Shoe startup aims high with Xterra line
After designing for the majors - from Nike to Puma - this duo is ready to snag their own piece of the lucrative athletic-shoe market.
NORTH HAMPTON, N.H. (CNNMoney.com) -- The office of Ashley Brown and T.J. Gray is littered with what could be relics from some eclectic sporting-goods museum.
There's the pair of lightweight Puma cleats the duo designed for Johnny Damon when he played outfield for the Boston Red Sox; the award-winning $15 basketball shoes they created for New York Knicks point guard Stephon Marbury; the lacrosse sticks they crafted for Brine, the nation's largest seller of lacrosse and hockey equipment.
For the past 15 years, Brown, 37, and Gray, 40, have designed top-of-the line gear for almost every major athletic company. They started as staffers for Nike (NKE, Fortune 500) in the late 1990s and most recently were independent contractors assisting Under Armour launch a line of football cleats.
But late last year the two launched their own company, 20 Degrees North, and started seeking their own piece of the $46 billion outdoor-recreation market.
"It's probably not the best time to start a shoe company," Brown says. "But we've been designing for everyone else for years, so why not do it ourselves? How hard can it really be?"
Last month the duo launched their first product, a line of bright-colored running shoes for the 40 million American joggers who run on off-road trails, where the uneven terrain of mountain passes, beaches, and forests necessitates a wider, more stable running shoe than those worn by track-and-field athletes.
About a dozen companies, including Adidas and Asics, already sell trail-running shoes, but 20 Degrees' founders say the market lacks a clear leader.
"Standing at the finish lines of these races, we watched as about 90% of the 500 racers coming through were wearing regular running shoes - today's running shoes are too heavy and overbuilt," Gray says. "It's a perfect niche for us to build on, a place where we can come in and be the first true, authentic brand."
Brown and Gray, who run in three to four triathlons annually, have spent nearly a year perfecting their new shoe. For research, they examined photos and Internet footage of big cats' paws, discovering that their pads - not claws - wrapped around rocks and uneven terrain to give them better stability.
"Other companies look at putting hard teeth and large pieces on the bottom of shoes to give them stability - that adds weight," Brown explains.
Instead, 20 Degrees fitted the bottom of its shoes with lightweight, blown-rubber traction pads and grooves to make them work more like paws. The company also used an injection-molded manufacturing process that is generally associated with Crocs (CROX), not high-performance sneakers. And although that makes the shoes almost twice as expensive to make, it resulted in a trainer that is almost two ounces lighter than competitors'.
But no matter how light and agile their shoes are, it's hard to break into the shoe market, especially in such a niche.
"Die-hard trail runners tend to find a brand they love and stick with it," says Elinor Fish, managing editor of Trail Running Magazine. "Then this company faces the challenge of convincing specialty running stores - who have limited wall space - to stock a brand they've never heard of."
To build credibility among die-hard athletes, 20 Degrees is targeting the some 28,000 runners that participate each year in Xterra races, a series of triathlons held all over the world. (The Xterra athletic brand is not related to the Nissan SUV of the same name.) In 2007, 20 Degrees inked a deal with Team Unlimited, the Maui firm that runs the Xterra races, and is selling its shoe under the Xterra name. The Maui location is also the inspiration for 20 Degrees' name: Hawaii is found at 20 degrees latitude.
As a result, the Xterra shoe will get exposure at races and on Xterra Planet TV, a sports cable network that, according to Team Unlimited CEO Tom Kiely, gets about 50 million viewers a year. The company also has access to five Xterra-sponsored athletes, competitive runners who have been testing 20 Degrees' shoes since spring.
"I started wearing the shoes in May and now wear them almost exclusively," says Cindi Toepel, a software developer manager based in Littleton, Colo., who has competed in Xterra races for five years. "I have a tendency to roll my ankles when I run, but since wearing these shoes I haven't done that. And they're lighter than they look."
So far 20 Degrees has financed itself with $500,000 of personal savings and the extra income Brown and Gray make from consulting jobs. They're hoping it's enough to manufacture and market about 10,000 pairs of trail-running shoes. If all goes well with the first batch, 20 Degrees will break even in 2008 and 2009, and then turn its first profit in 2010.
To help make that happen, Brown and Gray recruited two shoe industry veterans to service as senior management. They appointed Greg Niel, a former sales executive at Adidas, as CEO, and Mark Kilgore, an ex-product developer at Nike, as COO. While Niel will help sell and market the brand into stores across the country, Kilgore will handle the manufacturing and sourcing end, something he was responsible for at Nike.
"It's probably not the best time to be developing new shoes," says Kilgore, 43, noting that the cost to manufacture goods in China has gone up about 5% to 8% due to rising raw material costs and the country's new labor wage rules. "But I wanted the chance to own something, and TJ and Ash - those guys are really good at doing footwear."
Brown and Gray have already started designing Xterra hiking sandals and slides, and later next year they hope to introduce more running shoes. "Today's athletes don't want to be indoors at the gym - they're migrating outdoors," says Niel. "Once we've established ourselves as the leading brand in trail-running, we believe the rest of the outdoor market will come right at us."
But what happens if Nike decides to launch a new trail-running shoe to snag its lost market share?
"If they wanted to, they could crush us," says Kilgore. "But I just don't see it happening right away. Our market is insignificant to them in the big scheme of things. They won't notice us until we become something huge."
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