La Gear Case Study

EXECUTIVE SUMMARY

L.A. Gear, Inc was started in 1985 when Robert Greenberg was looking for the next trend to follow, and saw the opportunity after watching Reebok attack the shoe market with their fashionable aerobic shoes. Greenberg saw an opportunity and created L.A. Gear, and sold highly fashionable candy colored sneakers aimed at trend conscious teenage girls. The company since then expanded into the third most dominating shoe company in the world entering the 1990s. With their eyes set on no.1, Greenberg and L.A. Gear went after Nike with a fast paced aggressive strategy by starting to develop and sell men's athletic shoes, but by 1991 and 1992 L.A. Gear found itself severely losing market share and instead of turning large profits, starting to loose money, consequently watching its share price plummet. Facing Bankruptcy, L.A. gear was bailed out by a group of savvy capital investors hoping to save the brand. The group investors made strict changes to upper level management and made desperately needed cuts across the board. But in order for L.A. Gear to survive, new emphasis needs to be placed on the development of new shoes, a refined product strategy, clearly defined distribution strategy to rebuild lost brand image, aggressive promotion campaigns across adequate channels to drive sales and recreate lost demand for L.A. Gear products.

SITUATION ANALYSIS

Industry

The general shoe industry is a dog-eat-dog world, with new entrants to the athletic side of the industry facing stiff, well developed, financed competitors. With the domestic shoe market expected to grow at a rate of 5.5 percent per year until the year 2000, outlook for the industry is high. The footwear industry is not perfectly cyclical, but does show seasonality in times of back-to-school and the spring. The athletic side of the footwear market is highly competitive In two distinct parts. The premium athletic shoe where the focus is placed on the technology involved in the shoe and demand driven by aggressive advertising campaigns with influential spokespeople, such as dominant professional athletes. On the other side, are discount-athletic shoe producers who focus mainly on sales volumes at lower prices through brands that are either acquired or created on their own, the technology involved in these shoes are typically far less that the tech involved in higher priced shoes. Although the domestic market for shoe sales is reaching that point of maturity, the international athletic shoe market is just beginning to hit its stride at grow rates over 20 percent per year for the rest of the 1990's providing an excellent opportunity to tap a market pouring out demand for a type of product.

L.A. Gear, Inc.

The Organization & Management

Initially as L.A. Gear was formed, they were creators of trendy fashionable shoes geared toward young girls, but as the company grew along with sales, it saw a larger opportunity to gain vital market share in the athletic shoe market in the mid price range. Although L.A. Gear grew to be the third most dominant shoe producer in the world, the company lost its focus and direction as it entered the 1990s, loosing the vital market share it developed. Nearing bankruptcy, the organization was bailed by a private capital investment firm that took a 34 percent stake in the company and made their presence by replacing the creator and top managers with their own personnel that possessed high levels of expertise in the industry. After top level changes, the new management redeveloped L.A. Gears mission and objectives and strategies. The new management also cut large amounts of staff, reduced office space and major expenses and the unprofitable apparel marketing and design section of the company.

Marketing Strategy

As L.A. Gear grew entering the 1990s, top management began to loose its organization direction and foothold of its marketing strategy. By beginning to produce over 150 lines of shoes, the organization lost it focus and direction by over producing and building useless inventory. L.A. Gear's initial success was founded in its competency in creating trendy, fashionable shoes for younger women. When the new management took over the company to revive it in 1991, they clearly created new objectives to place the company back on track those strategies were to:

* Provide quality athletic and casual footwear, primarily in the "mid" price range. ($30-$70 retail)

* Improve relations with and increase shelf space at full margin retailers.

* Improve production and quality control practices

* Increase sales and profitability internationally.

They attempted to achieve these objectives by creating innovative products in three clear areas: athletic, lifestyle, and children's shoes. New management also attempted to create two different brand names: the original L.A. Gear that focused on shoes costing less that $70 and L.A. Tech, a new brand focused on high performance athletic shoes. The tech brand was developed in order for consumers to not be able to directly associate with L.A. Gear and cheaper shoes equaling lesser quality. Internationally, L.A. Gear was using wholesale distributorships to get products to the masses internationally creating problems for L.A. Gear. The current promotion strategy pursued by L.A. Gear was similar to that of its major competitors, by endorsing products through high quality professional athletes. Also, the new management moved from heavily promoting their once flagship fashionable shoe to promoting their performance athletic shoes. Overall, the new management is making strict changes to establish clear direction to make forward progress for L.A. Gear, but outside of those initial steps, many issues are plaguing the organization and need to be changed in order to bring the company back to a dominant position in the market.

PROBLEMS FOUND IN SITUATION ANALYSIS

Although there are multiple problems and issues that L.A. Gear faces and needs to overcome in order to regain its place in the market. As found in my initial root cause analysis (FIG I) the main problem is L.A. Gears declining market share, leading to recent net losses and severely declining stock price. The main problem contains many vital causes into where secondary problems lie within the organization. The following are primary causes to why L.A. Gear's market share is declining of late.

Products

L.A. Gear found its place in the market by developing