Subscribe
Share
Share
Embed
Ecommerce on Tap is a world where Supply Chain meets storytelling. Join Aaron Alpeter each week as they offer insights into the backend of successful businesses. Brought to you by Sourcify and Izba Consulting!
Becca (00:00)
did New Balance execute one of the great brand turnarounds in modern consumer history? Or did everyone else eventually become old enough to understand why the dads were right all along?
Aaron Alpeter (00:10)
Yeah, always trust your dad,
Everybody, welcome back to e-commerce from tap. I'm your host, Aaron Alpeter. I hope that your commute or your dishwashing is going well and thank you for spending part of your day with us. If you're new here, each season we dive into a different industry. We explore different brands whose stories, supply chains, and exit potential offer useful lessons for really anybody.
And we want to look at where we are with the category, where it's headed, where it's been, all those sorts of things. this season we are focusing on footwear. It's something that all of us implicitly know and understand. at least we think we understand it, at least that's how I felt at the beginning of season. But it's so much more complex and nuanced than than you might have expected. And so I recommend that if you're if there's the first episode you're listening to, go back, listen to the category kickoff, as well as some of the other brands, just so you get a really good idea of where footwear is and where it's going.
as you probably know by now as well, we are doing something different this season where we have rotating co-hosts to really help me tell these stories. And so I am really thrilled to have someone I've known for a long time on. in fact, we first met when she was in the process of getting her last company acquired. And so I've I've known Becca Oden over several years. She's on my short list every time I go out to LA, and I can personally attest that she's very good at volleyball.
and so like like me, Becca's originally from Columbus, Ohio. She holds a degree from Capitol University and Tel Aviv University. she originally started her career out at the cross section of geopolitics and humanitarian affairs before pivoting to operations, where she helped build and scale Uqora. It's been working as the VP of supply chain for multiple women health women's health brands since twenty twenty two. So, Becca, thank you so much for being on. It's great to see you.
Becca (01:54)
Hey, it's great to be here, Aaron. And I think we we have a time and a date that we need to get back on the sand and play some more volleyball. So I'm gonna hold you to that. yeah, I grew up in Ohio and eventually made my way to Los Angeles after kind of working globally and realizing that I was energized by building things in fast moving environments. And so my career definitely wasn't linear in that way.
I say comparative religious studies and philosophy. And I think that surprises a lot of people, but honestly, like it makes sense to me in hindsight. Those disciplines really taught me how to like analyze complex systems, understand human behavior, and think through problems from multiple perspectives. Skills that I've learned are really invaluable in operations.
And and I started my career in startups because again, it was I love the pace and the opportunity to really build something rather than inheriting some kind of established process. So over the past fifteen years, that's kind of evolved into leading operations, supply chain, planning, business ops for consumer brands as they've scaled.
Aaron Alpeter (02:57)
yeah, I had no idea that you like studied religion before getting supply chain. I think that a lot of people who are in supply chain have to like find religion when there are difficulties going on with like factories or vendors or things like that. so what about what about footwear? Are you like a big footwear person? I mean you have feet, I've seen them, but like
Becca (02:57)
Okay.
okay, look, sneakers, I love them. Do not get me wrong. But like at heart, I am a beach girl. And so my preference is to have toes in the sand and not even like fuss with, you know, sneakers and socks, really. That's the main part. That's problem.
Aaron Alpeter (03:34)
I love it. Well good. Well so we have a a tradition on e-commerce on tap. Before we get into the company we're profiling, we really like to share a tid bit of what's going on. So I have one that that stuck out to me over the last couple of weeks, and that is that the Justice Department has recovered more than one billion dollars in its effort to crack down on trade and customs fraud. So
I I know like there's a lot in the news about tariffs. Are they on? Are they off? You know, are refunds due or not? but this is an incremental one billion dollars that has gone out through customs enforcement. And I know at the beginning of of the current Trump administration, they kind of said that there were two big things they were focused on. One was healthcare fraud.
And the second was customs fraud. And they have staffed up the number of lawyers and enforcers and and things like that. And I think that this billion dollars is only gonna grow exponentially as they look to say, hey, your HTS codes maybe aren't exactly where they need to be, or you've been skirting the law or things like that. So don't cheat is the is the moral of the story. yeah. But what about you? What's stuck out to you?
Becca (04:32)
Take away.
Yeah, I think similarly, right? Like sort of speaking of trading customs, I I don't think that that businesses have seen the end of this kind of tariff era and trade shifts. You know, just this month, this year, the United States trade representative announced that they're not going to renew the USCMA in its current form. And so that renegotiation of that agreement is now underway.
Certainly gonna be a shakeup, I think, for trade relations for these three countries as they settle on terms for this agreement and also for businesses and their supply chains.
Aaron Alpeter (05:12)
Yeah, yeah, CUSMA. I'm I'm gonna I I still am a s slightly loyal Canadian since I just moved from there. I'm gonna call it CUSMA but like it it is in everybody's best interest here that this agreement exists. I mean, this is the most powerful trade block in the world. And so there will be a deal done. it's just a question of politicking and positioning to see who who gets what. So
Becca (05:19)
Chris Well.
Yeah, agree.
Before we talk about New Balance as a global athletic company, I think we need to acknowledge that for like a really long time, New Balance was not like just a shoe. It was kind of this part of this entire operating system. let me paint this picture for you. So you have gray New Balance sneakers. We can all picture them. Yeah. You had these white crew socks pulled up to a height that suggested
This person was not involved in seeking any kind of outside approval. you probably had cargo shorts, but not like the fashionable cargo shorts. These cargo shorts were expected to perform actual cargo related duties. and then maybe you had like a tucked-in golf shirt. Don't forget the phone holster, got those transition lenses, a baseball cap, maybe from like a regional insurance company or like a minor league team. And so the person wearing this uniform.
Aaron Alpeter (06:17)
Yeah.
Becca (06:34)
You know that they had checked the weather, printed that hotel confirmation, filled that gas tank the night before, and arrived at the airport with plenty of time, complete breakfast and everything before boarding. You know, you do you see the picture I'm painting?
Aaron Alpeter (06:48)
Yeah.
totally. This this person definitely knew where the nearest bathroom was as well.
Becca (06:53)
Yeah, they knew where all the bathrooms were, really.
Aaron Alpeter (06:57)
Yeah. And so I think while everybody was mocking this person's shoes, you know, this this dad uniform that we're talking about, this person had quietly made a very conscious purchasing decision. He said his shoes fit, they were comfortable, they were durable. he could walk through an airport, mow a lawn, attend a middle school sporting event, go to dinner without ever having to change his shoes. And as you're describing this, it's not an aesthetically ambitious system.
But it's extremely functional and that I think that's really what what's coming out as as you share that.
Becca (07:27)
Yeah, I think that kind of creates the opening question for this whole episode and this entire conversation, right? Which is like, how did this shoe that represented this very settled adulthood, podiatrist recommendations, and like this complete surrender to comfort become of the one of the most culturally relevant products in footwear? Because New Balance did not merely become something that was kind of just less embarrassing.
The brand became fashionable enough to work with Aime Leon Dore, Mew Mew, Joe Fresh Goods, Jound, and some of the most influential people in modern sneaker culture. And then it signed athletes, including Shohei Otani, Coco Gauf, and Kali Leonard. It found a new generation of these consumers while continuing to sell these shoes to many of the people who'd still been buying them kind of all along.
