Stride Rite Corporation was a leading American designer and marketer of children's footwear, celebrated for its high-quality products. Founded in 1919 in Boston, Massachusetts, the company grew to become a household name, trusted by generations of parents. For a value investing practitioner, Stride Rite's history is a goldmine of lessons. It was, for much of its life as a public company, a classic example of an easy-to-understand business with a durable competitive advantage. Its primary customers—parents—were motivated by quality and fit rather than price, giving the company significant pricing power and a loyal following. The company's story, including its management blunders, brand power, and eventual acquisition, offers timeless insights into identifying undervalued, high-quality businesses. Although it no longer trades as an independent public company, its journey provides a perfect case study in the principles championed by legendary investors.
Stride Rite was the kind of company that investors like Peter Lynch would call a “tenbagger” in the making, found right under your nose at the local shopping mall. Its business model was simple: make and sell top-tier shoes for kids. This simplicity, combined with a powerful brand, created a formidable economic moat. Parents, especially first-timers, rarely skimp on their child's first pair of shoes. This created a recurring, predictable stream of revenue built on trust and perceived quality, not fleeting fashion trends. At various points, the market overlooked this steady, “boring” business, allowing shrewd investors to buy a piece of this durable enterprise at a discount to its intrinsic value, applying a healthy margin of safety.
A pivotal chapter in Stride Rite's history was its 1979 acquisition of Keds. While the Keds brand of canvas sneakers became a massive pop-culture hit in the 1980s, its success became a dangerous distraction. Management poured resources and attention into the trendy, lower-margin sneaker business, neglecting its crown jewel—the high-margin, fortress-like Stride Rite children's shoe division. When Keds' popularity inevitably faded, the company's overall performance suffered, and its stock price languished. This period of struggle, however, is precisely what created an opportunity for value investors. Those who could look past the temporary problems with Keds and see the unshakable value of the core Stride Rite brand could purchase the stock on the cheap. This story serves as a critical lesson: always analyze how management allocates capital. A company diversifying outside its circle of competence can often lead to trouble, but if the core business remains intact, the market's overreaction can be your entry point.
Stride Rite’s enduring success was built on a powerful and sustainable competitive advantage, or moat. This moat had two primary sources:
For years, Wall Street treated Stride Rite as a sleepy, unexciting company. The value inherent in its brand and market position was not fully reflected in its stock price. This changed in 2007 when the company was acquired by Payless ShoeSource in a deal that created a new parent company, Collective Brands. For long-term shareholders, this buyout was the catalyst that unlocked the company's true value, delivering a handsome return. The story didn't end there. After Collective Brands filed for bankruptcy in 2012, the Stride Rite brand was valuable enough to be purchased by Wolverine World Wide, another footwear giant. Later, it was sold to a private equity firm. This journey demonstrates that a truly powerful brand can outlive its corporate structures, retaining its value through bankruptcies and multiple owners.
The story of Stride Rite offers several practical lessons for the modern investor: