Inside $1 billion Nike rival Brooks

Brooks Running may not be nearly as large as Nike (NKE) or New Balance, but that doesn’t mean its impact on the sneaker industry isn’t still strong. The company – founded in the early 1900s to sell ballet slippers and bathing shoes – continues to be the top sneaker choice for serious runners. To maintain its pole position in running, Brooks has released a host of new innovations, such as the Glycerin Max Road Shoe for a pricey $200. But fending off upstarts such as On (ONON) and to a lesser extent, Decker’s Outdoor (DECK) owned Hoka won’t be easy. A resurgence at struggling Nike under new CEO Elliott Hill may also pose a risk. Yahoo Finance executive editor Brian Sozzi sits down with new Brooks Running CEO Dan Sheridan inside the Nasdaq Marketsite in Times Square ahead of the New York City Marathon. Sheridan reveals his vision for Brooks Running a few months into the top job and what Nike’s many stumbles have meant to the company’s growth. The long-time Brooks executive also shares what it’s like to be owned by Warren Buffett’s Berkshire Hathaway (BRK-B, BRK-A).

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Video Transcript

Welcome to a new episode of opening bid.

I'm Yahoo, finance executive editor, Brian Sazi.

This of course is the podcast that will make you a better investor.

I hope and actually know that it will make you a better investor.

I wanna dive into uh all things sneakers today.

Uh There's been so much focus on sneakers this year.

Some companies doing well, some companies emerging uh and a lot of new fun technology hitting the mark.

And for that, we're joined by Brooks, Ceo Dan Sheridan, Dan.

Good, good to see you.

Hi, Brian.

Do you, do you wanna show the camera?

You're, you're, you're Brooks.

I mean, why wouldn't it?

Ok.

There we go.

We gotta get that wide shot here uh At the NASDAQ.

Thanks for having me.

I appreciate it.

So you're in town for what?

The New York City Marathon?

I'm assuming you're, you're running, you'll be at the start of the line.

I wish I was running.

Um But yeah, we're in town for the New York City Marathon.

What a week, you know, the energy in the city around the sport of run is, is maybe at the highest.

It's it ever is during the year and we've got, um, some of our best athletes running and we actually have 10 of our employees that are coming out from Seattle.

Yeah.

So, so we'll have a crew out on, on course.

And we'll, uh, we'll activate all week.

We've got an activation here on Lafayette with, uh, what we call the Hype House, which really, uh, showcases our products and our, our brand to the, the running community.

And so it's gonna be a great week and we're excited to be here.

Are you a hard core runner?

Uh No, here's how I define in our, in our office.

There's runners and then there's people that run and I am definitely a person that runs, running is important to me.

Um But I didn't grow up running.

I grew up playing ball and bat sports.

So, but running is a central part of every sport, right?

So I ran a lot, but it was mostly for punishment.

I was just gonna say that I actually just ran away from my third song.

Sorry, you're big fan of the openings.

Definitely ran away from you a lot as a kid.

So how do you know, are you these sneakers and want to get more into innovation and what you're working on in the state of the industry?

But how do you know?

So you slip on a pair of Brooks and how do you tell the team?

Like I guys, I don't know go back and fix this a little bit.

Yeah.

You know, this is, this is the secret in, in run.

It's really, really hard to make a great running shoe.

And so it takes years of R and D. It takes craftsmanship through our supply chain.

And um fit is, is the secret sauce for us.

And so we root everything in the science of biomechanics, um kinesiology.

And now we're putting physiology into an R and D and that all is part of the quality of the fit field ride that, that is special to Brooks.

So, you know, when, when a shoe is good or not, um and it really matters on mile 22 at the marathon, right?

So we sweat all the details and that's our, that's why we've been where we have been and why we're having the success we're having.

Yeah, gel packs will only take you so far to run.

I mean, I mean, there's some good gel packs out there.

But so like what this seals feels like an interesting moment in the business of seekers.

You know, I'm an avid gym goer.

I mean, this is my, my personal hobby, my personal passion, I've seen so much different innovations hitting the market the past year.

Explain to us what is happening and like what are consumers looking for and, and why are we seeing this big innovative moment?

Well, I think you gotta go back to the consumer first and foremost, So what we saw during COVID, right is all the gyms and studios were shut down and, and guess what was available to everybody running and walking.

I lost pounds of muscle.

Right.

Right.

Yeah.

And so what we saw is people that maybe were running a little bit got more frequent in their participation in run and those that had lost their way in the sport of run came back to it.

