What’s up guys! Who remembers LA Lights by LA Gear? In my humble opinion, technology peaked
with these cool light up shoes. It’s Jason here and welcome to my YouTube channel, Company Insight.
In this video, I’m going to talk about the story behind the Rise and Fall of
what happened to LA Gear and key lessons you can take away and apply to your life.
Waiting in line for Nike or Adidas’ latest, limited edition drop? What about LA Gear’s? Probably...not,
even if you do remember that the Los Angeles based shoe company is still in business today.
Haven’t heard of LA Gear? Well, you might have heard of Skechers. Initially popular in the
‘90s due to pop stars such as Britney Spears and Christina Aguilera, the shoes are immediately
recognizable for their clunkiness---somewhat comparable to orthopedic shoes in terms of design.
I’m mentioning Skechers not only because I enjoy walking down memory lane, but also because Robert
Greenberg is one of Skechers’ co-founders, who previously founded LA Gear in 1983
before Skechers. Greenberg came into the sneaker business from selling skates, a perfect backdrop
for creating a lighthearted shoe emblematic of the beachside California lifestyle.
But first, I just need a quick favor from you. If you wouldn’t mind just hitting that LIKE button
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Thanks for doing that and now let us continue on with the Rise and Fall of LA Gear video.
History of LA Gear Though LA Gear seems
somewhat dated now in comparison to trendy brands such as All Birds and Jordans,
once upon a time, LA Gear was once a serious contender in the shoe and lifestyle brand arena.
In fact, by the late 1980s, LA Gear had become the nation’s third largest sneaker company.
It even went public just three years after its founding with sales increasing from $10 million
in 1985 to more than $600 million in 1989. One of the major contributors to LA Gear’s early
success and household recognition was Andy Saemann, its other co-founder. While Greenberg
handled much of the business financials and showmanship aspect of the business, Saemann
handled the marketing. He struck an industry first when he created LA Gear’s own in-house marketing
agency, rather than outsourcing its marketing strategy and operations to an external agency.
LA Gear Marketing Strategy Unlike a lot of its competitors,
LA Gear gained its early success by appealing to fashion-conscious females, rather than athletic
men. LA Gear’s shoes were fashion-forward and appealed to the 80 percent of customers who
“rarely set foot on a tennis or basketball court. The shoes were less about functionality than about
looking nice and being a fashion trendsetter. Think Paula Abdul’s fitness videos of that area,
and you’re conjuring the audience that LA Gear was targeting - and targeting rather successfully.
As 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 are thus able to “put their money into marketing and advertising.�
With the emphasis on flashy, who better to represent the brand than Michael Jackson,
who landed a $20 million endorsement deal? Just one of its celebrity endorsements, LA Gear even
went so far as to launch a “Billie Jean” sneaker in 1990. Flashy with studs and multiple buckles,
the black Billie Jean sneakers were perhaps the beginning of LA Gear’s Decline.
LA Gear and Michael Jackson The shoes were a costly and dismal failure. In
sharp contrast to the success of Michael Jackson’s single, “Billie Jean,” the sneakers were rejected
by consumers as impractical and overly glitzy to the point of being tacky. LA Gear’s heavy reliance
on Michael Jackson, a pop icon better known for his dance moves than his fitness moves,
reflected LA Gear’s marketing missteps. It turned out that although consumers appreciated Michael
Jackon’s musical prowess, they didn’t have a lot of faith in his choice of leisurely sneakers.
Saemann’s decision to veer away from earlier endorsements with basketball
stars such as Kareem Abdul-Jabbar and Karl Malone, in pursuit of a general pop culture
symbol is testament to the fact that irrelevant marketing more often than not, does not work.
This is especially true when a brand names itself after a city that is synonymous
with an upscale, sunny lifestyle. What do many people think about when they
think of Los Angeles? Palm trees, posh places like Beverly Hills, and the surfer lifestyle.
Having named their brand, “LA Gear,” Greenberg and Saemann were intentional about what they wanted
people to envision when they thought of, “LA Gear.� They wanted the brand to be sporty and premium.
Women in the know wore the shoes, while living the life of a Los Angeles yuppie.
LA Gear Catapult Disaster For a brand that wanted to conjure a premium
image, LA Gear experienced a major setback when it had the opportunity to get its shoes on the
feet of the entire Marquette University basketball team. With such high visibility, extra attention
would be paid to the look, feel, and quality of the shoes, right? Wrong. During a televised game,
a player tripped on his shoe sole as his LA Gear “Catapult” line of shoes literally fell apart! Can
you believe it? Not shockingly, this 99 cents store quality did not mesh well with LA Gear’s
posh branding, which would only face further struggles as the ‘80s gave way to the ‘90s.
