Jack Schwartz Shoes, Inc. History

Address:

155 Sixth St.
New York, New York 10013
U.S.A.

Telephone: (212) 691-4700
Fax: (212) 691-5350

Private Company
Incorporated: 1936
Employees: 90
Sales: $175 million (1996 est.)
SICs: 5139 Shoes & Footwear, Wholesalers & Manufacturers

Company History:

Although Jack Schwartz Shoes, Inc. ranks among America's largest privately-held shoe manufacturers, sales of its flagship British Knights athletic shoe brand pale in comparison to high profile competitors like Nike and Reebok. The company evolved from a stodgy manufacturer of men's dress shoes into a marketer of hip, urban-styled athletic footwear in the 1980s. After riding its British Knights brand to a cresting wave of popularity in the late 1980s, the company's four Schwartzes--CEO Bernard, his nephews Jack and Larry, and his niece, Janet Schwartz Feldman--sought to reinvigorate their brand and company.

Roots in Men's Dress Shoes: The 1930s-60s

The company was founded in Manhattan's Tribeca district in 1936 by corporate namesake Jack Schwartz. Over the course of its first 50 years in business, Jack Schwartz Shoes Inc. (JSSI) concentrated exclusively on men's dress shoes, selling them under the Charles Walker and Kent & Howard brands. Schwartz ran the company until his death in 1944, when son Donald advanced to the chief executive office. Another son, Bernard, joined the company two years later, and Donald's sons Jack and Larry joined the family firm in 1972 and 1985, respectively. Bernard succeeded his brother as CEO upon the latter's death in 1975.

JSSI broke into the burgeoning athletic shoe market in 1975 with the Pro Players brand, which soon earned a fairly strong following in the Midwest and on the East Coast. But it wasn't until the 1983 inauguration of the British Knights brand that the company gained a national presence and enjoyed sustained growth. Named to reflect the United Kingdom's influence on the athletic shoe market and to portray an image of quality, the British Knights line started with a rather simple canvas boat shoe. Although the style wasn't particularly well-received, the brand name caused quite a stir. Recognizing the potential of their new brand, the Schwartzes started phasing out Pro Players and the older dress shoe lines in 1985 to concentrate on designing sports shoes that befit the British Knights moniker. Unlike its dress shoes, which were made in the United States, JSSI's BKs were manufactured by unaffiliated companies. Most were sourced from Asia, where labor and other overhead costs were significantly lower than in the United States.

Chief marketing executive Larry Schwartz quickly realized that New York was a great launchpad for urban styles that appealed to trend-seeking and trend-setting teens. Not coincidentally, British Knights' daring designs and flamboyant colors appealed to inner city black and Hispanic males. As Schwartz later commented in a corporate press release, "The inner city is the key to many industries, but it is the lifeblood of the sneaker industry.... [T]hese days the only way to get a middle-class suburban high school kid to buy your product is to have an inner city kid wear it." Luckily for JSSI, inner city kids did start wearing the shoes they called "BKs," and it wasn't long before suburbanites picked up on the trend. The branded shoes enjoyed (and later actively cultivated) a streetwise reputation that strengthened their appeal to rebellious teens and young adults.

British Knights and the 1980s

JSSI's sales skyrocketed in the late 1980s, from just $8 million in 1986 to $136 million in 1989. The British Knights brand garnered three percent of the United States athletic shoe market by 1988, ranking it seventh among the leading footwear brands. Footwear News's Rich Wilner acknowledged BK as "one of the hottest young athletic footwear companies in the country" in a 1992 company profile. In fact, the shoes became so popular that in 1990 Larry Schwartz told Fortune magazine's Alan Deutschman that "We've held back and controlled growth because we wanted to maintain a mystique for the brand." The company tried to manage its exclusivity, for example, by limiting distribution to specialty athletic shoe stores like Foot Locker and eschewing mass merchandisers.

But just as the fashion appeal of Keds, Doc Martens, Birkenstocks, and Hush Puppies have waxed and waned over the years, the fervor for British Knights began to subside in the early 1990s. It became clear that the Schwartzes had failed to sufficiently reign in the brand. As sales growth started to slow, Larry Schwartz acknowledged that "Our success in the late 1980s was clearly a fad. Our challenge is to turn a fad into a brand." British Knights slid out of the top ten brands by 1992, and its market share fell to less than 2 percent. In 1996, annual sales of BKs were estimated at $125 million.

Strategies for the 1990s

In an effort to recapture some of the success it had enjoyed in the mid- to late 1980s, Jack Schwartz Shoes began to adopt the marketing methods used by "establishment" shoe makers. Following the lead of Oregon-based Nike, Inc.--albeit on a much smaller scale--the Schwartzes mounted ever-larger marketing campaigns featuring celebrity endorsers and emphasized technology in addition to fashion.

