The chic of it: Puma's 'must have' pumps keep profit growth on track

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The Independent Online

You used to know where you were with a pair of trainers. You did sports in them. You took them off when not doing sports. And that was that. But in the past decade, sports footwear and apparel has switched over to the mainstream and being familiar with the inside of your local sports centre is largely irrelevant.

For sportswear manufacturers, this shift presents opportunities and pitfalls in equal measure. Producing a good running shoe is one thing; producing one that is going to woo notoriously fickle fashionistas is altogether different and far less predictable.

The latter is, however, the route German sportswear group Puma has taken, and for the time being at least, it seems to be working. Last year the group raised forecasts three times and annual profits are now expected to double to €245m (£169m) for 2003. This stellar performance is nothing new: profits have increased 20-fold in the last four years alone. By comparison, Puma's larger rival Adidas-Salomon is predicting around 10 per cent profit growth for 2003. (The two companies started life as one business before the owners, German brothers, fell out and went their own ways.)

Last week Puma hammered home its dedication to urban fashion at Milan Fashion Week. It has signed a partnership with UK designer Neil Barrett, formerly at Gucci and Prada, and his collection included several Puma references. Mr Barrett is also designing a new strip for the Puma-sponsored Italian football team to wear in Euro 2004, as well as casual and formalwear for the players.

Puma struck this deal even though football hardly registers on the radar in the biggest sportswear market, the US. Chief executive Jochen Zeitz counters that "soccer is a global sport and it's growing in interest in the US". But he adds: "It's not only about football; it's about the European influences. Italy is an important market from a fashion point of view and that will appeal to the US consumer."

Few other sportswear manufacturers have embraced the catwalk quite so brazenly. A Nike spokeswoman says the company is "proud" if its products are regarded as fashionable, but adds: "All footwear apparel and equipment is produced with positional performance in mind." However, Puma, with its "old skool" retro look, is the brand of choice for the fashion-conscious trainer wearer.

Mr Zeitz, who has been in the job for the last decade and has only just turned 40, says Puma does not want to be a "brand for everyone", and much of the of growth is staked on this lifestyle approach. Mr Zeitz reckons the company has the potential to be worth €2bn in sales and hopes to achieve that by 2006, when his contract is up. Currently lifestyle sales make up around 65 per cent of the total, considerably more than Puma's rivals.

Under Mr Zeitz, the share price of the Frankfurt-listed company has dramatically improved, from the equivalent of around €7 to Friday's close of €144.48. Yet doubts remain.

For a start, much of Puma's stellar growth has been achieved because, as a much smaller rival to the likes of Adidas and Nike, it has had far more scope for growth. The biggest threat, though, is that tastes can change overnight, as Puma knows only too well. When Mr Zeitz took over, it was languishing, after losing out in the preceding decade to the dominance of brands like Nike. Costly mistakes, such as Puma's decision to turn down a deal with a young basketball player called Michael Jordan, didn't help.

Earlier this year, the shares took a hit after a Morgan Stanley downgrade. While the bank conceded that the brand had "momentum", it believed the share price had gone as far as it was able. Morgan Stanley also noted that Puma could face slower growth by 2005 as its trendy status fades.

Because ultimately, for all the fashion shows and design partnerships and hanging out with Italian footballers, there is not much anyone can do if Puma suddenly becomes last month's flavour.

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