Deckers Outdoor Corporation

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Deckers Outdoor Corporation

495A S. Fairview
Goleta, California 93117
U.S.A.
(805) 967-7611
Fax: (805) 967-9722
Web site: http://www.teva.com

Public Company
Incorporated: 1975 as Deckers Corporation
Employees: 365
Sales: $102.3 million (1995)
Stock Exchanges: NASDAQ
SICs: 3021 Rubber & Plastics Footwear

Deckers Outdoor Corporation develops, manufactures, and markets high performance footwear and apparel that is used for outdoor sports and recreation activities, as well as for casual wear. The company’s products are marketed under the brand names of Teva, Simple, Sensi, and Picante. Teva markets outdoor sports sandals that utilize a patented strapping system and is widely recognized as the founder and market leader of the sport sandal category. Simple Shoes are comfortable, fashionable closed-toe street shoes, and Sensi manufactures modestly priced casual sandals. Picante is a line of hand-woven cotton apparel that complements Deckers’s footwear lines.

The Early Years

The beginnings of Deckers Outdoor Corporation can be traced to the mid-1970s, when the company was formed to produce and market sandals and other beachwear items. The company was marginally successful in the early years and was incorporated in California in 1975 under the name Deckers Corporation. The company’s products never truly hit it big, however, until a river guide by the name of Mark Thatcher brought Deckers his Teva sandal concept in 1985.

Prior to the union between Thatcher and Deckers Corporation, Thatcher worked as a geophysicist at Cities Service Company in Houston, Texas until being laid off in 1982. At that time, he began guiding raft trips on the Colorado River through the Grand Canyon. It was then that he was introduced to a problem for which the solution would change his life. During the raft trips, Thatcher noticed that while traditional flip-flop shoes were light and quick drying, they tended to fall off his feet whenever he stepped into mud or water. Thus he decided to add another nylon strap around the back of his heel to hold the shoes in place.

Soon, other guides on the river were asking Thatcher to make them a pair of his newly created sport sandals. After that came requests for the shoes from his passengers. Thatcher realized that he had stumbled across an idea worth a gold mine, and he decided to go into business for himself. He named his sandals “Teva” (pronounced Teh’ Vah), the Hebrew word for nature, and used the remainder of his $20,000 severance paycheck from Cities Service Company to make more sandals and get his back-strap idea patented.

For almost two years Thatcher traveled around in his car and sold sandals out of his trunk to retailers in the southwest. He inked a deal with California Pacific, a shoemaker, whereby the company produced his sandals and Thatcher acted as a salesman to distribute them into the retail arena. But beyond the production of the sandals, California Pacific offered Thatcher little or no support in his endeavor. In his first year on the road Thatcher sold only 200 pairs of his Teva sandals in rafting hot spots and resort towns.

By 1984, however, word of mouth had begun to help increase Thatcher’s sales, and California Pacific began to realize Teva’s potential. The company tried to stake a claim to both the Teva name and to Thatcher’s invention, stating that Thatcher was merely an employee of their firm. The issue ended up in court, and after a long and ugly legal battle, Thatcher finally won his case against California Pacific in 1985. He severed ties with the company and began to search for a new entity to back his product. In less than a year Thatcher had set up an exclusive licensing agreement with Deckers Corporation to manufacture and distribute his Teva sandals to outdoor retail companies, department stores, and other smaller outdoor equipment retailers.

Growth Through the Early 1990s

With Deckers Corporation acting as its new financial and managerial support, Teva was soon distributed into such nationwide channels as outdoor companies REI, EMS, and L.L. Bean, and department stores such as Nordstrom. The Teva sandal became wildly popular throughout a large portion of the western United States, based on its functional nature and the vast selection of outdoor activities in that region. The sandal also gained popularity on college campuses, where it became the latest trend in casual footwear. Teva soon became Deckers’s most popular offering.

By 1991 outdoor sport sandals had become the latest footwear craze in the United States, with Teva strongly leading the pack in market share. The sandals were so popular, in fact, that people even began to wear them in cooler weather with socks, which helped to dramatically boost many retailers’ sock sales for the year. At that point, Teva’s sandal line had grown to include 30 different styles, all of which retailed at anywhere between $35 and $80.

Within a year Deckers had contracted for its first Teva advertisement account with Stein Robaire Helm of Los Angeles, to the tune of $1.3 million. Also that year, Deckers’s president, Douglas B. Otto, became an equal partner in Sensi, Inc. Sensi was a manufacturer of casual-wear beach and spa sandals, and the company was brought in under the Deckers umbrella alongside Teva. Just as Teva sandals were recognized on the basis of their innovative qualities, Sensi sandals were as well; they utilized a special ventilated footbed that allowed for airflow around the foot.