Aaron Alpeter (08:26)
Yeah, and I think what's what's remarkable about New Balance is that the commercial outcome has been substantial. So they generated, I think it was like six point five billion dollars in global sales in twenty twenty three, which was twenty-three percent higher than the year prior, and nearly twice what it was in twenty twenty. So the hockey stick is is definitely there. In in late twenty twenty four, the CEO Joe Preston said the company expected to finish the year at approximately seven point six billion dollars.
And he described several consecutive years of of growth in the high teens, even while the broader athletic market was considerably less robust. And so it's not that everybody is growing as fast as they are, they are outperforming the market in addition to it. And so what we're gonna dig into today is not just the a limited collaboration story or situation where a few fashionable consumers rediscover this this archive of a sneaker.
But it's really about how they created billions of dollars in incremental annual value while really rediscovering who they are.
Becca (09:24)
Yeah. Okay, so these key questions in frame that we're gonna be exploring here are did New Balance execute one of the great brand turnarounds in modern consumer history? Or did everyone else eventually become old enough to understand why the dads were right all along?
Aaron Alpeter (09:42)
Yeah, always trust your dad, I guess. I I think the truth is is more interesting than maybe just an e either answer on either side. I mean, New Balance did change and we're gonna see that. It expanded more into sports, it recruited younger athletes, it became more sophisticated about the way they approached collaborations, they strengthened their retail presence, but they learned to how to to participate in culture without
sounding like they were begging to be invited. And they did it not by discarding who they were or who people associated New Balance was. They preserved their their gray suede that is like the color that they own. They have these complicated constructions, this width assortment, the domestic factories, the technical credibility, all of these things with these slow-evolving product families really allowed them to to be made for somebody
Becca (10:07)
Yeah, good point.
Aaron Alpeter (10:30)
That was expected to do a f a certain function, but then also expand into these other elements. And so our thesis today is that their resurgence was not primarily an act of reinvention, but more the monetization of like a strategic patience that they had. And, you know, they have all of these great products. They have this private ownership, these cultural collaborations that that really get them to recognize the the value that they had all on because there is there was value here for their entire history. It just it was never
Becca (10:44)
Mm.
Aaron Alpeter (10:59)
fully understood or or appreciated.
Becca (11:02)
Yeah, that's such a good point because companies often rewrite their history after they succeed. So these old weaknesses become like this evidence of foresight. And every unpopular decision then becomes proof of conviction. in this episode, we will explore how much of this was really strategic patience, though, Aaron, to your point, and how much of this was a company getting really lucky that fashion just moved in their direction.
Aaron Alpeter (11:32)
Yeah. Yeah, they didn't predict every cultural shift, that's for sure. it it didn't know in nineteen eighty two that the future generation would treat the nine ninety shoe as a fashion object. it didn't maintain that its factories you know needed to be domestics because that's what would resonate with with streetwear. And so there's just there's so much here that I'm excited to unpack around this multi-billion dollar growth engine that they've built.
Becca (11:55)
Yeah, same. but before we get into the company a little bit more deeply, I'd like to frame our discussion about what these traditional rules of the sneaker industry were. What did a brand ordinarily have to do to become globally relevant?
Aaron Alpeter (12:15)
Yeah, so if we think about athletic footwear, so let's assume like Nike or Adidas, it's just gonna put that in our mind. It's a combination of product engineering, this athlete mythology that they have, and then distribution and media. And obviously the shoe has to perform, or at least it has to like credibly claim that it can perform,
Becca (12:22)
Yeah.
Aaron Alpeter (12:33)
But that performance alone is rarely enough to build one of the largest brands in the world. And so that technology has to be visible or at least something they can't talk about. So Nike had Air, Adidas had Boost. Most recently, the running category has seen this entire vocabulary about carbon plates and energy return and stack height and proprietary foams and race day systems, all these things. And the consumer isn't really just buying foam and rubber. They're buying an explanation for why this particular foam and rubber represents progress versus what they were doing.
Becca (13:02)
Yeah. And then you attach the explanation to an athlete.
Aaron Alpeter (13:06)
Exactly. Like the the athletes turn this engineering into mythology. And everybody goes back and thinks about Michael Jordan and he's just the obvious example here because they transform the performance basketball shoe market into this enduring cultural platform.
And and the product became connected to his biography, his competition, his aspiration, you know, collecting shoes, sneakers, scarcity, all this identity. And that system works because the company has several mutually enforcing advantages. The first is that the elite athletes make the technology credible. it's as if they're like, you know, Jordan's God-given abilities and hours of practice.
and all the effort they put into it rubbed off on the claims of the shoe. And so people looked at this and said, well, if Jordan's wearing it, then like clearly I'll be just like Jordan because it's the same shoe. Like forget about all the other stuff that goes into it. and this this cultural visibility that that they have with these endorsements make the athlete relationship even more valuable. And so retailers will give the product better placement because it's Jordan's shoe.
The scarcity creates media buzz. That media buzz creates demand. That demand gives the company more capital to sign more athletes. And that flywheel is very, very difficult to stop.
Becca (14:16)
Not to mention creating a secondary market due to scarcity. And then we get to new balance, right? And they did not have this most powerful version of that flywheel for most of their history.
Aaron Alpeter (14:28)
That's absolutely right. And they have very strong credibility in the running community, but it's less effective at turning that technical credibility into a mass mythology. And and that part of it is just like running is is more difficult. There are there are very few people that are household names that everyone wants to be like. partly because I think like when you run, you don't look great. Like you know, like you can look pretty cool in a basketball court, but like
Becca (14:49)
Yeah, true.
Aaron Alpeter (14:52)
Very few people are like, you what, I want to look like this guy. you know, so like New Balance has these recognizable products, but there are fewer global product launches that feel like cultural events in the same way that Adidas or Nike would would have. it definitely has loyal customers, but many of those customers historically were older and let's let's face it, not very cool people.
Becca (14:55)
Yeah.
Aaron Alpeter (15:15)
and that matters because like an athletic brand can't simply just retain its existing audience. They have to be able to recruit each new generation before the consumer preferences become established. And so the the manufacturing capabilities that they had in the US and the UK was very interesting because most of the other athletic brands had moved to Asia decades before. these Asian manufacturing bases have the density of suppliers, the labor, the tooling expertise, all those sorts of things. And then to add other
stuff in there like new balance has a lot of width like there there's a huge amount of variability which we'll get into later about all these sorts of things and you add in their private ownership and just there's there's a certain amount of patience that comes with running a business like that but there's also an enormous amount of complexity you have to deal with
Becca (15:58)
Okay, so would you say that like the easy version of this story is that New Balance was kind of like a second tier Nike?
Aaron Alpeter (16:07)
They probably wouldn't like that. but I I think that that's what a lot of people have historically thought about New Balance. But that that framing probably misses the company because like New Balance wasn't simply failing at executing Nike's strategy. They were building a completely different strategy and a completely different operating model. And so the the problem was for a very significant period of of their existence.
Becca (16:09)
Ha ha ha.
Mm.
Aaron Alpeter (16:32)
the market placed a very low premium on that operating system. you look at what Nike is, all the athletes, all the market, what it's gonna do, it's it's culturally much louder. And Adidas could periodically capture, you know, music or football or fashion or streetwear.
Jordan occupies his own universe. Converse and Vans have this like youth counterculture, subculture they tap into. And New Balance was just kinda there. It's like they had this vision of the of the world of this future and they were building toward that, but like nobody was interested.
