#280: UGG – From Australia To California

Brian sees his opportunity when notices Americans wearing sheep skin boots and thinks we have lots of sheep…

Dave Young:

Welcome to the Empire Builders Podcast, teaching business owners the not so secret techniques that took famous businesses from mom and pop to major brands. Stephen Semple is a marketing consultant, story collector, and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is, well, it’s us, but we’re highlighting ads we’ve written and produced for our clients. So here’s one of those.

[Wagmore Garage Door Ad]

Dave Young:

Welcome to the Empire Builders Podcast. Dave Young here, got Steve Semple along here, and Stephen just whispered in my ear, he thought that this would be a brand that I was very familiar with for some reason. And then he said it’s a fashion brand. I’m like, so what about that word makes you think… Are we going to talk about Sears Garanimals or JC Penney? No, we’re going to talk about UGG boots. UGG boots.

Stephen Semple:

Yes. Yeah.

Dave Young:

Now, my earliest recollection, I think it might not even be UGG boots, is on a ski area maybe in the ’70s. And there were women walking around in these big furry, furry, furry boots. And I don’t know if those were UGG’s or not, but they were just as ugly as UGG’s. And UGG’s, they’re like a sheepskin boot made in Australia.

Stephen Semple:

They’re a sheepskin boot.

Dave Young:

And they’re kind of loose fitting or at least on the ankles and… Yeah.

Stephen Semple:

They came out of Australia, that’s the origin. And UGG does like $2.7 billion. They’re part of Deckers today. They’re basically sold to Deckers for 14 and a half million dollars. They were in 1995 and Deckers really grew the crap out of them.

Dave Young:

Okay. I don’t know who Deckers is.

Stephen Semple:

So Deckers is another shoe brand.

Dave Young:

Big multi-conglomerate shoe brand or a real shoe company?

Stephen Semple:

No, they’re a real shoe company, but with a number of different… But put in perspective, UGG is bigger than Hoka.

Dave Young:

Okay.

Stephen Semple:

Right just to put-

Dave Young:

Hoka. I don’t know a whole lot about Hoka. We should do an episode because I wear almost exclusively Hoka’s these days.

Stephen Semple:

But we see Hoka all over the place. UGG is actually-

Dave Young:

But UGG is bigger.

Stephen Semple:

… bigger which surprised me.

Dave Young:

So people are wearing them undercover.

Stephen Semple:

This is what surprised me.

Dave Young:

Yeah.

Stephen Semple:

So today the company’s like, it’s a big global brand, but as you were talking about, the idea came out of Australia. And actually the idea came from an Australian accountant who was a surfer and basically was living in America.

Dave Young:

Okay. When was this?

Stephen Semple:

1979 is when the business started.

Dave Young:

Okay. So the boots I was seeing weren’t UGG’s. They were just these way too fashionable for me-

Stephen Semple:

Right.

Dave Young:

… to even understand them.

Stephen Semple:

Yeah.

Dave Young:

Okay.

Stephen Semple:

So the business was started by Brian Smith and he built it to the point where he was doing 18 to $20 million worth of sales. So it gives you an idea that when he sold it at $20 million of sales, Deckers really blew the business up. But through the growth, it actually created a whole pile of challenges for him because he was having a hard time financing for orders and things along that line. So here’s where he starts. So Brian Smith is an Australian accountant and a lifelong surfer, and he came to California in the late ’70s because what he wanted to do was he wanted to find something in California that he could take to Australia because California was where all the cool things were happening. And what made him want to do that is one day he was listening to a Pink Floyd song, ‘Time’, right?

Dave Young:

Okay.

Stephen Semple:

And he basically, he had been doing accounting and had this safe career and been doing all this stuff for 10 years and he kind of felt stuck and he went, “You know what? I’m going to leave Australia. I’m going to head to LA and I’m going to hang out because LA’s cool and I’m going to find something in LA that I can bring back to Australia and that’s what I’m going to do.”