And so what we're seeing now is this surge in participation.

And so the market is incredibly healthy.

The running market here in the US traditionally grows about 2%.

It's up almost 6% year to date and above 100 and $30 it's growing at 38%.

So you take that landscape first and that's an investment uh area and opportunity for all these brands.

Um and we've been focused on this for 20 plus years, right?

And now we've got competitors coming in because the market's so healthy, but it starts with the consumer and the consumer.

There, participation rates are at an all time high.

I'm going to show off my lack of hardcore industry knowledge.

Like why am I seeing a lot of sneakers like these big what soul they look very.

I mean to me, they feel bouncy, but they're also taking up like half of the shoe like if you look at it from the Yeah, the way we approach it, right is first you start with science biomechanics of, of the human body.

Uh, and then you match experience.

What experience do people want on runs?

Do they want to be closer to the ground?

Do they wanna be farther from the ground closer?

Right.

Yeah.

Well, some people, um, I'm actually more of a, a cushion person so I like kind of that max cushion and that's really what's come into the market is a new experience which we're delivering.

We just launched a shoe called the Glycerin Max, which is AAA high stack shoe.

That's what I was talking about exactly with, with uh great cushioning and in foams and foams are the innovation right now.

It's kind of an arms race on, on foam engineering and, and innovation in foam.

And so what you're seeing on the streets or, or in the gym are these foams that are coming into the mid sole.

We have a great lineup with the Glycerin Max and the Ghost.

Uh uh Max two, they're a pain to keep clean.

They just, they just are because, you know, sometimes I'm walking, I like scraping the sign like, oh man, it goes my like two and I'll shoot stings.

Yeah.

Well, that, that's a, that's a different uh issue that, that we, we, we'd have to solve for you.

So, what is it about foam?

And where does this come from?

And, and what is the technology you're using there?

Well, traditionally, over, over the last 20 years, there's been very little innovation in foam.

Um And really we focused on geometry uh and, and essentially bringing science into the, the geometry of the shoes, but the foams have gotten so light, so resist brilliant.

Um So you can actually have two different um types of foam in your shoe, one that dampens for cushioning and one that gives you resiliency.

So you've got energy back and when you match that, um it's an amazing experience in the shoe and then we're getting weight out of the uh really light.

They're super light, right?

Like this is a seven ounce shoe that a seven ounce shoe, seven ounces.

So you can get all the properties you want and good dampening and resiliency with weight reduction, which is the, the Holy Grail for uh for runners.

I mean, not to move past foam.

Um But what's the next frontier?

I mean, you have a product pipeline, I imagine looking out a couple of years.

Yeah, I think there's a lot of things that, that we're working on right now.

One foam is still gonna continue to innovate.

Um The super shoe is out there so the shoe matters again, which is awesome for Brooks.

Awesome for the runner.

Um So you're seeing a lot of innovation in carbon plates.

You'll see a lot of the hyperion, this shoe and the Hyperion Max and we have a shoe, the Hyperion Elite which has a carbon plate in it and it really is a propulsion story for the runner.

So you're starting to see innovation in, in carbon as well.

Um And then we're looking, you know, we look 2436 months out on innovation in R and D and some of the geometries that, um, maybe were tried and true in the past are gonna change to really unlock the foot.

The shoes do look different.

They, they, I don't, and you'll continue to see this like they're not triangles, they're just different shoes.

They look differently than I remember and all that is to help you what run faster.

Yeah.

Yeah.

So it's a lot of it is to get you through your gate um to get through the gate.

So you're reducing um any chance of injury.

How did you get into this?

I mean, you're the new Ceo Brooks.

Yeah.

You know, it's, it's a fun story.

So I was a high school teacher.

Both my parents were, were teachers.

Um, so I, I say I went into the family business.

I, I didn't love it.

Um, but I started at Brooks in 1998 in a entry level role as a, a field marketing rep. And um just got incredibly fortunate to be with the brand that was growing.

We just uh we just hit a billion dollars through our third quarter here.

Uh When I started at Brooks, it was 60 million.

So I've seen a lot of change at Brooks and uh and I've just, you know, been able to, to kind of build a career there.

We've got 1400 employees worldwide.

Now we got about 670 here in the US.

And, you know, I'm fortunate to be sitting in this seat and, and leading this, we gotta give a shout out because I've gotten to know Jim Weber.

I mean, the former Co Brooks and he essentially elevated you into this role.

I mean, what do you learn from a leader like that?

