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15 May 2022

Arena Show Part II: Brooks Running (with CEO Jim Weber)

5Frameworks
16Insights

Frameworks in this episode

Strategy6 steps

Burn the Boats Category Focus

Bet the whole company on one customer segment and exit every line that does not serve it

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Finance5 steps

Consumable Equipment Economics

Choose categories where a cheap product wears out fast and the buyer treats it as equipment

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Strategy6 steps

Field-Signal Demand Sensing

Build a recovery hypothesis, then instrument three independent signals and act before the data is official

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Marketing6 steps

Serve the Sport's Middle, Not Its Podium

Separate the soul of a category from its business and position where the money and the meaning actually are

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Leadership6 steps

Trust-First Turnaround Sequence

Win the first year by setting a plan people can beat, then move all three horizons at once

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Insights & moments

The myth-busts, hot takes, explainers, and tools worth keeping.

Hot Take· 3

Hot Take22:00

The business is trainers, not racing shoes

Weber claims Brooks was first to identify that the real running business sits in everyday trainers rather than racing shoes, spikes, or marathon racers. That is why Brooks does not sponsor college programmes even though, as he notes, plenty of college athletes who race in the big brands train in Brooks. The company also moved its range from back-of-the-pack support and motion control shoes toward the middle and front of the field.

  • Trainers, not racing shoes or spikes, carry the category's economics
  • Brooks skips college sponsorship where the big brands have the market wrapped up
  • Athletes who race in rival brands often train in Brooks
  • Brooks moved from support and motion control shoes toward serving every runner
  • Product development starts from biomechanics and habitual joint motion

“i think we were the first one to identify that the real business was in trainers”

22:00

“a lot of the college athletes that race in the big brands train in brooks”

22:30
#product-strategy#sponsorship#running#positioning
Hot Take27:30

Beginners need the best gear more than elites do

Weber argues running inverts the usual gear hierarchy. In golf, the pinnacle equipment has to be available to the pinnacle athlete. In running, the people who most need the best footwear and the best run bra are the ones just starting, because their injury potential is highest. That inversion is the technical justification for a brand that welcomes newcomers rather than one that markets from the podium down.

  • Injury risk is highest for beginners, so gear quality matters most to them
  • Most sports push pinnacle equipment toward pinnacle athletes; running does not
  • The claim underwrites Brooks's inclusive, unserious brand posture
  • Applies whether it is a first 5k or a twentieth marathon

“the person that really needs the best footwear and the best run bra and all of that are the people that are just beginning”

27:30
#counterintuitive#product-design#injury-prevention#running
Hot Take57:30

Why Brooks skipped the fitness app arms race

Weber wanted to buy the running apps, and Buffett asked him for the EBITDA multiple, at which point the conversation ended because at least one of them was entirely free. He notes Under Armour and Asics spent hundreds of millions on digital apps and struggled. Instead Brooks is building a Brooks Run Club to engage its zealots and chasing sensor and data systems that capture biomechanics in the wild, since gait degrades in the last miles of a marathon where injuries happen.

  • Under Armour and Asics each spent hundreds of millions on digital apps
  • Buffett's EBITDA-multiple question killed the acquisition idea
  • Data-rich apps are powerful but the monetisation question is unanswered
  • Brooks Run Club is engagement for zealots, not a loyalty programme
  • The real target is capturing biomechanics in the wild, not in the lab

“both under armour and asics have spent hundreds of millions of dollars on digital apps”

57:30

“i wanted to buy every one of those and warren wanted me to do the multiple on ebitda”

58:00
#digital-strategy#acquisitions#wearables#capital-discipline

Explainer· 4

Explainer12:30

Why every shoe brand sold everything: the factory mindset

Weber explains that the athletic footwear industry's habit of selling every category traces back to owning a factory that had to be kept busy year-round. That constraint pushed brands from baseball cleats to wrestling shoes to bowling shoes regardless of demand. Long after the factories were gone, the assortment mindset remained, leaving Brooks with a good-better-best range of 30 and 80 dollar shoes plus what the company internally called barbecue shoes and lawnmower shoes.

