BUS 478: Strategy
New Balance Athletics, Inc.
A Company Synopsis by Group A
Prepared for Jerry Sheppard
______________________________________________________________
CEO: Donovan Barabad
COO: Hameet Dhillon
CMO: Tegan Voros
CFO: Justin Dhah
February 6, 2017
History
Background
New Balance Athletics, Inc. was founded in 1906 in Boston, Massachusetts and began its business by
selling arch supports to police officers and waiters (New Balance, 2017). Then, in 1972, entrepreneur Jim
Davis, bought New Balance Athletics, Inc. Today, New Balance has grown and become a parent to the
following brands: New Balance, Dunham, PF Flyers, Aravon, Warrior, and Brine (Forbes, 2015). These
brands offer a wide range of apparel for both men and women such as shoes, sandals, hoodies, shirts and
accessories, as well as skirts, dresses, and sport bras (Bloomberg L.P., 2017). The company mainly
focuses on footwear, some of which are used for athletic activities such as running, hiking, and training
and for a variety of sports (Bloomberg L.P., 2017). Currently, New Balance generates $3.7 billion in
revenues and is among one of America’s largest private companies (Forbes, 2015).
Mission
The mission of New Balance is to inspire people to impact and build stronger communities. It does so by
being present on a global scale. New Balance’s aim is to help people around the world “move and
grow” (New Balance, 2017) both “physically and emotionally” (New Balance, 2017).
Goals
New Balance’s goals focus on helping everyday athletes achieve their own performance goals by supplying
them with products that have a perfect “blend of both fashion and function” (New Balance, 2017). The
organization wants their consumers to strive for excellence, aiding them with their endeavours to win medals
and set new world records (New Balance, 2017). New Balance also wants to instill a healthy lifestyle in their
consumers and thus, sell products that allow them to excel in both day-to-day activities and rigorous sports.
Stakeholders
Table 1 details the impact New Balance’s stakeholders.
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Table 1: New Balance’s Stakeholders
Internal Stakeholders
Board of Directors
Responsible of appointing officers in the company such as the CEO and CFO
Corporate Officers
Responsible for the day to day activities of the corporation (ie: CEO, Robert
DeMartini)
Employees
Sales representatives, managers, and manufacturing workers
External Stakeholders Consumers and
Customers
These can range from retailers (ie: Sportcheck) who purchase New Balance
products for resale, to athletes who buy these products for personal use
Suppliers
They add inputs of raw material (i.e.: cotton) to making the finished product
Charitable
Organizations
Non-governmental organizations (NGO’s) and/or trade unions. New Balance
support these organizations, helping them address humanitarian concerns such
as childhood obesity, or forced child labour.
Note. Data for company stakeholders from New Balance (2017).
Macro Environment
Demographics
The athletic apparel industry has a wide demographic as active footwear and clothing are marketed toward
children, men and women. Young and middle-age individuals are generally among the highest consumers of
athletic footwear and clothing. The ageing population of “baby boomers” could also serve as a potential
market for this industry. New Balance differs from the typical athletic company, such as Nike and Adidas,
as its key demographic is older in age (Sports Market Analytics, 2015). Currently, New Balance is
attempting to attract a younger demographic while still maintaining its appeal to older consumers.
Economic
Due to the improving economy and the growth of the middle class, many consumers have access to a
disposable income leading to increased retail spending. In developing countries, retail spending has
greatly increased “more than 350 percent and now represents more than half of total global retail sales”
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according to the 2016 Global Retail Development Index (Kearney, 2016). Highly populated countries
such as India and China are the top two major contributors to retail sales while Russia and the Middle
East are the among the bottom contributors because of their economic turbulence (Kearney,2016).
Socio-Cultural
Athletic wear has become an everyday fashion norm. Busy mothers, trend-setting teenagers and young
children all over the world are sporting activewear day-to- day. In fact, “sports apparel and footwear sales have
jumped 42% to $270 billion over the past seven years” and this figure only continues to grow, according to a
research report conducted by Morgan Stanley (2015). This trend has been seen around the world and can been
contributed to the increased focus on healthy living as well as society’s acceptance of casual wear.
Society has increased its focus on fitness and a healthy lifestyle. As a result, many more students in North
America are participating in school sports and growing up as active individuals. This is seen particularly
in girls whose participation in school sports has almost doubled in the past 35 years (Morgan Stanley,
2015). In addition, Asian governments are encouraging an increased interest in physical fitness. In fact,
the Chinese government, has plans to “build 60% more sports facilities by 2025 and get 500 million of its
citizens to exercise and play sports regularly” (Morgan Stanley, 2015).
Another factor contributing to the heightened growth of the athletic apparel industry is society’s shift
from formal wear to casual wear. It is much more accepting for professionals to sport sneakers in the
workplace than it has been in past decades (Morgan Stanley, 2015). Wearing expensive sporting apparel
is considered a status symbol which has been displayed by the trend of using famous fashions models
such as Kylie Jenner and Gigi Hadid in athletic campaigns as opposed to famous athletes. In 2014, Mike
Parker, the CEO of Nike claimed that “leggings are the new denim” and with the increase in athletic wear
sales, it seems he is nothing but correct (Salter, 2015).