I mean, he's really helped bring the brand from 60 million to over over a billion.

Or we'll be one will be 1.4 billion this year.

What do you take away from?

Yeah, I mean, look, you, I think in, in careers, you get very fortunate, right?

You, you work hard, you prepare, but you get very fortunate based on the people that you're surrounded with and I, I hit the lottery there um with uh what I call the modern day founder of Brooks.

Brooks is over 100 years old, right?

But Jim's the modern day founder and a mentor for me.

And, and there's so many stories that I could tell you about um decisions he's made that, that put us on the right path.

But Jim had a vision, right?

He saw the running boom 20 plus years ago.

Um And we've been invested in it and focused on it ever since every day we get up all we think about is run, which is super unique, right?

Um It's a, it's a very uh sharp focus that creates this incredible man appeal for people.

You said it, I'm wearing this with uh with slacks today.

Um You know, you can running is the, the, the it category and on trend right now and it's really fun.

It's Brooks Brooks is that old?

Yeah.

What were you making over 100 years ago?

We were making, uh, not running shoes.

At that point, Brooks started in 1914 as an American manufacturing company and, and uh they were in sporting goods.

Um And at that point because they were in manu factoring, they had to do all the categories.

So they did, uh, you know, call it bathing shoes.

I think they called it at that point.

They did ice skates.

Um They, they had some patents on, on uh baseball cleats and the like, but it was really in the seventies and eighties where we started to bring running uh into the portfolio.

And then when Jim showed up, we did a singular focus on run and that was, you know, that was bold at that time.

Um Not many companies focused on one singular, just one large company that is publicly traded.

Yeah.

Yeah, we, we won't mention but, you know, I think it is, it's a story of this, this focus that many businesses um probably get distracted at times on some of the emerging categories.

What we saw in the early two thousands was participation was, was um at a, at a rate and growing where we saw a future where run was going to be big in people's lives and globally, you know, we just launched in China.

We opened a store in, in Shanghai um last year and, and we're having great success there.

We've got um a great business in Europe as well.

This is global.

You know, people are investing in the, in their health and wellness and, and an active lifestyle.

You have me wondering what in the world is a bathing shoe?

Is it like those like water shoes?

I'll send you, I'll send you a picture.

It's not, it's not the Crocs that, that are today.

Did you also make like ballet shoes?

I read somewhere too.

There's so many different categories that the, the Brooks uh manufacturing company made and, you know, we were actually in basketball at one point.

Dominique Wilkins, uh James Worthy.

Yeah, you look it up, look it up.

It's uh, it's pretty fun.

All right.

Well, hold that because I actually, I wanna mention that uh in a second.

We'll be right back on opening bid.

Don't go anywhere.

All right, welcome back to opening bid.

Having a fun chat here with the uh new Ceo of Brooks, Dan Sheridan.

You, I, I had no clue.

And I, and I pride myself in and so in doing a lot of in depth research.

I did not know you were in basketball.

Does Brooks have a right to play in there now.

Not from the standpoint, you're gonna go up against Nike.

It's the, it's, they do what they do.

But what about that sneaker after the athlete gets off the court or that lifestyle shoe?

I mean, the, the, the, um, the sport of run transcends just the run.

We know that, um, when, when you are passionate about running or walking or just being active, our brand now has an invitation into their lives right before and after.

So that's the expansion you're gonna start to see from Brooks and you're already starting to see just on how we merchandise our product.

You mentioned it on, on this shoe.

So what we believe in is we're gonna anchor our brand in performance gear, but we're gonna expand our brand to the lifestyle around the run.

Um That's work.

Um That's on the weekends with your kids.

Um So it's a bigger category than even is defined in, in uh some of the, the performance run data.

Do you use athlete sponsors?

Is that?

Oh, yeah, yeah, it's a huge part this year um in the Olympics.

Uh Josh Kerr 1500 m world champ last year, silver medalist this year.

Um Just an incredible athlete this weekend, we'll have um you know, probably half a dozen athletes running.

Desi Linden Boston marathon champ is running again this year CJ CJ Albertson, uh, at the Chicago Marathon a couple of weeks ago, first American finisher in the Chicago Marathon is running this weekend.

So we have, we have incredible athletes that bring this sport alive.

It's the, it's the heartbeat of the sport, right.

And they, they influence not only the most dedicated runner but during these epic times, like New York City Marathon or the Olympics, they are, what all the eyeballs are on.

And so we had a chance to go to the Olympics this year and see Josh win a silver.

