How Shape-Ups Shook Skechers’ Fortunes: A Lesson in What Not to do for Small Companies

by Benjamin Roussey
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Submitted by Benjamin Roussey as part of our contributors program.

There are success stories that inspire countless others. And there are success stories that serve as lessons in what not to do. The business world is full of stories of both kinds and it is as much important to emulate some as it is to learn about those success stories that teach you what to steer clear of, like for instance the story of how Shape-Ups rattled the fortunes of Skechers to its core. This lesson is especially important for small companies that are trying to get a foothold in the tough and competitive world of business. And equally relevant in this context will be analyses of the success stories of RYUN and Lululemon, two other companies that started small and then made it big in the world of sporting and training gear and the apparel industry.

The Skechers Story: The Shape-Up Scandal

Skechers is a USA-based company that specializes in lifestyle and fashion footwear, performance, and sporting footwear for men and women. Their well-known product ranges include Skechers Sport, Skechers Kids, Skechers Work, and Skechers GOperform, but none made their fortunes soar as the Shape-ups range. And then came the fall!

The Federal Trade Commission (FTC) came up with a startling piece of news that Skechers had been deceiving consumers with its claims that Shape-ups could help them shed unwanted pounds, strengthen, and firm up their abdominal muscles, buttocks, and legs, and also improve cardiovascular health. According to the FTC, these claims are not based on conclusive scientific evidence and in reality, Shape-ups are no different than regular fitness footwear. Skechers now has to cough up $40 million to settle the charges.

While the FTC will always strive to clamp down on “overhyped advertising claims,” the Skechers case is a classic case of a small company falling into the trap of over-hyping a product in an effort to cash in on its popularity. And although, Skechers hasn’t yet divulged the amount it has invested in the Shape-up line, reporters who have been inside their headquarters say that it is quite a pretty packet. So, after the FTC scandal, it is evident that the footwear company has been made to bite the dust; after all, it never pays for a small company to put all their eggs in one basket, especially if the product cannot carve a niche for itself.

It is not the Skechers case alone that should serve as a warning to other small companies trying to increase their sales. There have been other corporate bigwigs who couldn’t resist the lure of over-stating the claims on their products—Reebok’s supposedly “toning shoes” and Nivea’s skin cream that allegedly melted away the inches. But while shelling out a couple of millions has not dented the fortunes of these companies, such a loss of money and the loss of face are sure to leave small companies reeling. So, beware!

The Takeaways for Small Companies: The RYUN and Lululemon Cases

While the Skechers case is all about what not to do, there are two other cases that serve to guide small companies regarding what to do to make it big in the world of business.

Respect your Universe (RYU) was once a small startup that is now steadily climbing up the business ladder. Its products are getting lapped up and gorged on from satisfied customers from its online stores and brick-and-mortar retail outlets and its stocks have increased a phenomenal 800% in just three months. Taking leaf from the Nike business model, RYU, from its inception, had concentrated on creating a niche for its products and following a consumer-centric business model. They quickly latched on to the gap in the market for high-quality MMA wear and their cause was only promoted by the fact that MMA is the fastest growing sporting activity in the world. Thus, RYU was able to create a strong revenue stream on the cornerstone of astute product positioning tactics instead of resorting to gimmicky ads. It is thus not surprising that marketing analysts across the United States have sat up and are now taking notice of this once-fledgling company.

Lululemon is another success story that is currently garnering interest amongst small companies. In the second quarter of 2012, Lululemon’s online sales almost tripled and after their success in the United States, this workout apparel manufacturer is all set to launch stores in the United Kingdom, Australia, and Hong Kong. Their success story is one that rests on prudent product positioning measures and building on basic human emotions—Lululemon has managed to convince women that they will look good in their “slimming” yoga pants—rather than spending wheelbarrows of dollars on creating advertisements that are not corroborated by facts and then facing public ridicule, government investigations, and class action lawsuits.

What Small Companies Need to Learn and Un-Learn?

A comparative study of the Skechers, RYU, and Lululemon stories is like going back to your management lectures. But it is essential that small companies realize that at the end of the day, it’s only the P’s—product, positioning, promotion, and price but not necessarily in this order—that make a difference; there’s no place for over-hyped advertisements. Lululemon and RYU showed what Skechers could not achieve—try and understand the psychology of the consumer and respond to the needs of the market but NEVER try to outsmart them!

Disclaimer: The author of this report is not a licensed investment adviser or securities professional. The author seeks standard payment for freelance publications and accordingly has been commissioned one hundred dollars for this article. Investors are cautioned to perform their own due diligence and consult a certified professional for individualized investment advice. Statements made herein are often “forward-looking statements” as defined under Section 27A of the Securities Act of 1933, Section 21E of the Securities Act of 1934, and/or the Private Securities Litigation Reform Act of 1995. Since Forward-Looking Statements are inherently uncertain, actual results may be differ materially from those expected.

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  • commented 2 years ago
  • tags: NKE
  • Skecher's problem is simple - it takes others designs (in the Shape Ups case, MBT), reworks them, adds a lot of hype and then markets as their own. But you have to actually do R&D beyond copying designs and hyping them. That's what Skechers didn't do and still doesn't do. It's the same thing the Greenbergs did at LA Gear and look how that ended for them...