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Industry Environment- Porter’s 5 Forces
Table 2 details the impact of Porter’s five forces on New Balance and the industry.
Table 2: Industry Environment - Porter’s 5 Forces
Threat of
Substitutes
The Threat of Substitutes is Moderate to High. There are many competitors that
New Balance must face in the industry which increase the likelihood that the everyday
consumers will turn to other products. Also, footwear and apparel are goods that use
common supplies and do not require high skill to assemble thus making their quality
all quite similar. New Balance does have a slight advantage as it is the only footwear
manufacturer to produce shoes in the U.S.A. (New Balance, 2012). This provides
appeal to consumers within the country as well as overseas but it does result in higher
costs and higher prices compared to its competitors.
Threat of New The Threat of New Entrants is Moderate. New apparel companies are emerging
Entrants
every day and could pose as possible threats to New Balance in the future. Cheap labour
costs and materials allow for an easy entry into the industry. However, new entrants
must have the funds and ability to grow within a very competitive industry and among
top leaders such as Nike, Adidas, Under Armour and New Balance. It must be noted
that there is also the threat of knock-off consumer goods and new brands emerging with
similar designs as New Balance products as they are relatively simple to duplicate.
Bargaining
Power of
Buyers
The Bargaining Power of Buyers is Moderate to High. Buyers of New Balance are
every day consumers and thus do not purchase in bulk which means they hold less
buying power (Porter, 1998). However, New Balance products are fairly
undifferentiated from its competitors meaning buyers have alternatives to easily
choose from and have virtually no switching costs. Buyers also have easy access to
market prices of other footwear and athletic apparel products in the industry which
may give them incentive to purchase from competitors (Porter, 1998).
Bargaining
Power of
Suppliers
The Bargaining Power of Suppliers is Low to Moderate. New Balance invests
millions of dollars in its local American suppliers and their communities. In doing so,
New Balance creates lasting relationships with its suppliers. As many suppliers for
footwear and apparel are located in Asian countries, the domestic suppliers have
greater power especially as New Balance aims to keep its products American.
However, New Balance states that there may be times “due to availability, economic,
or quality reasons” when it must use supplies from foreign sources (New Balance,
2012). Therefore, if the local suppliers demand high prices or provide low-quality
supplies, for instance, it seems New Balance will turn to other suppliers.
Industry
Rivalry
The Industry Rivalry is Moderate to High. New Balance has many rivals in its
industry competing against each other for market share. There are currently many
widely known athletic footwear and apparel companies that have a much higher
annual revenue, when compared to New Balance, such as Nike with $30 billion USD
and Adidas with $18 billion USD (Lutz, 2016). New Balance, however, can
differentiate itself by marketing its American made products and by its appeal to an
older demographic which creates a competitive strategy.
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Top Competitors
New Balance has many competitors within their industry. The two top competitors in athletics apparel and
footwear with extremely strong brand images are Nike Inc. and Adidas AG. These companies produce a
variety of clothing and footwear, similar to New Balance. However, their sales are much higher. Nike, for
instance, recorded a net income of 3.8 billion USD in fiscal 2016, while Adidas recorded 1.1 billion USD
(Nike, 2016) (Adidas AG, 2016). These figures greatly overshadows New Balance’s 0.6 billion USD in sales
(Hoovers, 2017). Nike Inc. and Adidas AG are top players worldwide, and are among the biggest brand
names. Asics is another brand that is closely compared to New Balance. This is because Asics also focuses on
high-performance running shoes. Similar to Nike and Adidas, Asics is also quite popular worldwide and
specifically in Asian countries. Their net income for fiscal 2016 was 0.9 billion USD (Asics, 2016).
Current Situation
Currently, New Balance focuses on delivering a high quality, great fitting, athletic shoes, although they
do have a clothing line and a sneaker line. New Balance takes pride in manufacturing their shoes primarily
in the United States and United Kingdom, however they do outsource some of their manufacturing to
China, Korea, and Vietnam (Complex Sneakers, 2013). They created a product line, “Made in USA
Sneakers”, to promote their United States assembling efforts of 4 million sneakers per year in addition to
labeling these shoes with the tag “Made in the USA”. The product line initiates a domestic value at no
less than 70%. They also have created a “Made in UK” product line for sneakers, which provides a unique
look to the consumer including craftsmanship, culture and style (New Balance, 2017). The UK site
employs over “210 people…and produce[s] over 13,000 pairs of shoes a week” (New Balance, 2017).
