Overcoming supply chain obstacles during the first half of 2022, Brooks Running managed a 6 percent growth to reach record annual revenues of about $1.2 billion. Dan Sheridan, president and COO, talked with SGB Executive about how the year played out, brand accomplishments, the company’s outlook for 2023, and the running industry for 2023.
The 6 percent growth in 2022 was boosted by growth in all regions and came on top of gains of 31 percent in 2021 and 27 percent in 2020.
How did 2022 develop? We went into 2022 coming off of two really challenging years of uncertainty in the world and in supply chain areas. 2020 was this demand shock that happened to the whole industry. Retail shuts down. We’re not sure when it’s going to open or how it’s going to open. And then everybody starts running and walking and in 2020 and 2021 we finished with close to 30 percent growth in both years consecutively. Then you get into the summer of ‘21, Vietnam shuts down and we had almost 80 percent of our manufacturing close, which impacts spring delivery. So, the first half of ’22 was really challenging in terms of just delivering supply, but then we just roared back in the second half and grew around 25 percent in Q4 to finish the year with record revenue here in North America and around the world. Our Europe business is really strong and we’re executing in our core countries of Germany, France, the UK, Italy and Spain with the same strategy we do here in the U.S. centered on the runner and our multi-channel strategy with retailers. So, 2022 was just a fantastic year. Our product innovation and our brand are resonating better than ever. We launched our first brand campaign ever in the history of Brooks where we spent on awareness not only on consideration so that drove trial for us with runners as well. Our playbook is still working around the world.
How did the brand perform in the U.S. marketplace and with run specialty? In total, the U.S. market grew about 6.5 percent. We grew across all channels. In wholesale, where specialty lives, we grew about that rate, 6 percent. We were stunted by the supply challenges in the first six months of the year. We had to dig out of the hole, to say the least, in terms of just getting supply into the markets. Our core products of Ghost, and Adrenaline, the number one and number two run shoes in the U.S., faced supply challenges in the first half and that hurt us but the back half was fantastic. Specialty is still the highest priority for us. We know that runners are influenced highly by this fantastic community of stores in the U.S. and around the world and so we set our strategy on the backs of specialty run. We connect it to a multi-channel strategy that starts with our online digital channels and the way that we drive trial and conversion through digital channels. Ultimately, it flows through all the stores. And we’ve been on this path now for probably six or seven years where we just firmly believe that runners are in control. They shop, research and try brands across channels. And it starts mostly online and in a digital influence where they’re coming to our site and being influenced by the content and the stories that we’re telling there. But ultimately, they want to try brands and specifically in run, it’s equipment and they need to try them. So, we saw a really nice lift in our e-commerce business, which was up about 16 percent year over year. And that was driven by not only our multi-channel strategy, but this brand campaign that we lit up in the back half. As soon as we got supply back into the market, we started to spend on this brand campaign and it drew traffic to our site and traffic to stores.
Are your online sales still supported with fulfillment from local stores through Locally? We still work with Locally. Although our retail strategy hasn’t focused on Brooks-branded physical retail stores, we do have a multi-channel strategy connecting everything to the stores that carry our product so runners can try and research our brand in person at those locations. We do it with our partners and Locally has just been a fantastic partner, whether the consumer wants to pick up at their local store or have same-day delivery.
Newer brands like Hoka One One and On are gaining significant buzz. Are they impacting Brooks’ growth? Our eyes are wide open in terms of the competition. Running is the biggest category in sporting goods and everybody’s going to this market because of the size of the market and the importance of it. It’s a higher price product. It’s equipment. So, we’ve got competitors all over the place and ‘22 wasn’t any different than any other year. For us, we look at the total addressable market around the world and what we’re excited about is that this category specifically is driven by really strong participation rates. We estimate right now that there’s probably 150 million runners out there around the world and about 50 million in the U.S. and that’s growing. The participation rates over the last five years have grown about 2 percent annually so what we’re seeing is more competition coming in because of the participation rates. Our team here, we’re competitors. We love it. It drives us every single day. And we’re uniquely positioned to win the runner because all we do every single day is think about running. We don’t have any other category that we’re betting on. We’re betting on run every single day. Our product teams, our marketing teams, our operations teams, our sales teams – they are solely focused on winning the runner and executing at retail and I think we’ve done that really well over the years.
