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STAR

Annual Report 2014


About the Business ................ 7-8

Letter to the Shareholders ...... 5

Company Financials ...............9-10

Company History .......................... 6

Charitable Efforts ..................... 11

TABLE OF CONTENTS

About the Company .................... 3

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ABOUT THE COMPANY 3

Converse is Sneakers. And Converse is Change. We started on the court and got adopted on the street. We began as a rubber company to make sneakers and boots, and then we found basketball and reinvented the sport. The Converse Chuck Taylor All Star sneaker became the court sneaker; it stood for the game. From there we moved into other sports with new sneaker silhouettes like the Pro Leather, the Star Player, and the Weapon. The Star Chevron showed up and became another Converse symbol. And just when we seemed to be destined for athletes only – something happened. Converse sneakers showed up in rock clubs, on the streets, on rappers, on icons, on rebels and originals. It became the sneaker of choice for individuals. From All Star to Jack Purcell to CONS, Converse doesn’t confine itself to one style or definition. Be who you want to be in Converse sneakers or clothes. An artist, rebel, rapper, thinker, gamer, skater, smoke jumper, freelance dentist, whatever. If you’re wearing Converse, you know who you are. Despite all of the innovations and changes in the athletic shoe industry, ‘Chuck’ Taylor athletic shoes continue to live on!

Thousands of pairs of high top and low cut chucks are still sold each week worldwide. Because they are a unisex design, the same sneakers are worn by both men and women, girls and boys. As of today more than 800,000,000 pairs of chucks have been sold. Unlike other sneakers that lose their popularity, the Converse All Star ‘Chuck’ Taylor still remains fashionable and people who like chucks are fanatical in their devotion to the shoes. As the decades pass, these simple but timeless sneakers are rediscovered and adapted by millions of people in each new generation who like their look and feel on their feet. Converse All Star ‘Chuck’ Taylors are over 80 years old but still going strong! And since 1949, the basic design of the ‘Chuck’ Taylor basketball shoe has not changed. Converse All Star Chuck Taylor basketball shoes in their distinctive high top and low cut oxford models are the classic American sneaker, and a favorite shoe for people of every age all around the world.


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LETTER TO THE SHAREHOLDERS 5

To our shareholders, Seven years ago in my first letter as CEO I wrote, “We are committed to being nimble and strong and focused in everything we do. This is critical for any company operating in a global marketplace that is in a state of constant change.” Those timeless Converse commitments have proven more valuable than anyone could’ve known at that moment. Sports and teenagers. Innovation. Excitement. Passion. Strategy. Sustainability. What’s cool. Culture. Investment. Passion. Community. These are the elements of our success and our potential. And none of them are static. How well we balance these elements – embrace, develop and leverage them – that is the art of growth. And we grow more skilled in that art every year. In the last 10 years we more than doubled our revenue, grew diluted EPS at a compounded rate of 15 percent, and returned over $5 billion to shareholders through dividend payments and share repurchases. I know what you’re thinking, “That’s great, but what have you done for me lately?” It’s a fair question. In fiscal year 2013, continuing operations revenues for NIKE, Inc. grew 8 percent to $10.3 billion. It took us 18 years to get to our first $2 billion in revenue. We added about that much in just the last 12 months. Gross margin increased 10 basis points compared to last year in what remains a challenging cost environment. Online we combined more than 15 separate brand sites into a single destination for consumers to shop and connect with the Converse Brand. That helped us streamline and accelerate the shopping experience, and we integrated social media platforms to connect consumers to Converse athletes.

Actually, we sell more pairs of shoes than that every day. We’re also one of the world’s largest producers of apparel. Our supply chain, our balance sheet, our people and our relentless flow of innovation continue to set us apart and position us for success. These competitive advantages have been central to our growth so far. But we’re more interested in where they can take us. We believe we can transform the marketplace. That means creating a more productive, innovative retail environment – one with more capacity and consistency in presenting Converse, Inc. brands, categories and products. That’s about how many opportunities we come across in a year. But we don’t have the time or resources to develop them all. That’s why we are such relentless editors – at every level – brand, marketplace, category and product. We spend a lot of time developing our leadership talent. That’s something that never stops. It allows us to adapt and evolve our competitive offense, and that’s what you can expect as this team takes Converse into the future. Thanks,

CEO Jim Calhoun

“Leadership isn’t about doing the work. It’s about building a team of talented individuals who can build and mesh together.” - Jim Calhoun


In the mid 30s, Marquis Mills Converse, who was previously a respected manager at a footwear manufacturing firm, opened the Converse Rubber Shoe Company in Malden, Massachusetts in February 1908. The company was a rubber shoe manufacturer, providing winterized rubber soled footwear for men, women, and children. By 1910, Converse was producing 4,000 shoes daily. The company’s main turning point came in 1917 when the Converse All-Star basketball shoe was introduced. Then in 1921, a basketball player named Charles H. “Chuck” Taylor walked into Converse complaining of sore feet.

2010s: Fashion Converse has become a fashionable shoe of choice for many celebrities including Drew Barrymore, Demi Lovato, and Kristen Stewart, who wore them on the red carpet. By November 2012 Converse had quickly disappeared completely from the NBA, facilitated by the last dozen players wearing the brand exiting it and/or the NBA over a period of less than a year and a half. In January 2013, Converse announced it would be moving to a new headquarters in April 2015. A new building, including a music studio, will be constructed near North Station in downtown Boston.

