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L.A. Gear, Inc.

2850 Ocean Park Boulevard
Santa Monica, California 90405
U.S.A.
(310) 822-1995
Fax: (310) 581-7709

Public Company
Incorporated: 1979 as Good Times, Inc.
Employees: 749
Sales: $430.19 million
Stock Exchanges: New York
SICs: 3149 Athletic Shoes; 3143 Men’s Footwear, Except Athletic; 3144 Women’s Footwear, Except Athletic; 3149 Children’s Footwear

L.A. Gear, Inc. revolutionized the world athletic shoe market in 1985 by developing shoes that incorporated the comfort of sneakers with the frills of fashion shoes. Company founder Robert Greenberg’s ability to design shoes that appealed to young women fueled L.A. Gear’s rapid rise to third place in athletic shoe sales behind Nike and Reebok by 1990. The success of the shoe sales led to L.A. Gear’s diversification into men’s and children’s shoe markets and casual apparel markets. L.A. Gear’s product appeal was not universal, however. As L.A. Gear tried to expand into the men’s market, its shoes were not well received. Through a series of marketing mishaps, the company lost vital market share. In the early 1990s, however, the company relied on the support of a financial investor, recruited new management, concentrated on footwear quality and distribution, and began to pull out of its slump.

L.A. Gear evolved out of the long-time entrepreneurial adventures of Robert Greenberg. Greenberg attributed his entrepreneurial bent to his father, who sold fresh produce in Boston, and to his father’s subscription to Forbes magazine. “I always wanted to be the president of a company on the New York Stock Exchange,” Greenberg told Los Angeles Magazine, adding that had his father subscribed to Sports Illustrated he would probably have been a baseball player. As an entrepreneur, Greenberg has a legacy of picking and riding trends. The one-time hairdresser incorporated a roller skating rental shop in 1979 under the name Good Times, Inc., and that company eventually grew into a skate-manufacturing business called United Skates of America. But when skate sales waned, he spotted the profitability of novelty shoelaces and sold $3 million worth in three months. In 1982 Greenberg opened a Los Angeles apparel store that sold major brand name clothes, shoes, and accessories. In this store Greenberg launched the L.A. Gear clothing label.

The L.A. Gear brand name actually came from a T-shirt saleswoman’s comment in the company warehouse. After the saleswoman declared her shirts were “real L.A. gear,” a clerk jotted down the name and submitted it for the contest Greenberg had introduced to find the right name for the retail store. “Of course, I looked at the piece of paper and threw it away,” Greenberg told Los Angeles Magazine. “But at four in the morning, I woke up and thought, ‘My God, L.A. Gear!’ “Initially, the L.A. Gear label signified casual clothes, shoes, and sandals. By 1984, however, Greenberg decided to concentrate the company’s efforts on wholesale shoe sales, and closed the unprofitable retail store. Business partner Ernest Williams, however, “felt there was no room for another athletic-footwear company,” Greenberg told Los Angeles Magazine, and Williams broke their partnership.

It did not take Greenberg long to establish a presence in the athletic shoe market. Greenberg tapped his lengthy experience with companies in the Orient to find independent companies who would produce and distribute his shoes. L.A. Gear entered the athletic shoe market with the Canvas Workout shoe in 1985, and the company soon met with great success. Greenberg’s shoe designs were targeted at fashion-conscious females between the ages of 12 and 35 who wanted stylish, comfortable shoes, according to Forbes. The overwhelming reception in the marketplace pushed sales from $200,000 at the beginning of the year to $1.8 million at the end of 1985.

In 1986 L.A. Gear became a public company, and the money raised from the stock offering allowed the company to diversify. L.A. Gear’s main business was footwear, but in the late 1980s it began producing sport and casual wear for men, women, and children. The apparel division featured knit tops and sweat clothes with bold L.A. Gear graphics and basic five pocket jeans decorated with frills. The company also continued to develop its shoe lines. Building on the enormous success of the Canvas Workout shoe for women, L.A. Gear began to spruce up its line of basic women’s shoes with gold lame, fringe, pastel colors, and spangles. For men, the company produced bold, jazzy hightops for basketball. L.A. Gear’s children’s shoes stimulated young eyes with black and white checkerboard and cow spot designs. The company also marketed street shoes called Street Hikers that combined an urban appearance with the comfort of sneakers. Even though L.A. Gear continued to market its original styles into the early 1990s, it unveiled new styles every year.

