Vans, Inc.

Vans, Inc.

2095 Batavia
Orange, California 92665-3101
U.S.A.
(714) 974-7414
Fax: (714) 998-6564

Public Company
Incorporated: 1966 as Van Doren Rubber Co.
Employees: 1,621
Sales: $88 million (1995)
Stock Exchanges: NASDAQ
SICs: 3021 Rubber & Plastics Footwear; 5661 Shoe Stores

Vans, Inc. is a manufacturer and retailer of casual footwear in men’s, women’s, and children’s styles. Vans also makes footwear for the specialty athletic market, leading the skateboard and BMX bicycle markets and holding a strong third place with its two-year-old line of snowboarding shoes. The majority of Vans’ more than 60 styles of shoes, offered in the wide-ranging assortment of colors and patterns that has become the company’s hallmark, are produced by third-party manufacturers in South Korea; however, the company maintains a 90,000-square-foot, state-of-the-art facility in Vista, California, which boasts a three-week order-to-delivery turnaround time.

In May 1995, Vans closed its larger Orange, California, plant, which brought the company a $37 million loss in restructuring and write-off charges on revenues of $88 million. The largest portion of Vans’ sales are through the company’s chain of 81 retail stores and factory outlets. Vans shoes are also sold through larger department and specialty store channels such as Nordstrom’s, Sears, JC Penney, and Footlocker, and through independent distributors to more than 30 countries. Vans is led by Walter Schoenfeld, who founded Brittania Sportswear in 1971 and later sold that company to Levi Strauss in the early 1980s. In 1995 Schoenfeld’s son, Gary Schoenfeld, joined the company as executive vice-president and CEO. Revenues for 1996 are expected to reach $118 million, with net earnings of $4 million.

Birth of a California Style

Paul Van Doren gained experience manufacturing shoes on the East Coast in the early 1960s. By 1965, Van Doren had developed the idea to start up his own plant. But instead of selling his shoes to retailers, Van Doren decided to take on retailing activities as well and to sell the shoes he manufactured directly to the public.

Van Doren, together with partners Serge D’Elia, an investor based in Japan, and Gordy Lee, who also had shoe manufacturing experience, moved to Southern California, building a factory and opening a first 400-square-foot retail store in Anaheim in March 1966. The company was incorporated as the Van Doren Rubber Company, and Van Doren’s shoes came to be known simply as Vans. Later, Van Doren’s younger brother, James Van Doren, joined the company. Paul Van Doren and D’Elia owned the majority of the company; James Van Doren and Gordy Lee each were given a 10 percent stake.

As the company itself tells it, the opening of its first store was inauspicious. Vans offered three styles, priced from $2.49 to $4.99, but on the day the store opened for business, the company had only made display models. The store racks were filled with empty boxes. Nevertheless, 12 customers came into the store and chose the colors and styles they wanted. The customers were asked to come back in the afternoon, while Van Doren and Lee rushed to the factory to make their shoes. When the customers returned to pick up the shoes, Van Doren and Lee realized that they had neglected to have money available to make change. The customers were given the shoes and asked to return the next day to pay for them. All 12 customers did.

Over the next year, the company opened a new retail store almost every week. A pattern developed in which Paul Van Doren scouted locations on Monday, signed a lease on Tuesday, remodeled on Wednesday, added shoe racks on Thursday and displays on Friday, hired a store manager on Saturday, and trained staff on Sunday. Retail operations would generate the bulk of Van Doren’s early sales; the stores also enabled the company to get close to its public. Complaints over the early design of the company’s rubber soles, which featured a diamond pattern that cracked too easily along the ball of the outsole, led to the addition of vertical lines to the ball area. The new design was patented as Vans’ waffle sole.

A new type of customer boosted the company’s fortunes in the early 1970s. The skateboarding craze, an outgrowth of California’s surfing culture, provided an opportunity for Van Doren to prove its flexibility. When skateboarders began requesting new colors and patterns, the company responded by offering the Era, a red-and-blue shoe designed by professional skateboarders. Vans quickly became the skateboard shoe of choice, beginning the company’s long, and devoted, association with the sport. Many more color combinations and patterns were added in the 1970s. A new style, the slip-on, was introduced in 1979, and it became the rage of Southern California.