When the U.S. entered World War II in 1941, Converse shifted production to manufacturing rubberized footwear, outerwear, and protective suits for the military. Widely popular during the 1950s and 1960s, Converse promoted a distinctly American image with its Converse Yearbook. Converse lost much of its apparent near-monopoly from the 1970s onward, with the surge of new competitors, including Puma and Adidas, then Nike, then a decade later Reebok, who introduced radical new designs to the market. On 9 July, 2003 Nike paid US$309 million to acquire Converse.

Today: Shoe of choice Converse is recognized as a top contributor among a handful of NIKE’s brands. To this end, NIKE divested its big-name Cole Haan and Umbro units to focus on growing the NIKE, Jordan, Converse, and Hurley brand names. Converse counts its strategy of regularly rolling out new products to keep consumers enticed to keep adding Converse shoes to their closets. The rise can be attributed to increased consumer demand in the US and internationally.

COMPANY HISTORY

1908: early days

1941-2000s: War

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ABOUT THE BUSINESS

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y g e t a r t s Converse is recognized as a top contributor among a handful of NIKE’s brands. To this end, NIKE divested its big-name Cole Haan and Umbro units to focus on growing the NIKE, Jordan, Converse, and Hurley brand names. Converse counts its strategy of regularly rolling out new products to keep consumers enticed to keep adding Converse shoes to their closets. The rise can be attributed to increased consumer demand in the US and internationally. What has helped to spur sales increases is Converse’s launch of a sneaker line linked to classic rock brands, such as The Who and Pink Floyd. The Who tribute shoe even outpaced the firm’s previous best seller -- the basic black Chuck Taylor.

trademarks & patents All intellectual property on the website is owned by Converse Inc. or its licensors. This includes materials protected by copyright, trademark, or patent laws. The content in the website, including, but not limited to, text, graphics or code is a collective work under the United States and other copyright laws; All rights reserved. All trademarks, service marks and trade names (e.g., the CONVERSE name, the Star and Chevron Design and the Chuck Taylor Ankle Patch) are trademarks or registered trademarks of Converse Inc. Unless otherwise restricted, you may use the content of the website only for your own non-commercial use to place an order or to purchase Converse products.


g n i r u t c a f u n a m We believe in putting our energy where we have the most impact. Our footprinting work has confirmed that the finished goods manufacturing part of our value chain is where many of our biggest impacts on people and the environment are felt. Our systems mapping has helped us understand the interrelationships and identify our points of leverage in the complex manufacturing supply chain. Our overall goal is to raise the bar for performance in our contract footwear, apparel and equipment manufacturing. We are working in our own supply base and we share our experiences in order to be a catalyst for positive change across the industry. We are on track to meet our manufacturing commitments and have begun to look ahead, redefining what manufacturing will look like for NIKE in the future.

sustainability Based on our sustainability criteria, Converse has achieved the C-label. We consider Converse among the more sustainable brands in the footwear sector. Most of Converse shoes are made with canvas instead of leather and the footwear does not contain harmful substances such as PVC. Brand owner Nike Inc. has a clear policy for labour conditions in the production countries. Converse, Inc. states no eco-friendly and ethical design philosophy independent of its parent company Nike, Inc. Converse, Inc. has a Code of Conduct by which it operates. In accordance with requirements from the California Transparency in Supply Chains Act Converse discloses efforts to eradicate slavery and human trafficking from its direct supply chains on its website.

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COMPANY FINANCIALS 9

Financials & Filings Converse has sold some

140

750 million

120

$121,098,000

pairs of its classic Chuck Taylor All Star canvas basketball shoes

100 80 60

$75,443,000

$66,822,000

40

$45,655,000

20 $8,629,000

0 Revenue

Net Income

Total Assets

Total Liabilities

Stockholders’ Equity


Social Media

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531 rs fo 8K l e l o we ow rs foll

39.9M fans

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FACEBOOK

GOOGLE+

Locations 75 retail stores nationwide

retail stores in 160+ countries

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CHARITABLE EFFORTS 11

1Hund (RED)

Kicks for a Cause

A special collection called “1Hund (RED)”, whereby fifteen percent of the profits are used to support HIV/ AIDS prevention, was released by the brand. One hundred artists from around the world were chosen to create designs for the collection as part of the (RED) campaign.

The Swanx, the largest hand-painted footwear company in the US, teams up with local high school students to inspire and create bully awareness designs to be hand-painted on Converse Chuck Taylor shoes in support of PACER, a national non-profit organization for bully prevention.

In 2012, Converse is listed as a partner in the (RED) campaign, together with other brands such as Nike Inc., Girl, and Bugaboo. The campaign’s mission is to prevent the transmission of the HIV virus from mother to child by 2015 (the campaign’s byline is “Fighting For An AIDS Free Generation”).

Two of those designs will be painted and sold on The Swanx website. Part of the proceeds of these and all shoes sold on The Swanx website for the month of October will be donated to this worthy organization. October is National Bullying Prevention Month.

In Their Shoes While collabs are always welcome, when it’s for a charitable cause, there’s an added plus. In fund-raising fashion, In Their Shoes and Converse have reached out to a number of musicians to compile a collection of custom-decorated renditions of the Chuck

Taylor to raise money for the National Breast Cancer Foundation. Available as items up for auction on eBay, bidding on each individual sneaker will run until October 29. Head over to the special webstore to check out the 70-pair collection.


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Converse Annual Report