Dave Young:

Nice. And he didn’t realize that he was bringing the cool here instead.

Stephen Semple:

That’s what ended up happening because he looked at California and he said, look, those were all the cool things happened.

Dave Young:

Yeah, yeah.

Stephen Semple:

Levi, surfing, skating, all that stuff. But yes, this is the irony of it all. The irony of it all is he actually brought something from Australia to California. So Brian’s sitting around, he’s reading Surfer Magazine and he sees photographs of people in sheepskin boots, light bulb moment. Because in Australia they’re super common. They’re just-

Dave Young:

Because they eat a lot of sheep, so there’s just sheepskin everywhere.

Stephen Semple:

Yeah.

Dave Young:

And they pave the streets with-

Stephen Semple:

With sheepskin. There’s all sorts of little manufacturers of these and it’s almost like every town has their own version. And so he tells his friend Doug that they need to do this business and they think this is going to be amazing. We’re going to become instant millionaires-

Dave Young:

Sure. Yeah.

Stephen Semple:

… this idea sewn together, it’s so great. They scrape together 500 bucks to get samples made and Doug starts taking the samples around to the stores and he visits like 150 retailers, comes back with no’ors.

Dave Young:

Sure, because it’s ugly. I mean, that was a big issue, right? It was like they’re kind of homely looking boots at first.

Stephen Semple:

Well, and retailers, think about this, he’s in California. Retailers think selling warm sheepskin boots in California is ridiculous.

Dave Young:

I would tend to agree with him at that point, unless you’re selling to people that are headed off to ski country.

Stephen Semple:

Right. So what they do is they pivot to surf shops because the water’s cold.

Dave Young:

Recovery shoes. Yeah. Yeah. Okay.

Stephen Semple:

And the reaction’s very different because surfers actually know the product and the store owners tell them, “This is super fantastic. Dudes, you guys are going to sell a ton of these.” But there was one small problem. No one actually placed an order.

Dave Young:

Oh, right. Yeah, there is that. But we’re all for it.

Stephen Semple:

We’re all for it. It’s going to be great. Nevertheless, they managed to raise $20,000 and they spend about 15,000 ordering 500 pairs and they’re convinced that’s all the capital they’ll ever need. So first year sales, their inventory arrives, Brian goes back to all those enthusiastic surf shops who all said it was great, but he didn’t ask them for an order. Remember they said it was great. He didn’t ask for an order. He orders the shoes, he shows up, suddenly they’re great. They’re going to do really well, but we’re a surf shop. We can’t sell them here.

Dave Young:

Why couldn’t they sell them there?

Stephen Semple:

This is what-

Dave Young:

Just their mindset, their belief about what-

Stephen Semple:

Their mindset.

Dave Young:

… a surf shop is.

Stephen Semple:

So after visiting 60 surf shops-

Dave Young:

Oh, man.

Stephen Semple:

… he manages to sell 28 pair.

Dave Young:

Oh, okay.

Stephen Semple:

So now he has basically almost 500 pairs of boots sitting around in his rented house, right?

Dave Young:

Sure.

Stephen Semple:

Doug leaves the business. Brian’s thinking about quitting, but there’s a problem. He’s got people who invested money with him and it’s sitting in the inventory in his bedroom.

Dave Young:

Yeah. Well, you send them all boots, I guess.

Stephen Semple:

Well, so what he starts doing-

Dave Young:

That’s not going to make him happy.

Stephen Semple:

So he starts selling them anywhere he can because he just wants to get the money back, right? He goes to swap meets, street fairs, wherever there’s people, and famously out of the back of his van in Malibu. So he basically goes to Malibu where people are surfing, opens up his van and sells them out of the van.

Dave Young:

Nice. Yeah.

