Working for Warren

What is truly different about your product to command a price premium?
Our product line is created from a biomechanical point of view. Some people need a little bit more stability. Most people like more cushioning. Some people don’t; they like to be more minimalist and [to] be totally in tune with the road with a super-flexible shoe. But there’s a whole range of what people need. If everyone could run on the same shoe comfortably, mile after mile, the top brand in this category might have 100 percent market share. But people’s needs differ.

It sounds simple, but the foot is a very complicated part of your body. Everyone’s running gait is different. Most people run on asphalt. It’s a repetitive motion, so the shoe can really matter in terms of comfort when you’re running; think about knee pain and other things. So people have a sense that they need the right shoes.

How has the operational performance of the company changed since Brooks went to a higher price point, technical-performance end of the market?
We added 16 points to growth margin, and we did that in the first five years of the strategy. We don’t sell on price; we sell on performance. And what I’m most proud of is that growth is all in our best products, selling through the best retailers at full margin. We haven’t chased any sales. We’ve really created brand demand for premium-priced products in a very competitive market with players bigger than ourselves.

Can you point to some technology that you offer that others do not have?
Yeah, I’ll give you one example. The engine and drive train of a shoe is the midsole. That’s where everything happens. It’s basically the cushioning system. When you think about a running shoe, it’s got to dampen and absorb shock as you
land; then, it’s got to transition to the forefoot. But it needs to be firm as you push off. You propel off your toes, essentially.

For four years, we worked to create—at the molecular level—a material, we call DNA. We’ve engineered 40 formulations on this [item] with leading chemical companies [like Mitsui]. It’s our proprietary technology. In fact, we just got a patent approved on this DNA system. It’s a non-linear, non-Newtonian material, like cornstarch, that cushions a stride due to the give in the material. When a runner lands with two to three times one’s body weight, it allows the runner to transition to toe-off because the shoe rebounds before the runner hits his or her next stride. It’s in every shoe we make, and it’s our secret sauce. You feel it when you run. Most running shoes are made in China. What would it take for you to re-shore some manufacturing in the U.S.?

We’re thinking and working on some things that’ll allow that to happen. There’s so much labor in our running shoes right now. There’s still a lot of stitching in the upper, and there’s a lot of componentry in the way we build product. We’re making progress going to technologies like no-sew: it’s essentially glued pieces instead of stitching, and there’s a lot less labor in it. Unfortunately, the U.S. no longer has the skilled labor in handwork and sewing. But I think that in the next five years, it’s not unlikely that we could see some shoes being made in America—but not sooner than the next two or three years.

How often do you talk with Buffett, and does this generally result in a material change to the business?
He has one required meeting a year, and that’s really around the year-end review on compensation. I don’t get to set my own compensation. That’s all he requires, and, then, it’s more “whenever you need me.” I will send him a report. It’ll show up on a Monday morning at 10 a.m., and I’ll get a response back by 2 p.m. He’s always available. I had a call with him two days ago.

Here’s where he’s impacted us: he listens to our strategy, he has seen us as we’ve worked through our business plans and he challenges us to stay a premium brand. What does “premium” mean in running? We’ve created a brand that runners are falling [in] love with. They’re paying full price for our products; we’re not a discount brand. We used to be. I mean, we once sold $30 shoes. But we lost money at it. He’s seen what we’ve created. He challenges us not to chase opportunity that takes us away from what “premium” means. He’d rather have a smaller, highly profitable, highly defendable and special business than a big one. That’s exactly how he’s described it to me.