoka are expected to expand by some 25% this year. Sandal brand Birkenstock is set to increase revenue by a double-digit percentage in each of the next few years.

Industry analysts say Deckers stands out for the meticulous way it allocates inventory. The company learned its lesson through Ugg boots, which were popular in the early 2000s before fizzling out. The company made a decision in 2016 to stop distributing through certain retailers, pulling back from some 200 stores. Instead, it narrowed its distribution through larger partners such as Amazon and Macy’s. That effort, alongside buzzy, limited supply launches of some styles—such as the Ultra Mini Platforms—helped boost brand cachet.

Deckers applied those learnings to Hoka, which it acquired in 2012. The company has been introducing Hoka to retail partners at a “slow, deliberate pace,” and has been picky about the stores it works with, according to Joseph Civello, equity analyst at Truist Securities. The brand is also intentional about the styles it introduces by store: For example, putting performance-driven sneakers at running specialty stores while prioritising style-forward shoes at locations like Foot Locker to attract sneakerheads, according to Civello.

Hoka rival On has opted for a selective strategy, too, though it made some mistakes along the way. The company has stopped selling at discount shoe seller DSW in the U.S. and at stores it classifies as “comfort” shoe retailers in Europe, where the brand wasn’t reaching the right audience. Its current retail partners include specialty running stores such as Fleet Feet and upscale department store Nordstrom .

Birkenstock is another example: The brand typically ships retailers about 75% of what they would like to order, according to a research note from Evercore. In a September industry conference, Birkenstock Americas President David Kahan said the scarcity model drives consumers’ “urgency to buy.” “Nobody is buying the product and price comparing—[asking], can I get it cheaper someplace else?” he said.

The selective strategy is clearly showing up on these companies’ bottom lines: Deckers Outdoor, On and Birkenstock all boast gross margins exceeding 55%. On’s 60% gross margins are closer to luxury behemoth LVMH’s than to Nike ’s.

Getting the quantity of inventory right is important, but so is achieving the right mix of where it is sold. These brands would make more profit if they started channeling more sales through their own stores and websites. But as Nike learned the hard way, companies can also shoot themselves in the foot by trying to abandon middlemen too quickly . Sneaker upstarts like Hoka probably benefited from Nike’s decision to abruptly exit retail stores, notes Paul Lejuez, equity analyst at Citi. Deckers Outdoor, On and Birkenstock are increasing the share of shoes sold directly, but they are doing so slowly. Retail partners still account for about 60% of sales at all three companies.

Retail is littered with examples where brands’ desire for rapid growth backfired. Under Armour , for example, was the subject of an accounting probe a few years back, after it was accused of trying to inflate quarterly sales numbers by urging retailers to take products early and redirecting goods to off-price chains like T.J. Maxx in the final days of a quarter. The company settled those claims without admitting or denying wrongdoing. Whether or not those claims were true, Under Armour’s overexposure to discount sellers cheapened the brand’s image, which it is still trying to recover .

VF Corp., which acquired popular streetwear brand Supreme in 2020, failed to keep the brand’s street cred going, possibly because it made products too available . It sold Supreme to EssilorLuxottica earlier this year.

Publicly listed companies are prone to short-term thinking because they are beholden to investors who want to see growth quarter to quarter. That isn’t the case for European luxury conglomerates, which are publicly traded but are still family controlled and, thus, can put the brakes on short-term revenue growth in favour of long-term cachet.

To keep the streak of success going, investors of these popular shoemakers might need to adopt the patience of luxury-conglomerate families.

There has rarely, if ever, been so much tech talent available in the job market. Yet many tech companies say good help is hard to find.

What gives?

U.S. colleges more than doubled the number of computer-science degrees awarded from 2013 to 2022, according to federal data. Then came round after round of layoffs at Google, Meta, Amazon, and others.

The Bureau of Labor Statistics predicts businesses will employ 6% fewer computer programmers in 2034 than they did last year.

All of this should, in theory, mean there is an ample supply of eager, capable engineers ready for hire.

But in their feverish pursuit of artificial-intelligence supremacy, employers say there aren’t enough people with the most in-demand skills. The few perceived as AI savants can command multimillion-dollar pay packages. On a second tier of AI savvy, workers can rake in close to $1 million a year .

Landing a job is tough for most everyone else.

