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.