Becca (17:01)
Yeah, I agree. Okay. I think we've done like a pretty good job of talking about how everybody has historically viewed New Balance and kind of like their preconceptions against them. So let's dig into this story a little bit. Who is this company and what was their road to where they are today?
I think one of before you start, one of the things that was surprising to me in the research is that they were not originally the kind of company that we would now call like a sneaker brand.
Aaron Alpeter (17:28)
Yeah, and and for me they're much, much older than I than I thought. they trace their origins back to nineteen six. So over, you know, 120 years at this point. and this is when William J. Riley founded the New Balance Arch Support Company in Boston.
Becca (17:32)
Hmm.
Aaron Alpeter (17:44)
And their initial business was producing arch supports and kind of these shoe fit accessories that would go into other people's shoes as opposed to a modern athletic fashion business. And their orientation was really more like biomechanical and functional from the beginning. So that's their DNA. It's like, it's all about like it's just gotta fit. It's just gotta work. Like that's that's how they got started.
Becca (18:05)
Yeah, it sounds it reminds me of kind of like an American version of the Birkenstock episode that you did like earlier in the season.
Aaron Alpeter (18:13)
Yeah, I think they're definitely cut from the same cloth. And and the reality is that New Balance spent more than fifty years becoming experts on feet.
Before they became experts in shoes. And so they focused on selling to factory workers, police officers, postal workers, tradesmen, basically anybody who was on their feet all day. And their main products were these arch supports, these shoe inserts that, like I said, went to other people's shoes. And Riley believed that poor balance and poor foot support contributed to fatigue and discomfort. And so they designed these flexible arches that
Becca (18:21)
Hmm. Yeah.
Aaron Alpeter (18:46)
had this idea of like distributing weight more evenly. And the thought would be like you'd be more productive, you'd be able do more because of that. And so there's there's this like famous piece of company lore that I I found that thought was too funny that encapsulates what the brand was about. And and the story goes that when Riley was working on his idea for his original arch.
the big aha moment that he had was when he observed like the three points of a chicken foot and he used it to explain the logic of his arch sport. So he's literally like looking at chickens and saying, hey, that's a pretty interesting thing. Why is the chicken doing it this way? Can I mimic this with with how people would would stand? And that's what they did.
Becca (19:25)
Wow. I just honestly am not surprised. This seems like a very new balance origin story. I mean, now Nike's foundational imagery is like motion and speed and like victory, athlete, you know, like New Balance's foundational imagery is a man examining a chicken's foot because he's trying to figure out balance. I mean, the chicken feet analogies seem to work out for people and New Balance, though. It it they created their first running shoe in
Aaron Alpeter (19:36)
Yeah.
Becca (19:53)
1938, which was like a custom-made spiked running shoe, which I might need to look up a visual of because that that's hard for me to imagine. but they produced it for Boston Brown Bag Harriers, one of the oldest running clubs in the US. And the shoe used kangaroo leather for the upper, and it was built specifically for these competitive runners. And then, you know, just a couple of years later, they began producing footwear for tennis and boxing and baseball. But the key thing is like,
They weren't mass market lifestyle products. They were essentially just these kind of specialized athletic equipment.
Aaron Alpeter (20:31)
Yeah, you're right. And and really the first shoe that put them on the map was a model called the Trackster. And that came out in 1960. And the the Trackster became known as one of the first running shoes that offered multiple widths. And really helping them establish this proposition with consumers around fit. And that's something that even to this day everybody thinks about width and fit with New Balance.
I think like this the the chicken feet are like the visually compelling part the story and the width assortment may be the more instructive part of how the brand began to carve out their their niche in the first place.
Becca (20:54)
Yeah.
Yeah, I think more than anything, their width shows how a customer promise of having the best possible fit translates into an inventory methodology and system, essentially. So you've got this men's shoe offered in 12 sizes, but then you've got four widths and eight colors. So you've got 384 theoretical size width color combos. And I did that math before now. I didn't do that just now.
but that's even before we account for, you know, different regions, channels, replenishment requirements. And so, no, the company's not necessarily going to produce all of these combinations in equal quantity, but it has to decide like which variants does it want to make, and then where do they hold them, and then how much demand exists there. the least common widths may be the most important to the customers who need them. And I think, you know, that's a
That's a a wrench.
Aaron Alpeter (22:04)
yeah, this this sounds like a supply chain nightmare. And and the ironic part is that these long tail variants probably sell very slowly, but they probably produce intense loyalty. Right? Like you know, if if I'm somebody who has wide feet and like I've spent my whole life
finding shoes that squished and didn't feel good and I find a shoe that like actually fits, I'm not buying another shoe ever again. Like this is it. You know, and and there's this this constant tension between the assortment productivity and, you know, looking at things in a spreadsheet and the customer value that's being generated. And and the retailer, you know, also has limited shelf and and backroom space. And they may not want to carry that full width. So even though you're offering it as a company perspective, you may not be in front of the consumers who benefit from it. And and now that they have like
Becca (22:50)
Definitely.
Aaron Alpeter (22:51)
you know, digital and retail channels they can expose a broader range than like a conventional wholesale account. But like this is still very, very hard. And you know, the company can have like the right model, the right color while still having the wrong width and size and the wrong geography, which just is is terrible. Like I I don't know, if if they're not careful, they could just lose money in lost sales, age inventory, stock transfers, markdowns, and customer frustration. So they they they went after this like a very difficult category in footwear and did it the most difficult way possible.
Becca (23:21)
Yeah. I think also to add to that, you have the life cycle of a product within fashion, which is also very fast, right? So it it it adds another layer of complexity. I mean
Aaron Alpeter (23:33)
Yeah. Which which might be why
they're like, we're not a fashion brand, we're a functional, like it fits good and it works for dad's brand.
Becca (23:40)
Good point. I mean, and a a consultant coming into that assortment might say, hey, you can just eliminate those low volume combinations and then you can improve your turns.
Aaron Alpeter (23:51)
Yeah. And like mathematically that might be correct, but strategically it'd be very destructive to their brand. And you know, I like thinking back on this when I was at Mirror running that supply chain because we literally had one SKU that we sold. And it made things really, really easy. 'Cause it was like, All right, here's my Google Sheet. We think we're gonna sell sixty thousand, you know, this time. So like great, let's make sixty thousand.
But you know, one of things that I've learned as I've been a consultant over the last 10 years or so is that some of the complexity is accidental and some of the complexity is actually the product. And it's something that's really, really important to understand which is which. And so new balances with offering carries cost, but also creates consumer trust.
Fit data, last libraries, production knowledge, and this reputation that competitors can't recreate by simply releasing a visually similar shoe. And so that operating challenge is really not to eliminate the complexity that's there. It's determine what type of complexity differentiates the business and what type of complexity has accumulated without creating any customer value.
Becca (24:50)
Yeah, that's super insightful. Okay, let's let's take a small pivot. Let's talk a little bit about the ownership structure of New Balance because I think that's fascinating in its own right.
Aaron Alpeter (25:01)
Yeah, so as we mentioned, the company was started in 1906 by William J. Riley. In 1927, a man by the name of Arthur Hall joined as basically the main salesperson. it would later become Riley's partner and was with the company for a very, very long time. In 1956, Hall had acquired the the majority or the entirety of the business and decided that he wanted to retire.
And so he sold the company to his daughter, Eleanor, and her husband, Paul Kidd. And the reality is that these guys inherited an orthopedic products business that happened to have a customer base that was increasingly consisting of athletes who wanted them to make shoes for different sports and things like that. And so Eleanor and Paul were the ones that were responsible for bringing the trackster to the market.
