Bauer introduces creative power play
‘We decided to invest when others don’t’
As the NHL playoffs get underway, fans are hoping for thrilling comebacks from plucky underdogs. But one of the best comeback stories in hockey today is taking place off the ice.
In recent years, Bauer Performance Sports has changed the face of hockey. The brand most Canadians grew up with has become an innovation power player, bringing new equipment to market through new channels with new passion. And now, with its “Grow the Game” initiative, Bauer is laying the groundwork to boost the sport of hockey.
It’s a quintessential Canadian success story. Although Bauer is now based in Exeter, N.H., its laserlike focus on investing in an industry other businesses had given up on proves that persistence and entrepreneurial smarts can produce winning businesses in any field.
Founded in 1927 as a skate producer by the shoemaking Bauer family in Kitchener, Ont., Bauer changed hands several times, before being bought by Nike in 1995. The athletic-wear colossus had high hopes for Bauer, but those faded over time. Disappointed that hockey’s growth wasn’t stronger, Nike sold Bauer to New York-based private equity firm Kohlberg & Company in 2008 for US$200-million.
Like a journeyman forward who starts potting goals after being traded, Bauer has thrived under new ownership: it’s now a public company valued at nearly US$500-million. The difference maker: i n Kohlberg, Bauer acquired a partner who shared its view that you have to pay to play.
President and CEO Kevin Davis, a former Ernst & Young accountant who joined Bauer as controller in 2002, doesn’t blame Nike for losing faith. In a recent speech to the Ontario government-sponsored Wisdom Exchange conference, he noted that with sales of US$200-million, “we were smaller than Nike’s sock business.” While management worked hard to expand the Bauer name into other sectors, its market share was eroding; it slipped from the No. 1 brand in hockey to No. 3.
In 2004, Bauer, the first company to attach skate blades permanently to boots, launched a “focus on the core” strategy to get back to producing innovative hockey gear. “We had forgotten about improving the players,” Davis says. But Bauer needed at least US$30-million to revitalize the core, and multinational giants have little time for propping up under performing sub-brands.
Still, Davis credits Nike with an assist on Bauer’s comeback, by ensuring it passed into the right hands. “It was the first time Nike had ever sold a business, and they wanted to do it right,” he said in an interview. “They didn’t just sell to the highest bidder.” The Bauer team managing the sales process told potential bidders they would need to invest i n the company. Davis says Nike “left a lot of money on the table” by choosing a strategic buyer willing to help Bauer grow.
How did Davis’s team persuade Kohlberg to reinvest in a corporate cast-off ? Bauer had done the market research that proved its brand was strong, and families would cut back on vacations and eating out before they would reduce spending on their children’s hockey gear. “We just laid out the attack plan,” Davis says. “It was educated risk-taking.”
But soon after the deal closed, the financial crisis hit. A Bauer survey found 12 of its 13 principal competitors were cutting back. With Kohlberg’s support, Davis decided to play offence. “We decided to invest when others don’t. We decided to evolve products faster, hire the best people, acquire other businesses when it’s right, and market more and differently.” His mantra: “Innovate everywhere, and not just in product.”
At Bauer’s design and R&D facility in St-Jérôme, Que., 125 employees come up with more than 100 hockey-equipment product launches a year. Bauer invests 4% of sales in research and development. Among its most recent wins: the new ultralightweight OD 1N line of skates, pads and body suit, designed to give high-level players a measurable edge. “I tell people we are not a sports equipment company, we are a technology company,” Davis says. “It takes a lot of technology to make a skate that weighs less than a basketball shoe.”
Bauer redefined sports-equipment marketing by cancelling its participation in trade shows, instead holding an annual “Bauer World” expo, which attracts more than 600 retailers. At most trade shows, Davis notes, buyers give you 10 minutes then move on to talk to your competition. Now, Bauer gets their full attention for three days.
The company also changed how it speaks to consumers. Its Bauer Experience events in more than 100 arenas around the world attract players to try out Bauer’s new equipment. They get to feel the difference with high-end gear while learning about performance.
Stepped-up innovation has boosted Bauer’s market share. In 2006, it had 26% of the market for hockey equipment. Today, it has 53%. Annual sales hit US$400million in the year ended May 31, 2013, and revenue for fiscal 2014 is running 8% ahead of last year.
Acquisitions have tightened Bauer’s hold on hockey while expanding into related areas, such as apparel, lacrosse and roller hockey, that also benefit from new technologies. And Bauer’s most ambitious deal, a US$330-million bid for the baseball and softball business of Easton-Bell Sports, is expected to close this month.
Since Bauer went public in 2011 on the TSX, its shares have doubled from $7.50 to a recent high of $15.
If there’s a cloud in Bauer’s future, Davis says it’s the slow growth of North American hockey. Bauer’s “Grow the Game” program, launched in 2012 in partnership with Hockey Canada, aims to create one million new hockey players in 10 years.