Peter and Patty Duke hope the reception SmartWool received in the marketplace is similar with Point6, the new company they started in February 2008, a month after their five-year noncompete agreement with SmartWool expired. Read more about the Dukes — the founders of SmartWool — here.
The story so far
SmartWool is founded in Steamboat by former ski instructors Peter and Patty Duke. About $300,000 in sales are made the first year.
Philadelphia-based RAF Industries invests six figures in SmartWool, giving RAF 30 percent ownership of the company.
SmartWool sales exceed $2 million. Sales nearly triple the next year.
Steamboat Springs attorney Chip Coe sells his practice and becomes chief operating officer. SmartWool begins selling base layers.
SmartWool sales exceed $18 million.
SmartWool moves into 12,000 square feet of office space at the Steamboat Springs Airport terminal building.
The Dukes lose majority control of the company and sell their remaining interest to RAF Industries. Chip Coe becomes president.
Timberland pays $82 million for SmartWool, which is doing just more than $40 million a year in sales.
President Chip Coe hires Mark Satkiewicz as vice president of sales.
SmartWool President Chip Coe retires from the company. Mark Bryden, vice president of operations, named interim president.
Mark Bryden is named SmartWool’s president.
SmartWool employees take inaugural bike ride to Outdoor Retailer Summer Market trade show in Salt Lake City.
Founders Peter and Patty Duke launch Point6 sock company, a month after their noncompete agreement with SmartWool expires.
SmartWool commits to purchasing energy credits through Native Energy to support Colorado wind farms — enough credits to offset 1.3 million miles of airline travel annually, 296,000 miles of automobile commuting logged by SmartWool employees and the electricity and natural gas consumed by SmartWool’s offices in Steamboat and Boulder.
SmartWool is named Sustainable Business of the Year by the Steamboat Springs Chamber Resort Association. The company helped establish the program’s highest designation, platinum.
SmartWool President Mark Bryden promoted to vice president and general manager of Timberland North America. Mark Satkiewicz named SmartWool president.
SmartWool has another record-breaking year with revenues nearing the $100 million mark, selling more than 10 million pairs of socks in addition to other apparel.
Steamboat Springs With one day left, the cycling portion of SmartWool’s ride to Salt Lake City is winding down. After 260 miles of pedaling, only 100 miles and Wolf Creek Pass stand between the 34 riders and their destination — the annual Outdoor Retailer Summer Market trade show.
The fun part is then over, and it’s back to work meeting with customers and selling the merino wool socks and apparel for which the Steamboat Springs company is famous. SmartWool’s rise to industry leader status is thanks in part to the company’s founders, Peter and Patty Duke, who are starting their own entrepreneurial ride again with the Point6 sock company.
But at Outdoor Retailer, it’s SmartWool that’s firmly atop the merino wool world. Despite the economy, the SmartWool team will arrive at the trade show bigger and stronger than it was before the Great Recession hit.
On paper it’s not the longest section of the four-day ride, but the elevation profile makes this 100-mile stretch from Altamont, Utah, to Park City, Utah, the most challenging.
Throw in 100-degree temperatures and this day has the potential to turn hellish quickly.
“I don’t think a lot of people really understand how hard it is to ride that long, or for eight, nine, 10 hours, across the desert in 100 degrees,” said SmartWool President Mark Satkiewicz, recalling the ride’s second day — a 113-mile jaunt to Vernal, Utah. The third day was only 50 miles and was meant to serve as a rest day.
Anxiety, nerves and a 5:30 a.m. departure time for the first group had many of the riders in bed before the sun set. A group of seven of the stronger riders, which includes Satkiewicz, leaves the Altamont ranch at 6:45 a.m., one hour, 15 minutes behind the first group. The goal is to rendezvous at the top of Wolf Creek Pass for lunch and a group picture.
“We’re going to ride hard,” Satkiewicz had said the day before.