In 1976, ownership of the company was equalized among the four original partners, and James Van Doren was given control of the company’s direction. The younger Van Doren set out to expand the company. He was helped by the latest sports craze sweeping California, the BMX bicycle: Vans became the shoe of choice among the young BMXers. But it was a movie that gave Vans a national market.

From Dude to Dud in the 1980s

The 1982 hit film, “Fast Times at Ridgemont High,” featured the California surfer dude Jeff Spicoli, played by Sean Penn, wearing a pair of Vans checkerboard slip-ons. The film made a star of Penn and launched Vans nationwide, bringing the company’s shoes into department stores and independent retailers. With sales skyrocketing, James Van Doren boosted production capacity, moving the company to a new 175,000-square-foot plant in Orange, California in 1984 and raising the number of employees to more than 1,000. The Vans slip-on craze spawned a variety of licensing agreements, including items such as sunglasses and notebooks. Van Doren also pushed the company deeper into specialty sports footwear, developing baseball, football, umpiring, basketball, soccer, wrestling, boxing, and skydiving shoes. Most companies had already begun to move manufacturing to Asia, where labor costs were lower and environmental regulations were less restrictive, but Vans remained dedicated to domestic production, while expanding product offerings to include widths from EEEE to AAAA.

Faced with high labor costs, absorbing expansion costs, and the expense of maintaining the breadth and depth of its line, Van Doren was soon hit by a flood of competitors selling cheap imitations and knockoffs. In response, Van Doren was forced to drop its prices below manufacturing costs. Adding to the company’s troubles was a 1984 raid by federal immigration officials, which resulted in the arrest of nearly 150 suspected illegal workers. And then the bottom dropped out of the slip-on craze.

Over 21 months, Van Doren lost some $3.6 million, building up a total debt of $12 million. When the company’s bank demanded payment on a $6.7 million note in 1984, the company was forced to declare bankruptcy. Conditions for its Chapter 11 bankruptcy reorganization called for the ouster of James Van Doren. Paul Van Doren returned to lead the company out of bankruptcy, which was accomplished in 1986.

From Leveraged Buyout to Initial Public Offering

Demand for Vans shoes continued to be strong and, by 1987, with two million pairs of shoes manufactured at its Orange plant bringing in $50 million in sales, Van Doren returned to profitability. International sales, particularly to Mexico and Europe, were also growing strongly, accounting for 10 percent of company sales. A third of the company’s business went to custom-designed shoes. In a time when almost all of the major sneaker makers had shifted production to South Korea, Vans clung to its tradition of domestic production, boasting order-to-delivery times for its catalogue items of five days, compared with an industry average of nine months.

In 1988, Paul Van Doren, explaining that he was tired of overseeing the company’s day-to-day operations, agreed to sell the company in a leveraged buyout organized by the San Francisco-based venture banking firm McCown De Leeuw & Co. The leveraged buyout, worth $74.4 million including the assumption of existing liabilities, left Paul Van Doren in place as chairman and Gordy Lee as vice-chairman. Richard Leeuwenberg, formerly with Boise Cascade Corp., was brought in as president and CEO for the company, now renamed Vans, Inc.

In 1989, raids by U.S. and Mexican officials shut down several counterfeit operations that had flooded the market with cheap Vans imitations. Despite losses to counterfeits, Vans sales topped $70 million in 1990, with international sales rising to 25 percent of sales, and special orders continuing to play a strong role in revenues. The following year, Vans went public, with an initial public offering of 4.1 million shares, at $14 per share. Paul Van Doren, while retaining shares in the company, stepped down from the board.

By 1992, however, the recession of the early 1990s, and especially poor earnings performances among the major footwear producers, forced Vans’s share price down to $7. Yet, revenues from the company’s 70 retail stores and 4,500 independent outlets grew to $91 million, raising net income to $6.5 million in 1992. By then, more than 32 percent of sales came from international exports. But on the domestic front, Vans was losing ground.

Company Perspectives

The Vans Mission is to be the brand of choice for the contemporary consumer seeking extreme sport or lifestyle footwear.