Stephen Semple:

Right? So he’s surfing one morning and he grabs a coffee to the newspaper and he opens the van and he’s selling some boots and something really, really interesting happens because what surfers discover is that these boots are fantastic because after getting out of the cold water, like you were saying, recovery boots, it insulates, it wicks away the moisture, their feet are wet, but the cold feet very quickly become warm and dry. The product actually works.

So what he realizes is the problem isn’t the product, the problem is getting people to understand the product. And this belief keeps him going because he’s like, “Look, this product is great.” And in Australia, literally one out of two Australians own some kind of sheepskin footwear. Much of Australia’s climate is very similar to Southern California.

Dave Young:

Sure. Yeah.

Stephen Semple:

In terms of where the people are. So he looks at, he goes, “Well, the problem therefore isn’t the product. The product isn’t wrong. I must be doing something wrong.”

Dave Young:

Okay.

Stephen Semple:

Is the realization he had. I think that’s a really important distinction because there was evidence from another market that people generally love the product, and so that belief allowed him to persist probably longer than he otherwise would’ve.

Dave Young:

And trying different things, right?

Stephen Semple:

Correct.

Dave Young:

I’m not doing the right thing, so let’s try something different.

Stephen Semple:

Correct. So what does he try? He starts advertising in surf magazines.

Dave Young:

Okay.

Stephen Semple:

Right? He hires these attractive models, puts them on the beach wearing UGG’s, beautiful looking ads, and sales barely move.

Dave Young:

All right.

Stephen Semple:

Sales go to 30,000 and then 35,000 and then 45,000, but he’s spending money and getting almost nowhere. But here’s where an interesting point happens. He’s in this surf shop and he’s talking to the retailer and retailer calls over a bunch of young surfers and he asks them what they think of UGG, and here’s their answer.

Dave Young:

Stay tuned. We’re going to wrap up this story and tell you how to apply this lesson to your business right after this.

[Using Stories To Sell]

Let’s pick up our story where we left off, and trust me, you haven’t missed a thing.

Stephen Semple:

He’s in this surf shop and he’s talking to the retailer and retailer calls over a bunch of young surfers and he asks them what they think of UGG, and here’s their answer. “The ads are fake. The models aren’t surfers.”

Dave Young:

They’re not surfers, so sure.

Stephen Semple:

Yeah. Right. So worse than being ignored, the advertising was actually being damaging.

Dave Young:

Yeah.

Stephen Semple:

Aspiration, connection, tribal. Those shoes are for fashionistas, not surfers.

Dave Young:

So you need a famous surfer wearing them.

Stephen Semple:

Well, the surfing is a culture and a bit of a counterculture. So what he does-

Dave Young:

They’re not Victoria’s Secret boots.

Stephen Semple:

Right. So he connects with two young promising surfers, Mike Parson and Ted Robinson. He pays them in boots because they’re not making a lot. He shoots the commercials himself using a little Canon camera at a real surf shop and runs the ads. Sales jumped from $30,000 to $200,000.

Dave Young:

Bingo. It’s all about the offer. It was all about not even the offer, placement, the authenticity.

Stephen Semple:

And connection.

Dave Young:

And connection. Yeah.

Stephen Semple:

Now all of a sudden I look at that picture and that’s me. So if you think about this, this is a great lesson. Same boots, same media, different story, different characters, different meaning. And Brian felt that this taught him essentially everything he needed to know about sales going forward. It was about speaking. We use the whole thing, speaking to the dog in the language of the dog.

Dave Young:

Yeah. Old Pavlov reference. Yep.

Stephen Semple:

But to me, it’s about speaking to that community and connecting with that community. Now, so Brian discovers another problems. Customer walks into the stores and asks employees about UGG’s and the employees didn’t know anything about them.

Dave Young:

Okay. Yeah.