Can you elaborate on the international growth and opportunity? About 75 percent of our global revenue comes out of North America so we have great ambition to grow internationally. And the first region that that we’re focusing on from an international growth standpoint is the EMEA region. In 2022, our revenue grew 15 percent in local currency through all the channels throughout Europe and that’s really solid growth for us. Over the last four years, we’ve actually doubled our business in Europe. So, this strategy that we’re executing here in the U.S. is the same strategy we’re executing in European markets. One of the nuances that we’ve lit up in Europe, though, is our trail category. The trail runner in Europe is a really important consumer, specifically in Southern markets. We estimate that about a third of the market in run is trail over there. So, we’ve put a big emphasis on trial, not only from a product perspective but really from a community and an influencer perspective. Over the last year in Europe, we had over 60 podiums won on international and national races. That just confirms that we’re in this category. We’re real, we’re authentic and it’s just a fun category. Last year, I had the chance time to go to UTMB (Ultra Trail du monde, Mont Blanc) and it was unbelievable. It’s the center of the sport and epic achievement, but also a community of people that are our customers. We’re executing that strategy really well.
Is Brooks in China? We launched in China in 2022 and really took a strategic approach to be digital-first and runner-focused. We don’t have stores yet, but we are working really hard on executing this strategy in China and we believe this is a 30-year strategy for Brooks. We’re just at the start and we’re seeing really good progress with small growth to start. But we’ve got great partners over there and we’re working really hard to bring Run Happy to the Chinese runner. One of the things that we love over there is participation is growing like crazy. As the middle class grows, we’re seeing health and wellness trends drive run. And so we’re competing for the runner over there. This Run Happy strategy we have translates around the world and China’s not an exception to that.
Can you share some product highlights? The Ghost and Adrenaline are these franchise styles that have led the run industry for many years and they’re the leaders in performance run around the world. 2022 was the year of the Glycerin 20 and we launched this new shoe with DNA Loft v3, a new midsole compound that has absolutely changed the game in run. It’s responsive. It’s lightweight. And what we’re seeing is really nice growth in this category. Another major launch this spring 2023 is a new trail shoe, the Catamount 2. It fits in really nicely with this trail strategy we have. And we coupled it with a head-to-toe trail apparel collection, called the High Point collection. It’s the first time we’ve actually done a head-to-toe trail collection and you’ll see it in every single market. It’s important for us in terms of breaking into the trail community and having gear and performance gear, specifically that speaks to the trail community. In a speed category, we launched the Hyperion Max, which is highlighting this nitrogen-infused DNA flash midsole. It’s technology that really is focused on performance in the run space. And the Hyperion Max, it’s for our most elite athletes, but it’s also for the runner on an everyday run. And that’s what’s great about this technology, it’s approachable for all types of runners, no matter what their journey is in run.
Can you update us on your apparel strategy with the Run Happy shops? It reflects back to this multi-channel strategy. Instead of having our own branded retail stores, what we decided to do was connect our apparel strategy to what we call Run Happy shops. We’ve put Run Happy shops in some of our best retailers here in the U.S. and have about 150 Run Happy shops. What we’re able to do is show and assort our brand in a full apparel assortment. And so that’s the most important thing at retail first, but then the second thing is we take our digital strategy and we’re able to drive demand to those specific stores. When someone comes to our site and is doing research on a run bra and they want to try it in store, we know because of the build-out of our Run Happy shops, they’re able to find it in those stores specifically. What we’re trying to do is take the digital and the physical experience and match those up to our businesses, which is footwear and apparel.
