Saucony Inc. History

Address:

191 Spring Street
Lexington, MA 02421
U.S.A.

Telephone: (617) 824-6000
Toll Free: 1 (800) 477-4342
Fax: (978) 532-6105

Public Company
Incorporated: 1910 as A.R. Hyde And Sons
Employees: 564
Sales: $154.1 million (1999)
Stock Exchanges: NASDAQ
Ticker Symbols: SCNYA SCNYB
NAIC: 316211 Rubber and Plastics Footwear Manufac- turing; 316219 Other Footwear Manufacturing; 315228 Men's and Boys' Cut and Sew Other Outerwear Manufacturing; 315239 Women's and Girls' Cut and Sew Other Outerwear Manufacturing; 336991 Motorcycles, Bicycles, and Parts

Company Perspectives:

Saucony Incorporated's family of companies offers a wide range of technical products for every workout need. We design and market separate lines for men and women within most technical footwear categories. In keeping with our emphasis on performance, we market and sell our technical footwear to athletes who have a high participation rate in their sport of choice. We address this market through our 'Loyal to the Sport' advertising campaign. We believe that these consumers are more brand loyal than those who buy athletic footwear for casual use. The Saucony brand is recognized for its technical innovation and performance. As a result of our application of biomechanical technology in the design process, we believe that our Saucony footwear has a distinctive `fit and feel' that is attractive to athletic users. We design our Saucony technical cross training, women's walking and outdoor technical trail shoes with many of the same performance features and `fit and feel' characteristics as are found in Saucony technical running shoes. Key Dates:

Key Dates:

1910:: Abraham Hyde founds A.R. Hyde and Sons in Cambridge, Massachusetts.
1932:: Hyde and Sons introduces its first line of athletic footwear, 'Pleasure Skates.'
1968:: Hyde acquires the Saucony Shoe Manufacturing Company, a running shoe manufacturer.
1969:: Hyde goes public.
1985:: Hyde moves its corporate headquarters to Peabody, Massachusetts.
1992:: Consumer Reports names Saucony Jazz 3000 running shoe 'best buy.'
1994:: Federal Trade Commission charges that, contrary to its advertising, Hyde's Saucony line is not made in the United States.
1998:: Hyde Athletic Industries renamed Saucony Inc.

Company History:

Saucony Inc. (under the corporate umbrella of Hyde Athletic Industries, Inc. until 1998 when Hyde reorganized and took the Saucony name), is known primarily as a designer, manufacturer, and marketer of high performance running shoes, in particular for marathon runners and triathletes. During the 1990s, the company expanded its market presence with its walking and hiking shoes, and the reintroduction of 'classic' models from the 1980s. Saucony also manufactures Hind brand athletic apparel, high performance bicycles through its Merlin subsidiary, and Spot-Bilt shoes for coaches and officials. In 2000, its products were available in 23 foreign countries and in over 5,500 retail outlets in the United States.

Origins

This history of Saucony is inextricably linked with that of Hyde Athletic Industries, which was founded by Russian immigrant Abraham Hyde, who came to the United States in 1890. At first Hyde, a cobbler, worked in a space he rented in a laundry making slippers from old carpet remnants. In 1910, Hyde was able to move his business to a house in Cambridge, Massachusetts, where he founded the company A.R. Hyde and Sons. Until 1932 he produced his 'carpet slippers' and street shoes for women and children. He branched into athletic goods in 1932 with ice skates he called Pleasure Skates. By the end of the 1930s, he was producing a whole line of athletic footwear, including baseball shoes, roller boots, and bowling shoes.

With the outbreak of World War II, production was given over to boots for soldiers. As a result of this work, Hyde was awarded the Army/Navy E Award for Manufacturing Excellence--the only American shoe company so honored. After the war, the company resumed production of athletic shoes and, in 1952, purchased the Illinois Athletic Shoe Company, makers of Spot-Bilt athletic shoes. In 1960 NASA awarded Hyde a contract to produce footwear for America's space program, and as a result, the boots worn by astronauts during the first space walk bore the Hyde label.