  • Owning a factory meant filling it all year, so brands made every sport's footwear
  • The mindset outlived the factories and became the industry's default assortment logic
  • Brooks internally nicknamed its low-price family footwear barbecue shoes and lawnmower shoes
  • Most of the range lost money while tying up inventory and cash
  • Brooks was number eight or nine at everything, so retailers were ambivalent

“when you had a shoe factory you had to keep it busy all year long”

13:00

“we called them barbecue shoes and lawnmower shoes because that's what you did in them”

13:30
#industry-history#manufacturing#product-strategy#footwear
Explainer33:30

Why footwear is closer to cars than to t-shirts

Weber describes the physical constraints of the shoe business. Every style needs tooling across twelve men's sizes, twelve women's sizes, widths, and colours, costing half a million to a million dollars to bring one style to market. Lead times mean the range has to be delivered sequentially across seasons, and arriving with a ho-hum line means shrinking that year with no chance to recover inside it.

  • One style costs half a million to a million dollars to bring to market
  • Tooling spans 12 men's sizes, 12 women's sizes, widths, and colours
  • Lead times make footwear closer to the car business than the t-shirt business
  • A weak line in one season cannot be fixed inside that year
  • Weber compares the design cycle to a semiconductor company's

“takes a half a million to a million bucks to bring one style to market”

34:00

“it's not the car business but it's more like the car business than the t-shirt business”

34:00
#operations#manufacturing#capital-intensity#seasonality
Explainer54:30

Brooks's moat: business model execution at scale

Asked what the moat is, Weber adds business model execution to the usual list of moat structures. He points to deep retail partnership programmes with specialty run shops and sporting goods chains earned over twenty years, digital marketing that reaches runners in active evaluation, and above all consistent product quality. He argues great product is far less common than people assume, and the frequent runner can tell.

  • Business model execution at scale is itself a defensive structure
  • Twenty years of partnership programmes with running specialists and chains
  • Heavy spend targeted at runners in active evaluation for running shoes
  • Runability, fit, feel, and ride are the product-level moat
  • Product is the first brand experience, so product has to lead

“part of the mode can be business model right business models can be really powerful”

54:30

“great product is not as common as it as you might think”

56:30
#moats#competitive-advantage#retail-partnerships#execution
Explainer1:03:00

The biggest risk Brooks names: single points of failure

Asked what could make everything else crumble, Weber names single points of failure rather than competition. A new distribution centre opened in 2019 did not work and disappointed customers for three to six months. In 2021 the industry's concentration in southern Vietnam meant 45 percent of Brooks factories made no shoes for three months, costing growth that would otherwise have been well above the 31 percent achieved.

  • A 2019 distribution centre failure disappointed customers for three to six months
  • Performance footwear manufacturing is heavily concentrated in Vietnam
  • Southern Vietnam shutdowns idled 45 percent of Brooks factories for three months
  • The largest competitor reportedly sources 60 percent of footwear from Vietnam
  • The lesson is resilience and agility through diversified supply risk

“i've experienced it single points of failure”

1:03:00

“45 of my factories didn't make a shoe”

1:03:30
#supply-chain#risk-management#operations#resilience

Story· 6

Story20:30

Ten years of being tested by Dick's before the brand stuck

Retailers told Weber directly that they would not build the Brooks brand for him. Dick's Sporting Goods tested Brooks for a decade, oscillating between twenty and eighty stores. Weber's conclusion was that the brand had to be built at the runner level, a pair of feet at a time, because in running the best-selling shoes stay the best-selling shoes year after year and franchise products compound into a flywheel.

