HERZOGENAURACH, Germany (Reuters) - Germany’s Puma (PUMG.DE) will return to its sporting roots to restore growth to the struggling brand whose profits crashed 70 percent last year, the group’s new chief executive said.
Puma ranks a distant third in the sports apparel industry behind Nike (NKE.N) and Adidas (ADSGn.DE) and CEO Bjoern Gulden’s turnaround plan breaks with the company’s efforts over two decades under former chief Jochen Zeitz to strike a chord with fashion-led consumers.
“We are a sports company, not a sports lifestyle company,” Bjoern Gulden told journalists, speaking in public for the first time since taking the helm in July.
Gulden wants Puma, which is 84 percent owned by French luxury group Kering (PRTP.PA), to go back to its roots in football and athletics, sports he thinks it has neglected.
Puma has been overtaken in the running market by rivals Nike, Adidas and a host of smaller specialists like Asics (7936.T), Brooks, Saucony and Mizuno, despite its sponsorship of sprinter Usain Bolt.
“They had all the resources to build on the brand recognition, the Bolt endorsement. They could have become a leader in this category and they’ve failed to do it,” Euromonitor analyst Magdalena Kondej said.
On Friday, Puma warned 2013 net profit will fall far below 2012’s 70 million euros ($94 million), as it books 130 million euros of costs to close a development center in Vietnam and bring product staff from London to group headquarters in the small German town of Herzogenaurach.
The group, which also said third-quarter operating earnings before special items fell 19 percent to 80 million euros, had previously expected a rise in 2013 net earnings.
One of Gulden’s priorities is to fix the group’s footwear sales, which fell 7.5 percent in the first nine months of the year and which he described as Puma’s “Achilles’ heel”.
Norwegian-born Gulden, poached by Kering from Danish jewelry company Pandora (PNDORA.CO), said spending would now concentrate on technical products, and that the group would delve into its archives of performance shoes to serve the fashion side.
He also said Puma had failed to make the most of big names - current sponsor deals include Bolt, soccer player Falcao and golfer Ricky Fowler - and that the group would spend more on media campaigns to make sure consumers were aware of Puma.
But taking on the might of Nike and Adidas, which have annual sales of $25 billion and $20 billion against Puma’s $4 billion - will not be easy, and there is increasing competition from newer brands like Lululemon (LULU.O) and Under Armour (UA.N).
“Increasing the weighting in the performance field will require a lot of investment and that will hurt margins. It could take 30-40 basis points off margins each year for several years,” Berenberg Bank analyst John Guy told Reuters.
“Gulden did a great job fixing the distribution issues at Pandora, but this is a much tougher ask.”
Gulden, a 48-year old former professional soccer player, said the turnaround would take some time but he was confident he could make the brand shine again.
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Additional reporting by Joern Poltz; Editing by Mark Potter and Elaine Hardcastle