Puma Lays Out Five-Year Plan

Puma AG ceo Jochen Zeitz aims for $5.16 billion in sales by 2015.

Jochen Zeitz

HERZOGENAURACH, Germany — Puma AG chief executive officer Jochen Zeitz has a simple way of summing up the German activewear firm’s ambitious five-year growth plan: “Make more out of less.”

This story first appeared in the October 27, 2010 issue of WWD.  Subscribe Today.

Zeitz on Tuesday laid out the company’s eagerly awaited “Back on the Attack” plan, designed to drive sales to 4 billion euros, or $5.16 billion at current exchange, in 2015 from 2.5 billion euros, or $3.22 billion, at present, at an investor day at the company’s headquarters here.

Puma plans to make controlled investments into key growth drivers such as e-commerce and emerging markets, and will adjust its product mix to rely less on footwear and more on accessories such as those produced by equipment maker Cobra Golf, its most recent acquisition.

But Zeitz said the company would focus mainly on growing its existing assets — quashing speculation that acquisitions would account for a significant portion of incremental sales in the next five years.

“We have to be focused and not try to do everything for everyone,” he said. “We need to focus and grow based on strength before we attack new markets.”

The company, controlled by French retail-to-luxury conglomerate PPR, on Tuesday reported a 14.2 percent rise in third-quarter profits to 77.6 million euros, or $100.1 million, versus 67.9 million euros, or $87.6 million, a year ago.

Puma raised its full-year 2010 sales forecast to a mid- to high-single-digit increase, citing “an improvement in the overall outlook for the fourth quarter,” and said it would acquire full control of its operations in China, which it sees as a key driver of future growth.

Revenues in the third quarter rose 16.5 percent to 784.3 million euros, or $1.01 billion, from 673.4 million euros, or $868.8 million, a year ago. Dollar figures are converted at average exchange rates for the period.

Footwear sales in the quarter rose 6 percent on a currency-neutral basis, versus a 1.3 percent uptick for apparel and 25 percent for accessories. By region, the Americas logged the strongest gain, up 26.7 percent on a currency neutral basis.

Zeitz predicted 2011 would mark a turning point for the firm, which has lost some of its luster in recent years as it faced increased competition, internal challenges resulting from its expansion into new categories and markets and the global economic crisis.

“Puma has gone through challenging times over the last couple of years, but we feel that the time has come to close that chapter at the end of this year and turn over a new page,” said the executive, who was appointed last week as the head of PPR’s new sport and lifestyle division — signaling the group’s shift from luxury toward more mass-oriented brands.

After undergoing a restructuring plan, Puma plans to focus on its 12 biggest markets, which account for 60 percent of business today, and core categories: team sport; running, training, fitness; motor sport, and lifestyle.

Financial targets for 2015 include growing net sales in high single digits and keeping gross profit margins roughly stable. Zeitz said it was “unrealistic” to expect an increase in gross margins, since much of the growth would come from emerging markets, where margins are lower.

The Puma brand is expected to drive 90 percent of growth, with non-Puma brands — including Cobra Golf, Tretorn and any future acquisitions — accounting for just 10 percent.

Puma had a net cash position of 360.7 million euros, or $464.9 million, as of Sept. 30, versus 339.5 million euros, or $437.9 million, at the same time last year.

Describing the company’s cash position as “very strong,” Zeitz said it would look at acquisitions “pretty much to any three-digit size” in terms of millions of euros. Target brands would have to either strengthen the existing portfolio through complementary assets, or allow the company to enter adjacent market segments.

“The focus ideally should be on growth brands that at least have a CAGR [compound annual growth rate] that is comparable to the five-year plan that we have laid out so far, so high single digits as a benchmark, either as of early days or after one or two years,” he added.

In terms of channels, e-commerce is expected to be the biggest growth driver in relative terms. It is seen accounting for 8 percent of the total business by the end of 2015, compared with 12 percent for retail and 80 percent for wholesale.

“We are overinvesting into this channel to boost sales growth and evolve into a leader in the digital space,” said Zeitz.

Core categories will drive 80 percent of sales growth until 2015 and other categories — including golf, outdoor, kid’s wear and sport fashion — the remaining 20 percent.

In terms of the product mix, apparel and accessories are set to outperform footwear. By the end of 2015, footwear is expected to account for 50 percent of sales versus 54 percent today, apparel for 35 percent compared with 33 percent, and accessories for 15 percent versus 13 percent.

Puma sees 42 percent of the “Back on the Attack” growth coming from its top six emerging countries (China, Korea, India, Russia, Brazil and Mexico), while the top six mature countries (U.S., Japan, France, Germany, Italy and the U.K.) will contribute 38 percent.

Puma has refined its offer thanks to in-depth consumer research and plans to launch additional studies in key strategic markets including the U.S., Japan, China and India in order to adapt the profiles to regional tastes.

However, it does not plan any additional designer collaborations beyond existing collections developed with Hussein Chalayan, Alexander McQueen and Mihara Yasuhiro.

“The reality is what we started more than 10 years ago, with Jil Sander for example, became standard for everyone to do,” said Zeitz. “We will continue selectively with designers and with the ones that we have, but we don’t necessarily think that it makes sense to start new [collaborations].”

Puma plans to selectively increase its media spend as a percentage of sales during the first years of the plan, with a shift from television and print toward digital marketing, and sports and event marketing.

In China, Puma is taking full control of its joint venture with Swire Resources Ltd., in which it holds a 51 percent stake, effective Jan. 1. Financial terms were not disclosed, but Zeitz said that the sum was in the “double digit millions.”

“The entry barriers have risen, competition is fierce and therefore it will take a little bit longer, but we are optimistic that we arrived well positioned in China as a brand. We just need to fuel the fire a little bit now. So, it should be the number-one market but it may take a little bit longer than the other markets,” he said.

Puma plans to remodel its existing stores there, develop more specific Chinese collections and invest more in selective campaigns to drive sell-through, he added.