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Why Skechers Could Get Big Boost from LeBron’s New Venture

Skechers may be expanding its role as the do-it-all footwear seller for consumers in more ways than one.

Chief financial officer John Vandemore hinted on Wednesday that the company might be expanding further into apparel. And the company’s big bet on a fast-growing sport may have come at an opportune time.

While apparel currently represents “substantially less” than 10 percent of Skechers’ overall business, the footwear company is interested in increasing that number, Vandemore said in a fireside chat during the Morgan Stanley Global Sporting Goods Day on Wednesday.

“We don’t yet have the full expression of our brand within apparel,” Vandemore said. “It’s something that we’re working on and we think is a fantastic additional leg of growth.”

Vandemore didn’t elaborate on when the footwear seller planned to begin growing the apparel assortment.

The world’s third-largest footwear seller is active in subcategories from casual sneakers and athletic silhouettes to boots, flats and sandals. This ability to compete against a variety of brands across categories has been a massive strength for Skechers, according to Vandemore.

But Skechers appears to be angling for another unorthodox growth path by going all-in on pickleball. It partnered with the US Open Pickleball Championships as the tournament’s official sponsor in March, and has since lined up with three leagues for the up-and-coming sport, embracing its new role as “the official footwear company” for each organization.

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While pickleball itself is gaining steam, a new high-profile investor may further accelerate the sport’s growth—putting Skechers in the right place at the right time to reap the benefits.

On Wednesday, Los Angeles Lakers star and four-time NBA Most Valuable Player LeBron James revealed that he has thrown his hat in the pickleball ring (or, in this case, court), teaming up with a group of investors to buy a professional pickleball team.

The team—and where it will be based—has not been disclosed, but is part of Major League Pickleball (MLP), which is one of the three leagues Skechers supports. Additional co-owners with James include longtime friend and business partner Maverick Carter and fellow NBA All-Stars Draymond Green and Kevin Love, among others.

Skechers launched its first line of pickleball footwear in April when it released the Viper Court. Seven iterations of the Viper Court are currently available on the company’s e-commerce site, including four pairs of women’s sneakers and three pairs of men’s.

Skechers now has an opportunity to capture a wider base audience given the sport’s surging popularity in recent years—and the potential new interest James’ association with the activity could generate. There were 4.8 million pickleball players in the U.S. in 2021, up from 4.2 million in 2020 and 3.5 million in 2019, according to data from the Sports & Fitness Industry Association.

Vandemore did not comment on the company’s pickleball ambitions Wednesday, but he stressed Skechers’ ability to pivot to new audiences—and build on them with new product offerings—as its competitive advantage against rivals.

“The conversation we love to have the most with the consumer is when they don’t realize that we sell something else,” Vandemore said. “If they’re buying a slip-on/casual shoe, we’ll show them that we have golf, we have work, we have sandals and we have performance athletic. Taking a consumer wearing one silhouette and expanding them off the horizon of what we offer is unparalleled.”

Congestion to normalize in 2023 second half

Beyond pickleball, Skechers still has plenty to focus on as it weathers the upcoming holiday season amid worries of an economic recession and a downswing in discretionary spending. Despite an overall more reserved back-to-school (BTS) season industrywide, Vandemore said he characterized the season as “good.”

In the U.S., Skechers is now contending with congestion in its distribution network, from the port to final delivery.

“That’s just creating innumerable challenges,” Vandemore said. “For us, we’re definitely seeing some inefficiency in the operating expense side of things as we deal with that congestion. We’re seeing issues with our retail customers taking deliveries on a timely basis and then their ability to process and get into their own stores.”

Vandemore expects that this congested environment will likely last “another couple of quarters at least” with likely normalization in the back half of 2023.

As such, Vandemore projects inventory levels to remain elevated throughout—in the second quarter, Skechers had $1.56 billion in inventory, up 47.9 percent from 2021’s Q2. However, Skechers successfully maneuvered its way through the inventory glut, seeing sales in the period increase 12.4 percent to a record $1.87 billion.

“The encouraging thing about the environment that we have to keep in mind is that this is not a demand-driven situation,” Vandemore said. “It’s not because of an absence of demand that we’re seeing the inventory build. It’s the ramifications of all the volatility on the supply chain side coming at some point in time into the distribution network.”

Freight rates and logistics costs are also starting to stabilize, Vandemore said.

China slowdown hasn’t fazed Skechers

Though Skechers in July tempered expectations for a recovery in China, Vandemore remained confident that the current sales slip in the market primarily stems from the nation’s zero-Covid policies, once again brushing aside worries of an actual demand decline. In the second quarter, sales in China dipped 19.6 percent to $254.9 million.

Despite China’s “sedate” recovery this year, the long-term strategy for the world’s second-largest economy remains unchanged amid the headwinds, according to the CFO.

“That’s disappointing, as much for the Chinese market itself, as it is for our brand and others that are participating,” Vandemore said. “But it doesn’t in any way diminish our appetite for continued investment in and optimism about the longer-term opportunity in that market.”

He also acknowledged growing competition from local homegrown brands, which could present a significant headwind for the footwear seller’s success in China.

Despite “a step up in capability” by many of its competitors recently, Skechers has been battling Chinese footwear brands since it entered the market in 2008, Vandemore said.

“Much like we see elsewhere across the globe, when we see competition, it tends to be in categories for us,” Vandemore said. “Even in those markets, we don’t see relentless head-to-head competition, we see areas where they compete. That leaves a lot of white space for us to continue to explore where the Skechers brand can be successful.”