In a highly creative arrangement, an upstart apparel maker manages to sell its brand to footwear giant Timberland--without actually giving up the brand. The making of a perfect deal for both.
A couple of years ago, Timberland (NYSE:TBL) CEO Jeffrey Swartz traveled to Colorado at the behest of one of his product development gurus. Swartz, 46, who has run the $1.6 billion Stratham, New Hampshire, footwear company since 1998 and is one of the most powerful men in the footwear business, went alone. He wore jeans and a baseball cap and went with the sole purpose of strolling the streets in cities like Boulder, the de facto capital of the outdoor apparel and footwear world and home of lots of artists, mountain climbers, skiers, and bikers. The product development guru, Jay Steere, had suggested that Swartz take the trip because he wanted the CEO to see firsthand what Steere, a 19-year Timberland veteran, had come to believe: that in the world of outdoor retail, being big was becoming passé.
Walking through downtown Boulder in spring 2005, looking at people's jackets, sneakers, and boots, Swartz recognized maybe five or six brands--but, he says, there must have been another 20 names that he didn't know. Says Swartz, who doesn't take himself too seriously: "There was one called Horny Toad,"--that's a real brand--"and one called Chipped Toenail"--he's being funny now--"and I whipped out my cell phone, because I'm a corporate guru, and I said, 'BYNHO. Brands You've Never Heard Of." He repeats all of this at approximately 80 miles an hour. "I get it," Swartz told Steere. "The next best thing is the small thing. People are postindustrial. They are sick of mass." He takes a breath. "It's hard to be big and cool."
That insight, coupled with the realities of Timberland's business, which lately has been proving by way of slowing sales and shrinking profits that it is indeed hard to be big and cool, would ultimately lead to a titanic shift in the company's strategy. Until recently, it had consistently turned away investment bankers who wanted to sell companies to Timberland. In the company's 33-year history, it had acquired only one business, and that was in 1985. From its entrepreneurial roots--Jeffrey's father, Sidney, tested the waterproofing of early Timberland boots by drowning them in toilets full of bright-blue Tidy Bowl water--Timberland had become mass market, a single mammoth brand from head to toe. And it had remained so even after its competitors--VF Corp (NYSE:VFC)., which owns The North Face; Wolverine World Wide (NYSE:WWW), which markets Merrell footwear; Columbia Sportswear (NASDAQ:COLM); and many others--had discovered the power of owning a portfolio of brands. In this changing world, Timberland stood pretty much alone, attempting to build its brand by itself.
That stance began to change after Swartz's Colorado epiphany. The publicly owned company decided that it might just consider acquiring some smaller companies. Maybe. If the companies were entrepreneurial enough and values-driven enough. It was a big if. It was a strategic question that Swartz and the rest of the management team--COO Ken Pucker, president of the outdoor group Gary Smith, and CFO Brian McKeon--would take more than a year to settle. They met biweekly for marathon debating sessions, carving out a list of criteria to which they would stringently adhere when selecting acquisition targets.
Swartz and his team would consider only companies committed to treating their workers, and the planet, as well as they believe Timberland does. They would look for untapped growth potential, brands that would benefit from Timberland's international supply chain, working capital, sales force, and expertise in entering new markets. They would look for founders who wanted to stay. "We're really interested in people who understand their brands and are interested in continuing to guard them," Pucker says. But on their long list of criteria, one element was so important that it far outweighed the others: They would search for "authentic" brands, Pucker says, brands that are "rooted in something real, not fashion brands." Indeed, they would look for brands that were small and focused and passionately entrepreneurial--precisely the kind of brand that Timberland once was.
One of the lesser-known logos that Jeff Swartz might have spotted as he strolled through downtown Boulder was the brainchild of Kim and Demetri Coupounas, a married couple who are polar opposites in looks and manner. Demetri, who everyone calls Coup, is 41, dark, and Greek. Kim, 40, is blond with startlingly clear blue eyes. Coup's stories come with punch lines; he waits for the laugh, like the deadpan comic Steven Wright. Kim is his straight man. They are, however, identical twins in brains and ambition: They both graduated from Princeton and then earned joint degrees from Harvard Business School and Harvard's John F. Kennedy School of Government. Each wanted to save the world, he by balancing the federal budget (he was policy director of Washington's Concord Coalition during the Clinton years), she as one of the early employees of the experimental Edison Schools Project.
Nothing seemed too hard to attempt, including hiking many of the 50 highest peaks in the U.S.--until, that is, one day in August 1994, when they found themselves on the Appalachian Trail in Maine. Outfitted with the best of everything, they planned to hike 10 miles a day for 10 days. Coup was carrying 75 pounds, Kim 65. Miserable, Kim was dreaming of bailing out, turning in her backpack for a towel at a spa. Then, in a side pocket of his pack, Coup discovered a small bag of marshmallows and chocolate--Kim's two-ounce surprise.
"How could you possibly add any more weight to these already ridiculous packs?" he bellowed.
"It's s'mores!" she said.
After sniping at each other some more, they left the trail, ditched their packs, and went day hiking, their spirits--and their backs--restored. For the two M.B.A.'s, the experience set off sparks. They wanted to know: How can we make backpacking more like day hiking? How can we make it fun?
The thought lingered until 1997, when Coup read a manifesto written by Ray Jardine, an adventurer with a passion for lightening up. The book (The Pacific Trail Hiker's Handbook) not only outlined how to pack light but also how to sew lightweight gear. It was all Coup needed. A year later, the couple had moved to Boulder, and Coup had written a 55-page business plan for a company called GoLite. It was the perfect place--the outdoor industry's capital--to found a company that they hoped would revolutionize the backpacking industry.