Business Week contributor Kathleen Kerwin attributed L.A. Gear’s almost instant success in footwear sales to their ability to appeal to the 80 percent of customers who “rarely set foot on a tennis or basketball court.” L.A. Gear’s growth in sales and product recognition surpassed that of the entire footwear market. Sales increased 200 percent in 1986 and doubled the next year. In 1988 and 1989, Business Week selected L.A. Gear as one of the best small American companies. Business Week, Wall Street Journal, Los Angeles Times, and Fortune highlighted L.A. Gear’s stock as the best performer on the New York Stock Exchange in 1989. In 1990 company sales peaked at $818.8 million.

Despite L.A. Gear’s phenomenal performance, skeptics questioned the endurance of the brand. In 1990 L.A. Gear was thought to be a “flash in the pan,” Montgomery Securities’ apparel analyst Alice Ruth told Institutional Investor. Skeptics based their fad theory on L.A. Gear’s relatively weak sales in sporting-goods stores, the conventional athletic shoe outlets. But Ruth touted the staying power of L.A. Gear because it was inundating department stores and mass merchandisers. Noting the narrow focus and clientele of sporting-goods stores, Los Angeles Magazine contributor David Jefferson called Greenberg’s decision to capture a larger clientele in department stores such as Nordstrom, May Co., and Bullock’s a “brilliant marketing strategy.”

By 1990 Greenberg felt the company was secure in its niche. “We’ve taken the number three position now. Our brand is growing and consumer confidence is gaining everyday,” he told the Wall Street Transcript, adding that he expected the company “should only fuel itself now.” The majority of L.A. Gear’s success, however, laid in the hands of the two men responsible for the L.A. Gear image: Greenberg and Sandy Saemann. Greenberg designed the shoes. His friend and former colleague in the skate business, Sandy Saemann, masterminded the marketing. Greenberg’s and Saemann’s appeal to fashion-conscious females was unique. “L.A. Gear has really hit on a formula no one else has,” John Horan, publisher of Sports Management News, told Advertising Age in 1989. “They take a shoe that’s not a real technical shoe, so not expensive to produce, put some spangles and some colored trim on it,” and “put their money into marketing and advertising.” Saemann designed ads that were not as “slick” as ads for Reebok or Nike but were “effective,” according to Marcy Magiera in Advertising Age. “They sold sex and sizzle,” noted Business Week.

L.A. Gear’s ads focused on the sunny glamour of the Los Angeles lifestyle, featuring beautiful young blondes wearing little else besides their L.A. Gear shoes. In 1990 Horan told Advertising Age that “of all the ads out there, [L.A. Gear’s] seem to turn the sales on and off.”

Encouraged by its success in the women’s market, L.A. Gear decided to expand its sales in the men’s market in 1989. L.A. Gear employed the same fashionable design and glamorous marketing techniques that had proved successful in the women’s market to enter the men’s market. Relying on jazzy designs and what industry analysts considered unusual endorsers, L.A. Gear marketed shoes in what they called the “fashionable” basketball market, featuring boldly designed hightops called Street Slammers, Hot Shots, and Brats. The men’s market, however, was highly competitive; men’s athletic shoes accounted for 70 percent of L.A. Gear’s competitors’ total sales but only 20 percent of L.A. Gear’s total sales. Yet L.A. Gear’s strategy of emphasizing fashion in the men’s market seemed an odd strategy for growth because “men typically pay less attention to style,” wrote Kerwin in Business Week. Avia marketing chief Bruce W. MacGregor added in Business Week that “technology has been the fashion” in the men’s market.

