"What always sold," he adds, "were our core running products and our tennis shoes. But we never had enough of them because we had spread ourselves too thin in all these peripheral areas. We knew our brand awareness was low, but even if we'd had money to advertise, we wouldn't have spent it because of our failure to execute effectively."
The low point came in 1989. Davis's top managers urged him to shut down domestic manufacturing and join the stampede to the Orient. For a model of success, they said, you just had to look at Nike. Founded in 1972 -- the same year Davis bought New Balance -- Nike was already bolting past the $1-billion mark in U.S. footwear sales. With low labor costs and economies of scale, it was able to feed its big-gun advertising and marketing machine. New Balance was struggling to break even on sales of $95 million.
Although New Balance now makes some shoes and shoe components overseas, Davis has always felt strongly about manufacturing domestically. In his view, the virtues of doing so held sway over cheap overseas labor. "Initially, we manufactured here because when I bought the company, it was making shoes here," he says. "Then we realized that you can control the quality better from here. You can establish proprietary techniques to improve upon product quality. We'd be a bigger, more profitable company if we made everything overseas. Making a profit is important, but it's not the most important thing. To me, what matters most is making a product you believe in."
As Davis saw it, the key to reestablishing his company's niche was its work force. His people were skilled craftsmen, not like the teenagers mass-producing shoes in the gigantic Asian plants. Besides, direct labor accounts for 16% of New Balance's costs. The big bucks -- 53% -- are in materials, and that would be roughly the same overseas.
Today New Balance has four factories -- two in Massachusetts, in Boston and Lawrence; and two in Maine, in Skowhegan and Norridgewock. Together, their 800 workers turn out about 10,000 pairs of shoes a day (a number New Balance wants to double by 1994). Davis has eliminated old-style piecework manufacturing in favor of a team approach he calls modular manufacturing.
At the company's brick factory in the old mill town of Lawrence, where 90% of the workers are minorities, the team concept has revolutionized production. "This factory is well on the way to achieving a two-day through-put as opposed to what had been a six-week through-put," says plant manager Keith Stilling. "That's from the start of cutting the material to putting the shoes in boxes. Things are moving through faster because everybody works on fewer pieces and moves them through quicker, instead of working on a lot of shoes that are moving slower. And of course, inventory costs are lower. That's all because of teams."
Davis's goal is to slash the development time required to roll out a new model. "It takes us a year now, from concept to delivery," Davis explains. "We want to cut that to four months. That's very aggressive, but it's important because when you get retailers excited about a product, they want it now, not a year from now. And one way we're doing it is by involving the teams at the embryonic stage."
In 1991, as sales crept up to $100 million and profitability resumed, Davis began spending heavily on the plants and equipment: $2 million total for 1991 and 1992. For this year, the budget calls for investing $3 million in such high-tech gear as automated cutting and vision stitching machines.
By January 1993 the New Balance turnaround was in full stride, as was Operation Quick Strike. But Davis was attacking straight into a rapidly flattening industry. With competition for every crumb of market share getting ruthless, the question is, Is New Balance's special franchise -- width sizing -- impervious to attack, or even defensible? Can the pricing, marketing, and manufacturing strategies the company employed in an expanding something-for-everyone market serve it well in a war?
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The Strategy
Davis's Operation Quick Strike builds on New Balance's traditional strengths and incorporates tactics that he sees as competitive advantages. The main planks of his "wartime" strategy are these:
Width sizing. Manufacturing shoes in true widths has always been the New Balance cornerstone. For men, the normal width is D; for women, it's B. Everyone makes those, but few other companies offer much beyond narrow or wide versions of selected products. Even when they do, they frequently just cut the leather or synthetic upper materials tighter or looser, and then glue them onto average-width soles.
But all of New Balance's models -- for running, court play, basketball, fitness, walking, service, and "all-terrain" wear -- come in true widths. Width sizing complicates production because it requires shorter, more flexible runs and because workers must use multiple lasts, the molds on which shoes are built. Some New Balance shoes run the width gamut: AA, B, D, EE, and EEEE. With lengths from size 6 to 16, there can be more than 80 sizes for a single model. Width sizing is expensive, but it ensures a more customized fit, and Davis thinks well-fitting shoes will grow in importance as the population ages.
Production control. By controlling production in New Balance's factories, Davis eliminates a problem his competitors sometimes have overseas: leasing enough factory time to make shoes when they need them.
One company facing that issue, for instance, is Japanese-owned ASICS Tiger Corp., which is doing well. "If you don't have the space available to get into the factories, you're not going to get your shoes," says Nancy Larsen, public-relations supervisor for ASICS's U.S. division, in Fountain Valley, Calif.