Satkiewicz, Trevor Walz, Timberland’s Tim Reinhart and Mountain Flyer Magazine writer Jordan Carr stick together up the pass, keeping their speed in the double digits.
More impressive is that all the riders — encompassing the full spectrum of ability levels — who started the pass, finished it.
SmartWool’s director of special projects, Norma Hansen, a 46-year-old who just got into road biking last summer, is greeted at the top of the pass with loud cheers, applause and a hug from riding partner and friend Bruce Gordon. She also gets a high-five from Mark Bryden, SmartWool’s last president, who, in August 2009, left to become vice president and general manager of Timberland North America. Timberland acquired SmartWool in December 2005.
After a picture at the summit, the riders get their final reward, the descent down the pass.
“It feels scary,” said Satkiewicz, referring to the 60 miles per hour he reached while catching up to the lead pack of riders on the descent.
Riders share high-fives, congratulations, beer and food 30 miles away in Park City, where the group gathers one last time at a restaurant. From here, they will drive to Salt Lake City.
“I’m very proud of being able to do it,” says the oldest rider, Michael Tebrich, a 58-year-old sales rep who has participated in the ride before.
Satkiewicz already is thinking about next year.
“It’s great to be done, and it’s the best ride we’ve ever had,” Satkiewicz said. “Biggest group, best riders, inspirational people.”
The group will meet again in two days for the real reason they rode here — the Outdoor Retailer show in Salt Lake City.
“Now, it’s way back to business,” Satkiewicz said.
SmartWool arrives at the trade show even bigger and stronger than it was a year ago, despite the recession.
That has been a trend since the company was founded in Steamboat in 1994 by former ski instructors Peter and Patty Duke.
Budget projections were met in 2008 after the economy bottomed out in October of that year. They fell short of their projections in 2009, but it was another record-breaking year with revenues nearing the $100 million mark. SmartWool sold more than 10 million pairs of socks in addition to its growing apparel line. More important, it outpaced its competitors in terms of growth. Today, SmartWool has about 85 employees, with 20 working out of offices in Boulder and London.
Satkiewicz expects to have another record-breaking year in 2010, and that doesn’t necessarily mean taking market share from its main merino competitors Icebreaker, Ibex and I/O Bio.
“The synthetic people at the premium end, I think they have the most market share potentially to lose because they are very expensive, and the properties of merino wool are proven to be stronger,” Satkiewicz said.
Socks are SmartWool’s stronghold. The company holds a 70 percent market share in the specialty sock market, according to communications director Molly Cuffe. Nine of the 10 best-selling socks every month are made by SmartWool.
The company accounts for about 7 percent of New Hampshire-based Timberland’s annual revenues, Satkiewicz said. The publicly traded Timberland brought in $1.29 billion in 2009. The company made $56.6 million after paying taxes and the salaries of 5,700 employees.
There have been two changes in ownership in SmartWool’s history. The first came in January 2003, after the Dukes lost majority control of the company and sold their remaining interest to RAF Industries.
“It’s like losing your baby,” Peter Duke said at Outdoor Retailer, where he was promoting his newest sock company, Steamboat Springs-based Point6.
The second ownership change was in December 2005, when Timberland paid $82 million for SmartWool, which at the time had revenues of more than $40 million, Satkiewicz said.
Chip Coe, who was president of the company at the time, said buyers were paying a premium price for companies such as SmartWool.
“We had a discussion that said, ‘We’re not really super interested to sell, but if someone is willing to pay this price, we’re willing to listen,’” said Coe, now 50 and working for Wolverine World Wide, the owner of several footwear companies. “We never did hang a ‘for sale’ sign on the company, so to speak.”
Coe said SmartWool approached about a dozen pre-qualified companies to gauge interest. Executives met with four of those, and Timberland made the right offer.
Since the Timberland acquisition, SmartWool has more than doubled its revenues. SmartWool’s revenue and profits are not specified in Timberland’s quarterly filings.