  • Retailers explicitly refused to build the brand on Brooks's behalf
  • Dick's cycled Brooks between 20 and 80 stores for roughly ten years
  • Running's best sellers persist year after year, so franchise models compound
  • The Ghost and the Adrenaline became the two top performance running shoes in the US
  • Brand had to be earned runner by runner rather than bought through distribution

“we are not going to build your brand we'll try it we'll test it”

20:30

“the best-selling running shoes continue to be the best-selling running shoes”

20:30
#distribution#retail#brand-building#patience
Story35:30

The warm-up pitch that accidentally sold the company

Expecting another private equity buyer, Weber and the bankers scheduled Russell Athletic as a practice run for the management presentation. Russell fell completely in love with the business and bought it. Because Brooks knew where it was going, the team negotiated its independence as part of the deal, pitching themselves as the crazy uncle out in Seattle who should simply be left alone.

  • Russell Athletic was booked as a rehearsal for a strategic pitch
  • The rehearsal buyer became the actual acquirer
  • Weber negotiated operating independence as a deal term, not an afterthought
  • Brooks had a flywheel going, which made leaving it alone the rational choice
  • He repeated the independence negotiation with each subsequent owner

“we're going to practice on russell athletic”

35:30

“i pitched us where the crazy uncle out in seattle were really different just leave us alone”

36:00
#m-and-a#negotiation#autonomy#acquisition
Story37:00

The Buffalo newspaper war that taught Weber how Buffett fights

During an internship in the 1980s Weber watched Buffett win a two-newspaper town. Buffett absorbed five million dollars of losses while investing in the newsroom and quality and taking the paper to the morning, signalling he would never quit. The rival made a rational decision and shut down, and profits swung from minus five million to ten million a year. The episode taught Weber about brands, moats, and competitive signalling long before he met Buffett.

  • Buffett absorbed five million in annual losses rather than retreat
  • He invested in the newsroom and quality while fighting
  • The competitor rationally closed rather than fight someone who never quits
  • Profits went from minus five million to ten million a year afterwards
  • The story shaped Weber's thinking on brands and moats

“five million dollars of losses investing in the newsroom investing in quality goes to the morning fight to the death don't do that with warren…”

37:30
#competitive-strategy#buffett#moats#signalling
Story42:00

A Zuckerberg news clipping and a five-day-old Buffett voicemail

A Wall Street Journal piece ahead of the Facebook IPO mentioned that Mark Zuckerberg would trade his Adidas slides for a pair of Brooks Adrenalines. Buffett circled it and sent it to Weber. Weeks later, back in the office on 2 January, Weber found a five-day-old voicemail from Buffett with an idea: spin Brooks out of Fruit of the Loom as a standalone Berkshire subsidiary so Brooks could focus on premium shoes and Fruit on apparel.

  • Buffett circled a WSJ line about Zuckerberg wearing Brooks Adrenalines
  • Weber had earlier won three uninterrupted hours with Buffett in Omaha
  • The spin-out proposal arrived as a voicemail Weber found five days late
  • Buffett answered his own phone when Weber called back
  • Buffett joked he would take all the credit for the results from then on

“he was going to trade in his adidas slides for a pair of brooks adrenaline”

42:00

“jim this is warren i got an idea give me a call it was five days old”

43:00
#berkshire-hathaway#ownership#buffett#corporate-structure
Story46:30

The Run Happy plane that got Brooks thrown out of the Olympic trials

Locked out of official marketing at the US track and field trials by a 27-year agreement between the governing body and the dominant brand, Brooks checked with the FAA, confirmed the air rights were open, and flew a Run Happy banner over the stadium. Told to take it down, Brooks flew it again. On the final day officials revoked the tickets of Weber and his guests, citing the license printed on the back.

