Weyco Group Could Be A Winner By Making Waterproof Shoes Into A Fashion Statement
March 25, 2014
- Weyco Group is a stable small-cap company with solid metrics, but maybe not a ton of potential for growth.
- That is, unless they can turn BOGS into a fashion statement using celebrity pitchmen.
- Readers might consider buying the stock for the inherent value, and consider any potential for large upside associated with BOGS as a bonus.
Weyco Group, Inc. (WEYS) designs and markets footwear under the brand names Florsheim, Nunn Bush, Stacy Adams, Rafters, Umi, and BOGS. I'm primarily interested in BOGS. I believe that particular brand has a lot of potential for growth. I'm just not convinced that Weyco Group's current strategy will result in fully realizing that potential. I'll explain this below.
First, let me mention that Weyco Group is a dividend champion, having increased its payout to shareholders for 32 straight years. It is a very small company whose market cap has hovered around $300 million lately. The company has a strong balance sheet, sporting a debt to equity ratio of .06. The dividend yield is currently 2.55%, and the payout ratio is 23.35%. The ttm PE ratio is 17.41. These are all solid metrics.
The main brands of Weyco group: Florsheim, Nunn Bush, and Stacy Adams are all dress shoe brands that while stable, aren't anything to get particularly excited about. Rafters is a brand that produces sandals and water shoes. Umi is their brand of baby, toddler, and children's shoes of various kinds. Then we have BOGS, which is a brand of waterproof shoes and boots. I think BOGS has potential to capitalize on the emergence of a hot demographic.
I can only think to call it the Duck Dynasty demographic. I would try to coin the term "Redneck Chic," but that would be insulting to the demographic. The word 'redneck' is not insulting to them, but the word 'chic' almost certainly would be. However we might label it, BOGS could strongly appeal to this demographic given the right marketing campaign.
The demographic is made up of the type of people who are loyal fans of the Duck Dynasty show on A&E. They probably also watch shows like Swamp People, Mountain Men, and Ax Men on the History Channel. They may or may not also enjoy NASCAR racing and country music. They almost certainly buy Wranglers now because of the extremely successful marketing campaign that showed Brett Favre and Dale Earnhardt Jr. side by side, being buddies and enjoying casual country boy life in their Wrangler jeans. The part about how the jeans don't ride up your backside was also pure genius. Of course 'real men' don't want to walk around with a wedgie in their jeans. Doesn't that seem obvious now?
I'll tell you why I think that just about anything which appeals to this demographic is so successful at the moment. For a long time, people in this demographic have been relegated to the butt of the media's jokes and criticism. This has been true in movies and television for quite a while now. Country music, which appeals to the same demographic, has been extremely successful throughout the 90s and 2000s. But Hollywood and the major TV studios refused to recognize this extremely lucrative demographic because apparently they don't like the culture. So, their goal seemed to be to insult and even ostracize country or 'redneck' culture. But in spite of Hollywood's best efforts, redneck isn't going anywhere. It's not a trend. It's a way of life for many millions of people.
Now that they have people like the Duck Dynasty folks representing their crowd in a way that they see as being very positive, they are showing their extremely enthusiastic support. In spite of the negative stereotypes, the redneck crowd isn't generally strapped for cash. On the contrary, these are people who tend to develop knowledge and skills that revolve around such things as raising livestock, farming, welding, machining, machinery maintenance, electrical work, construction work, etc. Where I'm from, these are the people who can almost always find work and who get paid pretty well for it. The question for Weyco Group is, how can we capitalize on this demographic while it is extremely hot?
I'll tell you. Weyco Group could make BOGS into a fashion statement. They could get celebrity pitchmen such as the Duck Dynasty guys, Favre, and Earnhardt Jr., to do commercials for their brand. They could make commercials similar to the ones they run online now, except using those pitchmen. BOGS already has products that fit right into this strategy. For starters, the Mossy Oak and Realtree waterproof hunting boots would be perfect for such a campaign. They could also work all of the different types of BOGS into the campaign. They could show the pitchmen hunting in one commercial, and working their land in another. Dale Earnhardt Jr. and Brett Favre (or similar celebrities) almost certainly have estates that include farming and ranching type properties. So, the commercials could even be authentic. Authenticity appeals to the working man.
The BOGS online commercials already do a good job of portraying the working man image and relaying the practical reasons for the working man to buy BOGS (odor control, water proofing, latest technology, and high quality). But they haven't used effective marketing to make everyone believe that BOGS is the brand to have when you need a pair of waterproof boots. No one can proudly show off their new BOGS because most people haven't heard of BOGS. In short, Weyco Group has not turned BOGS into a fashion statement for the working man.
If you're wondering whether waterproof boots can actually be a fashion statement, I assure you they can. Timberland already did this with various types of construction/work boots in the late 90s and early 2000s, appealing to rappers and country boys alike. I have also observed this type of phenomenon directly, for pretty much my entire life. Country boys would much rather wear a brand they associate with. You won't ever see a country boy wearing a GAP (GPS) shirt. But you will see him wearing Realtree, John Deere (DE), or Bass Pro Shops shirts and hats. It's not just a southern thing I'm talking about either. The hard working/hunting/fishing/farming/4 wheeler riding lifestyle is popular all over the U.S. Further, these people love to talk to each other about the high quality of the brands they enjoy. They love to brag about their latest purchase of XYZ equipment, fishing gear, rifles, clothing, shoes, etc. because the quality of XYZ is just so darn good.
So why does all of this matter to readers? First, you could take a wait and see approach to how Weyco Group might choose to capitalize on the fact that this demographic is so hot. You could watch the stock, possibly buying on the dips. That wouldn't be a bad strategy for a stock with a 2.55% dividend yield, a low payout ratio, a very low debt to equity ratio, and a reasonable price to earnings multiple. In that sense, you could almost think of the stock like owning a free option. If they choose to capitalize on it, great. If they don't, hopefully they would at least maintain the status quo.
Second, you could buy the stock and take a more activist approach to the whole situation. The CEO made this comment on the latest earnings call:
“BOGS brands for fall includes more lifestyle product including waterproof leather casuals and hikers.”
While offering products that appeal to the demographic I mention, company management doesn't seem to be highly focused on developing that potential, at present. Maybe management isn't aware of the potential they hold with the Duck Dynasty demographic. Personally, I just don't see the hiking/canoeing/rock climbing crowd being captivated by this brand. They tend to prefer brands like Columbia and The North Face that have more bourgeois sounding names. Whether it was intended or not, BOGS already sounds kind of redneck. So maybe management could use some positive encouragement to pursue a different avenue with BOGS.
As individual investors, you have every right to contact company management via their Investor Relations department. You can ask if they have any new plans regarding marketing of the BOGS brand, and share your views on what you think would make sense. They may or may not take notice when one person sends them an email. But they would almost certainly start to listen if enough investors truly believe that there is under-utilized potential in the BOGS brand.
Now, I realize that celebrity pitchmen cost a lot of money and that company managers may not agree with me about the potential risk/reward of such a campaign. So, I have not yet purchased the stock myself. Nor have I recommended it in any of my Dividend Focus Investment Newsletter reports. However, I am watching the stock. I may contact company management to ask what they plan to do with the BOGS brand, and offer my views. I obviously thought the unrealized potential was significant enough to write an article about it. What do readers think?
At the time of publication, the author does not hold any positions in any of the securities mentioned and has no plans to initiate positions in those securities within the next 72 hours. The views expressed are the opinions of the author and do not necessarily reflect those of Wisdom’s Reward, LLC.
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