It’s Been a Bumpy Year for L.A. Gear : Retail: The company has lost money, fought lawsuits and been forced to reach a new agreement with lenders. It hopes to bounce back with a new sneaker line.
L.A. Gear, as its slogan says, might really be unstoppable. Trouble is, lately, it’s been barreling in the wrong direction.
The sneaker maker lost as much as $6 million in the last quarter, and its inventory remains overloaded with slow-selling lines.
Some retailers--worried that L.A. Gear’s image has been tarnished because so much of its merchandise now is for sale at discount stores, swap meets and even from the backs of trucks--are reluctant to give shelf space to its $100 Catapult basketball shoes.
The launch of the Catapult line hit another minor snag over the weekend when CBS and NBC balked at airing L.A. Gear’s TV commercial for the sneakers. On Wednesday, however, an NBC spokeswoman said the network would run it without any changes.
Meanwhile, during the past year the Marina del Rey company has squabbled with celebrities hired to push its sneakers. It also has been sued by shareholders, investigated by federal customs officials and, most recently, forced to reach a new agreement with its lenders.
A small but growing number of analysts suggest that L.A. Gear--still the nation’s No. 3 athletic shoe firm--could be on an irreversible slide.
“They’d be hurting even without the recession,” said Josie Esquivel, an analyst with Shearson Lehman Bros.
L.A. Gear--which leaped to prominence by capturing and promoting the idea of the casual Southern California lifestyle--is learning about the fickleness of consumers who a year ago snapped up the company’s fashion sneakers. And in trying to make its first big splash in expensive “technical” men’s sports shoes with Catapult, the company is facing skeptical retailers and entrenched competitors.
But company executives say the concerns about L.A. Gear’s future are nonsense. “I stub my toe, and the whole world attacks. Didn’t anyone hear that it was a bad Christmas at retail?” said Robert Y. Greenberg, the blunt, gravelly-voiced former hairdresser who is L.A. Gear’s founder, chairman and chief executive.
L.A. Gear executives note that the company skyrocketed from an $11-million firm to a $900-million-a-year business in five years, and that its revenue climbed 50% in the fiscal year ended Nov. 30, despite the weak retailing climate. Gains came largely in foreign markets and in sales of men’s and children’s sneakers.
Even with the recently projected fourth-quarter loss of $4 million to $6 million--L.A. Gear’s first red ink since going public in 1986--the company expects to show a yearlong profit of at least $32 million. Also, its net worth remains more than $200 million.
“We’re not going away,” said Kevin Ventrudo, chief financial officer.
Greenberg says L.A. Gear is suffering from the recession and unavoidable growing pains after a four-year span in which it was, according to Forbes magazine, the most profitable company among nearly 1,200 major U.S. firms surveyed.
Although Wall Street analysts currently are urging investors to stay away from L.A. Gear stock, most say the company can bounce back strongly if it comes out with a few new hit products and curbs its expenses. The stock peaked at $50.375 in May. On Wednesday, though, it closed down 50 cents at $9.75, near its 52-week low of $9.
No one has been hit more directly by L.A. Gear’s earnings decline over the past three quarters than Greenberg, the company’s biggest shareholder with nearly 19% of its stock. Greenberg’s pay--which is tied to company profits--has been capped at $5 million, but he says he made substantially less than that last year because of the slump.
To give itself a needed lift, L.A. Gear kicked off a new advertising campaign with a television commercial for the Catapult basketball sneakers that aired on ABC during the Super Bowl on Sunday. It features Utah Jazz star Karl Malone.
NBC and CBS initially declined to run the ad, taking issue mainly with Malone’s concluding line: “Everything else is just hot air.” It apparently was considered a swipe at Nike and Reebok, L.A. Gear’s two biggest competitors, which both sell popular shoes with air chambers for roughly the same price.
But on Wednesday NBC said that, after reviewing the tape, it decided that the line was simply “a figure of speech” and not a competitive claim that needed to be backed up with documentation.
The company says retailers are excited about Catapult, but there are signs that many sporting goods merchants aren’t eager to remove the likes of Nikes and Reeboks to make room for the new L.A. Gear sports shoes.
Analysts say Catapult isn’t a make-or-break product for L.A. Gear. Still, they add, the company’s efforts to expand in the men’s sneaker market would be set back significantly if the shoes flop.
Working against Catapult are the slowdown in the sneaker business and in retailing generally, the crowded field of high-end sneakers and the company’s reputation as mainly a fashion shoe manufacturer.
