Items International Airwalk Inc.

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Items International Airwalk Inc.

P.O. Box 951
Altoona, Pennsylvania 16603-0951
U.S.A.
(814) 943-6164
Fax: (814) 943-3921
Internet: http://www.airwalk.com

Private Company
Incorporated: 1976 as Items International Inc.
Employees: 110
Sales: $200 million (1995)
SICs: 5139 Footwear

Items International Airwalk Inc. designs and markets, through its Carlsbad, California-based subsidiary Airwalk, a popular line of casual, active casual, and specialty sports shoes targeted almost exclusively at people under the age of 25. Airwalk’s line of snowboarding boots is the top seller in its category; the company also designs and markets a branded line of snowboards, bindings, and other accessories for that rapidly growing segment. Together with Vans, Airwalk remains the unofficial shoe of the skateboarding set, with a line of shoes specially designed to stand up to the rigors of that activity. Airwalk has also entered the relatively new biking category, marketing specialized shoes for the growing segment of professional and amateur mountain biking athletes.

The company has seen its greatest growth, however, in its branded line of casual and active casual shoes, which feature such styles as sandals, clogs, and oxfords, and active styles, including its popular One, Blammo, and Jim shoes. Airwalk also markets a list of lifestyle accessories, including t-shirts, sweatshirts, hats, and other garments, and sponsors such activities as the alternative rock festival Lollapalooza, and a number of professional skateboarding, snowboarding, and mountain biking athletes. In 1996, Airwalk expected to double its sales from the $200 million the company recorded in 1995. A growing percentage of its sales come from Europe and other parts of the world eager to emulate the Californian youth culture. European sales already represent approximately 25 percent of sales of Airwalk, and are expected to grow to $100 million by 1997. Since the mid-1990s, Airwalk has undergone extraordinary growth, in large part through word of mouth. In the mid-1990s, the company stepped up its advertising spending, and by 1996 its advertising budget grew to $40 million, making that the fifth largest in the athletic shoe industry.

Airwalk is the sole subsidiary of Items International. Corporate and administrative functions are centered in the company’s home base of Altoona, Pennsylvania. Design and marketing activities for Airwalk are performed at the company’s Carlsbad headquarters, where the company can remain close to its source of inspiration, the casual California lifestyle. The company does not manufacture its own shoes but, instead, out sources production to factories in Asia. Items International continues to be led by founder and CEO George Yohn. The Airwalk line operates under the leadership of 34-year-old Lee Smith.

Unbranded in the 1970s

By the time Items International added Airwalk to its name, the company’s founder, George Yohn, already had some 30 years in the shoe industry. Yohn was raised in Altoona, Pennsylvania, where he started his first company, Blair Co. Blair manufactured unbranded shoes in classic styles for such major department store and footwear chains as J.C. Penney, Kinney, and Sears. That company eventually grew to $12 million in sales, but by the mid-1970s, the rising costs of manufacturing footwear in the United States began to cripple the company’s profits.

More and more footwear manufacturers began to outsource their production to plants in Asia, where wages were far lower and environmental regulations far less restrictive than in the United States. Yohn joined this trend in 1977, starting up a separate company, Items International, to produce similar unbranded and private label classic shoes for the U.S. market. Items International’s higher profits soon convinced Yohn to shut down Blair Co. and focus on the new company.

Joining Yohn at Items International was president Bill Mann, a former art student with a background as a buyer for athletic gear and women’s shoes for Payless Shoe Corp. and Shoe Corporation of America. Items International continued Blair Co.’s business of producing classic shoe styles for its clients’ private label lines. However, Yohn and Mann sought greater growth for the company. At first, Items International attempted to enter more upscale dress shoe styles; the company opened offices in La Costa, California, in part to be closer to its Asian manufacturers, but this market failed to flourish for the company. As Mann told Children’s Business, “I was going to be the first one to have the Orient make shoes that had the appearance of an Italian line of dress shoes. And then it dawned on me. You can’t live in Southern California and be in the dress shoe business. Why? Because I can’t compete with the Paris look. However, they can’t compete with me… because I live in Southern California.”