Becca (25:48)
Okay, so then in nineteen seventy-two, a man named Jim Davis enters this picture. He had started to build a career in sales and marketing for a high-tech medical electronics company. And after about eight years in the workforce, he decided he wanted to own his own. So he had this like mutual f acquaintance that introduced him to Paul Kidd, who was looking to retire and then sell New Balance.
rather than simply looking at the financial statements, Davis decided to start talking to customers and he started interviewing runners. And then he wore the shoes himself. And he asked whether the product actually solved the problem for these consumers. And he was pretty surprised by the answer. People loved the shoes. The problem was that like nobody knew about them.
Aaron Alpeter (26:35)
Yeah, and at the time in in nineteen seventy two, new balance was very, very small.
They had six employees, they made roughly 30 pairs of shoes a day, and they had annual sales of around $100,000. And so, like this is a very, very small business. And you know, they were primarily mail order, so D2C before the internet. they only had a handful of retailers, and they just were essentially unknown nationally. And despite all of this, Davis purchases new balance on the day of the 1972 Boston Marathon, which also coincided with the running boom in America. And so these tailwinds would really
Becca (26:50)
Yeah.
Aaron Alpeter (27:11)
Helped the company cross a million dollars in 1976 and 4.5 million dollars in 1977.
Becca (27:17)
Yeah, I think it's important to call it here like this doesn't feel like a biological detail of the history of this brand. It feels like this is kind of the second founding of New Balance. And so from here on out, they would remain privately held and family controlled as it grew. And then the structure matters because ownership is like it's not separate from your strategy, right? And ownership determines the time horizons the company can tolerate, which capabilities it can and wants to protect.
And also which kinds of pressure management faces. A public athletic company is constantly being evaluated. Revenue growth, gross margin, you know, inventory, what's your market share, and giving that quarterly guidance. But this privately controlled company can still be demanding and financially disciplined, but it has like more freedom to decide that a capability is worth retaining, even when that
value is difficult to prove inside of that.
Aaron Alpeter (28:18)
Yeah, they're it's a completely different beast. And so Joe Preston, who is a thirty year company that let's just think about it, he's been at New Balance for thirty years. He's currently the president CEO. he's been very direct about this. He said that, you know, domestic manufacturing costs more than overseas production. And if the company looked at the cost of goods, then you know, like that would be an easy decision. But they're also looking at speed, the impact on local communities, and the family owners' long term commitment. So the company isn't maintaining their US production only.
Only because consumers reward it, the owners believe it is actually doing good. And so that's why they choose to do that.
Becca (28:57)
Yeah, that's a really interesting distinction because there's a really clean story that many companies often tell about consumer demands and like consumers care about this, so we're gonna do it. But I feel like New Balance is saying something slightly different here. Like some customers may care, but the company has also decided that this is part of its identity and what it wants to be.
Aaron Alpeter (29:20)
Totally, I mean values can be economically relevant without being reducible to immediate consumer willingness to pay. you know, the factories create jobs, they preserve manufacturing knowledge, they contribute to this premium product story, and they can reduce some of the transit at time, and so there's you know some benefits there. But it's also a major point of differentiation for competitors. And so those those benefits, those values have to be weighed alongside any sort of cost decision.
Becca (29:48)
Yeah, I think it's fair to call up that like this can be a double-edged sword in this family owner kind of business where this family owner can preserve that value capability, but also they could also preserve a bad idea because nobody can really force them to stop. And so I think private ownership can produce patience, but it can also produce this insularity and governance concentration, which can in turn make
you know, weak transparency and some kind of like succession risk where everything is really built around this family or the founder.
Aaron Alpeter (30:23)
Yeah. No, you're absolutely right. I mean I I think it's it's kinda like taking VC money, right? You're you're expected to exit within seven years when you take that first VC check. Whereas if you bootstrap it, yeah you gotta do that. It just kicked what you're doing. okay, so
Becca (30:36)
Yeah.
Aaron Alpeter (30:38)
We we you mentioned a little bit about domestic manufacturing. I want to double click on this because this is extremely rare in footwear. you know, like I said, for the most part, footwear is made in Asia. It's complex, it's labor intensive, and therefore places with lower wages typically prevail. And when somebody claims to have significant domestic manufacturing, especially in footwear, we've got to dig into the economics because you know, sometimes the reality and the rationale behind that doesn't even, you know, make sense. I mean, Rothys, which you know, reinvented their manufacturing.
is doing that in China.
And so New Balance's domestic manufacturing is one of the most repeated parts of the company story, but it's also one of the easiest parts to oversimplify. And an accurate claim is that not every New Balance shoe is made in the United States. In fact, most of the company's global volume relies on international footwear supply chains, so they get a lot of stuff from Asia as well. The differentiating fact is that New Balance has preserved meaningful footwear manufacturing capacity in the US and in the UK. And again, Joe.
Preston in 2024 said that that New Balance operating three factories in Maine and two in Massachusetts. First up, when was the last time you heard about a factory in Maine? How awesome is that? Usually it's like down south. but they've got three factories. they're building another one in New Hampshire, they're renovating one in Scohagen, Maine, and they just have this like new US manufacturing innovation center in its Boston headquarters. And so like they are very real in the sense that there are there's real capacities going on here.
But it's also not a idea that everything that they make you know comes from domestic sources.
Becca (32:17)
Yeah, because even a a domestically kind of manufactured shoe can import imported components.
Aaron Alpeter (32:23)
Yeah. I mean the US just simply doesn't have the complete footwear component ecosystem that you have in other Asian clusters. And so you can do a lot of cutting, stitching, assembly, et cetera.
While still relying on globally sourced materials. I think that's why you know New Balance uses qualified language around the domestic value of its made in USA products rather than claiming that every item comes from the US. And I think that nuance is particularly more important today in the tariff environment because this is an example where an increase in tariffs can actually hurt domestic manufacturing. Because if the inputs go up for raw materials coming into the US, that actually puts US jobs at risk because like, well, we can't afford
this anymore like why don't we just get the whole thing produced in in Asia if we got to pay you know a 20% tariff anyways and so you know it's interesting but from a strategic perspective the the real question isn't you know is it all metaphysically 100% American but really what capabilities as New Balance thinks is important to retain domestically and and what do those capabilities cost and and what do they contribute to the overall business.
Becca (33:29)
Yeah. I think it's important here maybe to separate the benefits from the kind of the romance of this, you know, made in the USA. I mean, obviously these these benefits include the either the capability preservation, new balance employs people who understand how footwear is physically constructed so they can create closer feedback among design, development, engineering, manufacturing.
and domestic production also supports premium positioning and creates a visible point of differentiation, as as you mentioned. there may be a kind of time-to-market benefit for certain products because the company avoids, month-long being on the water when bridging Asian production to the United States. Preston has specifically cited this as an advantage, but there's also this community and institutional dimension.
New balance has maintained manufacturing employment in places where those jobs really matter. But the disadvantages are also real. You know, labor is more expensive. The component ecosystem is less complete, as we talked about. owned factories, you know, they create fixed costs. So utilization matters, which requires specialized labor who must be recruited and trained. And then s scaling that production requires capital and domestic assembly does not
eliminate, you know, as we mentioned, the exposure to these international inputs or tariffs.
Aaron Alpeter (34:55)
Yeah, I think it's a safe conclusion is that this th these domestic factories are not the lowest possible way to produce a pair of shoes. You know, so these are these have to be seen as an expensive strategic capability. And, you know, as a result of that you have to manage them very rigorously and you to choose you know, how to utilize it, how to how to keep it going and and weighing those costs.
