Joe Preston, CEO and President of New Balance, isn't resting on the brand's laurels and the success from the multi-year highs of demand for retro kicks. To take New Balance to the next level and compete with Nike (NKE) and Adidas (ADDYY), Preston is betting it all on innovative materials. Under Preston's leadership, New Balance has already outpaced Nike, Adidas, and Puma (PUM.DE) when it comes to revenue growth, with a 23% increase from 2022 to 2023.

Preston, a New Balance veteran, began his career at the brand in 1995 and took the helm in 2018. For nearly thirty years, he's seen the company evolve from the maker of the “dad shoe” to everyone’s shoe. It has put him in a unique position to both understand the consumer’s wants and lead the brand's next evolution.

"They're looking for new. They're looking for fresh. They're looking for authenticity. Those are all elements that we're trying to deliver and present to them," says Preston.

Yahoo Finance got a rare look at New Balance's operation, from research all the way through to manufacturing, to see how Preston’s strategy of combining innovative technology, materials, and design are all part of his bid to create the next big "it" performance shoe.

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Editor's Note: This article was written by Shelby Boamah.

Video Transcript

BRAD SMITH: Before a pair of the iconic New Balance 990 can make it out of the box and onto your feet, more than likely, it was boxed here in Lawrence, Massachusetts. New Balance, the third largest sneaker brand in the United States, is privately owned and has a Made in USA operation unlike any other sneaker and athletic footwear manufacturer. At its helm is Joe Preston and he's hedging his bets against an eventual dad shoe decline with consumers.

JOE PRESTON: They're looking for new, they're looking for fresh, they're looking for authenticity. Those are all elements that we're trying to deliver and present to them.

BRAD SMITH: Preston began his career at the company in 1995 as a senior product manager and has risen up the ranks being promoted to president and CEO in 2018. Even with its success and popularity, New Balance places fourth behind Puma, Adidas, and Nike. But when it comes to revenue growth, New Balance has outpaced all three giants with a 23% increase between 2022 and 2023.

That growth, fueled by the demand for retro sneakers selling directly to consumers, brand partnerships with world champion athletes, and music superstars, and international growth, has put New Balance on the map in virtually every corner of the world.

JOE PRESTON: I look at our competition, and I see opportunity.

BRAD SMITH: We met with Preston at New Balance's sports research lab in Boston to unpack how he plans to unseat their competitors and his vision for the brand's next evolution.

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Since 2021, New Balance's revenue has grown around $1 billion a year for the last three consecutive years, hitting $6.5 billion in annual sales in 2023. Preston's goal is to hit $10 billion in sales in the next few years. But can he maintain New Balance's momentum and stay in the athletic shoe race, let alone win? Preston is banking on innovative materials to get New Balance across the finish line.

When you think about your top priorities as CEO, what comes to mind for you?

JOE PRESTON: We've been on a growth trajectory here for a few years now. And you want to make sure your systems and your processes can hold up to that growth.

BRAD SMITH: What is the product that excites you the most right now, that you know is coming out of facilities like this.

JOE PRESTON: It's probably the one I'm wearing. This is SC elite.

BRAD SMITH: OK, pop it up there so we can-- there we go, so we can see it.

This is the FuelCell Super Comp Elite V4. It has a midsole made with PEBA, or Polyether Block Amide, a lightweight and bouncy foam that's known for its energy return and responsiveness. This is the material Preston sees as the next big win for New Balance. I had the opportunity to test it myself.

JOE PRESTON: Are we going to be able to capture all of the force that your foot is putting on during your run? We have 20-plus cameras around here, which will be able to capture your form.

BRAD SMITH: I feel like it's rolling perfectly with my foot, too, as I'm making contact with the ground.

So you've got so many different sensors that are in this room. How do you take all of that data and synthesize it into what's going to be best for the athlete?

JOE PRESTON: Well, you have the quantitative data from the force plate, the qualitative data from the cameras and from conversations. You package that together, right?

SAMANTHA SCILIANO: We want to make sure that we're getting that comprehensive look at you as a runner. That combined with the quantitative data is really how we can package something to our designers to say, this is what we might want to change or influence.

BRAD SMITH: New Balance needs to find a new home run to replace its iconic dad shoe. Preston is investing in materials like PEBA to drive the company's growth.

What is that next chemical compound that you're really experimenting with now that gets you excited about the future for New Balance?

JOE PRESTON: We do believe that the next big revolution is going to come in materials. I fundamentally believe that. And I think it will come plant-based or something that will revolutionize the industry.

BRAD SMITH: Creating the next material that will transform the athletic shoe industry is not without obstacles. Just last year, Nike filed federal lawsuits against New Balance and Skechers for patent infringement. The lawsuit says that New Balance has likewise used Nike's Flyknit technologies without authorization. Nike claims New Balance's Fresh Foam FuelCell and other lines violate their patent rights.

What goes through your head when you have companies that are trying to say, hey, you guys copied what we're trying to do?

JOE PRESTON: Intellectual property is a key element of a company's assets. So we want to protect our assets. And likewise, if we feel companies are overstepping their bounds when they come after us, then we're going to defend ourselves.

