Puma sees basketball and retail stores as the ways to fuel its rapid growth

Key Points
  • Puma reported a 17% sales increase in fiscal third quarter.
  • Last year, Puma re-entered the U.S. basketball market dominated by Nike and Adidas.
  • Growing its business in China also is a top priority. 
Thierry Henry, God Shammgod, Shawn "Jay-Z" Carter, Clyde Frazier, Emory Jones, RJ Barrett, Kevin Knox participate in a ribbon-cutting ceremony for the opening of Puma's flagship store in New York City on August 29, 2019.
Source: Puma

If sportswear had a prestige category, it would be basketball sneakers.

A strong basketball business can grab shoppers' attention and put a halo around a brand's products. 

Puma partnered with hip-hop mogul Jay-Z last year as it returned to the U.S. basketball market after being on sidelines for two decades. The category is a key part of its global strategy, despite it already being dominated by giants like Nike and Adidas. 

"Partnering with Jay-Z made a lot of sense to us because we believe that basketball is the sport that most merges the worlds of culture, hip hop, art and fashion," said Adam Petrick, Puma's director of global brand and marketing, in an exclusive interview with CNBC. "We are really just trying to tell great stories, get in the space of the consumer, be relevant, be competitive and try and do something interesting."

It is selling its second version of a signature basketball shoe named after NBA Hall of Famer Walt "Clyde" Frazier, harkening back to a deal Puma had with the former Knicks star many years ago. It's also inked sponsorship deals with a number of NBA players.

Puma hopes to have a larger retail presence to connect with younger consumers. It opened its 18,000 square-foot flagship store on New York's Fifth Avenue this year, within walking distance of similar brick-and-mortar outlets for rivals Nike and Adidas. Petrick said the company also wants to win shelf space with U.S. retailers.

"Performance is at the heart of what we do. Without performance, you can't win in the athleisure space. We have to be developing highly technical products that cater to the needs of elite athletes. That's what comes first always," Petrick said.

Puma reported a 17% sales increase in fiscal third quarter compared with the year-ago period, making it the fastest growing global sports brand. Apparel, including athleisure, is the company's fastest growing segment with 18.7% sales growth.

China is Puma's number one priority, Petrick said. Asia is the company's fastest growing region, with 28.5% sales growth in the third quarter.

"We are working to understand the mindset of the consumer there, to understand what's interesting to that consumer and providing relevant storytelling around our products that they want to buy into our brand," Petrick said.

Puma is balancing increasing its connection with Chinese consumers, while decreasing its China sourcing for the U.S. market from roughly 50% in 2014 to roughly 20% this year.

The company will face a 15% tariff on goods it sources in China and sells in the U.S. for the first time in the fourth quarter. CEO Bjorn Gulden called the third quarter "the best quarter that PUMA has ever achieved" and raised the company's forecast, but said the tariffs will still hurt margins.

Gulden said the company has not raised prices to pass along the impact of the tariffs, and won't lead the market in raising prices.

The U.S. market for sportswear is currently dominated by Nike and Adidas, with their lineup of shoes and apparel endorsed by big name athletes like Lebron James, Patrick Mahomes, Steph Curry and Serena Williams.

Puma has enlisted its own all-star lineup of influencers including Jay-Z, Selena Gomez, Meek Mill and Rihanna as well as social media stars known in Asian markets.

The company has also signed a deal with esports brand Cloud 9, to provide uniforms for gamers and apparel for fans. According to Morgan Stanley, 194 million people are expected to watch esports in 2019 and 79% are under the age of 35 years old. Petrick says the collaborative marketing strategy is all part of the company's quest to reach millennial consumers.

Selena Gomez wearing Puma. Gomez is one of several pop culture stars who has recently teamed up with the athletic brand as a celebrity ambassador.
Source: Puma

"Anything we can do to be relevant to our consumers, to give them something to talk about and to think about. It's about finding the right people, that have the right opinions about things and letting them speak on behalf of our brand," said Petrick. "We are going to continue to try and push the market forward and try new things and cross over music and basketball, or art and gaming. That kind of mix is interesting and unique and dynamic."

Puma also recently unveiled its first fitness-focused smartwatch in September. Aimed at sports fans, it will be the company's debut into the crowded wearable market and will start shipping next month.

Watch Puma's Adam Petrick talk the brand's big bet on basketball, celebrity collaborations, and competition