Persistence in the 1980s

The athletic craze had been building throughout the 1970s, originating in California and spreading nationwide in the next decade. Such companies as Adidas, Puma, Nike, and Pony were proving that there was a market for a new type of athletic shoe that went beyond the canvas styles of the past to offer performance features designed for serious athletes. As the footwear market began to segment, into categories such as basketball, jogging, running, and walking shoes, Yohn and Mann decided to build their own line of branded shoes, which offered the lure of double the profit margins of the company’s private label business.

Then in 1983, Mann spotted an ad for a new type of exercise program that was rapidly gaining in popularity across the country. Aerobics had quickly become a staple of exercise regimes, especially among women, and a number of different styles of aerobics were emerging. One of the early programs was called Jazzercise, which, with its dance-like movements, appealed especially to women. Mann approached Jazzercise Inc. with the idea of licensing the name for a line of footwear specifically designed for aerobics. Jazzercise officials, who had already been interested in licensing footwear, agreed.

Mann sent one of Items International’s designers to join a Jazzercise class and create a shoe specifically designed for aerobics, and especially the nearly half million women participating worldwide in Jazzercise programs. “I merely listened,” Mann told Footwear News, “and put together what the women wanted.” The result was a lightweight shoe with technical features such as a lower heel, a flexible sole, and foam padding for absorbing the shock of the high-impact aerobic movements. However, Mann had trouble locating a factory to build the new shoe, and it would take 16 months to bring the Jazzercise line to market.

By then it was too late, as step aerobics began to capture the market from Jazzercise. Led by Reebok, step classes became ubiquitous at gyms across the country and all over the world. As Jazzercise faded, so did Items International’s hope for its aerobic shoes. The company continued in its attempt to develop a branded product, trying jogging shoes and tennis shoes, but the company made little headway in these categories, which were already dominated by such companies as New Balance, Reebok, and others.

Then Mann discovered a sport that had remained relatively untapped by the footwear industry: skateboarding. When Mann’s wife originally suggested the idea, however, Mann was not enthusiastic. It was only after talking to his then 11-year-old son that Mann began to consider the idea. As Mann told Children’s Business: “When he said, ’ Dad, I’m bored with wearing white leather Reeboks, ’ it turned the light bulb on. I realized millions of kids probably felt the same way.” Seeing that a skateboarder did not want to wear the same shoes “his mom wore to her aerobics class,” as he told Footwear News, Mann began to study his son and his friends and other skateboarders. “I would scout the skate parks and see how they were wearing their shoes out,” Mann continued in Children’s Business, “While everyone else wears shoes on the bottom, these kids were wearing them all over—the uppers, the sides, the backs, and the toes. I realized that a more durable product was needed—one that gripped the boards and helped the kids do their tricks better.”

Mann took another clue from a popular skateboarder’s trick, called airwalking, and took the name for the new subsidiary launched by Items International in 1986 to pursue its new market. While developing the technical aspects of the new type of shoe, Mann also went to work on its styling. “My wife and son both recognized that kids were dressing differently and had different attitudes about things,” Mann told Children’s Business. “They like to look unique and not be bored. So I came up with more colorful, fresher looks that befit this new generation’s attitude.” By then, too, another shoe manufacturer, Vans, had begun to make waves in the youth market, when their checkerboard style sneaker achieved massive popularity after Sean Penn was featured wearing a pair in the movie Fast Times at Ridgemont High. Airwalk took the styling of its shoes even further, producing shoes in many different colors and patterns, and introducing different types of fabrics—among its popular shoes were ones made of tennis ball fabrics; the company would also produce shoes made of the material used to make basketballs.