New Balance offers a wide range of performance shoes and uses the quality of these shoes, along with the speed
of delivery, as its primary advantage over their rivals (Schlesinger, 2015). Since New Balance has multiple
factories across the United States, customers in the U.S. can go online, customize a shoe, and have it delivered
within one day. Also, New Balance provides a high-quality performance shoe (as it comes in multiple sizes
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and widths) for multiple sports, which are not available as readily from its competitors. Recently, New Balance
has made big endorsement deals with popular athletes such as Trayvon Bromell from track and field, Jose
Bautista from baseball, Milos Raonic from tennis, and many more from other sports as well (New Balance,
n.d). Compared to its rivals, New Balance does not rely so much on celebrity endorsements as much as it
focuses on athletes showing off their brand. However, celebrities like Rihanna Pharrell Williams have been
seen wearing New Balance sneakers on multiple occasions. Specifically, the “New balance 574” (The Guardian, 2013). The promotion strategy of only endorsing and sponsoring only athletes illustrates New Balance’s
mission of providing the best performance products on the market to their athletes all around the world.
New Balance is currently a private company and thus does not release all of its financials. However, they have
seen great growth throughout the years as they evolve into a global company in more than 120 countries,
expanding their production beyond their own factories. In 2010, New Balance reported worldwide sales of
$1.8 billion (New Balance, 2010). This number continued to grow as in 2013 New Balance reported global
sales reaching 2.73 billion (Schlesinger, 2015) and then growing to 3.73 billion in 2015 (Forbes, 2015).
Strategic Challenges
Although New Balance has shown consistent market growth and earnings, it is still having great difficulty in
comparison to competing companies. In recent events related to the Donald Trump Campaign, New Balance
faces a public relations crisis. After recent reports by Lyst, New Balance’s support for Donald Trump had
resulted in the brand suffering a sales decrease by up to 25% internationally (Grice, 2016). In an attempt to
counter argue claims that New Balance is the official shoe of white people, it has released a statement to the
public that shows their position. Despite this, many have felt that New Balance’s support of Donald Trump is
enough reason to stop buying from the brand. Due to this, there was a revenue drop in major USA states. This
includes a revenue drop of 25% in New York, 23% in California and 17% in Oregon, (Germano, 2016). For
New Balance to regain market share in the sports shoes industry and remain a key competitor to the likes of
Nike and Adidas, the following strategic challenges must be resolved immediately.
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Overcoming the Donald Trump Controversy
New Balance was the first of the sporting shoe industry to back Donald Trump in the election. This stance
has resulted in huge backlash from the public. The reason behind New Balance backing Trump is the
TPP (Trans Pacific Partnership Trade Agreement). Where New Balance opposes this policy that would
allow for easier international trade, their rival Nike supports the agreement. Nike imports 40% of its
sneakers from Vietnam, and the TPP will eliminate potential savings on import tariffs for companies like
Nike and Adidas (Olorunnipa, 2017). This new negative criticism of New Balance can be overcome. With
a new stigma of being a ‘white person shoe’, New Balance needs to make a larger scale statement of the
white supremacist issue, rather than a single social media post. New Balance VP President of public
affairs has stated that if this issue is not resolved soon, it can “lose their multicultural Millennial global
sneaker-head base” (Snider, 2016). New Balance needs to address the threat of losing a young consumer
base that does not support the policies of Trump or this can result in further sales loss and a decreasing
market share to its competitors for the next couple of years.
Appealing to the Younger Demographic through Social Media
Experts believe that the reason Nike and Adidas control the market share of sporting shoes is their brand
appeal to the younger aged demographic. . New Balance has recently revamped its marketing techniques
with the goal of appealing to young athletes such as high school and college students. New Balance’s
EMEA Manager states that New Balance “will stay focused on [their] core proposition of performance
and running” but he realizes “there is an opportunity to introduce the brand to a much younger consumer”
in order to grow (Eder, 2013). While its competitors relied on a strong existing brand image, New
Balance struggles to stay relevant among with its brand positioning. With most of the younger consumers
being on some sort of social media, it was an easy decision for New Balance to launch a large social
media campaign. New Balance’s Digital Brand Marketing Director, Patrick Cassidy, had described their
new social media strategy as one that is “‘much more important to me that what we build on social
[bringing] someone into the New Balance world for the next 5, 10, 15 years” (Cassidy, 2015). Although
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targeting a new demographic to create a long-term customer is a viable strategy, New Balance does run
the risk of turning away consumers that may belong to different consumer base.
Finding a Competitive Advantage in Manufacturing
To be able to differentiate itself from its competitors, New Balance needs to find an innovative way
to be able to manufacture their shoes gain a competitive advantage. The CEO of New Balance, Robert
DeMartini, has addressed the need to become relevant in the eyes of the consumer once again.
Successfully being able to differentiate itself is key and New Balance is now believed to be adopting 3D
printing into the manufacturing process. In a recent interview, the CEO stated that he believes “3D is not
at all a threat to our labor force; we think it makes us more relevant” (DeMartini, 2016). Being able to
adopt new technologies, such as 3D printing, and then implementing them into the company’s strategy is
a way that can help regain some of the lost market share from previous problems and help financially in
the manufacturing process rather than outsource like its competition.
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