The running shoe market has been seeing a remarkable rise in popularity for the brand Hoka One One. This brand, developed by former employees of the French outdoor sports brand Salomon, has captivated running enthusiasts globally. Focusing on designing shoes that minimize fatigue and effectively absorb shock, Hoka One One has positioned itself uniquely in the athletic footwear industry. The name “Hoka One One,” translating to “Fly to the earth” in Maori, reflects the founders’ vision of creating shoes that feel as light and comfortable as flying.
Origins and Evolution of Hoka One One
Founding and Initial Growth
Hoka One One was born in France, conceptualized by Nicolas Mermoud and Jean-Luc Diard. Their background in Salomon’s outdoor sports products influenced their design philosophy, emphasizing endurance and comfort. The early prototype of Hoka shoes debuted in the U.S. in 2009 but initially garnered little attention. However, positive reviews among U.S. running clubs soon piqued interest, leading to a steady rise in popularity.
Acquisition by Deckers Outdoor Corporation
Hoka’s significant growth trajectory began after its acquisition by Deckers Outdoor Corporation (NYSE: DECK) in 2012. Deckers, known for its successful management of brands like UGG and Teva, saw potential in Hoka’s innovative design. Despite Hoka’s modest sales of $3 million at the time, Deckers acquired the brand for a mere $1.1 million. This strategic move marked a turning point for both Hoka and Deckers.
Deckers’ M&A Strategy and Hoka’s Integration
Previous Acquisitions by Deckers
Deckers has a history of successful brand acquisitions. In 1995, they acquired UGG for $15 million after noticing its popularity among the U.S. Olympic team. This investment paid off substantially as UGG grew into a global brand with annual sales reaching $1.93 billion in 2022. Similarly, in 2002, Deckers bought Teva for $62 million, securing its place in the outdoor sandal market.
Hoka’s Acquisition and Development
The acquisition of Hoka in 2012 was a strategic extension of Deckers’ portfolio. At the time, Hoka’s innovative design was beginning to gain recognition among running enthusiasts. Deckers leveraged this growing popularity, integrating Hoka into its portfolio and investing in its development. By 2018, five years post-acquisition, Hoka began to significantly contribute to Deckers’ overall performance.
Market Position and Growth
Hoka’s Distinct Market Position
Hoka’s entry into the sports shoe market, dominated by giants like Nike and Adidas, is noteworthy. Unlike these established brands, Hoka’s rise was driven purely by word-of-mouth within running communities. Its oversized outsole design coincided with the global “ugly shoe” trend of 2017, helping it gain acceptance among a broader consumer base.
Popularity and Financial Impact
Hoka’s popularity soared during the COVID-19 pandemic as more people turned to walking, jogging, and running. This shift in consumer behavior significantly boosted Hoka’s sales, which in turn improved Deckers’ financial performance. The sales share of Hoka within Deckers rose from 8% in 2017 to 40% in 2022. This growth not only diversified Deckers’ portfolio but also mitigated the seasonality impact of its UGG brand.
Financial Performance and Profitability
Improved Profitability
The integration of Hoka significantly enhanced Deckers’ profitability. The brand’s growing sales contributed to a higher operating profit margin, which exceeded 20% in 2020 and approached 22% in 2023. Hoka’s unique market position and high consumer demand played pivotal roles in these financial improvements.
Comparison with Nike
Deckers’ financial metrics, particularly its gross profit margin, outperformed Nike in 2023. Deckers achieved a gross profit margin of 55.6%, compared to Nike’s 43.5%. This can be attributed to Hoka’s premium pricing strategy, which avoids mass production and heavy discounting. Consequently, Deckers’ operating profit margin in 2023 was 21.7%, significantly higher than Nike’s 11.5%.
Recent Financial Highlights
In the first quarter of FY2024 (January-March 2024), Deckers reported a 21% increase in sales and a 36% rise in operating profit compared to the same period the previous year. Hoka’s sales grew by 34%, with its share of high-margin sales increasing from 50.2% to 55.5%. This contributed to a 170bps increase in Deckers’ operating profit margin year-over-year, highlighting the brand’s positive impact on overall financial performance.
The Future of Hoka and Deckers
Continued Growth and Market Re-Evaluation
The ongoing success of Hoka indicates a bright future for Deckers. With Hoka’s sales share expected to continue rising, Deckers is likely to see sustained improvements in its operating profit margins. This positive trend suggests a potential re-evaluation of Deckers’ corporate value, reflecting the brand’s growing influence and profitability in the athletic footwear market.
Strategic Focus and Brand Expansion
Deckers’ strategic focus on high-margin products like Hoka is expected to drive future growth. The company’s ability to identify and nurture innovative brands has been a key factor in its success. By continuing to invest in Hoka’s development and leveraging its unique market position, Deckers can further enhance its competitive edge and profitability.
Hoka One One’s journey from a niche French brand to a major player in the global running shoe market is a testament to innovative design and strategic management. Under the stewardship of Deckers Outdoor Corporation, Hoka has achieved significant growth and contributed to Deckers’ overall financial success. As Hoka’s popularity continues to rise, it is set to play a crucial role in shaping the future of the athletic footwear industry. With its high-margin strategy and focus on premium products, Deckers is well-positioned to maintain its competitive advantage and drive sustained growth in the coming years.