In 1968 Hyde purchased the Saucony Shoe Manufacturing Company, a maker of running shoes located in Kurztown, Pennsylvania. In the early 1970s Hyde transferred all development and production activities connected with running shoes to the new subsidiary. Until the late 1960s, Hyde and Sons was a family-owned business. However, in July 1969, the year after the Saucony acquisition, an initial public offering was announced. In October 1969, 350,000 shares were sold; the following year, the company changed its name to Hyde Athletic Industries, Inc.

Slowly Gaining Market Share in the 1970s and 1980s

Hyde had annual sales of approximately $20 million in 1976, and Saucony running shoes remained a little-known niche brand. In 1977, however, a national American magazine gave the shoes an award for 'Best Quality.' The article established the Saucony brand in the mind of runners throughout the country. It also established the company as a going prospect. In September 1977 Colgate Palmolive offered to acquire the company for 312,690 shares of Colgate stock valued at about $7.7 million. In less than a month, however, the negotiations ended.

Saucony expanded its line of running shoes into the 1980s; as marathon runs, and later triathlons, became popular, Saucony won the loyalty of more and more long-distance runners. Still Hyde experienced slow growth during the 1980s--a decade that otherwise saw an explosion in the sale of athletic shoes. Growth was hampered primarily by the company's size, which limited the amount it was able to spend on advertising. 'We didn't have the funds for promotion,' Hyde's vice-president John Fisher told the Christian Science Monitor in 1984, adding 'Nike was giving away more shoes than we used to sell. On the way up, it was just word of mouth.' However, some industry observers at the time felt that Hyde's slow pace of expansion enabled it to maintain control of production quality that later contributed further to the company's reputation. In 1984 Hyde reported its sales had increased 22 percent over 1983, sales it attributed in large part to its line of Saucony running shoes. In early 1985, the company moved into a new headquarters building in Peabody, Massachusetts. The same year it purchased the Brookfield Athletic Shoe Company, a firm which manufactured roller skates, ice skates, and in-line skates.

Hyde announced in September 1988 plans to re-launch the PF Flyer line of canvas sneakers that had been so popular in the 1950s and 1960s but which had essentially disappeared from the market by the 1980s. The move was made in response to the sudden resurgence of popularity of another canvas shoe, Keds, which were expected to have sales three times higher than 1985 levels. The 1988 version of PF Flyers retailed for between $60 and $70, compared to less than $15 in the 1950s when Flyers were among the most popular gym shoes on the market. Hyde planned to market the shoes for 11 to 18 year old males initially; it held off bringing out adult models for a year hoping they would catch on with younger buyers before their parents made nostalgia purchases.

In December 1988, Hyde announced that it had agreed to be acquired by an investment group called Silvershoe Partners for $8.50 a share, approximately $23.5 million in all. A week later, Blue Star Holding Inc. a mysterious Cambridge, Massachusetts, company owned, according to the Boston Globe, by 'publicity-shy Europeans,' made a counteroffer of $9.50 a share. Blue Star would only say it had been watching Hyde for some time. Spokespersons for Hyde told the press it was banned by the terms of its agreement with Silvershoe from entering negotiations with any other buyer. In spring 1989, a Hyde shareholder asked a Superior Court judge to block the company from holding its June shareholders meeting at which the acquisition by Silvershoe would be voted on. The shareholder, Roberta Klotz, maintained that the agreement, which gave Silvershoe control of two-thirds of Hyde stock, was against the interests of its stockholders. The Superior Court judge denied Klotz's request. By autumn, however, it looked like a judge's ruling would not be necessary to prevent the deal. Silvershoe's bank refused to provide the levels of financing necessary to make the purchase. The deal did not close by the original July 31 deadline, and another in mid-August also passed. Finally, in late September, Hyde's board of directors approved a request to terminate the merger agreement.