Satkiewicz and Timberland CEO Jeff Swartz say the acquisition has benefited both companies.
SmartWool operates within its own budget, and its parent company so far has taken a hands-off approach.
“They put pressure on us like any owner or parent company would, but that’s to be expected,” Satkiewicz said.
Timberland did not bring an influx of cash like RAF, but SmartWool benefited in being able to use some of Timberland’s other assets, such as human relations, inventory, finance and IT support. SmartWool employees also benefited from Timberland’s benefits program, which includes performance-based bonuses.
There was fear that a new owner might want to relocate SmartWool from its home in Steamboat, at the city’s airport terminal on Elk River Road. That has not happened, and there are no plans to do so, Satkiewicz said.
Swartz said that even during a visit of SmartWool headquarters to consider purchasing the company, SmartWool’s greatest asset was kept a secret.
“If you buy the company, we’ll tell you the secret,” Swartz said he was told. After the purchase, “Mark and others said, ‘Here’s the secret: We live in the most spectacular place in the world.’”
Timberland was looking to acquire a portfolio of brands, and the purchase of SmartWool proved to be the smartest financially as well as in terms of what SmartWool could offer Timberland, Satkiewicz said.
“Active mountain lifestyle people are frank and they’re direct and they’re candid and they’re honest and they’re confident and they’re self-confident but not full of themselves,” Swartz said while visiting the SmartWool booth at the Outdoor Retailer show. “They’re understated but purposeful. That impacts a corporate culture in a big way. Timberland is ... a more powerful place as the mountain air moves through our halls. Our culture is much stronger with this association.”
Live in Steamboat Springs long enough and your sock drawer will look like Sandy Evans Hall’s.
“I’ve got the stripes, I’ve got the snowflake design, I’ve got the long ones, really thin ones that I need for skiing, I’ve got the really thick hiking ones — blue and green — and then I have probably eight or nine pairs of running socks, everything from bright pink to bright yellow to gray,” said Evans Hall, a longtime Steamboat resident who has worked at the Steamboat Springs Chamber Resort Association since 1985.
“I think there is a tremendous amount of community pride that we have that business here in town,” Evans Hall said.
SmartWool is a sponsor of numerous community events. The short list includes the Steamboat Marathon, Steamboat Triathlon and Ride 4 Yellow Livestrong events.
On Aug. 15, SmartWool held its second annual Bike-in Movie at Howelsen Hill, where “The 40 Year Old Virgin” was shown outside on a big screen with thousands of dollars raised from beer sales and donations for the Routt County Riders cycling advocacy group.
“They don’t have to be involved in our local events,” Evans Hall said. “They certainly have bigger fish to fry with their national and international distribution, but they always take a look at things we’re doing, and they want to be active and they want to be a part of the community.”
SmartWool is joined by other Steamboat-based outdoor business — think Moots Cycles, Eriksen Cyles, Big Agnes, BAP and Honey Stinger — that Steamboat hangs it hat on, said Evans Hall, the Chamber’s executive vice president.
“We really like those business being here because they kind of walk the style that we are,” she said.
Companies such as SmartWool also help diversify a Steamboat economy that relies heavily on tourist dollars, Routt County Economic Development Cooperative Director Scott Ford said.
“SmartWool is good for the Yampa Valley, and Steamboat is good for them, too,” he said.
Ford said SmartWool offers careers, not just jobs, to a resort community that often has plenty of the latter but not nearly enough of the former.
“What it means is places like SmartWool, as these businesses become more dynamic there are increasing career opportunities,” Ford said. “There is a time when we didn’t see that, and now we do, and SmartWool offers that.”
SmartWool is born
During this year’s summer Outdoor Retailer show, Peter and Patty Duke find themselves in a familiar position.
This is the show where 16 years ago the SmartWool founders first showed potential buyers their socks made from merino wool, a textile that in the coming years would explode in the marketplace, stealing business from synthetics.