Vans’s production techniques had changed little in the past two decades. Although its catalogue offerings swelled to more than 200 different styles, its original canvas-and-rubber shoe continued to provide roughly half of its sales. But sport shoe fashions had changed in the 1990s, with new materials and styles eroding Vans’s market. The other manufacturers were producing their shoes in Asia, where labor costs were as low as 14 cents an hour. Foreign production allowed manufacturers to use solvents and other materials that were closely controlled by California’s environmental regulation.

Vans clung to domestic production, spending $5 million to build a state-of-the-art plant in Vista, California. But sales and earnings were slipping, down to $86.5 million and $2.7 million, respectively, in 1993, and to $80.5 million and $1.4 million in 1994. In 1993, the company again ran afoul of immigration laws; 300 employees were deported and the company was fined $400,000.

Enter Walter Schoenfeld

By 1993, Vans sought to replace Richard Leeuwenberg. Gary Schoenfeld, then a partner at McCown De Leeuw suggested his father, Walter Schoenfeld. In the late 1960s, the senior Schoenfeld had joined his father’s company, a small maker of ties. In 1971, Schoenfeld launched a new division, to be called Brittania Sportswear, with $1.5 million raised equally among himself, two investors, and a bank. Brittania married the burgeoning blue jeans trend with coordinated jackets, sportshirts, and sweaters. Sales took off from $100,000 in 1973 to more than $50 million in 1975, and Schoenfeld Industries revenues increased to more than $300 million by 1981. In the early 1980s, Schoenfeld sold Brittania to Levi Strauss and retired.

Brought out of retirement to head Vans, Schoenfeld acted to expand the Vans product line, going overseas for the first time to manufacture a new line of shoes in step with the current fashion. Schoenfeld also addressed the company’s troubled chain of retail stores, which had been hit hard by California’s continued recession, closing some stores and converting others as factory outlets to siphon off misfired shoes and excess inventory. Schoenfeld sought to boost the company’s marketing efforts, hiring new designers and marketing staff. In 1994, with revenues and profits on the rise again, Schoenfeld retired again, bringing in Christopher G. Staff, former president and CEO of the Speedo and Action Sports divisions of Authentic Fitness Corp.

Sales of Vans’s foreign-made “international collection” took off and soon accounted for as much as 75 percent of the company’s revenues. Domestic production, however, had become a drag on the company’s profits. Sales were falling, inventory was climbing, and Vans stock dropped to a 3⅛ low. To stem problems, the company laid off 300 workers, then idled their plants for two weeks in March 1995. In May 1995, Schoenfeld came out of retirement again, resuming leadership of the company.

In July 1995, the company closed its Orange plant, firing nearly all of the 1,000 workers there. Restructuring and writeoff charges from the plant closing created most of the company’s $37 million loss on its $88 million in 1995 revenues. The Vista plant continued operations, but most of Vans’ production was now contracted through a dozen or so factories in South Korea.

Importantly, Schoenfeld worked to change the focus of the company. From a company rooted in manufacturing, Vans would become far more market-oriented, that is, producing what will sell, rather than selling what it produces. The introduction of the Vans line of snowboarding boots in 1995 added $7 million to gross sales and within one year gained the company the number three position among the leaders in that market. Deeper expansion into women’s and children’s lines also produced strong successes. With analyst estimates of revenues climbing to $118 million, with earnings reaching to $4 million, and with its stock rebounding to 11 in early 1996, Vans appeared finally to be on a steady course for the future.

Further Reading

Ferguson, Tim W., “Grandpa to the Granges,” Forbes, February 12, 1996, p. 88.

Granelli, James S., “Little Leverage in Shoemaker’s Buyout,” Los Angeles Times, April 4, 1989, Sec. 4, p. 9F.

Lee, Don, “Sneaker Maker Had—Till Now—Bounced Back,” Los Angeles Times, June 1, 1995, p. Dl.

Maio, Patrick J., “Kicking,” Investor’s Daily, January 31,1996, p. A4.

McAllister, Robert, “Vans Optimistic With Schoenfeld at the Helm,” Footwear News, August 9, 1993, p. 108.

Paris, Ellen, “As the Twig Is Bent,” Forbes, April 27, 1981, p. 131.

Vans, Inc., “Company Profile,” Vans, Inc. World Wide Web Site, April 1996.

—M.L. Cohen