NEW YORK, Aug 2 — Nike came out with a new product last Tuesday, an updated and – for my feet – more comfortable version of an old canvas basketball sneaker known as the Converse Chuck Taylor All Star.

Chucks – as millions of devotees know them – come in many colours and variations. Wilt Chamberlain ran in them in 1962 when he scored 100 points in a single NBA game. Andy Warhol wore them when he painted soup cans and celebrities. James Dean, Elvis Presley, Billy Joel, Sid Vicious, Kurt Cobain, Patti Smith, Common and MIA have all worn them. Like Levi’s and Coca-Cola, Converse sneakers are global symbols of American pop culture.

But Chuck Taylors aren’t emblazoned with a Nike swoosh or label. They carry only the proud old name Converse, a Massachusetts company that Nike bought in 2003, two years after Converse went into bankruptcy. Nike has been careful to preserve the Converse retro aesthetic because it’s good business: Chuck Taylors have become a very important source of Nike revenue and earnings growth.

Converse Chuck Taylor sneakers with removable cushioned insoles.

Nike has made its share of mistakes through the years in its battles with Adidas, Reebok, Puma, Skechers and other competitors. But the venerable Chuck Taylors have been one of Nike’s successes. The canvas basketball shoe has helped make Nike one of the best-performing companies in the Standard & Poor’s 500-stock index, with a total return of 20.5 per cent this year, compared with 3.4 per cent for the index. Over the last five years, Nike shares have performed roughly twice as well as the index, with a total return of 214 per cent, compared with 108 per cent for the S&P 500.

There are many paths to outperformance. For fashionistas as well as aging athletes, the road taken by Nike with the Converse sneaker is one of the most colourful. And for students of finance, Nike’s battle to rise to the top of the heap of the sports apparel industry – and to stay there – has become one of the most enduring American business stories.

Chuck Taylor All Star Leather shoe from 1934.

Despite Converse’s long history, the company was relatively insignificant in July 2003, when, according to corporate filings, Nike agreed to pay US$305 million (approx. RM1.17 billion) in cash to buy it. Before that purchase, Converse’s reported annual revenue was only US$205 million, while Nike’s was US$10.7 billion in its 2003 fiscal year, which ended May 31.

Nike makes a great deal of money, with a gross profit margin of more than 46 per cent. But these days, Converse accounts for a surprisingly large share of Nike’s overall revenue and, especially, its profits, I found after examining Nike’s financial statements. In its 2015 fiscal year, Converse’s revenue approached US$2 billion, a nearly tenfold increase since 2002. Nike’s overall revenue grew too, but at a slower pace, to US$30.6 billion. Converse’s rapid growth helps explain why it is now the only Nike operating unit whose revenue and earnings are disclosed separately in Nike’s income statements. Separate numbers for Jordan basketball shoes, Nike Golf and Hurley surfwear, for example, don’t appear in those reports.

Chuck Taylor All Star shoe from 1960.

The size of the sneaker subsidiary’s profits is startling. Converse’s operating profit, before interest and taxes, was US$517 million, compared with US$4.2 billion for Nike overall. Converse accounted for 6.5 per cent of Nike’s revenue and a hefty 12.2 per cent of its operating profit, before interest and taxes, my calculations show. What’s more, Converse has been growing faster than the rest of Nike.

I ran all of these numbers by Geoff Cottrill, vice president and general manager of Converse. He wouldn’t comment on them specifically. He confirmed that while Converse makes other shoes and accessories, the Chuck Taylor is the engine that makes Converse fly. And, he said: “I can tell you where we’re going and where we’ve been. Converse is a very positive growth story for Nike Inc.”

Converse sells more than 270,000 pairs of Chuck Taylors a day, 365 days a year, Cottrill said. That works out to roughly 100 million pairs a year – and that’s before the introduction of the new sneakers.

Suede Leather All Star Shoe from 1971.

With subtle tweaking, the sneakers look very much like the original Chuck Taylor high-tops, which took their current form in 1934, and the first All Stars, which were made in 1917. “For basketball shoes, that in many ways is the original, ur-sneaker,” said Elizabeth Semmelhack, senior curator at the Bata Shoe Museum in Toronto and curator of the Brooklyn Museum show “The Rise of Sneaker Culture,” where a 1917 All Star is on display. “The architecture of the All Star has in some ways remained the same since 1917,” she said.

All Star Converse shoe from 1917.

The new shoes, known as the Chuck Taylor All Star II, contain Lunarlon cushioning technology, which is common in Nike brand shoes. “A lot of our customers said they wanted Chuck Taylors to be more comfortable,” Cottrill said. “We think that for many people, these will be.”

In most sizes and colours, the new Chuck Taylors, which cost US$20 more than the classics, sold out within 24 hours online. I bought a white, low-rise pair for US$70 at a Converse store soon after they went on sale and can report that for me, the Chuck IIs are extremely comfortable. The old version, which I wore happily as a teenager and which, Cottrill says, are what athletes like Wilt Chamberlain actually used in the NBA, now seem impossibly thin-soled for my middle-aged feet.

Semmelhack said classic Chucks hadn’t changed – many of us had. “There have been so many innovations by shoe companies giving the soles of our footwear more cushioning and more responsiveness that our perception of comfort has changed,” she said. Converse executives say the new Chucks aren’t high-performance basketball shoes; Nike makes plenty of those. Converse is just trying to make more comfortable sneakers.

Not everyone will like the changes in the Chuck Taylor II. Cottrill, who once worked for Coca-Cola, says altering a tried-and-true favourite like the Chuck Taylor is heresy for some people. Coca-Cola made a change like that in April 1985, replacing the original Coke with a new version. In an official history, Coke now says its ill-advised decision spawned “consumer angst the likes of which no business has ever seen.” It brought back classic Coke.

Cottrill says Converse has learned the Coca-Cola lesson. “The Coke thing came up in a number of our meetings,” he said. “We decided to do something different,” adopting what he describes as an “and” strategy. “We’re not taking anything away,” he said. “What Coke did is they took an iconic product and changed it and offered no choice to consumers. We’re not doing that. We’re continuing with the original, classic Chuck, and we’re offering the new one.” He added: “A considerable number of people believe that the original classic Chuck Taylor is the most comfortable sneaker in the world. We’re not changing that sneaker.”

Semmelhack says Converse appears to be making a sound cultural decision. In the 1970s, as the Chuck Taylor’s status as a serious basketball shoe waned, she said, it became preferred footwear for hip musicians. “It was a punk signifier of anti-fashion, anti-establishment values,” and still retains an aura of humble authenticity. There are so many sneakers on the market now, she said, “that I think there is room for a kind of ‘luxe’ version of the Chuck Taylor.” But its strength – and, until now, its weakness – is that it is, essentially, a simple canvas and rubber shoe.

Converse wants to have it both ways. If it’s very careful, it may well succeed. — The New York Times