Rather than hiring a young sports superstar like Bo Jackson, Nike’s endorser, L.A. Gear hired retiring Los Angeles Laker Kareem Abdul-Jabbar to endorse a line of basketball shoes called Jabbars. One analyst predicted in Business Week that this move would appeal to the “geriatric crowd,” rather than foster the category growth the company wanted. The company’s main endorser was an even more unlikely athletic shoe sponsor. Pop singer Michael Jackson was paid close to ten million dollars to be the company spokesperson and to design a line of shoes and T-shirts. The company’s use of Michael Jackson was “more than a growth opportunity, they’re trying to maintain their fashion image,” Paine Webber analyst Frank Podbelsek told Advertising Age. Under the umbrella theme “Unstoppable,” L.A. Gear prepared to tap Michael Jackson’s worldwide popularity by coordinating the Jackson line rollout with the release of a collection of his greatest hits called “A Decade.” Michael Jackson’s album was never released and his black, heavily buckled shoes did not sell well. His endorsement and the line were both quickly discontinued. This series of events cost the company several million dollars.

L.A. Gear paid the price for these misadventures in increased inventories and diminished profits. Inventory stockpiling due to unrealistically high sales projections caused the company to discount almost all their shoe styles to liquidate the inventories. Yet selling the shoes at discounts angered retailers because it made their prices seem exorbitantly high and degraded the L.A. Gear brand image, according to the Los Angeles Times. Bad marketing decisions, coupled with rebellious retailers who began to refuse L.A. Gear shelf space contributed to a net loss for the company in 1991. The company’s market share continued to expand in 1991, but at the expense of profits.

Aware that fashionable men’s athletic shoes would not generate profits, the company decided to branch into the men’s technical shoe market with the introduction of the Catapult basketball shoe in 1991. The one-hundred-dollar Catapult, which featured a fiberglass and graphite heel supporting an air cushion, was marketed without the L.A. Gear brand name to “distance Catapult from L.A. Gear’s young, low-price image,” creative director Michael Albright told Advertising Age. As part of their new strategy, the company choose a more typical endorser: Karl Malone, a Utah Jazz basketball star. Unfortunately, problems with product quality interfered with initial sales. After the company outfitted a Marquette University basketball team in Catapult shoes, one player tripped on his shoe sole as it peeled off during a televised game. The company reported that it was working to improve the shoes’ quality and the university team continued wearing the shoes.

L.A. Gear’s entrance into the technological shoe market was not without other problems. Initially, L.A. Gear failed to differentiate its technology enough to please competitors. Nike filed a suit against L.A. Gear in 1991 alleging the Catapult infringed on Nike’s patented ‘spring moderator’ technology. By 1993 the suit was still pending, and the company continued to market the Catapult. In a similar case, L.A. Gear paid Reebok one million dollars and licensing fees in an out-of-court settlement in 1992. L.A. Gear’s Regulator series infringed on the patented technology of the Reebok Pump. Under the licensing agreement, L.A. Gear continued to develop its line of inflatable shoes under the Regulator and the Gauge brand names. Moreover, they built on Catapult technology with the Twist-a-pult shoe, which allows the wearer to adjust the amount of cushion offered by the Catapult mechanism.

L.A. Gear’s efforts to establish a significant presence in the men’s market left them facing financial troubles. In 1991 the company went into technical default on its bank loan, and to free itself from the confines of the bank’s regulations, it looked for an investor to support the company through its slump. Trefoil Capital Investors, L.P., an investment fund managed by Shamrock Advisors, Inc., invested $100 million in L.A. Gear, giving Trefoil a 34 percent stake in the company. In accordance with its investment agreement, Trefoil assumed control of the board after L.A. Gear was unable to pay Trefoil dividends for three consecutive quarters, and they began to make a number of changes. Mark Goldston, a one-time Reebok marketing executive, was given responsibility for L.A. Gear’s business dealings as President and Chief Operating Officer; several new managers were hired to bring the company back to profitability; and Greenberg was encouraged to concentrate on what he did best—designing shoes and picking trends. Greenberg announced he would work without pay until the company made money. By the end of the year, however, Advertising Age reported that L.A. Gear’s market share had dropped to eight percent from its high of 11.8 percent in 1990.

