By  on September 13, 2005

MONTREAL — Before losing the contract to outfit the Canadian Olympic team earlier this year, Roots Canada Ltd. had already decided to put more energy into its leather goods and athleticwear, the backbone of its 32-year-old business.

But the loss of the Olympic clothing contract for 2006, 2008 and 2012 to the Hudson's Bay Co. came as a surprise to Roots co-founders Michael Budman and Don Green, whose poor-boy cap was a big seller at the 2002 Salt Lake City Games. Roots is still outfitting the Canadian Olympic speed skating team and the 2006 U.S. Winter Olympic team. It also sponsors three Canadian Olympic medalists.

But now the company's focus will be on leather goods, especially bags, a category that is expected to double over the next two years to at least 40 percent of its estimated annual sales of $250 million (converted from Canadian dollars).

"The day we lost to The Bay, Don said to me it was the best thing that could happen to the company and he was right, because it gave us an opportunity to focus on what we do best and that's leather goods and athleticwear," said Budman.

Retail analyst Kaileen Millard of The NPD Group in Toronto said, "It's nice to see them going back to their core business of fleece, jackets and leather bags. I admire anyone who can get someone to pay 70 Canadian dollars [$60 U.S.] for a hoody."

Between 2001-2003, Millard said Roots had a 10 percent share of the women's fleece market in Canada, which dropped by half last year, but recovered for the 12 months ended June 30.

"It just shows what you can do when you concentrate on what you're good at," Millard said. "They tried to be more fashionable [under new creative director Ernie Sulpizio] with ladies' blazers and other items, but if the 18-to-25 crowd wants that, they'd probably look for it at Winners or Le Chateau. They also have a huge opportunity with yoga clothing. Lululemon [of Vancouver] has done very well with that category. And their leather bags are high quality. They're the Canadian version of Coach."

The retooling of Roots included moving into new headquarters in Toronto in February, which replaced four separate buildings, and reducing staff to 165 from 200. Budman and Green also took back the creative reins after the sudden departure last fall, after a short stint, of Sulpizio, formerly vice president of design and product development at Gap."He didn't understand the culture of Roots and our business," said Budman. "The number-one fashion item in the world is a woman's handbag. We also sell tote bags, wallets, iPod holders, yoga bags, briefcases and other leather accessories."

Budman noted that leather products had a sell-through of 60 percent in July.

"We now have a beautiful blend of leather goods and athletic lifestyle clothing because the customer is looking for a highly focused collection," he said. "We're also heavily into organic cotton and hemp and other natural fibers, and we also offer yoga clothing."

The chain of 125 Canadian stores, six in the U.S. and 20 under licensees in Taiwan, will remain relatively unchanged except for two or three more openings in Canada.

Budman would like to add more U.S. stores, but said it's a market that requires tremendous resources. Instead, he is hoping to team up with a major retailer to drive the company's U.S. business. Roots is also sold in the U.S. at the NBC Experience store in New York and at Disney World's Epcot Center in Orlando, Fla.

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