Becca (35:17)
Yeah, this feels like one of those most transferable lessons in this episode that a c capability can look inefficient because the accounting system captures all of its cost, but capturing its value is maybe more difficult or less straightforward.
Aaron Alpeter (35:35)
Yeah, I mean it's easy to measure like wages and overheads and equipment and depreciation, all that sort of stuff, but it is is more difficult to measure how much product intuition or speed or brand credibility or just you know the the loyalty. I I bet there's a lot of new balances sold in Maine and New Hampshire, right? I just because of the folks that are there.
Becca (35:50)
Yeah, that's true.
Aaron Alpeter (35:53)
But it it also just means that as a as a company, just because you have an expensive internal capability doesn't mean that that's something that should be preserved. It just means that the boot burden of proof should include the cost of recreating that capability later.
Becca (36:06)
Hmm, great point. Okay. you know, I love talking about domestic manufacturing. But I think now we should talk about the 990 because it seems to contain almost the entire new balance story inside of this like one product.
Aaron Alpeter (36:21)
Yeah. And if if you're unfamiliar with with what this is looking like, just think of your stereotypical new balances and this is it. So the nine ninety was originally launched in nineteen eighty two and it was an unusually premium running shoe. I think it was the first running shoe to ever cross a hundred dollars at a time when that was just a remarkable price for athletic footwear.
And again, this is $100 in 1982. So maybe it's, you know, with inflation, it's you know, $300 or something. but that price really communicated this was serious. This was not a disposable sneaker. This was a piece of technical footwear, and the consumer expected to believe that the materials, the construction, the fit, and the performance were were gonna be justified by the premium that was being paid.
And again, at this time they're doing maybe tens of millions of dollars of revenue, still a very small company. but over time the 990s stopped being one thing. It it became a running shoe, and then it was a lifestyle shoe, and then a walking shoe, then a streetwear shoe, then part of the Silicon Valley uniform, and then a dad shoe, and now today it's a luxury adjacent fashion product.
Becca (37:28)
Yeah, and it does tell like these two opposite stories, right? Like one person does wear it be but has no interest in fashion and is just there for the functionality, right? And then another wears it because she understands fashion so well that she no longer needs that shoe to look even a little bit fashionable.
Aaron Alpeter (37:47)
Yeah.
That intended or unintended ambiguity is it's actually very valuable because most brands try very, very hard to have one recognizable association. And it's pretty incredible that the New Balance 990 has a product that could function across all of these communities. And here are a few things that exist at the same time. So this is all same same snapshot of time.
In Washington, DC and Baltimore, New Balance was seen as like regional street cred long before the fashion press like saw them as relevant. So that's the same time. in Silicon Valley, Steve Jobs wore these, and so the sneakers were seen as technical, utilitarian, and it was like this personal uniform kind of intelligence.
Again, same time, older and comfort-oriented consumers saw the shoe that signaled this fit and support and reliability. and of course, among runners, the brand was like, hey, this is really good from a performance perspective. So these are like four very different groups of people who all thought that the 990 was for them at the same time.
Becca (38:48)
Hmm. I mean, that's pretty interesting because the reality is that at that time the company was not culturally empty during its like uncool period. It's just that its cultural value is kind of fragmented.
Aaron Alpeter (39:03)
I I think that's right. I mean, the brand possessed a a subculture equity. There was like this this functional equity, this product equity, but what it lacked was a unified cultural interpretation of of what made those valuable forms of of equity legible to a younger audience. And so there's like a really interesting kind of timestamp I saw in the research. And I don't know if you saw Crazy Stupid Love with Ryan Gosling I think for.
Becca (39:28)
my favorite movies.
Aaron Alpeter (39:29)
It's it's like so good, but there's a part
Becca (39:31)
Yeah.
Aaron Alpeter (39:31)
in there where Ryan Gosling's character is like using Steve Corell's New Balance shoes as evidence that he's just surrendered aesthetically. And and the joke worked because audiences immediately understood the code. And so New Balance you know conveyed comfort over attraction, adulthood over possibility, practicality over style. And like they kind of use that moment when they were talking to to really highlight, you know, where they were as they went through
This transition.
Becca (40:00)
Yeah.
It's such a good scene. Honestly, my favorite part is when Ryan Gosling asks Steve Carell if he's Steve Jobs, the billionaire founder of Apple Computers. No, then you have no business wearing New Balance sneakers ever. And I think about the fact that they were still like culturally relevant, mockable, but it's still a form of like salience. And so, no, like you said, nobody had to explain the joke, and everybody made fun of New Balance at
Aaron Alpeter (40:29)
Yeah. And I think that that encapsulates exactly the challenge that New Balance had. the company had the problem of people knew who they were, but they had no idea what New Balance represented.
And so they you people kind of assigned the wrong emotional value to it. And so from a branding perspective, they already had a lot of very marketable stories and marks. They owned the gray, the suede, the mesh. They had very visible technical construction. They owned the comfort, width, maturity, seriousness, angle. There was this American manufacturing story. And just, you know, kind of this like we don't care about fashion sort of motif. and so the challenge was not trying to create meaning from nothing.
was trying to change the existing meaning so that it resonated with people.
Becca (41:15)
Yeah. Okay, so when Crazy Stupid Love came out, twenty ten, twenty eleven, what did the business look like?
Aaron Alpeter (41:22)
Yeah, so it wasn't small anymore, right? But but again, you you look at the broader folks, they still weren't huge. They were doing about two billion dollars in revenue, and they had really become a major global athletic company rather than just a a US running specialist. And so they, you know, were in this billion dollar range, but they were still misunderstood, underappreciated. They hadn't really hit their stride, and that's gonna come, you know, years later.
Becca (41:48)
Yeah. I think like this is okay, the portion of the story where we can be honest about what New Balance controlled and didn't control. And so the company, you know, it didn't cause the decline of workplace formality. It did not cause fashion to embrace norm core, nor did it cause sneaker consumers to age. It did not cause people to become less willing to tolerate uncomfortable shoes.
Aaron Alpeter (42:14)
Yeah, you're you're right. A lot of this was right place, right time, and and kudos for them for capitalizing on it. But as you mentioned, there were several cultural and demographic changes that were increasing the value proposition of.
Of what New Balance had historically stood for. And that was one is that the traditional sneaker heads were starting to go older without abandoning their love for sneakers. And so you had this generation that treated athletic footwear as culturally meaningful, and they reached their 30s and 40s and 50s. And those consumers still cared about product, but they didn't really need every shoe to be visually aggressive or scarce or attached to some sense of rebellion. They started caring about comfort and material quality and construction.
and history and all-day wearability and those sorts of things. And so essentially New Balance was ready for a customer who still cared about shoes and appreciate those sorts of things, but had become more selective about how loudly those shoes needed to communicate with the world around them in the world.
Becca (43:14)
Hmm. The second shift was that places where people could acceptably wear sneakers started to expand dramatically. So the office dress became less formal. A sneaker could occupy territory that was kind of like once held by loafers dress shoes. I mean, we see that with Steve Jobs.
A grade 990 can work while commuting or traveling, or maybe work in like many offices, maybe eating in a restaurant, walking through city, your kids' activities. So it doesn't need to announce itself as like a gym shoe or this kind of collectible sneaker. That flexibility expands to the number of occasions and therefore the potential kind of frequency of the wear. So the fashion itself.
then began rewarding things that looked ordinary and familiar, but they were like kind of resistant to that visible effort.