Jim Chick, president of the six-store Chick’s Sporting Goods chain based in Covina, said: “If Jim Chick is putting his money on the line, I feel much more confident going with Nike. It’s a proven winner.”
Chick said he carries only a few lines of L.A. Gear sneakers, but more than 20 Nike models.
“We looked at all of the companies,” he said, “and there wasn’t (more) room for L.A. Gear.”
Other retailers adopted a wait-and-see attitude.
“We’re going to let the consumer tell us,” said Joseph Wood, general merchandise manager of the Athlete’s Foot, the nation’s No. 2 sneaker retail chain.
He said the Catapult sneakers will be sold during a test period at more than half of its 230 company-owned stores.
L.A. Gear became a hit by dressing up women’s sneakers with adornments such as tassels and beads. Its efforts to sell consumers on the “performance” or “technical” benefits of its men’s athletic shoes weren’t helped last month when a Marquette University basketball player fell to the court in a televised game after one of his L.A. Gear sneakers lost its sole.
But for Catapult, the company is going on the attack with high-charged descriptions of what it calls its first “high-tech” shoe.
According to Sandy Saemann, the company’s executive vice president for marketing and Greenberg’s longtime business associate, the Catapult has “an anti-fatigue rebound mechanism” and provides “20 pounds of body thrust energy.” In other words, the shoe comes with a fiberglass-and-graphite plate and an air cushion in the heel that are supposed to give ballplayers some extra spring, support and comfort.
In the fashion sneaker business, analysts say, the company’s only big remaining hit is the Street Hiker, a hybrid sneaker-hiking shoe.
Perhaps the biggest challenge for L.A. Gear is improving its relations with some disenchanted retailers and the financial community.
“They’re interested in quick results, and in the performance market, you win with action rather than words,” said Sally Edwards, president and founder of the 40-store Fleet Feet chain based in Sacramento.
Some retailers fault L.A. Gear for failing to keep its less-popular sneakers from being sold at swap meets and deep-discount stores. That sort of blanket distribution, they say, damages the brand’s image over the long run and creates the unfair impression among customers that they are being overcharged by conventional merchants.
L.A. Gear executives reply that the company has had problems with unauthorized dealers that sell its merchandise, but so have other sneaker makers.
At the same time, Greenberg says, he has no choice but to sell off his inventory aggressively, sometimes through discounters.
If he didn’t, Greenberg joked, his epitaph might read: “Here lies Robert Greenberg. Maintained his cachet. Lost his company.”
There are signs, meanwhile, that some lenders have grown wary of L.A. Gear. The company’s tentative deal to lease the proposed Channel Gateway office building in Marina del Rey fell apart, some sources say, partly because of bankers’ concerns about L.A. Gear’s future.
Last week, L.A. Gear indicated that it went into technical default on its $130 million in bank loans. Under the loan agreement, which was wrapped up in mid-December, L.A. Gear is considered in technical default any time it loses money.
Why did the company agree to such a restriction barely more than one month before disclosing its fourth-quarter loss? “We didn’t know we were going to lose the $4 million,” Greenberg said.
In any case, Ventrudo, the chief financial officer, said the company has reached an “accommodation” with its lenders, led by Bank of America, and that it expects to announce a formal agreement at an unspecified date.
The responsibility for reinvigorating L.A. Gear falls mainly to Greenberg, 50, a short, trim man with longish, graying hair and a street-wise style. He sets a casual tone at the office, favoring open-collar shirts.
The company he founded has mastered the art of hype, but Greenberg himself only occasionally consents to interviews with reporters outside of the trade press and he refuses to be photographed. “I’m not a celebrity,” he said. “I’m building L.A. Gear, not Robert Greenberg.”
In other ways, too, Greenberg is unlike most big-company CEOs, at least those outside of the apparel industry: He never went to college and neither he nor any of his top executives ever ran a major firm before coming to L.A. Gear.
Volumes have been written about entrepreneurs who lacked the managerial skills or temperaments to manage the growing companies they founded, but Greenberg says that will be no problem for L.A. Gear.
“It’s just running a business,” he said. “Business is business. The U.S. Sneaker Market Athletic Shoe Market Share Estimated U.S. market shares of branded athlectic footwear based on overall retail sneakersales of $5.58 billion in 1990 Athletic Shoe Sales Source: Sporting Goods Intelligence