Oh, it was incredible.

It was just incredible when you are in a uh stadium of 80,000 people for the sport that we love.

There's nothing better, you know what the crowd doesn't see is we have actually have 80,000 people right now.

The NASDAQ listen to this episode live and in person.

There you go.

So how do you know, how do you know what category to get into?

All right.

So you guys do running and you've just dominated that category?

I mean, over a billion in sales.

Um But how do you know, do you wanna go up against Crocs or do you like what the on people are doing?

Do you wanna go up against them?

Do you see what all birds is doing?

Selling sneakers to people that work in an office?

I mean, how do you know where to go?

And, and where will you be going?

Well, there's a lot smarter people than, than me that are in charge of kind of what we call running insights.

So we have a group of people that are mining insights with consumers and and more specifically dedicated runners that are looking for trends in the marketplace.

So you start there, then you match it with a product pipeline and a and a product group that are thinking about the trends and run matched with science.

So we root everything in science um because we do look at our competitive set for sure, but we rooted in science, you know, what is, what is gonna keep runners uh running farther faster and healthier.

Um because the biggest fear for any runner is getting hurt.

So we take those running insights, we match it with science and, and those trends seem um to have been pretty consistent over the years if we, if we match it to science.

So, you know, for us right now that the trends that we're seeing um are one running is growing like crazy.

It's a global sport.

Um and footwear matters again.

You remember the barefoot phenomenon when Yeah.

Yeah.

Ok. We'll talk about that later.

Uh But you know, that was a challenge and does the shoe matter?

The shoe absolutely matter.

I can tell you the shoe, the brand that I have used has hurt my foot, you know, given the training that I do.

So I have stopped wearing them.

I mean, I maybe I'm too close to the ground and I need some new foam.

We can help you with that.

OK. We'll take that help you.

But let me, let me ask you this.

So I have said before on opening bid and with consumer guests that I just think the quality of what Nike makes has come down.

I see it.

I feel it, I consume their sneakers, has their struggles benefited you.

Have you seen share gain at their expense?

You know, we, we probably think about it a little differently um in terms of our strategy.

So one of the things that we know about runners is they shop across channel.

Um And so our strategy has always been a multichannel strategy for Brooks.

We, we are starting to invest in our own retail, but we really distribute through specialty running retail around the world, kind of smaller independently owned shops that just focus on run and then the best running retailers around the world as well, like, like you're clogging up JC Penney with sneakers.

Exactly.

And, and we hand pick, we believe you are who sells you as a brand.

Um That's just how we, we, we kind of view the world.

And so our strategy is this multichannel strategy which is very different than some of the bigger brands and how they go to market.

Um And so that's worked for us and, and we set everything up to be an omni channel brand.

Uh without our own retail, which is really hard.

Um Because our systems aren't the same systems that they run.

Um And they don't run the same calendars we run, but it's worked for us because running is very local.

Um We always say that it's a collection of maybe 10,000 communities around the world that have uh the best editors of product, maybe the, the, the best runner at one point in their career that everyone seeks their advice from.

So we have to service all of these independent uh markets and, and local markets to be successful and run.

And that's worked for us.

I imagine uh an entry into China was something thought about for many years and you don't do it um without a lot of work.

And a lot of research are you did you have concerns, you enter this market and it's a market where everything seemingly is counterfeited and all that hard work that you've put into what you've developed may end up on what T mall somewhere selling for $2.

Yeah, it's, it's um it's super challenging.

Um the counterfeit aside, but just the market in general is, it's different than we've gone to market because owned retail is very important to your brand experience over there.

So we're investing in retail stores.

Um And, but we know this, that um the, the running market, it's the second largest running market in the world behind the US.

And it's continuing to grow.

So as the middle class grows in China, we think health and wellness will continue to grow.

So we're investing like crazy and run groups um and just our brand in general and you'll see us expand retail over there, but it is a challenging market.

How does that expansion look?

Is it opening up own storess going into department stores or, or bigger?

Yeah, it's opening, it's opening branded stores.

Um If you look at the landscape over there, um essentially that's how you uh begin to uh you know, expand your brand is through brick and mortar uh retail stores that are branded Brooks um and have a Brooks experience.

Um Sometimes they're run by partners or, or, you know, distributors over there, but we'll begin to invest in stores in China in the next few years.

Well, now Brooks is, is increasingly a global company and I'm asking all leaders this, you know, as we approach the election, I mean, what would make life easier for you as a leader?

