seekingalpha.com/article/47609-does-skins-inc-fit-the-mold
On a wave of marketing cool, the new hot thing in footwear—Skins and the all important Bone—finally have arrived at retail stores. Skins Inc.’s (SKNN.OB) concept may start a footwear revolution, but it’s going to take execution and education to win over the masses.
New York City-based Skins Inc. takes a “Bone,” an inner orthopedic support section, and slips over it an outer collapsible, flexible “Skin” to make a two-part shoe that is high in panache, versatile and conceptually simple yet ingenious. Buyers purchase one Bone and then have the foundation for a full Skins collection of various styles. No matter what the Skins looks like, the shoes have the same fit and feel.
The changeability of the Skins fits the shoes somewhere between footwear and apparel. Once customers own a Bone, they don’t have to worry about trying on different sizes of Skins. They can purchase different Skins from anywhere—the Internet, footwear stores or apparel shops. The light, thin Skin—made out of the same materials as traditional shoes—can easily be packed several at a time, saving both the company and Internet sellers money on shipping.
Designers of distinction continue to work on the Bone and the Skins, which are priced as a high-end product; a Bone goes for about $60 at retail and Skins can range from $100 to $200. While Skins catch the eye, the Bone is the key: A shoe needs to fit. Herein lays the rub: certain retailers report that the toe box of the Bone in the just-received 2007 collection is too shallow.
“Some of the guys are having phenomenal success at retail,” Skins Inc. CEO Mark Klein said in an interview with SmallCapInvestor.com. “Others are having fitting issues,” he acknowledged.
Klein said he and others are making rounds to the initial 21 retail sites, showing salespeople the way to fit the shoes to a customer’s foot. “I think that the Bone fits” particularly when used properly with a size-tailoring foot bed, he said. “It’s going to take awhile to teach people how to fit.”
Still, Skins Inc. is already making a “second generation” Bone to be shipped in late October/early November. Klein said it will have a toe box that is not so shallow, a perforated bottom for breathability and a harder-density bottom area. The new Bone will be shipped with the winter-collection Skins, which the company had expected to have in stores for October. Instead, they’ll lose October as a selling month. “I have zero problem with that,” Klein said.
Skins Inc. also is also tossing out a free “second generation” Bone to buyers of the first 5,000 old Bones, if these buyers sign up for the company’s Consumer Partnership Program. Once in the program, the old Bone buyers will become marketing panelists, creating a community that will play an important role in the constant development of the shoes. Arf!
Writing off 10,000 Bones and delaying the winter-collection shipments until November mean Klein now expects revenue in 2007 near $700,000 to $750,000, instead of a previous $2.0 million. For 2008, he said the company hopes for revenues of $10 million to $15 million.
This year’s sales will be the company’s first. They will come from retailers’ initial orders and fill-in orders, which the company is already seeing. At certain locations, orders also are being received for the winter collection, suggesting a strong retailer response.
At City Soles in Chicago, 40 people waited on a list for the shoes to arrive—a “huge” number, according to Tarri Breeden, a sales associate. Buyers have been “totally following through on (buying) them.” At upscale men’s apparel and footwear store James Davis in Memphis, Tenn., sizing is not an issue. “Everyone I’ve sold is happy with them,” said sales associate George McCloud. “I think it’s going to be good,” he said, adding that customers like the versatility of buying one Bone and Skins to go with it. James Davis is having its own launch of the Skins shoe later this month and is calling its invitation list of customers.
Creating buzz is nothing new for Skins, Inc. The company early this year showed its shoe at the Skin + Bones exhibit at the Museum of Contemporary Arts in Los Angeles, which explored the connections between architecture and fashion (you can see a clip of it on youtube.com). Skins shoes have also been featured in fashion and fancy-living magazines. Helping build the hype is key retail partner Sportie LA, a footwear and apparel store with locations on uber-trendy Melrose Avenue. And the Skins Inc. website is an ode to Internet technology and sexy cool.
Klein called the marketing strategy “very, very intentional,” saying Skins Inc. is trying to attract people from various groups, and that melding technology and fashion is exactly what the company does. Iconoclasm aside, Skins Inc. has dashed the hopes of some investors already. In November of 2006, it said shoes would hit stores in January of this year, but missed that original rollout date because of issues at its manufacturing source in Italy. Then the company said shipments would go in late spring—“partly (because of) the pressure from Wall Street,” said Klein. No go, as a factory issue again arose. Now the shoes are being sourced from Asia. The 2008 collection is scheduled to be delivered in February and the company hopes to have 250 locations selling the shoe by the end of 2008.
As for the delays, Klein likened them to those many companies experience when introducing a high tech product: “When you are coming out with a radical new technology, you are going to have bumps along the way.”
Skins Inc.’s volatile shares have been kicked around by those bumps. Since first trading publicly in April 2006 near $1.00 each, shares hit a high in December at $3.05, when investors anticipated January shipments. Then, when the spring shipment was delayed, the stock fell to $0.76 in May. Monday’s settlement at $1.56 reflected market capitalization of $63.9 million. Average daily volume for the past three months is 260,494 shares.
As a development stage company, Skins Inc. has a loss of $7,776,813 since its inception in 2004. In the quarter ended June 30, design and development costs were $550,495 as the company geared for its launch, up from $35,293 in the same three months of 2006; SG and A costs were $1,544,164. Skins, Inc. has a factor financing facility in place and will seek to continue to raise additional capital through private equity placements. At the end of the quarter, it had $3.0 million in current assets and $562,125 in current liabilities.
In addition to the missed launches, skeptics also point to Klein’s lack of experience in the footwear and apparel business; he comes from a technology communications background. Klein dismisses this contention: “I probably wouldn’t have been able to come up with an idea like this if I was from the industry. It goes against the grain.”
Key executives at Skins Inc. substitute for Klein’s lack of experience. Among others, there is Deborah Gargiulo, hired in July as CFO, who had been CFO for Better Apparel at Jones Apparel Group, and vice-president of sales Dennis Walker, who has held positions at K-Swiss, Reebok International and Stride Rite Footwear. Klein also said he has hired a new design director, which will be announced soon.
So far, though, the process of bringing the shoe to market has been no simple matter. “If I had known what I was getting myself into I probably wouldn’t have done it,” Klein said. “It’s a good thing I was as ignorant as I was.” Now: “It’s going to take six bullets in my head to stop me from finishing what I set out to do.”
Besides, Klein has an unencumbered view of the company, talking of a future that includes a children’s line and licensing to include other labels, including, say, Skins branded by the New York Yankees or Abercrombie and Fitch. “You’re going to see Skins under several different price points,” said Klein. All the different brands will be unified by the Bone.
Revolutions take awhile. The heaviest of the design, sourcing, delivery and marketing work is done. The sizing education is underway. A lot still lies ahead, but the focus right now is to just worry the Bone by millimeters. “I don’t see this as an issue,” Klein said. “I don’t see this as an issue at all.”