German sportswear giant Puma is switching bosses - and perhaps focus. Incoming CEO Franz Koch says Puma will be making a greater distinction between sports and fashion, a move that could have consequences for old rivals.
Puma moved into the sports-fashion market in a big way
Puma's CEO-in-waiting Franz Koch says the sportswear company will be strengthening the sports aspect of its product range, though not necessarily at the expense of its fashion segments.
"We've neglected our sports performance segment recently, but we're going to change that," the 32-year-old told Financial Times Deutschland on Thursday at the firm's general assembly. He pointed out that Puma's sports products were "the roots of the company."
Like many sportswear companies, Puma has invested a lot of resources in developing its so-called "sports lifestyle" segments, which blend sportswear and street fashions. The company has launched ranges designed by the late fashion designer Alexander McQueen in the past, and is currently selling a line called "Urban Mobility" from the British/Turkish-Cypriot designer Hussein Chalayan. Rival Adidas, meanwhile, is selling ranges from luminaries like Stella McCartney.
No big changes
Outgoing Zeitz has led Puma for 18 years
Puma spokesman Ulf Santjer made sure to clarify Koch's statements Friday, to ensure that no-one thought Puma's fashion brands would suddenly be neglected. "It depends very much on the year," he told Deutsche Welle. "For example in 2012, with the soccer European Championships, our advertising campaigns will focus on sports performance articles. But in 2011, for instance, when there are no "extraordinary" sports events, the lifestyle side of the brand will be focussed on."
"If we're talking the Puma DNA, the Puma brand – nothing changes," he said.
Sebastian Frericks, analyst with Metzlar Bank, says Puma's move is interesting in the larger context of the sportswear market. "If it's true, it is a significant change, because Puma is the sportswear company that has driven the fashion side of its business more than any other," he told Deutsche Welle. "Adidas, for example, still covers half of its turnover with equipment for athletes. I'd guess that segment only represents a third or even less of Puma's turnover."
Fashion is cheaper than sport
But Frericks says the move could be a sign of Puma's growing confidence. "Generally, fashion products have better profit margins than sports articles, because they contain less valuable materials," he said. "For example, running shoes have special gel shock absorbers and highly elastic materials – and that's more expensive. But at the same time they also cost about 100 euros ($145). So if you concentrate on the fashion market, you can use cheaper materials and charge the same prices."
On the other hand, there are advantages to attracting athletes: "They tend to be more stable customers," says Frericks.
Adidas is a much bigger company than Puma, with annual revenue of around 12 billion euros, compared to Puma's 2.7 billion euros, but Frericks thinks it might still feel irritated by Puma's plan.
"They won't like it," he commented. "They won't have sleepless nights, because Puma is much smaller, but they'll see it as an attack on their market, and it will lead to more competition."
Adidas and Puma were once bitter rivals, thanks to their entangled histories (the two companies were founded by the Dassler brothers after their family business acrimoniously split in 1948), but there has been a rapprochement in recent years.
Adidas is a much bigger firm than Puma
This is all happening with the blessing of the current Puma supremo Jochen Zeitz. Zeitz is making way for his protégé Koch in order to lead Puma's largest stockholder, the French luxury goods producer Pinault-Printemps-Redoute (PPR). From there, Zeitz, who has run Puma for 18 years, will continue to guide the company's long-term strategy.
The enigmatic Zeitz, who is said to divide his time between Puma headquarters in Herzogenaurach and his farm in Kenya, was keen to extol Koch's qualities.
“Having an exceptionally analytical yet most pragmatic mind, Franz Koch has been one of the key drivers of PUMA's strategic course and strongly contributed to our 2010 record sales level," Zeitz said in a statement. "Together, we have defined the company's five-year strategic plan which will be the catalyst to tap into PUMA's envisaged sales potential of 4 billion Euros in 2015."
One board to rule them all
As a parting gift, Zeitz is making another fundamental change at Puma. The firm is to become a European corporation - the German "AG" will become a "Societas Europaea," or SE.
Puma announced the transformation last year, when PPR expanded its stake in Puma to over 70 percent, and the deal was sealed at Thursday's general assembly.
But small shareholders were not happy with the conversion for fear that power would become too centralized. The transition means replacing the traditional German two-pronged structure - a management board and a supervisory board - with a single, self-regulating board of directors. But despite their opposition, the plucky band of small shareholders was not able resist the might of PPR at the assembly.
Zeitz, who will chair the new directors' board, argued that the new structure would make the firm more flexible, and would give the company a more open and international management culture.
Author: Ben Knight
Editor: Andreas Illmer