Timberland

Introduction

Timberland has a long time history of providing quality products that are made to be both comfortable and protective. The company can be traced back to a one-man shoe repair shop in 1918 run by Nathan Swartz. His products were very successful and led the beginning of Abington Shoe Company in 1955. Mr. Swartz continued to run the business his son Sidney became involved as well. Together they created the first truly waterproof boot that come to be known as the "timberland boot". As popularity for the boots grew, the name became attached. The company officially changed its name to Timberland Co. in 1978. Sidney Swartz took control of the company two years later with great success. Presently Timberland is run by Sidney's son, Jeffery Swartz, who continues to make the same quality products and maintain a socially responsible company.

Executive Summary

Our team researched Timberland Co. and its industry using many different sources to come up with a thorough and persuasive report. We began by analyzing the footwear industry and its recent trends. The footwear industry is currently having record high sales and Timberland is leading the way. We have incorporated charts and graphs in our company analysis. Timberland is a very strong company and they have successfully overcome any minor problems they've encountered. Timberland has received various awards such as "Fortune Magazine 100 Best Places to Work" and they are globally known as a socially responsible corporation. Timberland has been expanding and making innovative products since the day they hit the shelves, leading to high success in the footwear industry. Timberland's investment in new information technology has allowed them to introduce a customization strategy. Combined, these factors have given Timberland a significantly high competitive advantage in the industry.

Industry Analysis

The footwear industry has grown steadily overtime. As populations grow and people own more and more shoes, there is more of a market for different types of shoes. "Consumers are becoming more difficult to retain as customers as they constantly pursue the price they want. Consequently, fierce price discounting remains a key problem for several industry players" (3). The industry is very specific to different demographics for different types of shoes. The key to success is to be able to expand many different groups: men and women, young and old, and those of different backgrounds.

Timberland and most of its competitors have expanded into production of other styles of boots and even clothing. Considering the typical work boot consumer is a middle aged male, they are not able to market to even a quarter of the population.

There has been a recent spike in shoe sales, "the past two months, sales of shoes have been up sharply..." (6). There are various reasons for the present growth, but the main reasons include; fashion, stress release, and holiday shopping. Some stores have seen increases in the double digits as high as Lane Shoes' 21% (6).

Recent trends in shoe fashion have resulted in consumers needing to replace out of style goods with the newest items. The need for the newest goods is a driving force in the industry. While it may take years for a pair of boots to wear out, women's shoes might not be socially acceptable for more than a month (6).

According to Bill Boettge president of the National Shoe Retailers Association, women have been the "driving force" behind sales. He sees shoe shopping for women as a psychological stress release from war, gas prices and hurricanes (6).

While it's normal to see an increase before the holiday season, this will be a record high for both October and November. The trend has been developing since June 2005, when the first increase began. More importantly boots sales have increased even more so than any other type of shoe, an increase as high as 40% (6)!

(Chart Comparing Timberland and Exxon, reference to connection between oil prices and shoes sales) (10).

Timberland specifically fits into a smaller component of the shoe industry; protective footwear. It's an important niche with a total market revenue of $65.4 million in 2004 and is expected to reach $74.2 million in 2011 (7). Products in this category must have several qualities in order to gain customer loyalty. The boots need to not wear out, be of high quality, be protective, and be comfortable. Boots that lack any one of these is likely to be unsuccessful and go out of business. Since most the products have become so similar in this competitive market, companies themselves have to be able to offer aftermarket services to differentiate themselves (7). For example if the boot does break, there should be a way for the customer to replace the boot. Most companies have a guarantee or at least a warrantee for their footwear products. The competitive market also means profits rely heavily on the cost of materials and labor. Companies try to buy low cost supplies that still allow them to make their high quality products.

Company Analysis

Over the past year, Timberland Co. has reached record revenue of $1.5 billion. This is an 11.8% increase from 2003 in which revenue was $1.34 billion. The gross profit for the Timberland Company in 2004 was $765.7 million, greater than 2002 ($540.8 million) and 2003 ($648.1 million) (4).

Annual Income Statement

View: Annual | Quarterly

Dec 04 Dec 03 Dec 02

Revenue 1,500.6 1,342.1 1,190.9

Cost of Goods Sold 734.9 694.0 650.1

Gross Profit 765.7 648.1 540.8

Gross Profit Margin 51.0% 48.3% 45.4%

SG&A Expense 505.2 440.2 379.5

Depreciation & Amortization 26.6 23.6 22.5

Operating Income 233.9 184.3 138.8

Operating Margin 15.6% 13.7% 11.7%

Nonoperating Income 3.6 (0.5) 0.8

Nonoperating Expenses 0.7 1.0 0.9

Income Before Taxes 236.8 182.8 138.7

Income Taxes 84.0 64.9 48.6

Net Income After Taxes 152.8 117.9 90.1

Continuing