During that first show, SmartWool’s booth was outside in a tent with the rest of the startup companies.
“We were a new vendor, and you don’t get on the main showroom floor,” said Peter Duke, 64.
In recent years, those new vendors have been moved inside to a ballroom a few hundred yards from the main floor of the Salt Palace Convention Center. That’s where the Dukes find themselves this year with Point6.
During this year’s show, Peter Duke recalled a key moment in SmartWool’s history. He was doing his sales pitch to a potential buyer at the show.
“He says, ‘You know something, the guy next door, the other sock guy, is saying the same thing about his product as you are saying about your product.’”
Peter Duke realized he had to get his socks on potential buyers’ feet, so he launched a giveaway program.
“I said, ‘Here, put them on your feet, I won’t talk anymore, put them on your feet,’” Duke recalled.
“By the end of that show, people were coming by and saying this is absolutely the greatest product they’ve ever had on their feet, and so started SmartWool.”
The former ski instructors were introduced to merino wool in 1987, a product with technical qualities such as temperature regulation and moisture wicking.
There also was a new process of treating the wool that made it itch-free and dryer-friendly.
“Good news was that people loved the product,” Peter Duke said. “Bad news was that it wasn’t right for the marketplace because it was expensive.”
They opened Duke Designs in 1988 in the Franklin Mall in downtown Steamboat, selling merino wool and traditional wool socks, hats and sweaters. They pitched the merino wool product at trade shows.
“They enjoyed the product, but it took too much energy from a retailer’s point of view to explain to the customer the attributes of the product, so they were reluctant to bring it to market. Plus it was expensive,” Peter Duke said.
Further market research for the Dukes included selling merino wool socks to Steamboat locals for $5 a pair.
“We had a couple of thousand pair, and when we ran out, we ran out,” Peter Duke said.
The Dukes had stopped making the merino socks, closed the storefront in 1992 and waited for markets to change.
“For the next two, three years afterwards, the locals kept coming up to us and actually starting what we call the SmartWool salute, where people would pick up their leg and say, ‘Are you making these socks again?’” Peter Duke said. “My wife and I said, ‘Maybe we’re getting to the point where the marketplace is right,’ so in ’94, we launched SmartWool.”
World headquarters was in the basement of the Dukes’ house. Their warehouse was a 13th Street storage unit.
“My wife and I would get an order, we’d enter it, we’d run out to the cold storage, ship it and then invoice it,” Peter Duke said.
SmartWool was battling synthetics and winning, but the Dukes needed help.
SmartWool grows up
In 1995, a year after SmartWool was launched, the Dukes partnered with Philadelphia-based investment group RAF Industries, which looked at the emerging brand and decided to invest.
“We needed some money, and it was important that they helped us with the financing so we could get to the next level,” Peter Duke said.
Officials at RAF did not reply to a request for an interview, but a section on their website singles out SmartWool as a company success story.
According to RAF’s version, SmartWool had sales of about $300,000 the first year in 1994. The next year, RAF invested, pumping six figures into SmartWool and netting a 30 percent stake in ownership. It would invest more money later that year. It also loaned SmartWool money, which gave RAF the option to acquire additional stock for an agreed-upon price and the option to become the majority shareholder, said Coe, a lawyer who provided legal services to the Dukes during the launch of SmartWool and would later become company president.
“I don’t think they frankly set out to take control,” Coe said in an Aug. 23 telephone interview. “It was only later on that they started to ramp up that things got more interesting for everyone.”
With the infusion of cash, SmartWool sales exceeded $2 million in 1996, according to RAF. The next year, sales nearly tripled to $5.7 million. At that point, SmartWool had expanded its product line to include running, biking and casual socks. SmartWool socks began appearing in the L.L. Bean catalogue and its flagship store in New England.
From 1998 to 2000, SmartWool grew its employee base and hired managers experienced in the industry.
