NEW YORK — After 19 years running her own brand-management firm, Mary Gleason, president of Nike’s new Exeter Brands Group division, has adapted quickly to having a global corporate giant as her parent.
“It’s been fascinating to work with Nike,” Gleason said in an interview this week at the company’s headquarters at 1350 Broadway here, eight months after being named Exeter’s president. “Companies in this industry have to be willing to think differently these days, and Nike is doing that with Starter.”
Gleason’s former company, Group 3 Design, relaunched the Starter athletic label five years ago and made its mark building brands such as Bugle Boy and McKids in the mass channel. Nike bought the Starter properties last August for $43 million as part of a plan to tap into the mass channel, and hired Gleason to run the Exeter division, which houses the Starter, Team Starter, Asphalt Legend and Shaq/Dunkman brands.
Now, Gleason is at the nexus of two global powerhouses: Nike and Wal-Mart, both of which have ambitious plans for growth and unique corporate cultures. Her background in the apparel industry and with the mass channel is a boon for Nike, which has virtually no experience in this distribution tier.
Starter brands, which are now sold primarily at Wal-Mart, have estimated sales of about $800 million at retail, mostly from its licensed categories.
Gleason outlined aggressive plans to expand Starter in new directions. Now that it has Nike’s backing, among the top priorities are building the footwear category, expanding retail distribution, growing the Starter brand internationally and stepping up marketing efforts.
Women’s products, which have been tested in some locations in recent months, are another significant growth opportunity, since Starter has been primarily a men’s business. Gleason said the company intends to launch a Starter women’s apparel collection for spring 2006, although she declined to give specifics.
“Women already buy much of the Starter products now for men, and the brand recognition is really strong with female customers,” she said.
Last week, Exeter unveiled its first significant product launch since the Nike acquisition with the debut of its new performance footwear line sold exclusively at Wal-Mart. The footwear, designed and produced in-house by Exeter, is priced for the value channel and retails for less than $40, but incorporates high-tech elements such as a mechanical cushion, similar to technologies Nike uses in its more expensive footwear. It is being tested in 400 Wal-Mart stores initially and is the first athletic performance sneaker offered by the chain, according to a Wal-Mart spokeswoman.
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“Our focus is what we are calling value innovation,” said Gleason, 51, who is known for bringing sophisticated marketing associated with upstairs brands to the mass channel. “Now, with the support of Nike, we can have the technology to have innovation at value price points.”
She said that Exeter has employees at the Nike campus in Beaverton, Ore., and the footwear was developed with Nike’s design input.
Scott Olivet, vice president of Nike Subsidiaries, said: “This is our first test together. What’s interesting about this is that it’s an experiment for both Nike and Wal-Mart. We are having to do things differently and so are they.”
For example, he noted that the footwear products were made using some of Nike’s factories in China but went straight to Wal-Mart and not through Nike’s traditional supply chain.
“We feel there is a huge opportunity for Nike in the value channel,” Olivet said. “The sales in this channel are enormous and Nike wasn’t participating.”
On the marketing front, the footwear and other Starter products are endorsed by Green Bay Packers quarterback Brett Favre, who was a Nike-sponsored athlete, and will be featured in print and TV advertisements for the brand as part of a stepped-up marketing campaign.
“Nike understands marketing and everyone now has to find clever ways to tell consumers about their product,” Olivet said. “To really sell performance merchandise it has to be merchandised differently and it has to be visible to consumers.”
In a recent call with analysts, Mark Parker, co-president of the Nike brand, said: “This is a new venture for Starter and Wal-Mart in the sense that we’re going to a new place in terms of the product quality, the technology that’s represented in the product and the pricing. We’re optimistic about where this may go.”
Wall Street analysts are also bullish. John Shanley, an analyst at Susquehanna Financial Group, wrote in a report this month, “We continue to believe that the Exeter Brands business should enable the company to rapidly expand its presence into the U.S. value retail channel, a segment of the marketplace in which Nike has not previously participated. In our opinion, this acquisition could represent a very significant sales and earnings growth vehicle for the company over the next three or four years.”
Starter, which was founded in 1971, has high brand recognition and is best known for its athletic T-shirts and apparel. The company at one time had sales of $350 million and was one of the biggest players in team-licensed apparel, but began to struggle when the market for licensed sports apparel weakened in the mid-Nineties. It filed for bankruptcy in 1999, and the trademark and inventory was bought by a group led by Schottenstein Stores Corp., which then hired Gleason’s company to relaunch the brand in the mass arena.
Now, Starter has licensing deals with about 30 companies for products such as apparel, socks and outerwear, and also arrangements with a number of colleges to make and sell licensed products in the mass market.
When asked if the company would start producing apparel in-house similar to what it has begun doing with footwear, Gleason said there are no plans currently to end any of the licensing arrangements, but said the company would not be signing any more at this time.
Olivet said that similar to what it has just done with footwear, Nike will bring some of its higher level of performance fabrics and design to the athletic apparel sold at Wal-Mart. Much of the activewear sold in the mass channel is dominated by basic fleece and cotton T-shirts.
Nike executives have been adamant that the Nike brand will not be sold at mass, but some analysts have speculated that products could possibly one day be sold with a label such as Starter by Nike. Other activewear firms including Champion and Danskin have developed businesses for the mass market using variations of their name, such as the C9 line by Champion sold at Target. Freestyle, a Danskin company, is sold at Target, and Danskin Now is a line available at Wal-Mart.
Nike’s move into mass comes at a time when Wal-Mart is also actively building up its apparel business, which is estimated at about $40 billion annually. Athletic apparel at the big three discounters — Wal-Mart, Target and Kmart — is estimated at about $8 billion, a small portion of their combined volume.
While Starter products are sold primarily in Wal-Mart, Gleason is looking to expand the brand’s distribution, and said she plans to target Sears Holding, the new combined entity of Kmart and Sears, and other stores. Gleason said she views Starter’s competitors primarily as the retailers’ own private label sports brands, including Wal-Mart’s AthleticWorks. The Starter apparel retails for about $7 to $20.
For Nike, Starter is part of the firm’s strategy in recent years to build up its brand portfolio outside the core Nike label and tap new distribution channels. Nike’s subsidiaries include Cole Haan, Bauer Hockey, Hurley and Converse. In the year ended May 31, 2004, this segment had sales of $1.4 billion, a 51 percent increase over the previous year. Nike founder Phil Knight said in December that within five years, brands other than Nike could account for as much as 25 percent of total volume.
Nike’s new chief executive officer, William D. Perez, has vast experience managing different brands from his time at SC Johnson, the maker of Ziploc, Saran Wrap and Scrubbing Bubbles. Gleason noted that she particularly likes that Perez has experience with the mass channel, since many of SC Johnson products are sold in that arena and internationally.
Exeter, which is named for the original Nike research lab in Exeter, N.H., has taken over the space from Group 3 on the fifth floor at 1350 Broadway and a number of former Group 3 employees are now working at Exeter. The company has 36 employees, some of whom are located in a satellite office in Bentonville, Ark., to service Wal-Mart, while others are located at Nike headquarters in Beaverton, Ore., to tap into Nike’s resources.
The headquarters are in New York, which houses the design, marketing and sales staff, and the company is in a hiring mode as it builds this business, Gleason said.
Olivet noted that the subsidiaries have been working more closely together and sharing information. He said, “Each brand has a different consumer and market position, but the brands are also working with the Nike brand and the subsidiary team to make stronger connection points.”
Added Gleason: “We share best practices and ideas. It’s all still very new with Nike, but everyone sees the possibilities.”