Sole Survivor

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RUNNING MAN Jim Davis, chief of New Balance, has hit the big leagues with a line of unfashionably cool shoes

For a forward-minded executive, Jim Davis is an old-fashioned guy. Sitting in a conference room at New Balance headquarters in Boston, he jokes that he still employs a third of the work force he inherited when he bought the company in 1972. O.K., so it consisted of six folks back then, stitching 30 pairs of running shoes a day in the back of a store. Two of those workers are still with him, he points out, even as New Balance has long since hit the big leagues. In the U.S. sneaker wars, the company took the bronze in 2003 with 11% of the market, just behind Reebok (and miles behind Nike in first). Perhaps more impressive, while Nike and Reebok shower millions of dollars on superstars like LeBron James and Yao Ming, New Balance has soared to near the top of the sneaker charts — dusting even international powerhouse Adidas — by running solo, proudly proclaiming that it is "endorsed by no one."

Yet Davis is at a critical juncture. Lately New Balance has lost share at the high end of its core runners' market to rivals like Brooks, while Adidas, Nike and Puma have been battering the brand in the more fashionable arena. New Balance is still mainly known for its running shoes and for having a lineup in multiple widths, and Davis may have missed a key opening with young shoppers a few years ago when New Balance had a hit with a hot trail-running shoe. Instead of following up, he kept other shoe designs relatively conservative compared with stylish models like Nike's Shox. "We have an internal issue here," Davis acknowledges. "They have been after me for years to make more shoes for 14- to 15-year-olds. I don't want to do it."

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To bulk up sales, Davis has gone on a shopping spree. He signed seven licensing deals last year to get the New Balance logo on gear from sunglasses to exercise equipment. He recently signed on to sponsor major league lacrosse and in February bought a lacrosse-equipment maker, Warrior. He has also expanded into hiking footwear with the purchase of the Dunham brand, and he is working with retailers to open more single-brand New Balance shops, aiming to have "a couple hundred" in the U.S. by 2006. Worldwide, Davis projects sales growth of 10% to 12% over 2003, to more than $1.4 billion this year.

Perhaps the riskiest bet he's making, however, is on domestic manufacturing. New Balance is the only major U.S. sneaker brand still manufacturing in America; most others have fled to China, Indonesia and Vietnam. Roughly 25% of New Balance shoes are assembled at five factories in New England and one in California owned by a foreign supplier. Over the past two years Davis has spent $14 million to upgrade a high-tech shoe plant down the road from his Boston office, and in 2001 he expanded his distribution center in the old mill town of Lawrence, Mass. Davis figures he can overcome the higher labor costs in the U.S. and turn his plants into strategic assets — shipping directly to retailers from the factory and saving a bundle on inventory costs. His goal: to make New Balance more like Toyota, a model of lean manufacturing in his own backyard.

Is he on a runner's high? Davis pays his U.S. factory workers an average wage of $12 an hour, plus benefits, compared with 40 an hour for a worker in mainland China, where 76% of U.S. athletic footwear originates. The tax breaks Congress just passed for U.S. companies to keep manufacturing jobs at home amount to chump change given that gap. Overall, the U.S. footwear industry has shed nearly 200,000 jobs since the early 1970s, leaving fewer than 21,000. More to the point: What teenager clamoring for Air Jordans really cares where the shoe is stitched?

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