Is the Party Over For Uggs?

As demand for the sheepskin boots stalls, Deckers needs an Act Two

Cotten Timberlake


Fashion watchers chuckled when New England Patriots quarterback Tom Brady tried to pitch dudes on Uggs last year. It seemed a feeble attempt by parent Deckers Outdoor to prolong the growth of a brand that’s been popular with women and accounted for more than 80 percent of its sales. Brady’s pitch hasn’t worked. Neither have sparkly Uggs nor animal-print Uggs. Sales are sliding, investors are fleeing, and Deckers has become an object lesson in what happens when a company depends too heavily on a product at the whim of fashion.

Sam Poser, an analyst at Sterne, Agee & Leach, forecasts Ugg’s sales will fall 1.8 percent this year after 22-plus percent gains in each of the previous three years. That has some investors concerned the brand may become the next Heelys or Crocs. The former sold millions of sneakers-with-wheels before kids lost interest; perforated resin Crocs clogs are now mostly walking hospital wards. Goleta (Calif.)-based Deckers needs to do two things to avoid a similar fate, says retail consultant Walter Loeb: It must broaden Ugg beyond boots with more outerwear and belts and buy complementary brands such as a denim label. “If they don’t do such things,” warns Loeb, “it will be hari-kari for the company.”

Besides courting men, Deckers has reported it reduced Ugg’s prices in the second half of 2012, without saying by how much. The company is developing lighter-weight sheepskin products more suitable for warmer weather. It’s also opened stores in China. Those strategies so far haven’t prevented the slide in sales, and Deckers’s Teva sports sandal business, with revenue only one-tenth that of Ugg, is unlikely to be able to pick up the slack. (Poser expects Teva’s sales to fall this year, too.) Deckers representatives didn’t respond to interview requests. The company told investors that it was hurt by trying to pass on higher sheepskin costs to consumers, as well as by unseasonably warm weather last winter. On Oct. 25, during its latest conference call for investors, Chief Executive Officer Angel Martinez said the brand still resonates with consumers.

Deckers, founded in 1973 by a university student who made sandals and sold them at craft fairs, bought Ugg Australia in 1995, acquired Teva in 2002, and purchased Tsubo, a maker of ergonomic city shoes, in 2008. The Ugg juggernaut began in 2000, when Oprah Winfrey included the boots in the annual listing of her favorite things. Before long, the boots became a must-have for many women. In 2011 shoppers snapped up more than $1 billion in Ugg products.

But last year women began switching from sheepskin looks to leather boots in riding, motorcycle, and combat styles. Deckers still managed to increase Ugg’s sales 38 percent in 2011 as it pushed out its own versions of the new fashion boots and moved into men’s footwear. But the reckoning arrived in 2012, with third-quarter Ugg sales plummeting 12 percent. Taylor Pinckney, a 20-year-old college junior from Silver Spring, Md., who wore Uggs in middle and high school, epitomizes the cooling interest: “They seem casual,” she says.

Deckers committed a Branding 101 error, says Barbara Kahn, a marketing professor at University of Pennsylvania’s Wharton School. With both Ugg and Teva, the company focused too much on the shoes themselves and not enough on creating lifestyle brands that could become an umbrella for a range of goods. “A brand wants to have equity of its own, and such a brand can be repositioned or stretched as cus-tomers’ tastes change,” Kahn says. PVH has managed to avoid the same mistake, making acquisitions over the years to transform itself from the Van Heusen shirtmaker to the owner of powerhouse global brands Calvin Klein and Tommy Hilfiger. On a smaller scale, Deborah Lloyd, the British-born designer who reinvigorated Burberry by slapping its iconic plaid onto bikinis, has turned the ailing Kate Spade handbag maker into a broader lifestyle brand that encompasses clothes, shoes, jewelry, fragrance, and home goods. Kate Spade is racking up quarterly sales gains of more than 20 percent for owner Fifth & Pacific.

A troubling sign emerged for Ugg during this year’s back-to-school season, says Lazard Capital Markets analyst Diana Katz. Uggs have long been a fashion staple for teens. “This year, they wore Nikes and Steve Maddens,” Katz says. That could be a long-term worry for Deckers, she adds, since high school and college students have represented roughly 50 percent of Ugg’s customers. Poser says Deckers erred by over-exposing the brand and charging too much for the boots. Rivals including Gap’s Old Navy and American Eagle Outfitters released their faux-fur versions at about one-fifth the $155 Ugg charges for its classic boot. “Fashion trends work when stuff is not accessible,” Poser says. “As soon as there is too much of it, it loses its luster.”

The bottom line Sales of Ugg footwear fell 12 percent in the third quarter. The brand, an early hit with women and teens, has failed to win over as many men.


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