Aaron Alpeter (44:05)
Yeah. I you mentioned Normcore, so in the mid twenty tens, which I can't believe was ten years ago, by the way, you know, th this this movement of Norm Core came out and and people would try to express that they were confident enough that they didn't need their clothes to announce how fashionable they were.
Becca (44:11)
No.
Aaron Alpeter (44:21)
So this is where you go from you know every t-shirt saying you know Abercrombie to just saying Abercrombie and the tag on the inside and just being a t-shirt. And so the the typical outfit would look like you know, a crew neck sweatshirt, straight leg Levi 501s, tube socks, maybe a baseball cap with no logo, a canvas tote bag, and of course, new balance 990s were were core to that aesthetic. And the shoe that looked like insufficiently fashionable for its entire life in one context.
now became deeply sophisticated another bec because when it was paired with the right clothes, the photography, the retail environment, and the right cultural interpreter, I
you know, changed. And it was because the framing of this product had changed. The product itself was exactly the same as it always had been. this gray new balance shoe that was sold in the conventional sporting goods environment, you know, appeared practical. But that same shoe that was placed in a carefully constructed emilian door world can appear like restrained and archival and cosmetological and just cool. And so I think that, you know, before Norm Core people would look at New Balance and say, that's what my dad
and he doesn't care about fashion. But you know, with the norm core movement, people said, that's somebody who really understands fashion well enough to appreciate showing restraint.
Becca (45:37)
Yeah, that's super interesting because this is really the backdrop where athleisure is like starting to become really important as well. So comfort stopped being treated as like a confession or convenience, really. it used to be that saying that your clothes or shoes were comfortable almost sounded like an explanation that you had to give or that you compromised or that you bought something.
Like, why did you buy this thing that looked the way that it did? And so comfort, I think, really became part of the aspiration at this time period as well.
Aaron Alpeter (46:10)
Yeah, again, this is like a mega trend that's impacting so many other categories and brands. You know, it not only helped new balance, but it helped create Hoka and On and the whole category of recovery footwear and more technical outdoor brands and just this athletization of everyday dress. I mean Lululemon, huge benefit of of kind of those sorts of things. And so they didn't own this entire shift, but it was one of the companies that was already inherently positioned to benefit. And I think they
the missing piece that allowed new balance to accelerate through was their heritage. Again, a 100-year-old company at this point. And you know, the market became very crowded and it's very crowded today with brands that could launch very quickly. And you know, the playbook is raised a bunch of money.
sell on social media and kind of reproduce these visuals that everybody kind of cues into and gets. And in that environment it's just it's very difficult to to stand out. but the difference here with New Balance is they have a historical archive that goes back decades that is very difficult to imitate because they have old catalogs, old last, old products, old factories, you know, these regional histories, this running credibility, this this actual experience that matters. And so, you know, a a young brand can make a
Becca (47:14)
Mm-hmm.
Aaron Alpeter (47:28)
retro looking shoe but it can't create a shoe that was actually present in 1982. They they can't time travel.
Becca (47:35)
Good point. Okay, so we're sort of in the early two thousand tens, but there was a moment before the turnaround for for New Balance where things looked a little touch and go. What's happening in two thousand sixteen?
Aaron Alpeter (47:51)
Well, a lot of stuff happened in 2016. As it pertains to to New Balance, their public affairs executive made comments that about their support for opposing the Trans-Pacific Partnership, the TPP.
And they argue that this would threaten US-based jobs. And so, you know, this is a policy that put out. And so they sided with the incoming Trump administration, who also opposed the deal. And these comments like set off a huge backlash. I mean, there were some consumers that were posting videos or images of themselves like discarding or burning their new balance shoes. And it became even more severe when a neo-Nazi website described New Balance as the footwear of white people.
And they obviously rejected that endorsement and publicly distanced themselves from big bigotry and hate, but like this was a cultural element that they touched on in a bad way that I don't think they entirely meant to.
Becca (48:45)
Yeah, and I think this is particularly dangerous because a brand doesn't control who tries to claim it. New Balance had a domestic manufacturing position rooted in trade policy and factory economics. And then this position was suddenly absorbed into like this much bigger cultural and political conflict.
Aaron Alpeter (49:08)
Yeah, and that's one of the recurring risks of brands with visible domestic manufacturing narratives. I mean, the company wants to talk about tariffs, they want to talk about procurement, industrial policy, trade agreements, and consumers may interpret those comments through a partisan framework. And and now you've got outside groups that may deliberately appropriate the brand, like the the neo-Nazi thing, that they had no intention of. Like there was there was no desire to like do any of that. And yet, because they were speaking out on things that actually mattered to them and they cared about.
it could be construed in a in a different way that they hadn't anticipated.
Becca (49:42)
Yeah. And I don't think the lesson is that companies should avoid public policy. But New Balances factories are materially affected by domestic trade rules and it has legitimate reasons to participate in this conversation. And so I think the lesson is that the communications can't be separated from the cultural environment in which that statement is gonna land.
Aaron Alpeter (50:07)
Yeah. And I think that, you know, this this difficult time also clarified why the later cultural partnerships really mattered. Because they they needed to go on offense. They needed to actively recruit younger and more diverse consumers while also demonstrating that the brand was was broader than any individual political interpretation that was being attached to it.
Becca (50:31)
Yeah. And then I think this is where this turnaround becomes like more deliberate for them. So they didn't like wait for consumers to rediscover them or archive or rediscover their archive even. There were lots of similar brands that had a shot at becoming what New Balance became. And this is where we start moving from the right place, right time to kind of seizing the moment, right strategy, right execution.
Aaron Alpeter (50:58)
Yeah, I I think that this is probably one that, all the founders who are listening to should really pay attention to because the the playbook that they that they developed and implemented was really interesting. I think that when we think about their collaborations, people think, about Crocs and all the cool stuff that they've done. I think they were s they were very similar but also very different. there was no single watershed moment for when they were cool and then became or uncool and became cool. it was this construction of repeatable
cultural translation systems really starting around 2018. And they began working more deliberately with collaborators who possess their own aesthetics, their own communities, their own interpretive authority. And the key thing here is interpretive. You know, a traditional celebrity endorsement will be, hey, this famous person wears the product, so the product must be desirable. Where how New Balance approached collaboration was, hey, this person understands something about the product that the parent company can't really articulate with the same credibility.
And so the the collaborator becomes a curator, an archivist, a stylist, this gatekeeper or translator. It's a it's a very different approach on how it's being done because you're ceding a lot of the creative control to the collaborator versus saying, hey, you know, we just want you to put you on a on a billboard with with you holding the stuff.
Becca (52:14)
Yeah, and JJJJound is like a great example because the collaboration did not require turning new balance into something that was visually unrecognizable. It was these like small set of decisions around like tone and material and shade and like photography and scarcity that could make a familiar new balance like silhouette feel really elevated.
Aaron Alpeter (52:36)
Yeah. JJJJound demonstrated how the context really changed the value. I mean, Joe Fresh Goods, another collaboration they did, they contributed a different kind of translation and they started connecting the brand back to Chicago and black cultural storytelling and community memory and basketball. And the Saleh Bembury
Collaborations showed kind of the technical foundation could support this more expressive and tactile design language. And so we'll put a lot of these pictures up in the in the show notes, but they're just pretty fascinating because each collaborator revealed a different part of the brand that you kind of always knew was there, but you know, hadn't really seen it explicitly until they they had this context. but Aime Leon Dore and Teddy Santis were probably the most important relationship in the modern resurgence for a lot of reasons.
