How a $70 million distribution disaster helped Brooks Running prepare for supply-chain chaos
Brooks Running CEO Jim Weber was feeling optimistic in 2019. The running-shoe company planned to unveil a new distribution center, near Indianapolis, that Weber was sure would speed up delivery to its Midwest and East Coast customers, and turbocharge its already fast growth.
The facility’s opening had long been in the works and was intended to help Seattle-based Brooks more quickly serve its customers, 70% of whom are east of the Rockies. As the launch neared, Brooks stress-tested the center, completing about 200 trial orders. The stakes were high; Brooks was shutting down its sole existing center on the West Coast prior to the opening of its latest facility. But the company soon learned that there is a world of difference between simulations and reality: The distribution center’s systems failed spectacularly in its debut.
Weber compared the facility, in the wake of its collapse, to Fort Knox. “There were boxes of shoes in there, and we literally couldn’t get them out of the warehouse to customers,” he laments.
The market for running-shoe retailers is extremely fragmented, meaning Brooks’ facility served retail customers ranging from small, independent stores that require just one pair of shoes to large national chains that need thousands. The large fluctuations in the number of daily orders and the size of each order demanded a complex chain of digital configurations and merchandise storage, which proved too taxing for Brooks’ new facility.
Without a fallback operation, much of its merchandise sat idly for three months, resulting in an estimated loss of $70 million to $100 million in sales. It took an additional three months to begin shipping again at full speed. The company flew in dozens of employees from its headquarters to help run the distribution center and fill orders, and updated its software systems, expanded the center, and reconfigured its layout.
“It was painful, painful,” Weber says.
Yet the pain paradoxically prepared Brooks for the disruption to business, triggered by the pandemic, and supply-chain chaos that followed last year. Thanks to the facility snafu years prior, the company had implemented management crisis training and augmented Brooks’ IT systems and processes. “We were battle-tested,” Weber says.
Brooks, a division of Warren Buffett’s Berkshire Hathaway, reported this week that 2021 sales rose 31% to pass the billion-dollar mark for the first time in the history of the brand, and were double its 2016 sales. Much of that boom came from e-commerce sales, which were also more than double pre-pandemic levels, and aided by a well-oiled distribution system. Despite the laggard supply chain, Brooks remained the top brand for specialized running shoes in 2021, according to market research firm NPD Group, besting megabrands like Nike and outpacing newer brands nipping at its heels like Hoka and On Running.
Marathon training for the pandemic
Brooks has had to contend with other problems even with the distribution center now running smoothly. Weber, CEO since 2001, says the company would have enjoyed an even bigger sales bonanza had Brooks been able to meet demand. Production was impeded by pandemic lockdowns in Vietnam—not owing to faulty distribution, he notes—where half of Brooks’ shoes are made.
Brooks constructed 17 million pairs of running shoes in 2021, but Weber says there was demand for 20 million pairs. Yet the distribution center snafu taught Brooks to be more nimble, as well as the importance of updating its business continuity plans—lessons that helped minimize lockdown pain from its suppliers’ manufacturing plants, Weber says.
Brooks moved some production from China to Vietnam nearly eight years ago. And as the pandemic raged, prompting lengthy lockdowns and a supply squeeze, Brooks quickly added Indonesia and other Southeast Asian markets to diversify its production sources. Brooks’ premium prices, with many of its shoes retailing for $150, made it easier to partner with new manufacturers who were enticed by the higher revenue that shoes at that price point would garner, says Weber. “If we hadn’t done that, we would be in a world of hurt.”
Still, the lockdowns in Vietnam led to a three-month standstill in 2021, with Brooks’ production capacity severely reduced. “It’s like crop failure,” says Weber, who grew up in the Midwest. But he predicts that the supply-chain hangover will be resolved by the second half of 2022 and business will surge again. In the meantime, Brooks has managed the ordeal by ramping up manufacturing for two of its leading shoe models, Glycerin and Adrenaline.
The next $1 billion
Brooks’ growth, coupled with supply-chain challenges, has prompted a C-suite revamp. Last week, it added the president title to COO Dan Sheridan’s role, making him Brooks’ second-in-command. The move comes as the running company gears up for its five-year plan to hit $2 billion in sales, and establishes Sheridan as a likely successor to the CEO. (The company declined to comment.) There are some white spaces in key markets like China, where Brooks is launching next year, and its clothing business has a great deal of upside, Weber says. But operational efficiency will be central to reach that next milestone.
As the company looks to ramp up innovation, Brooks has made some strides, albeit limited, in diversifying its ranks. People of color represented 35.7% of workers last year, up 2.6 percentage points from 2020.
Brooks isn’t straying too far from what has made it a niche brand as it strives for the $2 billion milestone: serving the needs of serious runners focused on their performance. That means outthinking and outcompeting its rivals.
On Running, a Swiss footwear line, has become a phenomenon thanks to the unique rounded pods under its shoes that collapse when a runner’s foot lands, then spring back into shape. Nike’s Vaporfly 2 helped elite racer Eliud Kipchoge run a marathon in less than two hours, and Hoka has won over runners who prefer comfort and larger soles.
“There’s a lot of innovation in our category right now. We plan to be right in the middle of it and get our share,” says Weber.
