For Variflex, Profits Just Keep Rolling In

Variflex Inc. is no stranger to fads.

In the 1970s, the company rode to prominence on skateboard and roller-skate sales--and a wild ride it was, since both products fell out of fashion at breakneck speed. Variflex even dabbled in foot-powered scooters--remember those?

Now President Raymond H. Losi II thinks the Moorpark-based company finally has a product with staying power. Variflex in-line skates have been such a stunning success that even he seems a bit dazed.

Sales at Variflex have nearly quintupled since the company started making low-priced in-line skates in 1990. The skates accounted for 84% of $80 million in sales for the fiscal year ended July 31, up from $17 million in 1990.

“I never thought it would grow to this,” Losi said.

And the growth shows no signs of abating. For the quarter ended Oct. 31., Variflex posted earnings of $2.8 million on record revenue of $32 million--up 94% from the past year’s fiscal first-quarter earnings.

The stellar performance has not gone unnoticed on Wall Street: Variflex raised $20.7 million from its first public offering of shares last summer. The stock, which started at $15.50 a share, closed Friday at $19.75 in Nasdaq trading.

For the engine behind the growth, look no further than the nearest city park or bike path on a Saturday afternoon. In-line skates, introduced as ice hockey training equipment, have grown so popular that industry experts compare their rise to that of bicycles. Today, more people own skates than ski equipment, and sales of in-line skates and related gear will approach $1 billion nationwide this year, according to Sports Market Research Group Inc. in Boston.

“This is not a fad at all,” said Kevin Dukesherer, an analyst with Kemper Securities Inc., the underwriter of Variflex’s stock offering. “Fads are big purple dinosaurs and rocks that you name, but in-line skates are an outdoor activity for kids. . . . It’s not a product that has a short life because you run out of things to do with it.”

Instead of two wheels on each of two axles, in-line skates have four wheels set in a single line to allow for greater speed and maneuverability. Lightweight, molded plastic boots and sturdy wheels have added to their widespread appeal.

Variflex has succeeded because it sells some of the lowest-priced in-line skates. Its skates are manufactured in China, Taiwan and South Korea and sold primarily through Kmart, Toys R Us and Target stores. By using cheap labor and parts and producing volumes at low margins Variflex is able to sell skates for as little as $26.95 a pair. The skates offered by the industry leader, Minneapolis-based Rollerblade Inc., start at $50 a pair.

And Variflex’s brightly colored skates, unlike other brands, are geared toward children, based on the straightforward reasoning that children’s feet grow and parents don’t want to buy them costly footwear over and over again.

“They have done their home work,” said Ash Jaising, president of Sports Market Research Group. “They control the low end of the market.”

Variflex also sells protective gear for skaters and recently launched a line of low-price bicycle helmets toward the mass market. It still makes skateboards and roller-skates, but those items now account for less than 2% of sales.

In the spring, the company will introduce skates, sticks and protective gear for roller hockey, the fastest-growing roller sport.

Losi was a 25-year-old surfer and skateboarder when he started the company with his father in 1977. The senior Losi is chairman and nominally chief executive, though he is not involved in daily operations.

Variflex attained name recognition early on, but success on a broad scale had eluded it. Though both skateboards and roller-skates enjoyed spurts of popularity among adults, their true fans were a fairly limited pool: little boys and little girls, respectively. At times, sales of these core products were so sporadic that Variflex resorted to selling diapers and shipping tires to Mexico. Losi foresaw years of hard work just to keep the company afloat.

“My father would say, ‘How did you talk me into this?’ ” Losi recalled. “But I don’t hear that any more.”

These days, Losi is preparing to move to a new house on a golf course. His hectic schedule includes monthly trips to Asia to sign up new suppliers. Tan and stocky, he eschews neckties, and his speech evokes the dude-speak Malibu surfer. He personally tests each new skate model and is sometimes spotted zipping around among the stacks of boxes in the warehouse.

Though the market for in-line skates is expected to keep growing, the road ahead may not be without bumps for Variflex. The pace of expansion in the industry is notoriously unpredictable, noted Michael Shafran, editor of Denver-based InLine Retailer and Industry News. Just last year, market growth fell short of projections and stores were awash in skates they couldn’t sell, he said.

Moreover, Variflex skates are not highly regarded for quality.

“Everything they have is cheap. They’ve got bad wheels, bad bearings, bad boots,” said Patrick Lochouarn, owner of Venice Roller Works. “They don’t go; they don’t roll; they don’t give you good ankle support.”

Lochouarn said he stopped selling Variflex skates because they generated too many returns and requests for service.

Variflex says its skates are ideal for beginners who don’t mind going slowly.

Rollerblade recently introduced skates to challenge Variflex’s dominance of the children’s market. Priced at about $80 a pair, they come with liners of varying thickness so the size of the boot can be adjusted as a child grows, Rollerblade spokeswoman Cici Gordon said.

Losi says he isn’t worried about the competition. With in-line skates, Variflex finally is onto a sure thing, he believes, and he says his years of experience with fads on wheels have taught him how to keep success from slipping away.

“It’s just working hard and staying ahead of the next craze,” he said.

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Variflex Inc. At a Glance

Company name: Variflex Inc.

Headquarters: Moorpark

What the company does: Founded in 1977, Variflex manufactures low-priced in-line skates, roller-skates, skateboards and related equipment through suppliers in South Korea, Taiwan and China. In-line skates are by far its biggest product line.

Principal officer: Raymond H. Losi II, president

No. of employees: 130

Revenue: $80 million (year ended July 31, 1994)

Earnings: $6.6 million (year ended July 31, 1994)

Quote: “In-line skates are here to stay . . .and penetration is still low.” --Raymond H. Losi II