Becca (53:20)
Yeah, I mean, looking at these pictures and like I encourage the listeners to definitely take a look. It's shocking because the aesthetics were so compatible. It's almost as if these were how the shoes were always supposed to have been merchandised. Like they don't feel out of place. and Aime Leon Dore could draw from New York and Queen's prep, basketball, you know, like this Mediterranean references and old sportswear.
An understated luxury without making New Balance feel as though it was kind of like wearing a costume.
Aaron Alpeter (53:54)
Yeah, I think you're right. Like a a a bad collaboration would be one where new balance is asking to behave more like the collaborator.
But a really strong collaboration in this sense is New Balance becoming more legible because of the collaboration. Like it's learning more about itself because it's there. And you know, Teddy Santis and Aime Leon Dore they worked across the models of like 997, the 990, the 827, and eventually the 550. And Santis later joined as the creative director for New Balances Made in the USA line, which brought some of that external cultural interpretation closer to the center of the company.
Becca (54:12)
Yeah.
Yeah, and like clearly New Balance benefited greatly from a lot of these collaborations, but like what was in it for these collaborators?
Aaron Alpeter (54:38)
Yeah, I think the right way to look at it is it's more like a licensing deal. they usually get like an upfront design fee and some sort of royalty.
the significant upfront design fee, a royalty, and some sort of you know, significant creative control. and the benefit is they don't have to buy or manufacture any the product. And so
I think the value here is that while New Balance benefited from a very distinctive aesthetic and cultural point, the collaborators benefited enormously from their reach. And so if you look at Aime Leon Dore as an example, like they had maybe four stores, an e-commerce site, like a really loyal customer base, but New Balance has thousands of retailers globally. So instead of selling, you know, 5,000 pairs, their design suddenly sells 100,000 pairs. And that dramatically expands the awareness of their own brand. And so while the royalties and the upfront freeze could be
meaningful. I think the real payoff is when hundreds of thousands of people now start discovering the collaborator's own brand. And even if there's like a small fraction of those people who go on to purchase apparel or other products direct from the collaborator, I'd imagine that the the customer acquisition cost of lifetime value is enormous and far exceeds what they would get from the shoe sales themselves.
Becca (55:44)
Mm-hmm.
Yeah. And I think the the five fifty becomes the the clearest commercial proof. It began as like a s relatively obscure late nineteen eighties basketball model. And Aime Leon Dore helped revive it in 2020. its importance is not merely that the collaboration sold out. Limited collaborations, you know, sell out all the time because the supply is small and the partner is credible and
Release mechanics are meant to create a sense of urgency. the economically interesting outcome occurred when New Balance moved the 550 beyond collaboration scarcity and then developed it into a broader kind of inline franchise. And so this sequence, I think, is incredibly powerful. They identified an underused archival asset in the catalog,
Gave it to this credible cultural interpreter, used limited distribution to establish attention and value, observed weather demand extended beyond the collaborator's immediate audience, and then expanded the model into broader distribution, and then converted cultural validation into repeatable unit volume. And so the collaboration becomes part of this.
product discovery mechanism. It's almost like a culturally informed like pilot program.
Aaron Alpeter (57:11)
Yeah, and you're right, like the limited release tests, the interpretation before the company fully commits to doing this at scale. And that's one the reasons why the collaboration system was more valuable than just ordinary marketing. It it helped New Balance determine which archival products could become contemporary commercial platforms. Because the you know 550 was there, it was kind of on the shelf, and they brought it back in a big way as a result of this.
Becca (57:34)
Yeah, like can you imagine being the designer of the 550 who like put their heart and soul into the shoe, thought it was really great, probably spent most of their career not seeing like any traction around it, and then their grandkids or like great grandkids are like falling in love with this thing. I mean, that must be like very satisfying. Also, maybe like a little bit infuriating. but I think there's a question here, right? Like, is the answer that every legacy brand out there should start?
Doing collaborations. It feels like bad collaborations executed poorly could actually become like more hurtful for your brand if you're not super careful.
Aaron Alpeter (58:13)
Yeah, I think you're right. I mean the collaboration can become an addiction because it generates attention and gives the organization like a ready-made narrative. But too many partnerships will create consumer fatigue, excessive colorways, borrow credibility, you know, you'll exhaust your archive, they'll be very complex. And so eventually you may lose the ability to speak to your consumer without a collaborator.
And so I think that New Balance has to use these collaborations to reveal the underlying brand rather than replace it. And you know, we talked about these pockets of people who all exist at the same time. And like I think what these collaborations are doing is showing that like, hey, this brand, this shoe fits for these people. And this shoe also fits for these people. And they're doing it in such a way that it's different than if they were just to say, yeah, you know, like of course we're we're here and they're like they're it's just the proof is in the pudding and they're able do that.
Becca (59:02)
Mm-hmm.
Yeah. Okay. I could talk about the fashion aspect of New Balance all day, but New Balance is kind of adamant that it remains a performance company.
Aaron Alpeter (59:13)
Yeah, the CEO said that they see themselves at the intersection of performance and fashion, but performance really remains their core. And he points to like the running, the product innovation, the new balance, expanding athlete portfolio as as the foundations of the brand. And so it's interesting because you know all of these collaborations have been fashion focused, but they're still saying, no, no, no, like we wanna be we wanna be sport.
You know, over the decades, New Balance had withdrawn from several major sports just to concentrate on running. And the company has is made a deliberate effort to get into sports over the last couple of years. And so, you know, you talked about expanding into baseball and getting back into basketball with with Kawhi with Leonard, and they're investing in football and soccer, and they're starting to build relationships in tennis and other sports. So they're kind of slowly going after Nike and Adidas and all the other stuff they have.
But they said in twenty twenty four they have relationships with about three hundred and twenty athletes globally.
Becca (1:00:09)
Wow. It also feels like these choices are more specific than kind of just like collecting as many people as they can on this like sports roster. Kawhi Leonard was an especially coherent early basketball partner because he had this like understated public personality that kind of fit New Balance. He didn't feel like an athlete that the company just kind of like awkwardly pasted onto their brand.
But Coco Gauff was also gave new balance like this youth and global tennis visibility, also like this American, you know, relevance, women's product opportunity, and a connection again between this like performance and fashion. Shohei Ohtani brings extraordinary athletic credibility. This US Japan relevance.
Baseball dominance and global reach. So while the company is unlikely to kind of outspend Nike across all of these athletic categories and every sport, it's advantage seems to come from choosing athletes around whom it can build these distinct products and these platforms that have a narrative.
Aaron Alpeter (1:01:18)
Yeah, well, they certainly have money these days. I mean, we mentioned they have an estimated seven point six billion dollars in revenue in in twenty twenty-four, which is again they're a private company, so they don't publish anything. This is just the last they've shared. they had twenty-three percent year over year growth in twenty twenty-three. And it's clear that they're no longer this niche challenger, that's one of the largest privately controlled consumer brands in the world. And, you know, if you look at comparable EBIT numbers for public companies, we'd expect them to have a net margin somewhere around twelve eight.
eighteen percent, which would be around 900 million to 1.4 billion.
Becca (1:01:52)
It's impressive. But it's it's still not Nike, which had around like forty six billion in revenue. But Noon Balance is a formidable player now, nonetheless. If they wanted to sell or if they were going to be acquired, how would you think about a valuation for a company like them?
