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By Nathan Peck | MiBiz
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A strong portfolio of brands, an extremely healthy balance sheet and streamlined product development processes are helping Wolverine Worldwide outpace its competition coming out of the recession, according to CFO Donald Grimes. PHOTO: JEFF HAGE

ROCKFORD — Wall Street loves a winner.

Strong financial performance is translating into opportunities for Wolverine Worldwide Inc. as the company continues growth that has outpaced its competitors and attracted investors’ attention.

Helping manage that record growth year after year and direct resources to grow its 12 brands across the 190 countries where Wolverine does business is Donald Grimes, senior VP and CFO. Grimes sat down with MiBiz for an exclusive look at the $1.24 billion company and why 2011 is shaping up to be another record-breaking year.

Wolverine is outpacing the rest of the footwear industry, with revenues up 12.9 percent year-to-date from the same period a year ago, compared to a footwear market that posted a 7.2-percent increase in 2010, according to data from market research firm NPD Group Inc.

Investors have plenty to be happy about as well. After seven consecutive quarters of record earnings per share, the company is on the cusp of its second year of double-digit sales growth. That isn’t to say that the path has been clear, given that sourcing environments have been challenging with rising petroleum and labor costs and a shortage of leather related to the drought in Texas, Grimes explained.

“Our financial performance over the last couple of years has been amazing. We’ve garnered kudos in the footwear space for our performance,” Grimes said. “We understand the importance of margins and earnings per share. We’ve guided Wall Street in our quarterly calls from flat to slightly up.”

After acquiring the Chaco and Cushe brands in 2010, Wolverine has expressed a willingness to consider other deals. Wolverine has built a strong balance sheet to keep its options open as it looks to make additional acquisitions, though on a larger scale than the recent deals.

“As CFO, I sleep well knowing that we are under-leveraged. Our borrowing capacity is strong,” Grimes explained. “We are viewed as a very secure credit risk. It opens our world up in terms of our options. We have not been bashful at all in earnings calls to investors that we are considering other acquisitions on a larger scale — brands with $75-$200 million in revenue.”

An aggressive product development strategy employed during the recession positioned the company for growth. While many retrenched, Wolverine reorganized to move forward.

“We were looking to pull in our horns a little in 2008 to 2009 and looked for ways to spend less money,” Grimes said. While the company trimmed its travel budget, for example, by more than $3 million, it continued to invest in product development.

“We didn’t cut our product development budget. In fact, we increased our product development spend significantly. We put our money where our mouth is. If we have said that a product is the key, we have invested there — at not insignificant costs — to put product out that resonates with consumers. Coming out of the recession, it begins and ends with product.”

One of those investments in product development was the “Barefoot Brigade,” an interdisciplinary team pulled together to rapidly develop Merrell Barefoot, a line of minimalist shoes for the outdoor brand. Under the direction of James Zwiers, senior VP of outdoor brands, the team of designers, marketers and operations experts compressed the timeline of product development down to 12 months from 30.

“There is an advantage the closer you are to the product launch,” Grimes said. “You’re essentially making a 30-month bet on what is going to be in fashion when the product reaches consumers. With (Merrell Bareftoot), we were making a better bet.”

Design is at the center of the product development cycle, and Wolverine works with third-party design firms to help determine the trends that are going to be dominating fashion 30 months into the future. Wolverine’s product development team then works to rein in the ideas by designers and translate their work into products that can be manufactured. Designs currently in development for the majority of Wolverine’s brands will hit the shelves in fall 2013 and spring 2014.

“I often wonder what comes first, chicken or the egg? What is hot because people are actually going after it or is it because the designers have developed these ideas,” and are influencing opinions and fashion, Grimes said. “Product development plays an important bridge role. I am astounded by how early the process gets kicked off. One of the (lessons) of the Barefoot Brigade was (that when) we find something we can pursue, we can marshal the resources to make it happen. It does require a little bit of a change of our culture. Merrell being successful doesn’t necessarily change the mindset of the company. There is a considerable amount of cultural momentum and inertia (resisting change). It changes over time.”

Brand, product or both?

Like tech giant Apple, Wolverine is finding that its strength comes in the strength of its brand. The company’s brands have a reputation for quality, but that reputation doesn’t necessarily translate into sales in a retail marketplace crowded by scores of other brands.

“We are in the midst of a transition as a company — toward a brand-building company from one that has produced quality footwear. Wolverine’s business model has always been based on making quality footwear,” Grimes said. “We found out that driving brand awareness among the consumers will predispose them toward our brands, rather than relying on the retail sales clerk to recommend our brand.”

For a company that has been conservative in its cash management and taken opportunities to boost its stock price over the last decade — buying back over $660 million of stock since 2001 — Wolverine is looking to increase the company’s marketing outlay by 50 percent. Grimes is bringing Wolverine’s marketing expenditures as a percentage of sales in line with the industry average of 6 percent, up from 4 percent.

“Fortunately, we are in a pretty robust top line environment where we can spend more on our marketing budget,” Grimes said. “I know that 20 percent of my marketing spend is a waste of money — the problem is I don’t know what 20 percent that is. That is why we are constantly changing our strategy, we don’t keep doing the same thing.”

Global diversity

Wolverine recognized early on that it had a strong global brand — the Hush Puppies brand has been exported since 1959. As the company built a global strategy, each of its three operating groups had its own international division. As brands developed their strategy, information remained in siloes within each division. The restructuring plan the company implemented in the second quarter of 2010 brought all brands’ international operations under a single global sales division.

Sales grew 17 percent in 2010, and Grimes credits this new approach with increasing sales 24 percent through the first nine months of 2011.

“Each operating group had different ideas of what the best way was to leverage their brands,” Grimes said. “The standalone international division is seeing the marketplace more holistically. It is a very powerful way of looking at things.”

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