Challenges in the Early 1990s

Hyde could not approach the sales levels of the big players in the field of athletic footwear, in particular Nike, which had the lucrative Michael Jordan basketball shoe franchise. By 1990, however, the company seemed to be in solid shape with annual sales of more than $60 million and a workforce of about 250, up from 150 in 1988. The company also boasted a line of running shoes that were made in the United States, in its Bangor, Maine, factory. In June 1992, Hyde signed a distribution agreement with Tokai Sporting Goods Co, a Japanese company, that introduced Saucony running shoes to the Japanese market. The deal also gave Hyde a Saucony sales office in Tokyo.

In the early 1990s, Hyde's Saucony division was responsible for nearly three-quarters of its total sales. Most of those products were still serving what was a niche market--runners, in particular long-distance runners, including professionals. However, the line had experienced a five-year sales plunge; between 1987 and 1991 sales fell from $55 million to $36 million.

In May 1992, the company's fortunes changed. An article in the magazine Consumer Reports gave Saucony's Jazz 3000 shoe its 'best buy' rating. As a result of the unexpected publicity, Saucony sales doubled over the next couple months. Industry analysts wondered whether Hyde had the wherewithal or the savvy to capitalize on its new momentum. The company planned to more than double its advertising budget, to place ads in non-running periodicals like USA Today, and to initiate a 'Made in the USA' campaign. Hyde also estimated it would soon have to boost the output of its Bangor factory, by introducing new equipment and nearly tripling its workforce there. The following year, the company reported that sales of its Saucony line had risen by $11 million to $47 million. The number of stores that carried Saucony shoes had jumped 25 percent, and Hyde's share of the American athletic shoe market had doubled to 6.6 percent.

Consumer Reports helped bring Hyde into the news again in mid-1993, but in a very different light. In July, Reebok International Ltd. sued its rival for falsely implying in its advertising and public relations materials that the Saucony Instep was the magazine's top-rated women's walking shoe. In fact Consumer Reports had named Reebok's Avia 382 the top shoe. Hyde told the press it intended to contest the Reebok suit, and ten days later the two companies reached an out-of-court settlement. Hyde agreed to discontinue claims that it produced the top walking shoe.

Hyde Athletic Industries was producing outdoor recreational products for children, its PF Flyer line, Brookfield roller skates, and ice skates for children. However, its line of Saucony athletic footwear, including running, walking, hiking, fitness, and tennis shoes accounted for the lion's share of the company's annual sales, nearly 75 percent. In 1993, noting that the fitness boom of the 1980s was winding down, Hyde expanded the line of walking and hiking shoes it had inaugurated in 1985, adding five new models. At the same time the company offered purchasers of its walking shoes a free membership in the Saucony Walking Club, which included a logbook, training information, and a regular newsletter.

During this time, Hyde expanded its international presence. In September 1993, it opened a sales and marketing office in Heidelberg, Germany, to service Europe, Great Britain, and Ireland. In November it acquired its Australian distributor, S.P. Agencies, for an undisclosed price, renaming it Saucony S.P. That deal gave Hyde an interest in four of its foreign distributors, including Saucony B.V. of the Benelux, Saucony Canada, the company's branch office, and Saucony U.K. in England. Otherwise, Hyde was represented by 15 independent distributors throughout the world.

More unwelcome publicity emerged in the mid-1990s, when the Federal Trade Commission (FTC) charged that Hyde and New Balance Athletic Shoes, another New England manufacturer, had falsely claimed in their advertising that their products were made in the United States. The FTC maintained that although the shoes were assembled domestically, most of their parts were produced overseas. New Balance fought the ruling, claiming the FTC's guidelines were hopelessly outdated. Hyde, on the other hand, to avoid the costs of fighting a court battle, entered into a settlement with the agency. Under its terms, the company would be allowed to sell what stock it had that bore 'Made in U.S.A.' labels. It also agreed to affix the label only to products made entirely or virtually entirely in the United States. Hyde and New Balance were the first high-profile cases brought against companies for violation of the FTC's 'Made in the U.S.A.' standards. Some observers noted that the agency seemed to be going after small fish and ignoring much larger, more egregious offenders. Others believed it was looking to set precedents that would give it ammunition in larger cases. In the end, after an administrative review of its guidelines that lasted more than three years, the FTC decided to retain the strict standards it had enforced for nearly 50 years.

