Nike and Hurley International stunned the action-sports industry last year when the athletic shoe giant bought the relatively small but well-regarded Costa Mesa surf and skateboard clothing company.
Skeptics feared the worst.
They predicted Nike would force Hurley to sell its edgy clothing in more mainstream stores, which can ruin the street credibility of a brand in an industry where big is often associated with bad. Some also predicted that fickle teens would drop the label when they discovered Nike was behind it.
But in the 12-plus months since the deal was consummated in February 2002, none of the worst-case scenarios has developed, according to industry watchers, retailers and even competitors. After failing several times to break into the action-sports industry on its own, Nike seems to have learned its lesson and is maintaining a hands-off approach, letting industry veteran and company founder Bob Hurley implement his vision for the company.
“Hurley is still Hurley and Nike is still Nike,” said Eric John, owner of Laguna Surf and Sport in Laguna Beach and Aliso Viejo. “You dont see Tiger Woods or Michael Jordan wearing a Hurley T-shirt.”
Not everything has stayed the same, however.
Hurley has launched men’s and women’s shoe lines and expanded internationally with the help of Nike’s expertise. Retailers big and small say they have noticed other subtle changes, from better service by the sales force to improved clothing quality.
The Nike-Hurley deal has also affected the industry overall, motivating competitors to sharpen their game, industry veterans say.
One of the biggest changes was the quick launch of Hurley’s first footwear lines, which the two companies began working on soon after the sale.
While the Hurley team was designing the shoes, which have just arrived in stores, it had complete access to Nike’s factories and technology, Bob Hurley said.
“The normal issues in starting a footwear line — sizing, delivery, quality — are all non-issues because of the Nike relationship,” he said.
The Nike influence is not apparent in the look of the shoes, but Nike technology is featured in the construction. For example, a Hurley canvas sneaker, which resembles the old Converse All Stars, has special cushioning and more support than a typical canvas tennis shoe.
The partnering of Hurley’s design sense with Nike’s experience reassured some retailers who were taking a chance by accepting an unproven shoe line.
“I was comfortable knowing that Bob would oversee styling — I knew hed be true to his brand,” said Timothy Harmon, president of the 614-store PacSun chain.
“I was also comfortable with Nike’s reputation for making quality footwear and technological innovation.
With the combination of the two, I knew they would produce a pretty good product.”
Surfside Sports in Newport Beach is carrying Hurley men’s shoes, which have been selling steadily but not flying out the door, said co-owner Duke Edukas.
“Ive sold eight to 10 pairs in a week,” he said. “With Sole Technology (shoes), I sell that many in a day.”
While the initial spring line was relatively small, the offering of shoes for fall is about 30 percent bigger, Hurley said, and includes leather fashion clogs for women and suede retro styles for men.
Some analysts believe it is only a matter of time before Hurley shoes take off. Thomas Clarke, Nike’s president of new business ventures, predicts the footwear line will hit its stride in the fourth season.
“Hurley’s going to have a meaningful business on the footwear side,” said action-sports industry analyst Mitch Kummetz.
Bob Hurley had wanted to expand internationally, but doing so alone would have been expensive. His options included going public, merging with another company or licensing the Hurley name to another firm that would own and operate a separate business internationally.
Hurley wouldnt allow licensing, because he wanted to maintain control of his brand and because it also adds a middleman, which makes products more expensive for consumers, he said.
The deal with Nike has allowed Hurley International to open offices in Japan and Australia, where Hurley clothes are about to hit stores. Clarke, Nike president of new business ventures, said he expects Hurley International to move into Europe in about a year.
While Hurley and his team have been doing most of the legwork setting up international operations, Nike’s buying power and relationships have made the process easier, Hurley said.
For example, Nike helped Hurley International negotiate a lease for office space in Tokyo, and the head of Nike’s Japanese operations placed calls on the company’s behalf that helped it get good rates from trucking companies.
“Being a new brand, we wouldnt get favored treatment, but they have established relationships,” he said.
Having more resources has also allowed the company to hire an employee to oversee international operations.
“Having one person dedicated to that helps,” Hurley said. “Otherwise, Id be doing it part time and someone else would be doing it part time.”
In all, Hurley International has added about 30 employees since the sale, bringing the company total to about 200.
Adding footwear and launching an international operation could have a big effect on the bottom line, said Dick Baker, an apparel-industry veteran and chief executive of Ocean Pacific Apparel Corp. in Irvine, a surfwear manufacturer that sells mostly in moderate department stores such as Kohl’s and JC Penney.
“Ive always said if nothing changed in the U.S. and all he did was add footwear and international, the company could triple in size in two years.”
At the time of the sale, Hurley said annual revenues were about $70 million. He would not disclose current figures, but said sales were up slightly in the past year.
Retailers notice Surfside Sports co-owner Edukas said he has seen only positive changes in Hurley International since the Nike purchase, though many arent sure if the changes are a result of the deal or of the relatively young company simply improving operations after four years of rapid growth.
The sales rep who used to visit his store twice a month has hired sub reps, Edukas said. Now, the main rep comes three times a month and the sub rep arrives once a week.
The company has also brought in better clothing racks and signs for its displays.
“We got good service before, but now were more catered to,” he said. “It’s more like the resources the bigger companies like Quiksilver and Billabong have.”
John at Laguna Surf and Sport said he has been working with a new Hurley retail liaison who has been helping the store to display and merchandise Hurley clothes more effectively. Most importantly, any new faces showing up are steeped in the action-sports industry.
“There’s new energetic people, not lame corporate people,” he said. “It’s guys in touch with our industry.”
At PacSun, Hurley’s biggest customer, Harmon has noticed a change in product and in execution, he said.
Hurley has been producing some clothing earlier, which allows PacSun to test new offerings to see what sells and what doesnt before placing large orders.
The quality of clothes has also improved, and Hurley prices — considered high in some circles — have come down a bit on some items, Harmon said.
“In the past, the brand may have been a little expensive for what you got,” he said. “There’s a better relationship between price and fashion.”
The improvements at Hurley International, the launch of its footwear and an overseas operation, all backed by powerful Nike, appear to have its handful of close competitors sharpening their skills.
“Theyve almost all stepped up their performance (since the deal), though Im not sure it’s because of that,” Hurley said. “But there’s a high level of performance and execution that I didnt notice two years ago.”
Marty Samuels, president of Quiksilver’s men’s division, has noticed a difference, too.
“The bar keeps going up and it’s not just Hurley — it’s Volcom and ONeill, too,” he said. “It’s good for our industry. To build a category, you need more than one strong competitor. “So were happy to see the whole industry do well. We think well get our share.”
As he looks ahead, Hurley said he plans to keep building his brand by adding new product lines such as footwear and sunglasses, which should debut in coming months.
Footwear, eyewear, international sales and the fast-growing girls business will add to the bottom line, and improving company performance is also important, he said.
“We need to make sure we get better, not just bigger,” Hurley said.
Clarke of Nike said he expects Hurley International still to be selective about which retailers it sells to, but he sees room for growth within existing accounts.
Nike is pleased with the company’s direction and with Bob Hurley’s vision for staying true to the teen customer while still growing, Clarke said.
“Hurley can be a great global brand,” he said. “And that can be extremely helpful to Nike Inc. in terms of diversification.”
Though the two companies are still in the honeymoon period, so far, the merger gets an “A,” said Baker of Ocean Pacific.
“It’s very delicate putting two companies together and to not have a big company like Nike intrude on the space of a young brand,” he said. “This (partnership) is as good as it gets in a difficult environment.”