Stephen Semple:

Right, because remember, he wasn’t yet able to get them in the stores. Are they hot? What happens when they get wet? Can you clean them? The staff can’t answer the questions, even when the product’s in the store. So Brian creates this six pair stocking plan, is what he called it. And basically what it was is if a retailer orders six pairs, Brian gave the store manager a pair for free. So Dave, what size are you? Here’s a pair for free. Now the salespeople know a little bit about it.

Dave Young:

Have UGG’s.

Stephen Semple:

“Are they comfortable?” “They’re fantastic. I wear them all the time.” Suddenly the salesperson becomes a believer in the product.

Dave Young:

Way easier to sell something you believe in.

Stephen Semple:

Right. It’s this whole thing I don’t need to persuade any longer. I’m just now sharing how great it is. So UGG starts gaining traction and then they expand into skiing. So they did end up expanding into the skiing market. Brian’s discovered something kind of comical because he doesn’t really understand because then he tries to do some stuff in the Eastern United States and he doesn’t understand what kids in Eastern United States do. Skiing’s not as big and it still happens, but they play hockey and Brian discovers hockey’s this massive market, but he also discovered something really interesting when he did the ski market. He had to actually modify the UGG’s because they had this little piece of leather on the bottom. Well, when you’re walking around on ski slopes, things like that, little slippery.

Dave Young:

Little slippery. Yeah. Yeah.

Stephen Semple:

So he had to put this little traction. They had to do the sole a little differently.

Dave Young:

Little bit of sole, yeah.

Stephen Semple:

The interesting thing is he’s growing this business because by 1992 sales reach 5.8 million, but he’s constantly broke. And Brian’s an accountant, and this is to me the fascinating part of the story. And he admits finance is his biggest weakness. And this is something I found fascinating because I’m constantly talking to businesses about this. Finance and accounting are not the same. Accounting tells you what happened. Finance tells you what you’re going to need. When you’re doing high growth, finance becomes important because managing cash flow and projections and things along that lines, because as you grow, you need more inventory, which means you need more cash.

So he would sell a million and then he was broke and he would sell two million and then he was broke, because what he found is he was constantly waiting too long to arrange financing, and then when he had a large order, he would be struggling to fill it, which then also meant he was in a really poor negotiating position. And he would bring in a partner and he’d have a hard time with the partner. It would be a bad deal. It just ended up being this constant real problem. He had another advertising lesson that he did.

So in 1994, he made this big bet. He got some financing, some people invested money and they said, “You know what we should do? We should advertise on the Rush Limbaugh Show.”

Dave Young:

Oh, okay.

Stephen Semple:

“Because he’s got a big audience and people follow him.” So they spent a half million dollars. Brian didn’t like the idea because he didn’t really see it fitting the positioning, but the board approved it. The board wanted them to do it. And the moment Limbaugh announced UGG as a sponsor, the phone system basically collapsed, tons of people calling. But guess who it was calling? Stockbrokers calling to ask if the company was publicly traded.

Dave Young:

Oh gosh.

Stephen Semple:

Right?

Dave Young:

Okay.

Stephen Semple:

So in 1993, they did this huge advertising with Rush Limbaugh. Sales went from nine million to 11 million. Huge spend, but basically not much happened.

Dave Young:

I just don’t see that as the audience, right?

Stephen Semple:

Right. It just isn’t. So heading in 1995, he’s looking at his advance orders and it looks like UGG is going to hit 18 to 20 million and Brian still isn’t celebrating because he’s having a problem with financing and another competitor comes on to the marketplace using the name UGG.

Dave Young:

Really?

Stephen Semple:

Yeah.

Dave Young:

How can that happen?

Stephen Semple:

They managed to deal with all that and get through that. But at a major sporting trade show in Atlanta, Brian runs into Doug Otto. Okay? Now, here’s the interesting thing. Doug is basically… His company’s Deckers and basically his big success was Teva, and they get talking about how there’d be a wonderful symmetry here because Doug’s sales are strong in the summer and UGG’s sales are strong in the winter.