As Trefoil increased its control of the company’s operations and added new senior managers, Greenberg decided to resign. He told the Los Angeles Times that “after eight years of constant involvement with L.A. Gear, I can now devote more time to my family.” And as a one-time L.A. Gear employee told the Los Angeles Magazine, “People who build a billion-dollar company aren’t always the people who can run a billion-dollar company.” Upon Greenberg’s resignation, Stanley Gold, a man known for his ability to return companies to profitability, was positioned as Chairman and CEO by Trefoil. The Trefoil-picked management had a record of success in the footwear industry, as well as a reputation for saving floundering companies.

The new management began to pare down the business as the company’s drop in market share moved it from third to fourth place among footwear companies. Scattered corporate offices were consolidated in a new Santa Monica, California, headquarters, which reduced costs and brought all senior management together. To further reduce costs, the company closed its apparel production and marketing facilities, opting to license its name to a few garment-making companies instead. Goldston stressed in PR Newswire that the licensing agreements increased “the range and quality of non-footwear products that will be offered both domestically and internationally under the L.A. Gear brand name.” In 1992 the cost-cutting measures included a 45 percent staff reduction.

To lend consistency to the company’s image, Goldston announced in a 1992 article in Advertising Age that the company would separate the fashion and fitness products into distinct lifestyle and athletic shoe divisions that “will run as standalone companies in the marketplace.” The divisions would be distinguishable by the diamond-shaped L.A. Gear logo for the lifestyle shoes and the square L.A. Tech logo for the high-tech athletic line. The children’s shoes would also be marketed separately using the Bendables logo that featured a drawing of a baby. Such demarcations would allow the divisions to market their products to suit the needs of very different markets. Shoe quality and distribution were also enhanced after the company reevaluated the independent manufacturers and distributors with which it was doing business. In 1992 L.A. Gear signed a sourcing agreement with LASCO, an affiliate of Pentland Group plc, the world’s largest sourcing agent, respected throughout the footwear industry. LASCO would be responsible for inspecting the quality of the finished products as well as supervision of production, scheduling, and all foreign shipping. The company’s shoes continued to be manufactured mainly in The People’s Republic of China, Indonesia, South Korea, and Taiwan.

Trefoil also updated the “dated blondes-at-the-beach” advertising strategy, noted Advertising Age contributor Marcy Magiera. The company decided to break with the industry marketing trend of using a media buyer and search for a full-service outside advertising agency that would handle both creative work and media planning. Ogilivy and Mather was chosen to create ads and buy media space in late 1991. “Get in Gear,” the new umbrella theme, was unveiled at the 1991 Sporting Goods Manufacturer’s Association Super Show in Atlanta, Georgia. Goldston, concerned about contemporizing L.A. Gear’s image, said of the new theme that “our strategy is athletic lifestyle and the theme line is one that can be used for years and years,” according to Advertising Age.

Along with the new advertising theme came a new advertising strategy. The company would no longer spend mammoth amounts on superstar sponsors; a three-year endorsement budget was set at eight million dollars, according to the Los Angeles Magazine. The long list of celebrity endorsers was pared to three: Hakeem Olajuwon, Joe Montana, and Karl Malone, who would continue to represent the men’s line of technical sport shoes.

L.A. Gear products continued to be sold in more than 75 countries into the 1990s. California-based advertising agency Saatchi & Saatchi DFS retained responsibility for L.A. Gear’s $34 million international advertising account.

Despite L.A. Gear’s marketing mishaps and difficulty penetrating the men’s athletic shoe market, L.A. Gear’s future still seems bright. The Trefoil-picked management team has demonstrated its ability to reduce costs, improve quality, streamline distribution, and woo retailers into giving their products more shelf space. The company reached licensing agreements with several different companies, including Cradle Togs, Inc., and York Luggage. Its new products, including the L.A. Lights series of lighted athletic shoes for adults and children, have been well received in the market. L.A. Gear seemed poised in the mid-1990s to regain its position as a healthy footwear company.