Newton Running Restructuring, Looks To The Future

Although there are more people running in the U.S. than ever before, the running shoe business is a bit in flux right now.

The running footwear business has boomed for most of the past 10 years, but sales of new shoes have started to plateau in the past year or so, and with both small and large changes afoot in the way shoes are sold—most notably running specialty retail consolidation and competition from various types of online sales (including greatly reduced close-out models)—most brands have been forced to re-examine every aspect of how they do business.

Newton Running is among the many brands that has had to make adjustments, recently eliminating numerous positions and rethinking its sales strategy. But, despite those big changes over the past few weeks, Newton is not going out of business and is not for sale, but it is moving full speed ahead into 2016. That comes straight from president Craig Heisner, who insists the brand can operate profitably after restructuring and refocusing its business.

On Oct. 14, the company let go of 14 people from its Boulder, Colo., headquarters and its sales and tech rep force around the U.S., leaving it with a full-time staff of about 25 people.

“Obviously, there are a lot of rumors to dispel. We’re not being sold, we’re not going out of business,” Heisner told Competitor.com. “We’re not going away and the business is certainly not folding. We’re shipping product. We didn’t terminate our entire sales force or the organization here in Boulder. It’s really about focusing our efforts and getting costs in line with revenues and continuing to do the great things we’ve been doing.”

Heisner said Newton will continue to support on its key specialty retail partners across the country, but he said it will also make an effort to re-focus on its best-performing regions. The company is also in the process of securing new manufacturing facilities in East Asia, Heisner said, adding that the delivery of its 2016 line of shoes—which includes a major update to its flagship Gravity model—will be on schedule and unchanged.

Although the brand will still sell directly through its own website as every other brand does, Newton will continue to service its vendor partners with a combination of its own field reps and its in-house sales team, Heisner said.

“That’s not to say we’ll be walking away from business in any market, it’s just that the servicing focus will be in our key markets,” Heisner said. “If there is a retailer that lies outside of one of our key markets, we’re still going to visit them and develop programs for them.”

Newton isn’t the only brand that has made changes. In 2013, K-Swiss, after five years of a strong push into running, eliminated its running shoe business entirely when it was sold to a Korean multinational corporation. Last year, Patagonia also terminated its athletic footwear business after eight years (which included trail running and hiking shoes) when Wolverine Worldwide ended its manufacturing and licensing agreement because of a lack of profitability.

Most recently, Hoka One One has reorganized its central operations under its parent company Deckers Inc., in Goleta, Calif., and closed its Richmond, Calif., brand headquarters. Plus, upstart brand Ampla was folded in September when Quiksilver Inc., the parent company of the innovative brand, filed for Chapter 11 bankruptcy protection and announced a financial restructuring strategy.

Newton Running made a big splash when running gait guru Danny Abshire and investor Jerry Lee launched its first line of lightweight running shoes based on a unique forefoot lug technology aimed at putting more energy return into a runner’s stride. Since its inception, Newton has made one of its primary objectives to help runners run more efficiently with better form and gained traction as an upstart running brand at a time when lightweight, minimalist shoes and a sport-wide re-examination of running form went mainstream in about 2008. Along the way, the brand developed a passionate core customer base among triathletes and runners, perhaps unlike any other current brand.

Amid a handful of challenges that have thwarted the brand’s growth, Boston-based Fireman Capital Partners, one of Newton’s principal shareholders since 2013, has taken more control of the brand in recent months. The company made huge headway in its first six years with its brightly colored running shoes featuring Action/Reaction Technology and its stated ambition of helping runners improve their running mechanics, but its revenue plateaued amid slower growth, distribution and manufacturing challenges and increased competition in the marketplace.

A small staff remains at Newton’s new headquarters inside the company’s warehouse and shipping building in Boulder, including CEO Joe O’Neil, sales director Tom Curran and director of events, Yo Schmidt. Abshire also remains with the brand in the company’s retail store on Boulder’s Pearl Street mall. In August, the company vacated its downtown Boulder headquarters—a building owned by Lee’s real estate company—and moved to an office inside a renovated section of the brand’s warehouse across town.

Some of the employees that were released on Oct. 14—including several who had been with the company for several years—said they were let go without severance pay.

“Quite frankly, the restructure of the organization that took place a couple of days ago in part is about putting our cost structure in line with our revenue plans,” Heisner said. “But I think most importantly, it aligns our strategy for the business back to our core roots of staying unique and not trying to be all things to everybody and focusing on key markets with field sales representation in those markets at the expense of trying to be spread out all over the place. Consequently, it results in some positions being eliminated, and that’s never fun, but it puts us in a place where we can be profitable and service our accounts and stay true to who we are.”

After bursting onto the scene in 2007 through triathlon race expos and direct-to-consumer online sales, Newton started to forge its way into running specialty stores. It sponsored races, developed an elite racing team and became the running footwear sponsor of the Ironman triathlon series. Many industry insiders credit Newton with being a market catalyst for lighter shoes, running gait education and analysis, bright colors shoes and, of course, forefoot technology and how runners think about their form.

But the company struggled to maintain its initial momentum and retail growth. It also endured a leadership merry-go-round that included four different people leading the brand over the span of about four years—Lee, Stephen Gartside, Keith Simmons and Heisner. In the interim, it also changed its messaging about its original midfoot/forefoot running technique and reduced some of its its running education programs.

On Oct. 1, the company announced it was replacing Lee, the brand’s co-founder and longtime CEO, with O’Neil, an athletic footwear industry veteran appointed by the Fireman financial group. Heisner reiterated that Lee will remain active in the business as the company’s chairman. Prior to Lee’s departure, he owned 51 percent of the company, while Fireman held about 20 percent.

RELATED: Newton Tabs Joe O’Neil as New CEO

O’Neil has more than 30 years of experience in the athletic footwear industry, most recently as senior vice president of Quiksilver Inc.-owned footwear brand DC Shoes. He has previously worked in leadership roles for Puma, adidas, Reebok and Nike. Prior to being at Newton, Heisner was an executive with Li-Ning, Brooks, Reebok and Nike.

“We’re putting the right people in the right places. I think we’re all optimistic,” Heisner said. “It’s an emotional time to deal with this. Jerry has been the heart and soul of the organization since its inception and him deciding to step aside is just something people have to accept and recognize that it changes things a little bit. But the culture of the organization remains consistent.”

Still, business was booming for Newton two and a half years ago when Fireman Capital Partners, the investment firm led by former Reebok chairman, president and CEO Paul Fireman, made a $20 million minority share investment in the brand and appointed Heisner as president. Newton appeared to be thriving last year, when it was considering partnering with Stryd to create the world’s first advanced tech running shoe that could give a runner technical gait analysis and power usage feedback in real time.

As the two brands quietly worked on the shoe, Samsung Electronics, a multinational brand headquartered in South Korea, was courting Newton to possibly invest in it or purchase it. But Newton opted not to continue to collaborate with Stryd on the tech shoe and talks with Samsung dried up. Stryd has since launched the first power meter for runners on its own with the help of a Kickstarter campaign and private investors.

Heisner said Newton Running can thrive if it focuses on its core consumers and doesn’t try to spread itself too thin.

“We went a little too broad with our coverage and just need to get back in line and ensure that nothing is compromised going forward. I feel pretty good about it,” he said. “Obviously it’s never easy to go through these types of things, especially when you have a strong culture like Newton does and you’re a small organization like we are. We’ll have to work through it and get things on track for 2016 and beyond.”