Nike sneaks into retro style with Converse buy
Beaverton-based giant gets 95-year-old 'cult' for a cool $305 million
Nike's $305 million purchase of Converse has more to do with James Dean than LeBron James.
While Nike's high-priced sports superstars are unlikely to be spotted sporting Converse's canvas-and-rubber Chuck Taylors anytime soon, the purchase is expected to reap the Beaverton behemoth major rewards.
That's because buying Converse will allow Nike to tap deeper into a growing 'classic shoe' market that emphasizes style over performance.
Ninety-five-year-old Converse, the nation's oldest sneaker maker, is best known for its no-frills brands, such as the Chuck Taylor canvas-and-rubber high-top, the best-selling sneaker of all time.
Converse filed for bankruptcy in 2001 but has made a major comeback marketing products described on the company Web site as 'new shoes with old souls' and 'all around whatever shoes worthy of second glances.'
The key to Converse's resurgence has been its move from sports to fashion. The company touts its shoes as the choice of pop culture icons from Dean and Jack Kerouac to Ja Rule and Pearl Jam.
'The new management at Converse has done a great job of creating this kind of cult around their sneakers,' said Thomas Doyle, vice president of information and research at the National Sporting Goods Association.
'They've even used a few of Nike's tricks, like putting fewer sneakers out there than the market calls for. They're getting $49.95 for shoes they might have sold for $12.95 four years ago.'
Joani Komlos, a spokeswoman for Nike, said the company had been searching for new brands, and Converse fit the bill.
'We want to build the Nike Inc. portfolio, and we're looking for brands where we can add value but not smother their business,' Komlos said. 'Converse was an incredibly attractive brand for us.'
Nike does not plan to alter Converse products or interfere with the company's management, Komlos said.
'Converse is an iconic brand that speaks to a particular consumer,' she said. 'There's no plans to change that.'
Converse joins a growing list of wholly owned Nike subsidiaries that includes fashion footwear firm Cole Haan (bought in 1988), Bauer Nike Hockey Inc. (bought in 1995) and the skateboard shoe and apparel company Hurley International LLC (bought in 2001).
Those firms, which together generated $1.2 billion in Nike's 2003 fiscal year, have all been pretty much left alone since Nike purchased them, Komlos said.
Doyle said he doubts that Nike will mess with Converse's success either. Selling lots of lower-priced sneakers at the nation's chain stores is one possibility for Nike, Doyle said, but 'going the Wal-Mart route is far from their only option here,' he said.
Converse, based in North Andover, Mass., was king of the hoop courts for years. Larry Bird, Dr. J and Magic Johnson all wore Converse.
That changed in the '90s, when Nike soared past everyone in the business by collaborating with the highflying Michael Jordan and revolutionizing sports marketing.
Converse's market share shrank steadily. The company tried to hop onto the endorsement bandwagon in the '90s, with poor results. Right after it signed a contract with NBA star Latrell Sprewell, he made headlines by trying to strangle his coach during a practice session.
Converse was not a player in the recent pursuit of an endorsement from James, the 18-year-old basketball sensation who was finally nabbed by Nike last month for $90 million over seven years.
These days Converse has more luck with its 'Who the heck is that?' brands. In addition to its Chuck Taylors, named for a Converse salesman, the company also sells plenty of low-top Jack Purcells, named for a badminton champion from the 1930s.
The strategy of looking backward has worked. Converse's sales increased from $149 million in 2001 to $205 million in 2002.
Of course, those sales figures amount to about a fifth of what the $10.7 billion titan Nike spends annually on marketing alone.
Nike today controls nearly40 percent of the market, and its trademark swooshes are omnipresent at just about every major sporting event in the world.