Dave Young:

Sure. Yeah.

Stephen Semple:

So they begin talking because this will solve both of their seasonal problems. So Deckers buys UGG for about $15 million, and Brian stays on as a consultant for a number of seasons, and basically Deckers has the resources. They’ve got the distribution, they advertise nationally, they can finance the demand, and suddenly… It is one of those ones where Deckers looks at it and says, “All the problems you have, distribution, financing, inventory, national advertising-

Dave Young:

We got that.

Stephen Semple:

… we can solve all of that. We can solve all of that.” And all of a sudden, Oprah Winfrey’s wearing them, and there’s this famous thing where Pamela Anderson, there’s a picture of her in a magazine wearing UGG’s, and basically UGG’s just explodes. Goes from 100 million to 200 million to 500 million, and now is doing several billion dollars in sales.

Dave Young:

Very cool. I wonder if he was smart enough to do some kind of sell the company and get a licensing thing.

Stephen Semple:

I have no idea. I don’t know anything other than he walked away with about 15-

Dave Young:

Which is great.

Stephen Semple:

About $15 million. $15 million is good money, man.

Dave Young:

It’s a great life event.

Stephen Semple:

Yeah. But I think the other thing too for him, when I heard the interview, he was also really happy that Deckers grew it.

Dave Young:

Yeah. Yeah.

Stephen Semple:

Because the other thing is what he knew, he couldn’t do it. He couldn’t grow the business. He was really, really proud of that. And if you think about it, it went from warm footwear for surfers to something surfers really wore, and then skiers and hockey players, and then it became casual wear, then celebrities, and then now it’s fashion. And the product barely changed. What changed was the meaning to the people of the product, right?

Dave Young:

Yeah. And man, the distribution. I don’t know if in ’94, I bet they were, Teva would’ve been in Cabela’s catalogs.

Stephen Semple:

Right.

Dave Young:

And so to get that kind of placement then, at some point, they were the biggest catalog company in the US. I remember one of the guys there told me that they printed more catalog pages than JC Penney.

Stephen Semple:

Yeah. Well, and the other thing is when you’ve got something like Teva and you add UGG’s to it’s not also going to be ignored. It actually solves a problem because it’s like, “I can’t sell sandals in the winter. Ha-ha, but I’ve got this other thing that I can sell in the winter.”

Dave Young:

Yeah, well, you can sell this.

Stephen Semple:

“I can sell this.”

Dave Young:

Very cool story. I’m happy for him.

Stephen Semple:

Yeah. And the other part that I also found interesting, because Dave, you and I often talk about it. It’s a great example of when something’s not working, it’s not the media.

Dave Young:

Yeah.

Stephen Semple:

It’s the message. He ran things in surf magazines and it didn’t work because the message was wrong. He changed the message and it started to work.

Dave Young:

Yeah. Yeah.

Stephen Semple:

Right?

Dave Young:

Fun story.

Stephen Semple:

Yeah. So I just thought it was a really cool story. Yeah.

Dave Young:

I still don’t have a pair. Do you have a pair?

Stephen Semple:

I do not.

Dave Young:

Yeah.

Stephen Semple:

And I’m right in their sweet spot. I’m a snowboarder.

Dave Young:

Yeah, you’re a snowboarder. I don’t like the feel of wool on my feet, so I probably am not in their demo.

Stephen Semple:

Yeah.

Dave Young:

All right. Well, thank you for bringing the story of UGG’s to the Empire Builders.

Stephen Semple:

And I do believe UGG stands for ugly. I will just say that.

Dave Young:

What else could it stand for?

Stephen Semple:

All right, thanks, David.

Dave Young:

Thanks for listening to the podcast. Please share us, subscribe on your favorite podcast app and leave us a big fat juicy five star rating and review at Apple Podcasts. And if you’d like to schedule your own 90-minute Empire Building session, you can do it at empirebuildingprogram.com.