Coe sold his practice and became chief operating officer for the growing company. Peter Duke remained the president, and Patty was creative director.
In 2000, a year after Coe joined the company and helped introduce SmartWool base layers to the market, revenues exceeded $18 million.
In January 2003, according to RAF, “the Dukes realized their goal of financial security and the opportunity to pursue new challenges by selling their remaining interest in SmartWool to RAF.”
Peter Duke remembers the breakup differently.
“It was growing through the roof,” he said. “It was a rocketship, and something made them want the whole thing, and that’s why we were no longer there. There was a lot of unfinished business for my wife and myself — unfinished business in what we wanted to bring to the market.”
Coe said he was not privy to the buyout agreement.
“It was a willing buyer and seller, and they agreed on whatever price they agreed on and closed the deal and moved on,” Coe said. “I know enough to know that they got paid handsomely.”
In the three years leading up to the buyout, SmartWool had grown from 12 to 32 employees despite no further infusions of capital since the initial investment by RAF.
Duke declined to discuss details of the buyout, saying only that he and his wife didn’t come out of it “as well as we should of.”
Peter Duke said they never wanted to get out of the business and always had the idea of getting back in.
“We just didn’t know ... how, where and when yet,” he said.
While the Dukes tried to embrace retirement, the company they founded continued to grow without them.
Room for growth
Walls lined with SmartWool socks can be found at the smallest and largest outdoor retailers in 28 countries.
Scarfs, hats, sweaters, jackets, gloves, cycling and running apparel have continued to gain prominence at retailers ever since SmartWool entered the apparel market in 1999 with its merino wool base layer.
You might be surprised by where else you will find the SmartWool logo today. The company has an expanding line of slippers and recently partnered with Vibram to create a co-branded, five-toed exercise and running shoe. SmartWool liners also can be found in some Timberland footwear products. Three different thicknesses of base layers, mid-layers and jackets helped drive SmartWool’s layering message during this year’s Outdoor Retailer. There is an ongoing effort to get people who are familiar with the brand to try different products, Satkiewicz said.
While SmartWool continues to innovate and expand its product lines, the company also has taken steps to expand its stake in international markets, which accounts for only 15 percent of sales.
“We see that changing pretty significantly,” Satkiewicz said. “There is significant opportunity really everywhere we look.”
Taking a chance
On opening day of Outdoor Retailer, those who have just ridden 360 miles on their bikes across parts of Colorado and Utah are dressed in typical outdoor industry business casual.
At the Timberland booth next to SmartWool’s, Tim Reinhart mans a station where people use pedaling power from a stationary bike to mix fruit smoothies. Hansen meets with retailers about recent changes to SmartWool’s computer systems. Inside the company’s booth at a table across from a map detailing SmartWool’s ride to the show, sales rep Carri Wullner shows the spring 2011 sock line to Natalie Freel and Sue Selleck with Roth’s Shoes in Casper, Wyo. Wullner also tells them about the four-day ride.
“I’m darn impressed,” Selleck said.
SmartWool field marketing manager Gardner Flanigan has met the riders at the show.
He has been at the company since 1997, longer than anyone currently working there. Flanigan knew the Dukes through the Steamboat Springs Winter Sports Club, where, as a coach, Flanigan taught the Dukes’ children how to ski. In between jobs during summer 1997, Flanigan ran into Peter Duke at a gas station.
“Come talk to me sometime,” Peter Duke told Flanigan. “My company is growing.”
Without Flanigan having any education or experience in marketing, Peter Duke took a chance and hired him as marketing coordinator in October 1997.
“I feel a great deal of indebtedness to them,” said Flanigan, 49. “I just feel really fortunate to have been able to learn this industry and work for something that I really, really believe in and am able to live in Steamboat Springs. The ride’s been good. It is a ride. There’s ups and downs and all that. We’ve had transitions and challenges as a company, but at the end of the day, it’s the culture, it’s the people and ultimately it’s this great product that we make that really works.”