Advertising was a particular emphasis. Jack Schwartz had not aired television ads until 1988, relying instead on print ads, billboards, radio spots, and especially word-of-mouth to promote British Knights. The marketing budget increased from $2 million in 1988 (about two percent of JSSI sales), to an estimated $15 million in 1991, well over ten percent of revenues. Production expenses and the increased purchase of television and cable air time, especially MTV, combined with the high cost of celebrity endorsements, were the primary forces behind this increase. Although it was using mainstream methods to reach its audience, JSSI continued to cultivate a rebellious image, both through the spokesmen it employed and the messages they portrayed.

In 1991, JSSI hired rap and dance artist MC Hammer to represent British Knights. The company co-opted the entertainer's number-one hit "You Can't Touch This" as a marketing theme and sponsored his concert tour. Another commercial featuring Hammer "dissed" Nikes as shoes for the older generation with the tagline "Your mother wears Nikes." The ads encouraged the audience to "Choose Change," presumably to switch to BKs. But JSSI's Hammer campaign ran into what had become a familiar problem for British Knights: overexposure. Hammer, who also represented Pepsi and its affiliate Taco Bell, was derisively called a "spokes-machine" in a 1991 ADWEEK article. As Hammer's turn in the spotlight ended, JSSI sought new endorsement candidates.

By the end of the year, JSSI had already begun to pursue a different advertising approach, this one focusing on the technological attributes of the shoes as well as the attitude behind them. In 1991 the company launched Dymacel, a shock-absorbing system based in part on the diamond in the British Knights logo. The marketing firm soon sought out young, talented, but often quirky professional basketball players to represent this footwear.

Lloyd "Sweet Pea" Daniels, then a member of the San Antonio Spurs, was a prime example; he had a personal history marred by drug abuse and violence. But according to JSSI, Daniels' reformation made him an excellent role model for inner city youths faced with the same dilemmas he had overcome. Derrick Coleman of the New Jersey Nets was another professional athlete with a "bad boy" reputation chosen to represent British Knights. Although the former "rookie-of-the-year" skipped out of a three-day advertising shoot after the first day, JSSI managed to get three television commercials out of him before his contract ended. JSSI hoped that these streetwise characters would appeal to the rebellious nature of their target audience.

The company also tried several promotional stunts in the early 1990s. Some were well-meaning, while others ranged from gimmicky to downright tasteless. In the first category was a series of "Scared Clean" anti-drug seminars sponsored by British Knights and featuring Lloyd Daniels. Participants were eligible to receive a free pair of BKs. A 1994 stunt parodied gun buyback programs by enticing high school students to exchange apparel featuring the Joe Camel cigarette logo for free sneakers. While these activities purported to promote a social welfare agenda, others made no pretense of good intentions. A "World's Smelliest Socks Contest," for example, encouraged people to mail their stinkiest sweat socks to JSSI. The prize? A three-year supply of British Knights Predators, a resurrected canvas basketball shoe. Although not a promotional stunt per se, a 1989 shoe model--dubbed the "Top Gold"--that featured a gold chain was criticized as "the epitome of empty and non-functional materialism luring the black community" in the Michigan Chronicle.

In addition to its advertising and promotional campaigns, JSSI hoped to achieve "controlled expansion" in the 1990s via several marketing strategies. The company sought to increase its penetration of the women's shoe market--which constituted only 20 percent of JSSI's annual sales in 1989--by launching new styles of athletic and casual shoes. But men's and boys' shoes remained the firm's primary focus. Key among these was the debut of the "LUGZ" line in 1993. The line was expanded from a base in boots--the LUGZ name was a play on the lug sole popular in the mid-1990s&mdashø include coordinated jeans, casual apparel, and outerwear as well as casual and athletic footwear. By 1996, this line was generating about $50 million in annual revenues.

Geographic expansion also held out potential for growth, as international sales in 15 countries stood at $5 million in 1989. The company formalized its overseas business as the British Knights International division in 1991, by which time these revenues constituted over nine percent of annual sales, or about $13 million. Sixty percent of foreign sales were generated in Europe. BK also sought to offer products at lower price points without sacrificing profit margins. As a privately-held company, Jack Schwartz Shoes Inc. has enjoyed the luxury of concentrating on long-term growth and profitability. It remained to be seen in early 1997 whether the Schwartzes' strategies of product diversification and geographic expansion would pay off with rejuvenated sales growth as the 21st century approached.

Jack Schwartz Shoes, Inc. History

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