Frustrated job seekers contend businesses could expand the AI talent pipeline with a little imagination. The argument is companies should accept that relatively few people have AI-specific experience because the technology is so new. They ought to focus on identifying candidates with transferable skills and let those people learn on the job.

Often, though, companies seem to hold out for dream candidates with deep backgrounds in machine learning. Many AI-related roles go unfilled for weeks or months—or get taken off job boards only to be reposted soon after.

Playing a different game

It is difficult to define what makes an AI all-star, but I’m sorry to report that it’s probably not whatever you’re doing.

Maybe you’re learning how to work more efficiently with the aid of ChatGPT and its robotic brethren. Perhaps you’re taking one of those innumerable AI certificate courses.

You might as well be playing pickup basketball at your local YMCA in hopes of being signed by the Los Angeles Lakers. The AI minds that companies truly covet are almost as rare as professional athletes.

“We’re talking about hundreds of people in the world, at the most,” says Cristóbal Valenzuela, chief executive of Runway, which makes AI image and video tools.

He describes it like this: Picture an AI model as a machine with 1,000 dials. The goal is to train the machine to detect patterns and predict outcomes. To do this, you have to feed it reams of data and know which dials to adjust—and by how much.

The universe of people with the right touch is confined to those with uncanny intuition, genius-level smarts or the foresight (possibly luck) to go into AI many years ago, before it was all the rage.

As a venture-backed startup with about 120 employees, Runway doesn’t necessarily vie with Silicon Valley giants for the AI job market’s version of LeBron James. But when I spoke with Valenzuela recently, his company was advertising base salaries of up to $440,000 for an engineering manager and $490,000 for a director of machine learning.

A job listing like one of these might attract 2,000 applicants in a week, Valenzuela says, and there is a decent chance he won’t pick any of them. A lot of people who claim to be AI literate merely produce “workslop”—generic, low-quality material. He spends a lot of time reading academic journals and browsing GitHub portfolios, and recruiting people whose work impresses him.

In addition to an uncommon skill set, companies trying to win in the hypercompetitive AI arena are scouting for commitment bordering on fanaticism .

Daniel Park is seeking three new members for his nine-person startup. He says he will wait a year or longer if that’s what it takes to fill roles with advertised base salaries of up to $500,000.

He’s looking for “prodigies” willing to work seven days a week. Much of the team lives together in a six-bedroom house in San Francisco.

If this sounds like a lonely existence, Park’s team members may be able to solve their own problem. His company, Pickle, aims to develop personalised AI companions akin to Tony Stark’s Jarvis in “Iron Man.”

Overlooked

James Strawn wasn’t an AI early adopter, and the father of two teenagers doesn’t want to sacrifice his personal life for a job. He is beginning to wonder whether there is still a place for people like him in the tech sector.

He was laid off over the summer after 25 years at Adobe , where he was a senior software quality-assurance engineer. Strawn, 55, started as a contractor and recalls his hiring as a leap of faith by the company.

He had been an artist and graphic designer. The managers who interviewed him figured he could use that background to help make Illustrator and other Adobe software more user-friendly.

Looking for work now, he doesn’t see the same willingness by companies to take a chance on someone whose résumé isn’t a perfect match to the job description. He’s had one interview since his layoff.

“I always thought my years of experience at a high-profile company would at least be enough to get me interviews where I could explain how I could contribute,” says Strawn, who is taking foundational AI courses. “It’s just not like that.”

The trouble for people starting out in AI—whether recent grads or job switchers like Strawn—is that companies see them as a dime a dozen.

“There’s this AI arms race, and the fact of the matter is entry-level people aren’t going to help you win it,” says Matt Massucci, CEO of the tech recruiting firm Hirewell. “There’s this concept of the 10x engineer—the one engineer who can do the work of 10. That’s what companies are really leaning into and paying for.”

He adds that companies can automate some low-level engineering tasks, which frees up more money to throw at high-end talent.

It’s a dynamic that creates a few handsomely paid haves and a lot more have-nots.

Shoe Brands’ Secret to Success? Going Slow

Trendy shoe brands such as Hoka, On and Birkenstock are taking a page out of luxury’s playbook

A divide has opened in the tech job market between those with artificial-intelligence skills and everyone else.

Playing a different game

Overlooked