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In a major move, Fruit of the Loom’s Russell Athletic brand will cease making athletic uniforms. The move marks the end of a long history in a product line that in the last decade has seen skyrocketing marketing costs.
“For over 115 years, Russell Athletic has provided quality apparel for athletes both on and off the field of play,” Scott Greene, Russell Athletic and Activewear Senior Vice-President for Brand Management, said in a statement. “We are proud of our heritage, but to build lasting relationships with a new generation of athletes, we will need to focus our efforts and play to our strengths.
“Today, we will begin to transition away from the team uniform business to allow greater emphasis on the consumer retail market. With this shift, we will continue to offer high quality athletic lifestyle and performance apparel for distribution through multiple retail and wholesale channels, including continued distribution of collegiate licensed products along with non-uniform apparel through the team dealer network.”
The Big Money Business of Uniform Deals
The move by the shoe companies Nike and Adidas to expand their product lines into the team apparel market eroded Russell Athletic’s share of the market. Major universities, including Alabama and Auburn, switched their contracts to the shoe companies, or to brands such as Under Armour.
Georgia Tech, which was one of the last major universities to have a contract with Russell Athletic, announced this summer that it would be changing companies to Adidas.
In the case of Georgia Tech, Russell Athletic signed a ten-year deal in 2008 that had it paying the university $8.4 million to be the exclusive uniform provider for all its teams. It also provided over $1 million a year in uniforms for players, and $100,000 a year in branded apparel per year for coaches and administrators. The company also paid additional money based on incentives tied to conference and national championships.
In exchange, Russell Athletic got a host of marketing opportunities, including signage in stadiums, announcements during games, and coaches participating in promotions.
No End in Sight
As large as those number are, they pale before sponsorships that are truly astronomical. In 2017, the University of Louisville signed a 10-year $160 million sponsorship with extension with Adidas.
In 2016, Business Journal found that the cost of signing a university had increased approximately 33 percent over the past five years, and that Nike, Adidas and Under Armour combined were paying over $300 million a year to university athletic departments.
Russell Athletic’s new strategy is to grow its direct to consumer business.
“Our new business strategy focuses on the growing athletic and lifestyle apparel market and developing products that will open new doors for retail distribution of our iconic brand,” Greene said in his statement. “An example of this will be the introduction of a new heritage-inspired product line available in spring of 2018. The new line will feature carefully crafted fleece, tees and other apparel. We are confident you’ll be seeing Russell Athletic on more and more consumers soon.”
Russell Corporation was acquired by Berkshire Hathaway in 2006 for $600 million and became a division of Fruit of the Loom. Its business had peaked a decade earlier when in 1992 it landed a five-year contract with Major League Baseball as the exclusive provider of uniforms. By 1995, the company was generating $1.25 billion in annual sales, and had 18,000 employees.
For Berkshire, which likes to acquire companies that have a strong moat protecting their market share, the athletic uniform business was increasingly an alligator filled moat with no castle behind it.
© 2017 David Mazor
Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.