K-Swiss Company Description K-Swiss Is Term Paper

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With respect to footwear lines, the industry is segmented. The segments are often by sport, with Classic being a non-sport addition. The leading sport 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 in all segments vigorously. Thus, while K-Swiss has attempted to carve a niche for itself, it still faces intense competition from other differentiated providers.

The industry is dominated by two major key success factors -- marketing and design. Firms in the athletic footwear industry spent billions on marketing, including endorsements deals with athletes, advertising, and securing distribution networks. For smaller firms like K-Swiss, distribution is more difficult to achieve, but it is essential that the company be represented in major chain stores such as Foot Locker. Without this representation, K-Swiss could lose out on many customers. Design is a critical success factor in athletic shoes because of the attention to styling that most consumers pay. Shoes are turned over seasonally or annually, making fashion important. Again, there are economies of scale in design -- the biggest companies can afford the best teams of designers, putting smaller firms at a style disadvantage unless the smaller firms develop superior in-house design talent.

In recent years, there has been some consolidation in the industry. Adidas purchased Reebok in 2005 while Nike has added Umbro and Converse in 2008 and 2003 respectively.

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Puma has received significant investment from Gucci owner PPR. This trend towards consolidation has created a challenging environment for the remaining independent firms, who must now compete with massive global corporations that have tremendous economies of scale in marketing, merchandising, purchasing and production. K-Swiss has struggled as this consolidation trend has progressed through the past decade.

The economics of the industry are somewhat unique. Advertising is almost as large an expense as production. Production for most firms is offshore in low-wage countries as shoe-making remains a labor-intensive process. Most firms in the industry offset the high cost of shoe production with higher-margin clothing and ancillary items. K-Swiss is more dependent on shoes, and without strong marketing has reduced pricing power compared with its peers. That has resulted in COGS being 60.7% of revenues, whereas at Nike it is 53.7%. Nike's SGA as a percentage of sales is 33.2% compared with 65.6% at K-Swiss, again illustrating the benefits of having economies of scale.

With industry growth relatively slow over the past few years, it is the large players that are dominating the industry. Nike and Adidas are particularly strong, with a firm like trailing distantly. Niche players such as K-Swiss and New Balance are struggling to maintain market share in the face of this intense competition. Based on its five-year history of sharply declining sales and profits, it appears that K-Swiss is losing the competition in the athletic footwear industry. That said, the company appears to have the time to fashion a turnaround.

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