Can you talk about your first global brand campaign, “It’s Your Run,” and your influencer efforts? “It’s Your Run” is truly a celebration of runners and their journey in the run. We believe that running can change your day, it could change your life, and all added up, it could change the world. What we’re trying to do is express that through this new brand campaign. When we launched this, we saw our brand grow two points of unit share in the U.S. from August to December of ’22. We know it’s resonating with runners and consumers. It’s introducing our brand to more people and the halo effect to that is traffic to stores, trial of product, and ultimately buying of product. The campaign was the first time we’ve ever done that. We’ve spent a lot of our time down funnel, really supporting stores and thinking about conversion and consideration. But we have a pretty sophisticated marketing playbook and the influencer strategy has also always been a backbone of Brooks. Word of mouth is one of the most important things that we can focus on and influencer marketing now for us is just an expansion of our strategy that we’ve had for years. And I think we’re hitting more people than ever because of this influencer strategy. We are continuing to explore all the partnerships with influencers as well as coaches in communities that are talking to runners every single day. The best thing about run is it’s a diverse, unique group of people so we’ve got to have that in our influencer strategy.
How is Brooks combatting inflation? We’re always students of the market and there are so many things to factor in in terms of inflation. We’re obviously all dealing with it at a personal level in our households. But at a business level, I think in ‘21 and ‘22, we saw inflation kind of rage out of control at a supply chain level. We all know the stories of the challenges around transportation and containers all the way down to materials and labor and the like. However, we are seeing inflation kind of pull back a little bit in our supply chain. Transportation’s coming back really nicely. Labor’s stabilizing a little bit. So, there is some relief that we’re starting to see on the inflation side. We don’t have plans to raise a lot of prices in ’23. We took some price increases in ‘22 that are running through ‘23 but we’re paying attention to it. The uncertainty that is the macroeconomic environment right now is challenging for any business, whether it’s Brooks or any of our retailers. What we’re trying to do is stay humble, try and listen and learn and be curious so that we can be agile in addressing the macroeconomic challenges that could be ahead.
Has the supply chain fully recovered? It’s settled for us. With your lead times anywhere from five to six months from when you place a purchase order, we’re still recovering from some of the late ‘21 disruption. But we’ve settled in now. Our teams are in a steadier state than they have been in the last three years and we’re predicting some stability here through ‘23. But I said that going into 2022 as well. And one thing I’ve learned is we’ve got to create agility in our supply chain, which we’re doing right now. So, we’re settling in, but you can never get complacent on the supply chain side.
What does Brooks have planned for 2023? We’re continuing to stay focused on the innovation of our product. We believe we make the greatest running gear in the world so our number one focus is always our product, the innovation and authenticity of our product, for runners. We’re also continuing to stay focused on the consumer and everything that’s going on with the consumer shopping journey. More importantly, we’re focused on new consumers that are coming into this category. We saw so many people in 2021 come in that were active walkers or the casual runner. For us, we’re seeing that drive growth and we’ll stay focused on the runner and walker moving forward. We believe the best walking shoe is a running shoe and we’ve got the greatest walking shoes out there with the Ghost and Adrenaline. Finally, our brand is strengthening every single day in the market. We’re spending against that and we’ll continue to spend against it. This brand resonates with all who run and we’re an inclusive brand that celebrates your journey, your path of fitness and moving, and we’re going to continue to stay focused on developing this brand and getting in front of more runners and walkers.
How is the overall run industry doing? If you look around the world, running’s thriving. Participation is driving a strong industry right now. We saw it in 2020 and 2021 and it continued into ’22 and the first couple of months of ’23 have been really strong for Brooks. Year-to-date, we’re up mid-20 percent. What we’re seeing is continued strong growth in participation and we estimate that running could double here in the next five to seven years, just based on the trends that we’re seeing. More millennials are turning 40 and they’re the largest generation ever. And as you age, running gets just a little bit harder for all of us and the shoe becomes a really, really important part of your journey. When they turn 40 and they start to feel the pain of running, we think the category could see incredible growth over the next five to seven years.
What’s your outlook on running for 2023 amid recessionary talk? We’re incredibly bullish. Historically over the years and in challenging economic times, running wins. Running is recession-proof. People may drop gym or studio memberships, but they’ll continue to move and they’ll choose a running shoe in those tough times. We continue to be bullish based on the participation rates and even with economic headwinds, running wins out.
Image courtesy Brooks Running
