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 A depressed economy hurts the firm's sales, as consumers purchase Timberland's products with discretionary income, which has been constricted in 2008 due to a credit crunch and sky high commodities prices driving up the cost of food and gas. Another issue for Timberland is the rapid economic growth of Southeast Asia and China, where the majority of Timberland products are produced. Europe increased its tariffs on boot imports in 2007, making it more expensive for Timberland to sell its products in this region and decreasing its profit margin.[5]
[edit] Company OverviewThe Timberland Company consists of Timberland, Smartwool, iPath, Howies, Mion, GoLite, and Timberland PRO brands. The firm produces footwear and clothing including their famous line of urban boots, skater apparel from iPath, and and Smartwool hiking socks. Timberland company is very popular internationally, with 51.2% of company sales coming from foreign markets in 2007.[6] Timberland's net income has declined almost 80% since 2005, due to slow sales of its core products, a product recall of its steel toe boots in 2007, and tariff issues in European markets. In response, Timberland has begun to reach out to new markets, acquiring the sock company Smartwool and the casual apparel company Howies in 2005 and 2006.[7] In April of 2007 Timberland purchased the skater company iPath. While data on how these acquisitions have affected profits is not yet available, analysts are optimistic that these new companies, especially iPath, will help Timberland recover from weak sales in its core departments. Smartwool and iPath join Mion, a producer of amphibious footwear, and GoLite, a lightweight outdoor footwear company as Timberland's subsidiaries.[8] In addition, Timberland has recently extended its industrial work boot brand through Timberland PRO. Business Segments[9] •CasualGear: This is Timberland’s largest market and is responsible for selling only Timberland Company products. Customers of CasualGear are generally over thirty years old and outdoorsmen and women. This segment relies heavily on the international market, as over 50% of its revenue comes from overseas. •Authentic Youth: This segment produces Timberland’s youth oriented products and domestic urban boots. Products also include iPath’s skater footwear, Howies casual apparel, and Timberland’s own boot lines. Recent trends in the fashion industry have led this business segment to see a large decrease in profits, roughly $100 million in both 2006 and 2007 , due to over marketing and loss of interest in urban boots. •Outdoor Performance: Outdoor Performance controls Smartwool, Mion, and GoLite and appeals to casual outdoorsmen and women, unlike CausualGear which appeals to the more intense hikers and survivalists. •Timberland PRO: This new business segment is responsible for Timberland’s extension to industrial work boots. Their professional boots appeal to construction workers and craftsmen and has been a profitable segment for the company. This chart shows Timberland’s revenue and net income over the past three years, and indicates a dramatic decrease in income and a slight decrease in overall revenue since 2005.[10]  Over the past three years Timberland has become increasingly reliant on the international market as the U.S. market has yielded disappointing returns.[11]  [edit] Trends and ForcesA depressed economy will hurt Timberland’s sales and revenues: A depressed economy hurts businesses that appeal to niche markets and rely on a consumer’s disposable income. Timberland fits this description, as their boots and casual apparel are products that only appeal to consumers who have extra money in their pockets. Thus, like many retailers, Timberland will face a difficult 2008 if analyst expectations are correct, and the economy goes through a recession. Signs such as a credit crunch and rising commodities prices point to the inevitability of a decline in consumer spending. People will avoid buying expensive clothing and rather only purchase necessities that are rising in price, such as gas, food, electricity, heat, and telephone service. Asia’s manufacturing success has created additional costs for Timberland: Timberland relies heavily on international manufacturing to produce its products, and China and Vietnam are its biggest producers. The European Union has recently increased tariffs on boot imports from China and Vietnam, where 89% of the companies boots are made.[12] The duties are 16.5% for Chinese imports and 10% for Vietnamese imports, and these costs directly affect Timberland’s profit margin.[13] Data is not yet available as to how damaging these tariffs have been to Timberland, but their options are to either raise prices and lose customers, or cut into their operating margin by paying tariffs without raising prices. Competition from larger companies is a growing threat, due to Timberland's shrinking resources: Timberland’s closing of roughly 40 stores will make it more difficult for consumers to find their products. While this could lead to an increase in popularity, it could also lead to many consumers bringing their business to other companies who are more accessible than Timberland. The decreased number of stores will certainly lead to some customers turning to other niche footwear companies with more resources and more stores. Timberland is attempting to increase demand by closing stores and limiting supply: Timberland’s downsizing (by closing stores) will limit their supply, which the company hopes will attract more customers. The store closings will leave Timberland with only 1 specialty, 56 factory outlet stores, and 4 to 8 footwear stores. The downsizing will be complete by the end of 2008, and the company is optimistic about their plan to keep Timberland products limited. The downside to this strategy, however, is that Timberland will have a smaller revenue base - which will eliminate efficiencies in its production process. Diversification into new product lines will be at lower margins than the boot business: Boots have long been Timberland’s specialty, and they have been major players in the outdoors and urban boots markets. As they diversify their offerings and attempt to break into new markets, such as with iPath in the skater market, margins will be significantly lower than in the boot business where production is established. A more diverse product line simply costs more to produce - so Timberland's challenge is to remain profitable while integrating its new acquisitions. [edit] CompetitionTimberland’s biggest competition comes from Nike (NKE) , who competes with Timberland in the footwear and apparel department, although Nike’s outdoor division is not the company’s main focus. Columbia Sportswear Company (COLM) directly competes with Timberland over outdoors customers interested in hiking boots and outdoor apparel, as does Wolverine World Wide (WWW) . Timberland’s revenue is comparable to its competitors with the exception of Nike, which obviously far outstrips the competition.
 The Timberland Company2004 Data 2005 Data 2006 Data 2007 Data 2008 Data Most Recent Data Available [edit] References
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