Hyde found itself at odds with its competitor Reebok again in 1996. Reebok had signed triathlete Michelle Jones to an endorsement contract early in the year. Hyde sued, claiming that under the terms of its own contract with Jones, they were entitled for a year after the deal's expiration to an opportunity to match any competing offer. Hyde was the first company to go after endorsements in the triathlon, and maintaining its profile in the sport--particularly in the women's event--was seen as important to the company. In March it won an injunction from a Massachusetts Superior Court judge barring Jones from representing Reebok in its advertising and from wearing Reebok products in appearances or competition. The two companies settled out-of-court the following summer. Reebok paid Hyde an undisclosed amount of money in exchange for its immediate release of Jones from all contractual obligations.

Hyde Becomes Saucony in the Late 1990s

In late 1997, Hyde began undergoing a major transformation. In August it spun off Brookfield International Inc., the subsidiary that produced in-line skates, roller skates, skateboards, and protective gear, often under license from companies such as Walt Disney Co., Hasbro Inc., and Mattel Inc. Brookfield's CEO James Buchanan and investment firm Brynwood III bought the company for an undisclosed sum. In January 1998, Hyde completely reorganized the Saucony Footwear division, which, with the sale of Brookfield, accounted for 85 percent of Hyde's total annual sales. The division was split into Saucony International and Saucony North America, with administrative headquarters remaining in Peabody, Massachusetts.

The reorganization was undertaken to help turn Saucony around, as it had reported losses of $4.7 million for 1997. About half of Saucony's employees in Peabody were expected to be relocated or reassigned to make the division's operations more efficient. In spring 1998 Hyde formally changed its name to Saucony Inc.

In a little more than a year, Saucony turned its performance around completely. After hovering around the same price for five years, its stock prices more than tripled. Cause for the turnaround was the Saucony Originals line. Originals were built around the Jazz running shoe, one of the company's popular, long-discontinued, high-performance models of the early 1980s. Jazz were unable to match the technology of the late 1990s, but they were comfortable and attractive, and, with a price tag between $40 and $60, they were very affordable. When it introduced the new line, Saucony also extended its advertising well beyond the running magazine forum, into youth-oriented periodicals such as Spin and Vibe. When Saucony Originals were featured in a fashion forecast in Teen People, the line took off. The fact that the shoes were frequently worn by rock stars only increased their popularity more. With the Originals line accounting for 37 percent of the company's 1999 net sales Saucony planned to introduce other Originals models in 2000.

Despite lackluster performance for the athletic shoe industry as a whole, Saucony's 1999 sales increased 47 percent over 1998. As the millennium turned, Saucony increased its public profile by sponsoring events such as Super Bowl XXXIV and the Los Angeles Marathon, where the company donated 1,900 pairs of its shoes to local students.

Principal Subsidiaries: Hyde International Services, Ltd. (Hong Kong); Hyde Transition Corp.; Hyde, Inc.; Saucony Canada, Inc. (85%); Saucony UK, Inc.; Saucony Sports, B.V. (Netherlands); Saucony SP Pty. Ltd. (Australia); Saucony Deutschland Vertriebs GmbH (Germany); Quintana Roo, Inc.

Principal Competitors: Nike, Inc.; New Balance Athletic Shoe, Inc.; Reebok International Ltd.; Avia Group International, Inc.

Saucony Inc. History

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Key Dates:

Company History:

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