BRAD SMITH: New Balance and Preston are betting on a future where technology materials and design meshed together to create the shoes of the future. Like its competitors, though, that also means keeping customers fitted in cool retro kicks, like the 990.

JOE PRESTON: We have the 990, the original 990 or the 996 here.

Fashion can ebb and flow, but this remains a core item for so many people around the globe.

BRAD SMITH: The 990 V1 debuted in 1982 and is now in its sixth iteration. The sneaker is a part of New Balance's Made-in-USA running line, meaning it contains a domestic value of 70% or greater.

It's been a perfect storm of consumers looking to spend plus sneaker culture reinvigoration over the past couple of years as well. Have you ever woke up one day and just thought to yourself, why is there so much popularity, or were you shocked by the market demand for silhouettes that debuted in the '80s and '90s?

JOE PRESTON: There's always been an appetite within athletic footwear to look to the past.

- New Balance, a more intelligent approach to building shoes.

- Why don't New Balance shoes come with pumps, disks, or other gimmicks to make them fit better? Because they fit better to begin with.

JOE PRESTON: If you go back into our archives and you understand that these products that we're introduced were state of the art, the 990 was the first $100 running shoe, and there's multiple models in there that were worn by the best runners in the world. So that's a discovery item. And I think our designers do a great job of developing new products and then taking some of our old classics and reimagining them. And the consumer is really gravitating towards it. And we're seeing it in our Google search, which is up significantly and has been for three consecutive years.

BRAD SMITH: Those trends even extend to StockX. According to the online marketplace reseller, New Balance is among the top 16 retro and running silhouettes shoppers were obsessed with in 2023. The New Balance 1906D had the second biggest year-over-year spike in searches on the site.

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JOE PRESTON: Sydney has-- she's a world record holder. And she comes into the Olympics as the reigning champion in there. So this has been designed with her in our innovation team.

BRAD SMITH: Consumers are also gravitating toward New Balance because of their brand partnerships, a business strategy New Balance has had a fickle relationship with.

JOE PRESTON: We do have a history beyond running with athletes. We were the first ones to sign an NBA player to $1 million contract. It was James Worthy back in the day. And then we went away from endorsements for quite some time.

BRAD SMITH: By the late '80s, they were out of the sponsorship game, adopting and endorsed by no one philosophy.

- At New Balance, we don't pay celebrities to wear our shoes.

JOE PRESTON: We get back into it through baseball. Today about 20% of Major League players wear New Balance.

BRAD SMITH: And since 2018, New Balance has seen significant wins with their sponsored athletes, like Coco Gauff, Shohei Ohtani, and Sydney McLaughlin.

How have athlete partnerships really helped with New Balance's story and success and a broader turnaround as you remain relevant with consumers?

JOE PRESTON: I definitely think it's helped us get the brand younger.

BRAD SMITH: It appears teens are gravitating toward New Balance. According to a 2023 Piper Sandler survey, New Balance surpassed Vans as the number four favorite footwear brand, gaining about 200 basis points of mindshare year-over-year.

JOE PRESTON: I think you want to find athletes that you believe share the same values that you have as an organization. And I think we have. But you have to do it in a meaningful way. So every single relationship that we have with an athlete or with an ambassador, we make sure that it's curated, so it's not just a roster that we're bringing their stories to life.

BRAD SMITH: Although New Balance is a Boston-based brand, it's also a global powerhouse with over 4,000 retail locations worldwide, more than Nike and Adidas combined. And before becoming CEO, Preston spent several years managing the brand overseas as vice president of Asia-Pacific and Executive Vice President of International. He says that time shaped his leadership style significantly.

JOE PRESTON: That's where I learned that the role of a leader is to enable and facilitate, not audit and control. So enable and facilitate is how I describe my leadership.

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We finished 2023 at 6.5 billion. About a third of it's in the United States, about 2/3 of it is outside of the US.

BRAD SMITH: Earlier this year, New Balance celebrated 35 years in Japan, a partnership that dates back to 1988.

How did that influence the decisions that you brought back to the US as well?

JOE PRESTON: Well, everyone's goal is to be a global brand. The top sellers are the top sellers everywhere. But that doesn't mean the consumer is getting the information the same way. It doesn't mean they're getting the right shoes, so you've got to make sure that those nuances are in place so that you can benefit from it.

BRAD SMITH: When you think about the next five years and being able to continue to top the results that you've seen here, is that sound daunting to you?

JOE PRESTON: Our future is bright. We have so much room to grow in every single market around the globe, in the areas that we are in, whether it's basketball or global football or baseball or running. So we're just trying to stay focused on that. And if we do that, we think we're going to be able to continue to grow.

BRAD SMITH: You and I have talked at length in the past about whether or not we could ever see a New Balance IPO. Deckers made their way public and has seen the success with some of their brands. Is this the opportunity where in the legacy of Anne and Jim Davis, they say, it would be nice to maybe take a company public?

JOE PRESTON: They've had the company private since they purchased it back in 1972. That's over 52 years ago. The company was founded in 1906, has been private since then, and I think that's going to continue.

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