You know, whoever wins, you know, what would make Brooks a more profitable company, a greater place to work like what could elected people do?

It's, it's, you know, obviously the question of the week and, and over the next couple of weeks, you know, for us, I think because we're a global brand, global trade is super important to us.

Um and you know, friction and supply chain is a bad thing.

So, you know, we, we obviously are paying attention to the, the conversations around tariff and, and trade.

I can't get, I can't get a good answer from, with tariffs are towers bad for the sneaker industry.

I've put this to different industries.

I talked to Cisco, Ceo Chuck Robbins are, are towers bad for routers and switches in his business.

I didn't, maybe, I mean, II, I sense that it was but like, what does it look like from a sneaker industry project, I think for our industry actually, it's, it's a huge headwind.

Um And there's a lot of reasons why.

Right.

We've already got high tariffs on, on footwear.

Um Out of China, it's 20 27% ish out of Vietnam.

It's about 20.

So an additional 2025 or whatever the, the the conversation is, is massive and you know, to absorb that as a business begins to take investment out of R and D, takes it out of consumer demand, creation, takes it out of experiences.

So we have to pass those on to the consumer and you can't pass a 25% lift in cost uh completely.

I mean, I love Brooks but that's like a $5 shoe.

Exactly.

So that's a, that's a puzzle that would be really hard, not just for Brooks for the entire industry to solve.

And so we're paying attention to the, the conversations on trade and tariffs.

So, is there way to, to prepare to lobby against these things.

Well, I think, you know, you look at your supply chain and anyone that, that has a uh you know, a global supply chain and a complex supply chain is trying to figure out agility in your supply chain redundancy.

And we're working that too.

Right.

So I think we're looking for, for new places where we can do that with our current partners.

Um And always thinking about the agility do you need in your supply chain when you have policy uh shocks like what we're hearing for those not familiar.

I know the industry has tried this many times to make more sneakers in the US.

Like what is your US footprint look like?

Yeah, we so we don't produce anywhere besides Southeast Asia um for footwear.

Um but we're working on some projects with our current partners.

Good.

Yeah, to think about um how you get closer to market uh because as this world gets more complex and as supply chains get more complex, the unlock would be more local manufacturing.

The truth is we're a ways away from that.

The entire supply chain as you go up, tier 23 and four is all in Southeast Asia.

And so the materials and, and resources you need to do that um would be a big lift to make it uh domestic manufacturing and in many respects, Brooks is a special company.

I mean, you're owned by Berkshire Hathaway, Warren Buff.

Have you interacted with Warren I always ask this question to Jim.

So now I'm like, just passing it down to you.

What has been your interaction with Warren through years?

Yeah, we're super lucky.

Right.

I mean, I, uh, I know that as a leader I've, I've watched Jim, uh, manage this relationship over the years and, and we've been lucky enough to meet Warren over the years and he's a big fan of Brooks.

Um, I'm, I more frequently talk with Greg Abel now and Greg is incredible and just a great leader for us to lean into.

But being a Berkshire company is, is very unique.

Um They have a long term view to their investments, they decentralized decision making and really let the brands and, and business um kind of lead and, and make decisions they're there every time you need them from a resource and a support.

What more can you ask for?

Right.

You got money and you didn't have to worry about reporting earnings every corner.

This is great.

It's amazing.

It's amazing.

So how is, you know, for those not familiar, um you know, with Greg uh Abel, he is Warren Buffett's successor.

Um Like, how is he as a leader?

I mean, do you see, are they really that similar?

So I, I think there's some similarities but, you know, Greg's his own man and, and is, is really leading um his area of expertise in operations and the way that I interact with Greg is if I need him, I can call him, text him and, and he'll, he'll return the call quickly and he's a sounding board for us.

And we, we touch base with him a couple times a year to share strategy and investment decisions and he guides and advises us in a, in a, you know, a key way.

So he's a resource for me for sure.

Are you gonna be down on the floor of the uh at the Berkshire and your meeting Hawking?

I think I know Brooks has Warren Buffett's logo on the speakers.

Is that, is that what you're gonna be doing now?

You're on the floor.

Look, I am a shoe salesman at the root of everything.

I do anything to sell a shoe or a piece of apparel and, and so I'll be there.

Well, I know this uh episode probably will help sell uh like 5 million Dan Sharon.

I wish you much success uh in this new role, we look forward to following your CEO journey Brooks for a long time here at Ya.

Finance.

We really appreciate it.

Thanks, Brian.

Thanks for having me.

All right, thank you so much.

All right.

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