L.A. Gear Still Looks Like An Also RanAmy Barrett
Stanley Gold must wish he had some of that Disney magic dust. Head of Shamrock Holdings Inc., the Disney family investment company, Gold proved himself as good as his name in 1984 by bringing in Michael D. Eisner to revive declining Walt Disney Co. Just over a year ago, shortly after paying $100 million for a 34% stake in stumbling L.A. Gear Inc., he tried a similar approach, recruiting another marketing hotshot, Reebok International Ltd. veteran Mark R. Goldston, to help him salvage the athletic-shoe maker.
The second time has not been a charm. On Dec. 1, L.A. Gear announced it would lose about $80 million for the fiscal year ended Nov. 30, including $30 million in the fourth quarter. And contrary to last spring's assurances by Gold, its chairman and chief executive, the company is unlikely to climb out of the red at least until the second half of the new fiscal year.
Until recently, Gold's problem was overflowing inventories--he simply had too many low-quality shoes to sell. But in focusing on clearing out the warehouses and revamping shoddy manufacturing, Gold and Goldston neglected to come up with enough new shoes for 1993's first half. Gold and Goldston declined to comment for this story, but one shoe buyer for a large department-store chain says: "We saw Nike and Reebok spring lines in May or June and started committing for product in July. We didn't see L.A. Gear's product until mid-August." And reluctant retailers who got burned once by L.A. Gear's discounting frenzy are not rushing back into the fold. "We are treading very lightly," says a buyer for a large sports specialty chain.
Slow sales could plunge L.A. Gear into another cash crisis. Gold now is working with Kidder, Peabody & Co. on arranging a private placement of $50 million in debt, says a source close to the company. So confident is he of success, says the source, that in November he terminated a $150 million revolving line of credit from Bank of America. BofA had put tight restrictions on the company's use of its $85 million in cash, some of which Gold wants to use to buy up his European distributors. Nike Inc. and Reebok have been doing exactly that, allowing them to cut prices to retailers.
SHINING LIGHTS. There are some encouraging signs for Gold and Goldston, who has trumpeted his expertise in a recent book titled The Turnaround Prescription. The pair have moved quickly to settle L.A. Gear's legal difficulties, in July reaching a settlement of three shareholder suits. The cost: $22 million in cash and stock. And with the company's assistance, shareholders are close to settling similar suits against founder Robert Y. Greenberg, who's now selling Doc Martens, the clunky black boots and shoes that are de rigueur among teens and twentysomethings.
Once L.A. Gear gets past the spring selling season, it could see an improvement in profit margins. Operating expenses for fiscal 1992 fell by a third, to about $150 million. And the shoemaker can take some comfort from a couple of hits, including L.A. Lights, a kids' shoe with a heel light that flashes with each step. Critics scoff, however, at L.A. Gear's attempt to use the same gimmick in a high-performance cross-training shoe. "That certainly isn't anything adults are interested in," says Reebok Marketing Vice-President John Morgan. If L.A. Gear can't come up with a steady-selling sneaker line and get out of the cycle of fads and fashions, all of Tinkerbell's magic dust may not do any good.