On Friday, shares of Deckters Outdoor plunged 12% after the company lowered its outlook due to sharply lower margins.
This chart from Yahoo Finance, shows what an incredible run the stock has had over the last 10 years.
Photo: Yahoo Finance
As you can see, the momentum really started gathering in 2003/2004, and the reason for that can be traced to the incredible boom in the Ugg-brand boot, which is owned by Deckers.
If you’re not familiar with the brand name Ugg, then perhaps this picture will jog your memory.
Photo: Wikimedia COmmons
They’re worn mostly by women, though they also sell boots to men — Tom Brady is an endorser.
Anyway, this chart of annual Ugg sales growth (via Barclays) is pretty self explanatory
As you can see, growth in 2004 was flat out-insane. We’re pretty sure that was the year that starlets like Paris Hilton started going crazy for them.
At the time, it seemed like it could just be a passing fad. And obviously growth has never again come close to matching that year.
But… they’ve still sold more Uggs every year than the year before since then, even in the lean 2008-2009 period. And sales are re-accelerating. So it’s not a fad at all.
How have they done it? Here Barclays breaks it down:
The UGG brand has essentially created a “Category of One” with no significant competitive threats looming on the horizon, in our opinion. Although UGG competes in the highly-competitive and expanding boot category, it has essentially created a category of “accessible comfort luxury” boots made from sheepskin. Some other versions of comfort- focused sheepskin boots have emerged, but typically with lower quality materials at a lower price point, in our opinion. UGG, on the other hand, typically achieves healthy full price selling and gross profit dollars that retailers enjoy, making replacement of its products by retailers on the floor quite difficult and nearly impossible, in our view.
UGG also benefits from a high percentage of repeat customers who demonstrate a high level of loyalty. Repeat purchases are common among UGG customers, 39% of whom enter the franchise with the Classic boot, while 48% own 2nd and 3rd pairs, and 13% own four or more UGG products. We believe the brand shares many similar traits and business practices with the Coach brand, which also operates in the accessible luxury segment.
Bottom line: There are no real competitors, it was never a ‘fad’ and customers are crazy for them. Money.
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