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New provision in Defense Authorization act could spur domestic production for Wolverine

BY Friday, December 09, 2016 12:30pm

ROCKFORD — Wolverine World Wide Inc. is preparing to bid on a military contract that could result in it producing the Saucony brand of athletic shoe at its Big Rapids facility.

That’s because the 2017 National Defense Authorization Act passed by Congress yesterday includes a provision requiring the U.S. Department of Defense to provide troops with American-made athletic shoes.

Sen. Gary Peters, D-Mich., sponsored the initial bill to require the government to purchase domestically produced footwear, which was subsequently included in the $618.7 billion National Defense Authorization Act.

“I’ve always been of the opinion that when you’re spending American tax dollars, you should spend them on American products, particularly when you’re outfitting men and women in the military,” said Peters, who previously served in the U.S. Navy Reserves.

Sen. Debbie Stabenow, D-Mich. also supported the provision.

Since the 1940s, the Berry Amendment has required the military to issue American-made clothing to service personnel, but the legislation did not offer provisions on athletic footwear. Currently, servicemen are issued vouchers to purchase the athletic footwear of their choice.

For Wolverine World Wide (NYSE: WWW), the new provision could round out its Big Rapids production facility, which invested $1 million in expanding its warehouse to make room for its Bates brand of military boots and for other military contracts.

So far, the military hasn’t issued requests for bids on the new contract, but several large athletic footwear manufacturers, including Saucony and Boston-based New Balance Athletic Shoe Inc., have submitted initial design concepts, said Mike Jeppesen, president of global operations and the Heritage Brand Group at Wolverine.

“The legislation just passed and the Department of Defense and the Defense Logistics Agency need to decide what they want to do with it,” Jeppesen told MiBiz, noting that Wolverine’s early estimates suggest deliveries could begin in the fourth quarter of 2017.

The U.S. Department of Defense has not released specifics on how many athletic shoes it will order for its troops, but Jeppesen expects initial orders could reach 200,000 pairs annually to outfit new recruits. As a whole, the military employs approximately 1.2 million active duty soldiers, all of which will need American-made athletic footwear eventually, according to reports.

Still, even with that sizeable order, Jeppesen doesn’t expect the contract — should Wolverine win it — to have a significant impact on the company’s revenue.

“Contrary to common belief, military contracts in the footwear industry aren’t very profitable,” Jeppesen said. “It’s not going to have a big impact on revenue but it will have a nice boost.”

Jeppesen noted that high levels of competition for military contracts among footwear and apparel manufacturers often lead to slim margins.

Over the last decade, the military has spent roughly $18 million a year on footwear, Jeppesen said.

Still, winning the contract could help shield Wolverine’s Saucony brand from challenges pertaining to international uncertainty — if only slightly.

Revenue for the brand decreased “in the mid-teens” in the company’s third quarter that ended Sept. 10, which was attributed to “key retail bankruptcies and tougher trading conditions” in the running shoe market, according to Wolverine’s latest conference call with investors.

Saucony is housed under the company’s Wolverine Boston Group, which also includes the Sperry and Keds brands. The Wolverine Boston Group generated revenues of $202 million in the third quarter of 2016, a decrease of 9 percent compared to the same period a year ago.

Regardless of the financial impacts, Jeppesen is thankful for lawmakers’ support of policies that could benefit its Big Rapids facility.

“We’re obviously happy with the work that Senator Peters and Senator Stabenow have done, all have been active in the facility over the years,” Jeppesen said.

Editor's Note: This story has been updated from a previous version to include updated comments from Mike Jeppesen of Wolverine World Wide 

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