  • The governing body had signed a 27-year marketing deal with the category leader
  • Brooks confirmed with the FAA that the airspace was open before flying
  • Officials demanded removal; Brooks flew the banner again the next day
  • Weber, the head of marketing, and the head of sports marketing were ejected
  • The ejection became an industry story that outlasted the event

“we put a run happy banner on an airplane and we just flew it around that stadium all day on friday”

47:00

“read the back of your ticket this ticket is a license that can be revoked”

48:00
#guerrilla-marketing#scrappiness#sponsorship#brand-story
Story1:04:30

A 20 percent survival rate and the decision not to live in fear

Weber closes by describing esophageal cancer, chemotherapy, radiation, surgery, complications, and another surgery. The published five-year survival rate for his diagnosis was 20 percent, and his own five years lands that November. Talking it through with family and with Buffett, he concluded he was already doing exactly what he wanted to be doing, and decided not to live in fear or in bitterness about the diagnosis.

  • Esophageal cancer diagnosis after his worst running experiences
  • Published five-year survival rate was 20 percent, one in five
  • He is now cancer-free with his five-year mark that November
  • He refused to live in fear or dwell on what he had to lose
  • He does not want to be defined as the cancer guy but will talk about it

“my five-year survival rate was 20 percent one in five”

1:05:30

“i didn't want to live in fear i didn't want to live every day thinking about what i had to lose”

1:06:30
#resilience#perspective#health#leadership

Tool· 1

Tool18:30

Shoe count at marathons: the scoreboard Brooks actually watches

Weber names his favourite brand metric: the count of which shoes are on course at major marathons. Race organisers use high speed cameras and AI linked to the runner's bib to identify the exact model twenty thousand people are wearing. Because a marathon shoe is a considered piece of equipment for a frequent runner, the count is a truer test of brand strength than awareness or share of shelf.

  • High speed cameras plus AI link the shoe model to the runner's race bib
  • Marathon fields self-select for frequent runners, the cohort Brooks targets
  • Brooks was number one in the Houston half and number two in the full
  • Weber treats the metric as the leading edge of earning customer confidence
  • Brooks is consistently number one or two on course at Boston

“one of my favorite stats for our brand is shoe count at marathons”

18:30

“they know exactly what shoe twenty thousand people are running on the model”

19:00
#metrics#brand-measurement#running#customer-insight

Takeaway· 2

Takeaway53:30

Cracking a billion on premium full-price product only

Brooks grew 27 percent in 2020 and 31 percent in 2021, finishing at 1.13 billion dollars of revenue and entering what Weber calls a rarefied billion-dollar club of roughly two dozen global brands. What makes Brooks unusual inside that club is that the revenue is entirely premium full-price full-margin product, where most competitors run good-better-best ranges that are retail-driven merchandising strategies rather than consumer-driven ones.

  • 27 percent growth in 2020 and 31 percent in 2021
  • 1.13 billion dollars of revenue in 2021
  • Roughly two dozen global brands are in the billion-dollar club
  • Brooks revenue is all premium, full-price, full-margin
  • Good-better-best ranges are retail-driven, not consumer-driven

“what makes us unique is it's all premium full price full margin product”

54:00
#growth#pricing#financials#premium-brand
Takeaway1:02:00

The ten-year north star: 60 million runners, $4B revenue

Brooks set a ten-year north star of 60 million unique customers globally, up from roughly 15 million, and four billion dollars in revenue, driven by a growing middle class investing in fitness across Asia and Europe. The A-plus five-year case is 20 to 30 percent growth annually, which is what the company had been doing. Weber notes that a B grade of 15 percent growth is also fine because Brooks is not rushing for an exit.

  • 60 million unique customers targeted, up from about 15 million
  • Four billion dollars of revenue as the ten-year goal
  • A-plus case is 20 to 30 percent annual growth, much of it international
  • Growth thesis rests on a global middle class investing in fitness
  • 15 percent growth is acceptable because there is no exit pressure

“opportunity for 60 million customers 60 million uniques up from maybe 15 million today four bagger and four billion in revenue”

1:02:30

“because we're not rushing for the exit”

1:03:00
#goal-setting#international-expansion#long-term#planning