Aaron Alpeter (1:02:10)
Yeah, you know,
At this scale, you're probably looking at a profit multiple of anywhere between 12 to 18 times, which would suggest the business could be worth anywhere from 11 billion to 25 billion. And the reality is that this valuation is just highly susceptible on a couple of factors, such as you know, how durable are the global share gains, what does the international white space look like for them? And what's their level of dependence on any one collaboration or one partnership? I think there are a lot of things that are inherently harder in their business, and some of these things we talked about.
just being their inventory complexity. And I would imagine they have a lot of cash that's tied up into the long tail of SKUs. And they probably have lower profit margins because of the domestic manufacturing and you know this this high concentration on just a handful of lifestyle models.
Becca (1:02:55)
Hmm. And we haven't really seen like any discussion about the company being acquired or like potentially going public. So like for argument's sake, if they were to be acquired, who do you think would be interested?
Aaron Alpeter (1:03:10)
Yeah, I think there's a couple of theoretical buyers that are worth mentioning. LVMH is one that pops out that's kind of interesting. They could be attracted to their cultural power, the the premium footwear.
Becca (1:03:15)
Okay.
Aaron Alpeter (1:03:22)
you know, the the story around manufacturing heritage, especially now that they're starting to play at the intersection between luxury sport and and lifestyle. I I don't know how well LVMH would be able to do with this type of acquisition because there'd probably be an attempt to make the entire company more exclusive or more luxury. And I think that new balance drives most of their value from being premium yet accessible. so I think that like that's probably a a mismatch there. you know Adidas could be one. this would dramatically strengthen their North American
Becca (1:03:45)
Agree.
Aaron Alpeter (1:03:52)
position particularly in running which is a place that that Nike dominates. I think that like any attempt at an aggressive integration might dismantle the product factory or or the cultural independence that has made them who they are so they run the risk of dismantling it and just being another shoe. Nike is always there but you know it probably viewed as them taking out a rapidly growing competitor so I'd be worried about antitrust there. But this again could be something that just private equity owner purchases and the family is able
to liquidate and you know maybe it's a sovereign wealth fund or something that wants to buy it but you'd have to be worried in both of those about people trying to make it more operationally streamlined and you know getting rid of the wits or or some of the other things that that make it special
Becca (1:04:37)
Yeah, those all seem plausible. It's also important, I think, for us to take a look at some of those inherent weaknesses that New Balance could be facing in that environment. They may be benefiting from an unusually favorable aesthetic cycle. So for so long they were not cool and now they're cool. So what's to say they're like they're not gonna be kind of uncool again, you know? they've had a lot of success bringing back old products, but there's
Only so many old products that you can bring back. So, what does that product pipeline look like that helps them maintain their identity and evolve? And then we can't just underestimate how competitive like the performance sector is. I mean, Nike and Adidas are enormous. Hoka and On have very powerful modern propositions. Asics, Brooks, Saucony, Puma, and others continue to invest in this space and grow.
They can't assume that lifestyle success will automatically produce this kind of like performance leadership position.
Aaron Alpeter (1:05:37)
Yeah. Well good. Well I I think you make a a lot of good points there that there are still things they have to work through and sometimes when things are going well you don't see what could go wrong. but Becca, I know we're coming up on time here. This has been wonderful. Thank you so much for being on, sharing your thoughts and and everything. As we think about everything that we've talked about, everything that we researched that we didn't put in the episode, what are some of the key things that you think a founder or operator should learn from New Balance?
Becca (1:06:03)
Well, Aaron, first, it's been super fun to sit and chat with you about this. Thank you so much for the invite. And to our listeners, please subscribe and follow. I think as I think about our conversation today, one of the things that sticks out to me is that like unfashionable is not the same as undifferentiated. So yeah, New Balance possesses strong identity, even when the market didn't really value that identity very highly. And so founders should really ask.
Whether the business is truly generic or merely like it's kind of out of step with these current cultural preferences. Because those are completely different problems, right? And so a generic product needs this differentiation, while a misunderstood product maybe needs, you know, a new interpretation. I think the other thing that I'll say as we close up here, Aaron, is that like, you know, ownership can be an enterprise value driver.
For a business. The highest value owner is not always the buyer that's like willing to pay the largest price. But New Balance's private ownership contributed to a lot of things that we mentioned today that are, you know, strategic strengths for the business, their ability to preserve factories and tolerate these long cycles and avoiding optimizing the company entirely around these like short-term market expectations. And a different owner.
might need, you know, near term earnings increases or reduce long term distinctiveness. I think that's those are the pieces that really stuck out to me. What what about you?
Aaron Alpeter (1:07:43)
I think the first one is that some complexity is strategic. And so you think about their width options, their their domestic manufacturing, this really emphasis on product construction, that all those things make the company harder to operate.
But it also makes it harder to copy. And so, you know, simplification is valuable until it removes the reason that the customer actually cares. So you to always be careful. And then I think, you know, with their collaborations, you gotta let these partners translate rather than overwrite who you are. And so the best New Balance collaborators didn't make the company look like somebody else. They show the consumers how to read what was already there. You know, how how they were experiencing new balance in their ecosystem and in their lives. And I think that that was just a really great
way to show people and reveal that product truth versus you know, trying to conceal who they were.
Becca (1:08:32)
Yeah. All right, so we started with a dad uniform, the beginning of this episode, and I honestly feel like we owed the dads a conclusion. Were they secretly fashionable all along?
Aaron Alpeter (1:08:44)
as much as I wish that were true, I don't think that they were secretly fashionable. I do think that they were optimizing for a different set of variables. They cared about comfort, fit, durability, readiness, utility, all those sorts of things. And you know, fashion eventually decided that those characteristics could also carry status.
Becca (1:09:02)
Yeah. So the shoe didn't change from being functional to fashionable. Function became a part of fashion.
Aaron Alpeter (1:09:08)
That's right. I think that the new balance story is not that management perfectly predicted the future.
the the company did something more difficult to appreciate than than what you see in the moment. they preserved enough of their own identity to remain distinctive while the environment around them changed. And it chose to retain its factories, its knowledge about construction and fit, its old silhouettes, its technical credibility, and it paired all of those inherited assets with this new system. And so the the athletes made the brand visible in sport, the collaborators, you know, made it visible in culture. And you know, the the result was not.
This abandonment of the old new balance, but more of a valuable interpretation of what the old new balance actually was that we didn't really understand.
Becca (1:09:50)
Mm-hmm. So founders, the lesson here is not that every uncool company will eventually become cool. Most uncool companies are gonna remain uncool. Some are undifferentiated, poorly operated, or attached to products the market no longer needs. But when a company possesses like real product truth, hard to recreate, operating capability, and this like recognizable identity.
Management should be careful about destroying those assets merely because the market doesn't value them today. And every spreadsheet is gonna encourage some degree of simplification. Outsource the factory, reduce the assortment, you know, drop the widths, replace the old silhouette, or broaden this distribution here, follow the market leader. But those decisions.
may all be individually defensible, but taken together, they can remove or degrade the reason the company deserves to exist.
Aaron Alpeter (1:10:54)
Yeah, New New Balance didn't win because it escaped the dad shoe. It won because the company preserved the dad shoe long enough for everybody else who wanted one.
Becca (1:11:02)
Okay, great. Although like I'm putting my foot down on the full phone holster, like that's not coming back.
Aaron Alpeter (1:11:07)
You say that now, but let's give it another five years and we'll see.