Meanwhile, Teva had undergone some major changes since the first version was created by Thatcher almost a decade before. The sandals, which had started out merely as flat-soled thongs with a strap around the heel, had improved to the point that cushioning midsole materials were being used in the footbed and more effective rubber was being used for better outsole grip. The success brought about by Teva’s innovations began to attract some other big names into the sport sandal industry. Soon Nike, Reebok, K-Swiss, Merrell, and Timber-land all developed and offered their own versions of the sport sandal, which served to erode some of Teva’s share of the market. The huge success of Nike’s Air Deschutz sandal, for example, helped that company earn an almost 25 percent share of the then-$100 million sport sandal market by 1993.

Although the increased competition possessed the potential to steal away Teva’s giant share of the sport sandal market, Deckers saw the entrances by other major companies as a positive. According to Teva’s vice-president Peter Link in a February 1994 issue of Sporting Goods Business, “When a Nike comes in, it simply helps legitimize the category.”

Nevertheless, to maintain its majority hold on the sport sandal market in the face of increased competition, Deckers began to diversify its offerings. First, the company added new models to its Teva line, including upscale casual-wear versions of the shoe that were made from leather materials and retailed at around $100 per pair. Then, in 1993, the company purchased a 50 percent share of Simple Shoes, Inc. for $10,000. Simple Shoes produced casual street shoes that were mainly marketed to the “twenty-something/Generation X” clientele. With the purchase, Deckers also began distributing the footwear line through its own existing channels.

The Mid-1990s and Beyond

In October of 1993 Deckers initiated a public offering of stock in its company at $15 per share and was incorporated as Deckers Outdoor Corporation. The company then finished the year on a high note, achieving $57.1 million in 1993 sales with net earnings of $6.3 million. Early in 1994 the company acquired the remaining 50 percent interest in Simple Shoes for $1.5 million, and the entire company was added to Deckers’s holdings alongside Teva and Sensi.

The year 1994 also marked Deckers’s entrance into the apparel market, as the company formed a joint venture agreement with Robert Eason, the owner of U.S. distribution rights for a line of hand-woven cotton apparel called Heirlooms. The Heirlooms line was the beginning of what later became the Picante division of Deckers Outdoor Corporation.

Meanwhile, just as Thatcher had begun to shoot his first Teva commercial, he was diagnosed with Type I diabetes. His body almost completely stopped producing its own insulin, which necessitated that he undergo daily injections. The disease forced Thatcher to alter his outgoing, adventurous lifestyle slightly, but he remained increasingly involved in the management of Deckers’s Teva division. In fact, shortly thereafter he brought his father and sister aboard the company as Teva consultants in his hometown of Flagstaff, Arizona. By the close of fiscal 1994, Deckers’s sales had jumped to $85.8 million.

In 1995 Deckers acquired Alp Sport Sandals and Ugg Holdings, Inc. Deckers’s overall sales skyrocketed once again and for the first time broke the $100 million mark by topping off at $102.3 million. A total of 2.3 million pairs of Tevas alone were sold that year. Even so, the competition in the sport sandal market was steadily increasing. While Deckers’s sales figures were jumping ahead dramatically each year, its share of the sandal market was actually slowly shrinking. There was an increasing number of new players entering the sport sandal arena all the time. As a means of maintaining its dominant position in the field, Deckers focused more readily on maintaining its high-quality image. The company avoided discount distribution channels and instead kept its products only in high-profile, quality retail stores.

Company Perspectives:

Our goal is to achieve a level of operational excellence that will clearly distinguish Deckers from its competitors. Our customers can be confident in our ability to deliver a quality product when they need it, which offers the retailer a concrete advantage in doing business with Deckers.

As Deckers Outdoor Corporation neared the end of the century, it was continuing to position itself for future growth and profitability. The sport sandal market was showing no signs of declining sales any time in the near future, as overall industry sales actually continued to increase each year. Deckers still had yet to penetrate a great deal of the United States with its products, which actually worked in the company’s favor because it meant that there was still an immense amount of room for growth. Furthermore, Deckers’s commitment to innovation and to providing its customers with quality products and great customer service showed that the company had the potential to remain the industry leader far into the future.

Principal Subsidiaries

Sensi USA, Inc.; Simple Shoes, Inc.; Deckers Mexico, Inc.; Deckers Baja, S.A. de C.V. (Mexico); Holbrook Limited (Hong Kong); Heirlooms, Inc.; Decker Outdoor Corporation International; Phillipsburg Ltd. (Hong Kong); Deckers Trading, Inc. (U.S. Virgin Islands); Picante, S.A. (Guatemala); Trukke Winter Sports Products, Inc.; Ugg Holding, Inc.; Original American UHS Co.