L.L. Bean: One of these days these boots…
L.L. Bean and its famous Bean Boots are taking over the world with the power of stockouts.
The Boots
L.L. Bean and its famous Bean Boots have been a staple for many outdoorsy upper-middle class adults, but it is only in the last five years that the brand became a popular high-end fashion product for college and high school students, as well as young professionals leading to long waiting times and backorders. While it may seem these point to a problem in the company’s operations, L.L. Bean’s model has led the brand to its strongest point in over a century, with thousands of articles in fashion magazines and websites discussing nothing but the famous boot and its stockouts.
The Bean boots’ stated target is to provide Americans with high-quality (and high-priced) winter boots, handmade in Maine. In many ways, the business model has dictated much of the company’s operational model. The boots have maintained the same production process throughout its history as part of its customer promise in an industry that has shipped most of its manufacturing overseas. Even signature Made-in-the-USA brands like New Balance have expatriated as much of the production process as they legally can. “We realize we could outsource, but that will never happen,” Mac McKeever, a spokesman for the company, said. “The boots have been hand-sewn in Maine by our own skilled boot workers, and they always will be.”
The Production Process
The company operates two factories (170,000 square-feet each), both in Maine, where 500 workers put together the famous Bean boots (also known as duck boots) and other items, like tote bags. The rubber bottom is made by a machine and the rest is handmade. Each shoe takes approximately 85 minutes of labor (not including the breaks between stations). All materials used in the process are from the US and preferably from within the state. “A lot of the leather comes from right here in Maine at a tannery, other parts of the Midwest, the shearling is from Texas, we produce our own boot bottoms [and the] steel comes from local artisans who work for us,” said Eric Smith, a company representative.
Demand Increases, Slow Bean Reaction
After a century of stable demand, in 2011 the boots’ brand caché and trendiness rose rapidly, and for the first time the company experienced stockouts, leading to what became known as the “Bean Boot heartbreak” [See this Glamour Magazine article]. And the trend continued. Evercore’s ISI teen survey crowned it the top teen shoe brand in 2014, with double the popularity of its runner-up: Nike; and this year’s orders will more than triple the number of orders made in 2005. And the result: backorders that last until July, while at the same time, net sales are hitting new records each year, currently standing at $1.61 billion.
Since the increased demand, the company has consistently invested resources to increase capacity. This year it invested $1 million in a second molding injection machine, increased the number of bootmakers by 55% and added a third shift to the existing two shifts, so the factory now operate 24 hours a day.
Still, the stockouts persist, only feeding more fuel to the public hype around the uniquely-shaped boot.
Going Forward
In order to remain true to its original promise, the company would need to increase its capacity while adhering to a long list of constraints (local labor, manufacturing and raw materials, handmade process, etc). There are many possibilities for improvement, including introducing an automated assembly line, building new factories, and more. A company representative recently said, “the demand for Bean Boots has cycled up and down during the hundred years we’ve [been] making it. We don’t go out of our way to find those trends.”
While the wait times have garnered L.L. Bean significant press attention in the past few years, as demand continues to increase it becomes less clear whether the stockouts are part of a well planned corporate strategy to bolster brand caché, or simply poor operations management.
Sources:
- CNBC. L.L. Bean’s boot boom going strong Date Accessed: December 09, 2015 [CNBC http://video.cnbc.com/gallery/?video=3000340579]
- L.L. Bean Video Inside the Factory: https://www.youtube.com/watch?v=IZmL8xZyip
- CBS Boston Report on the Boot Craze: https://www.youtube.com/watch?v=VonKs1j2Uuw
- The Atlantic http://www.theatlantic.com/business/archive/2015/10/llbean-duck-boot-labor-shoes-maine/410863/
- Bloomberg http://www.bloomberg.com/news/articles/2015-09-29/why-can-t-l-l-bean-keep-the-darn-duck-boots-in-stock-
It’s really interesting to think about the stockouts as a demand strategy. Would this be different if LL Bean didn’t have control over it’s own distribution (ie, ecommerce and it’s own stores)? Do you have any opinions on their unlimited lifetime warranty (I’ve had friends’ parents who have been mailing their boots back to LL Bean to get them resoled for decades!), and how that might be affecting their capacity? And maybe, financial margins?
If their business model is to sell a luxury, limited-production product, then this operating model (without sufficient capacity to meet demand) is a perfect strategy. Otherwise, it suggests poor alignment. I wonder if this suggests they are leaving money on the table through pricing.
Great article and quite relevant to the crowd here on campus. I wonder if creating the unfulfilled demand is a part of the marketing strategy. Similar to the thesis that nothing creates a crowd like a crowd. And how some holiday toys become the must have item and all the demand from there on out is really a by product of people wanting things they can’t have. The comment on how the cycles rise up and down resonated with me, as they have been around a long time and over investing in capital now may put them in a difficult over-capacity position down the road when the fad fades.
I really enjoyed this article, Dan. Do you think LL Bean should change its operational capacity? Right now the Duck Boot is a fad, what happens in a few years when they are no longer in style? What risks do scaling up its production process have when demand eventually cuts back; doesn’t LL Bean run the risk of worker and machine utilization plummeting?
Thank you Tom – My comment builds off Tom Dunn’s post above regarding the risk of expanding operational capacity in response to a surge in demand that may or may not be sustainable. Certainly with clothing, it’s difficult to predict when companies rise into and fall out of favor. Sales for North Face, Patagonia, and as we now see on campus with Canada Goose, are all driven by popular “hype” that could recede as quickly as it developed as new competitors enter the fray and market saturation and brand “fatigue” kicks in (I for one have already dropped the idea of buying a Canada Goose parka after seeing it too frequently around HBS).
In my view, LL Bean should preserve “stockouts” as a differentiator and marketing tool, which means its investment in increased capacity is a poor strategic decision. Similar to ramen restaurants that reject reservations or space expansions in favor of utilizing long lines to build perceived exclusivity, LL Bean should keep supply below demand to maintain its brand “hype” as long as possible, while also reducing capital and labor costs and the odds of future capacity glut.
Now I want those boots. I do think the stockouts are primarily a failure of supply to keep up with demand. The unintended benefit is that the scarcity makes them even more desirable akin to what Hermes does with its Birkins or Louboutin with the pigalles in my opinion.
In any case, I think the fairly labour intensive operations model is the right model for a faddish business like this.This will allow them to scale up and down with demand fairly flexible. CapEx of $1M USD compared to sales of $1.6B USD is quite reasonable to me and they should continue to invest in molding machines to meet demand. The only watchout would be leaving money on the table by not responding to back orders in a timely fashion.
Hey Tom, really great TOM post. I wasn’t aware of this issue that L.L. Bean had with their famous boot and I never would have guessed how popular they are with the teens these days. What do you think the implications of them increasing capacity, eventually eliminating the backorders and keeping up with supply? What do you think the implications would be if demand would be reduced and they were in an overcapacity situation?
Interesting article Tom, thanks! Any idea regarding the causes of this sudden increase in popularity? Could this be a trend that, if reversed, would leave the company’s recent capex investments under-utilised? Most importantly, how sustainable can the manufactured in the US model be? Could they move they production elsewhere cheaper without compromising too much the brand?