WILL TIMBERLAND GROW UP?
(FORTUNE Magazine) – COMPANY FILE WILL TIMBERLAND GROW UP? A couple of times each year, top managers at Timberland--which sells boots and apparel wrapped in an outdoor lifestyle--gather for a tomato-sauce cooking contest. Last go round, Jeffrey Swartz, the company's 35-year-old chief operating officer and son of CEO Sidney Swartz, promised he would win. He didn't. "My sauce was conceptually brilliant, but the execution was flawed," he explains. Hang on, Jeff, we've got a metaphor simmering on the stove. "Good concept, bad execution" pretty much sums up the Swartzes' recent track record. For all the brand's strength and to-the-moon growth, the company has barely enough profit to fill a mukluk. Sales have climbed 34% annually since 1990, but profits over that period total just $69 million on sales of $1.8 billion. That's a net margin of 3.9%--terrific for an A&P, but terrible for a worldwide superbrand. Nike, for instance, nets 8%. The company's stock price? Timberrrrrr!--down from a brief peak of $85, in November 1993, to $22. Ten years ago Timberland had less than $100 million in sales and appealed mostly to folks who actually set foot in forests. Therein lies the problem. The outdoors became the "in" look on sidewalks from Berlin to Bedford-Stuyvesant. Timberland's rapid growth outstripped management's ability to handle it. Distribution and tracking systems strained under the load, with inventory piling up while retailers begged for merchandise. The inexperienced Jeffrey compounded the problem by lowering prices on some products in an inexplicable effort to bring the premium-priced brand down to a less lofty level. As often happens, the price cuts didn't spark offsetting higher volume. Result: margin squeeze. After climbing to 9.6% in 1993, operating margins fell to 6.8% last year. "The company also had trouble forecasting," says Lee Allen of Boston's Allen Financial Advisors. "Faster sales growth exacerbated that problem." Now Jeffrey, a breathless and mercurial sort, and Sidney, 59, who plays the gruff dad, are under fire to boot the company back on track. Don't question their commitment. Jeffrey's grandfather Nathan, a Russian Jewish immigrant, bought control of New England's Abington Shoe back in the mid-1950s. After Sidney took over, the name was changed. He brought in Jeffrey, schooled at Andover, Brown, and Dartmouth's Amos Tuck Business School. Timberland is learning to behave like a grownup. The company now outsources like rival Nike, which designs and markets shoes but manufactures nothing. The Swartzes at first doubted that Asians could produce a handsewn Timberland boot. Then last fall, in a Nixonian journey, Sidney--the biggest foe of outsourcing--went to China. He returned a believer, to the detriment of plant workers in Tennessee and North Carolina: The company closed both U.S. plants. "What we do best is design and market products," says Jeffrey. "Now we will focus on that." (Just do it, Jeff.) The Swartzes have also brought in a team of outside managers with pedigrees from Procter & Gamble, Black & Decker, and Booz Allen, and are reorganizing the company. So is Timberland on the trail to big profits? Well, these boys are playing with their own money. The Swartz family owns 42% of the company's stock. Their stake is worth $77 million--$221 million less than in 1993. Timberland has zero credibility on Wall Street, so surprises will most likely come on the upside. Jeffrey Swartz is confident. "The reorganization and outsourcing will work," he insists. But then he also promises to win the next tomato-sauce contest. - A.E.S. |
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