New Balance Athletic Shoe is primarily a footwear manufacturer; the company also manufacturers and sells other athletic products such as apparel and related accessories. New Balance has won several awards for its technologically innovative products. Thecompany’s consistent focus on research and development has enabled it to remain competitive and maintain market share. However, a prolonged economic recession will reduce the demand for the
company’s products and affect its sales.
Focus on technology and innovation: New Balance is known for its technologically innovative footwear.The company’s strategy of product innovation is supported by its strong emphasis on research and development (R&D). New Balance recently won many accolades for its products. The NBx Burnout Tee which is based on natural fabric technology that provides evaporative cooling, odor resistance and UV protection was named a “2009 America’s Healthiest Fitness Award” winner for Best Top. The New Balance 904 running shoe won the title of “2009 Best of Adventure Gear” in the road shoe category by Geographic ADVENTURE. In late 2008, Shape magazine named the New Balance Downforce 840 women’s training shoe “Best for Boot Camp and Agility Classes.” These awards reflect the company’s technical expertise in the area of footwear. The company’s consistent focus on R&D has enabled it to remain competitive and maintain market share. Wide product portfolio New Balance offers a wide variety of footwear for men, women and kids under the brands—New Balance, Dunham, PF Flyers, Aravon, Warrior and Brine. The company offers a variety of shoes designed for running, training, basketball, tennis, hiking and golf. New Balance is known for its selection of footwear designed to fit all widths and sizes. The company also provides an array of fitness apparel and lifestyle accessories such as bags, socks, sports monitors, eyewear, fitness equipment and shoe care products. A broad product portfolio allows the company to cater to various customer needs and enhance its sales.
Wide geographic presence: New Balance has grown to be one of the largest athletic footwear and apparel companies in the world. The company has expanded internationally, with products in more than 120 countries. The company has wholly-owned subsidiaries in the UK, France, Germany, Sweden, Hong Kong, Singapore, Australia, New Zealand, Mexico, Canada, Japan, Brazil and South Africa. The company also has a number of licensees, joint ventures, and distributors worldwide. A wide geographic presence enhances its reach and enables it to tap opportunities in various markets.
Lacking celebrity endorsements: New Balance has developed an “Endorsed by no one” philosophy.The company does not undertake
celebrity endorsements like its competitors Nike, Adidas and Reebok. Its brand building initiatives are disadvantaged resulting in limited brand awareness, limiting its ability to compete effectively with other well-established brands.
Growing online retail spending: New Balance has a strong presence in ecommerce through its website, www.nbwebexpress.com. Customers can purchase all varieties of footwear and apparel online and also through its mail orderdealers. According to the Census Bureau of the Department of Commerce, the US retail e-commerce sales for the first quarter of 2009 was $31.7 billion, an increase of 0.7% from the fourth quarter of 2008.This is an encouraging sign in the current economic turmoil when overall retail sales are going down, quarter after quarter.Therefore, the growing online retail spending will improve New Balance’s sales and also provide a cost-efficient means of building brand awareness as well as testing market acceptance of new products and brands.
Slump in the price of natural and synthetic rubber: The recession has cooled off the demand for natural and synthetic rubber, causing prices for both to fall dramatically since 2008. After hitting a high of $1.47/lb in June 2008, the average world natural rubber prices plunged to $0.57/lb in December 2008, according to the International Monetary Fund. Meanwhile, Butadiene (a key synthetic rubber monomer) prices dropped from $1.12/lb in November 2008 to $0.65/lb in December 2008.This trend has continued, with butadiene tags sinking to $0.36/lb by April 2009. Decreasing costs of natural and synthetic rubber will benefit the company’s cost structure and operating margins to some extent.
Recessionary climate: Most of the major developed economies in the world are in the grip of recession. For instance, the recent debt crisis of Greece has the potential to contaminate the entire European economy. With Portugal and Spain also showing contagion effects, the eminent threat of another downfall in Europe is gaining grounds. Another economic turmoil and reduced consumer wealth may result in consumers becoming unwilling or unable to purchase the company’s products, with clear implications for turnover and profitability. As per the results from the Consumer Expenditure Survey (CE) released by the U.S. Bureau of Labor Statistics average annual expenditures per consumer unit fell 2.8% in 2009 following an increase of 1.7% in 2008. In the US, the consumer confidence is down and being hit by both property slump and rising prices of food and fuel. Americans seem cautious and are not willing to increase spending, one of the reasons why the pace of the recovery is estimated to be more subdued than in the past. According to the United States Department of Labor, the unemployment rates in the US ranged from 7.7% to 10.0% in the year 2009-10. Sluggish wage gains and credit crunch are all expected to keep consumers relatively cautious in 2010-11. Even the key emerging economies including China, India and the Middle East are currently experiencing downturns. Amidst the recession, declining income and increasing unemployment, consumers have lesser disposable income and have become more vigilant of spending. A weak economic outlook for the important markets of New Balance would put pressure on its top line and bottom line growth.
Intense competition in the footwear industry: Competition is intense in the footwear industry. Some of New Balance’s competitors such as NIKE, Footlocker, Reebok International and Shoe Carnival have greater financial, marketing and technological resources than that of the company. Additionally, the industry has been impacted by retailers aggressively competing on the basis of price. As such, there has been competitive pressure on the company to keep its selling prices low. If New Balance is unable to respond effectively to the price pressures, its business and results of operations may be adversely affected. Increased minimum wages in the US In recent times, tight labor markets, increased overtime, government-mandated increases in minimum wages and a higher proportion of full-time employees have resulted in an increase in labor costs, which could materially impact the company’s operating margins. As per the US Department of Labor, the federal minimum wage rate in the US rose for the third year in a row to reach $7.25 an hour in July 2009 from an earlier wage rate of $6.55 per hour in July 2008 and $5.85 in July 2007. Rising labor costs will increase overall costs and affect New Balance’s profits.
From Datamonitor Dec 2010