Mann at first believed that the Airwalk styles, sold primarily in surf and skate specialty shops, would remain limited to California. However, he told Children’s Business, “I quickly realized that kids were dressing the same all over the world. They all wanted to emulate the same California lifestyle and attitude.” Within a year and a half after launching the company, Airwalks were selling by the millions worldwide. The subsidiary moved its headquarters from its 3,000 square-foot space in La Costa to a 48,000 square-foot facility in Carlsbad. By the end of 1987, Airwalks were available in over 100 styles, selling for relatively low prices, between $20 and $30, “low enough,” Mann told Footwear News, “for kids to buy multiple pairs.” In addition, Mann saw the company’s growth linked to the growth of skateboarding itself, adding: “There are more kids that are skaters than football and basketball players combined. We feel that with this sport, we have a chance to be one of the major shoe companies.”

Airwalk quickly broadened its line beyond its original 14-year-old target to include children’s and adult sizes. Skateboarding, meanwhile, had also begun to influence clothing fashions in general among the youth market. Airwalk responded by adding a line of accessories, from caps, socks, t-shirts, and sweatshirts, to watches, stickers, and bags. The company also moved to extend its brand name into older categories, by bringing out a leather performance shoe. Toward the end of the decade, the company attempted to enter the apparel market; however, Airwalk found little success there. By 1990, Airwalk’s sales had topped $20 million.

Success in the 1990s

Before achieving its runaway success of the mid-1990s, however, Airwalk weathered the collapse of its core skateboarding market. The sudden proliferation of skateboard parks across the country soon sparked a backlash against the sport. Many of the skateboard parks were closed, and Airwalk saw its sales slump to $8 million in 1991. Mann was replaced as president in 1992 by Lee Smith. (Mann joined rival Vans, Inc. as vice-president of foreign sourcing in 1994.) Before leaving Airwalk, however, Mann had already brought the company into two new categories—the newly emerging snowboarding and mountain biking markets—helping to redefine the company’s image from the skateboard leader to an action sports company. Revenues rose again to $20 million in 1992, with sales overseas—where mountain biking and snowboarding saw its fastest growth—providing the largest boost. Under Smith, the company moved to extend its brand even further.

Taking a cue from Nike, which had successfully moved its shoes off the basketball court and onto feet all over the world, Airwalk began to promote its brand name—and the accompanying image of the California lifestyle—beyond the skateboarder set to the mainstream teenage market. While jettisoning its failed apparel line, Airwalk began to produce its first casual and active casual shoes. Yet finding outlets for these new fashions proved difficult. With a limited advertising budget, the company instead relied on its sales force to convince stores to stock its s’ hoes. As Smith told the San Diego Union-Tribune, “We sought to get established as a fashion company rather than those kooky skateboard guys.”

Meanwhile, sales of snowboarding boots were helping to firm up sales. Snowboarding was becoming increasingly popular—and accepted—by the skiing industry. By 1994, Airwalk had taken the lead in sales of snowboarding boots, just as snowboarding was becoming the country’s fastest growing sport. Sales for that year reached $60 million. The company by then had managed to place its products into more than 1,200 outlets; that number would more than double over the following year as Airwalk launched its line of casual and active casual shoes, sparking the company’s biggest growth. Separating the company into three divisions—action sport and leather and active casual—the company pushed to promote the Airwalk as a lifestyle brand. Under pressure from retailers the company also began marketing accessories to complement sales of its shoes. Teenagers all over the world responded, boosting company sales to $200 million by 1995.

Airwalk stepped up its advertising budget, in part to counter attempts by Nike—then facing a drop in demand for basketball shoes as the athletic market as a whole began to slip—and others moved to enter the action sports arena. Spending $30 million in 1995, the company pledged another $40 million for 1996, as sales were expected to double in that year. Yet the company’s real challenge lies in maintaining sales while preserving its image as the hip, alternative lifestyle brand. As Smith told Mediaweek, “It’s like walking a razor. You can’t be too mainstream and you can’t be too core. You have to keep yourself exciting.”