Everything changes with the times, and fashion is no different. The bubbly fitness craze of
the 1980s gave way to a cultural and fashion scene divided between the teenage bubblegum of
Britney Spears’ “Oops, I did it again” pigtails and the grungy angst of Nirvana’s fashionably unkempt
appearance. Between flannel shirts and bucket hats, LA Gear had a difficult time positioning
itself. On the one hand, it desperately wanted to recoup on its lackluster but expensive endorsement
with Michael Jackson, and on the other hand, they wanted to retain its upscale image.
Unfortunately for the company, those competing concerns were mutually exclusive.
Initially, LA Gear was still able to capitalize on its bright colored, high-top shoes just as the ‘90s
began. Part of its ability to hold onto its lead at first, was its scaling. Previously available
at mostly high-end shops such as Nordstrom, LA Gear began to be available at discount stores
such as the now defunct Caldor department store. It expanded its reach. However, at the same time,
it diluted the exclusivity of the brand. LA Gear Marketing Fail
In addition, because LA Gear had started off with such a bang, the company had very
optimistic sales projections. When it couldn’t meet the high expectations it had set for itself
with lower sales as trends slowly began to change, inventory started piling up.
Rather than burn their dead stock, LA Gear took the route of discounting almost all of their shoe
lines. Premium retailers who had agreed to stock LA Gear because of its lofty image were turned off
and angered by the now cutthroat discounting that made their own prices seem unreasonably
high. In other words, LA Gear undercut its own distributors. By 1991, as a result of LA Gear’s
marketing falling flat and retailers now refusing to actually allocate shelf space to LA Gear shoes,
the company faced a $66 million net loss. LA Gear at Walmart?
By 1995, LA Gear seemed to take a “throw it at the wall approach.” That year, it ditched its premium
image to stay competitive by signing a three-year contract with everyone’s favorite discount chain,
Walmart. Isn’t this crazy? The company agreed to make shoes specific and
exclusive to Walmart and Walmart agreed to buy at least $80 million in LA Gear shoes.
With this, LA Gear unofficially tried to relaunch itself as the low budget, accessible shoe that
could be found everywhere, even at Walmart. Despite the allure and promise of Walmart having
so many physical locations to showcase the shoes, LA Gear’s partnership with the chain fell flat.
LA Gear drifted. Its marketing and business strategy. Its management. As the realization that
the Wal-Mart partnership was not going according to plan, LA Gear abandoned the idea of further
creating men’s athletic shoes. Instead, it intended to try its luck at women’s and youth’s shoes.
Even in 1994, the company sought to acquire a company that already specialized in its new
areas of focus. What company better than Rykä, a shoe company that focused exclusively on women’s
sports shoes? Despite the seemingly perfect fit, unfortunately LA Gear had to abandon
those plans because it turned out Rykä was in even more dire straits than themselves.
New Management at LA Gear with Trefoil Capital With both Rykä and Wal-Mart no longer possible
lifelines for LA Gear, it should come as no surprise that in 1998,
the company filed for bankruptcy. This came after LA Gear faced two quarterly losses in
1991 that resulted in the company defaulting on its bank debt twice with Bank of America.
Despite the injection of $100 million into LA Gear by Trefoil Capital, a company with a track record
of having successfully turned around floundering businesses, LA Gear continued to decline.
Trefoil Capital itself may have contributed to its continued decline as the capital firm selected new
management, as well as the board of directors. Both co-founders, Greenberg and Saemann,
eventually ended up resigning. Trefoil Capital entrusted LA Gear’s leadership to Mark Goldsteon,
a former Reebok C-level executive. While the initial management change held the possibility
of being a welcome change, it proved to be a sign of things to come: rapid management change
as Trefoil went through three different leadership teams in only six years.
Evidently, what had worked for Reebok did not work for LA Gear because only two years after being
hired, in 1993 Goldston was on his way out and William Benford was taking reins at the company.
It seemed like a stellar decision since Benford had already been CFO of LA Gear when Goldston was
CEO; presumably he had clear ideas about how to salvage the company. Unfortunately for Benford,
he led the company as it failed with its Wal-Mart partnership and he inevitably took the blame. His
failure with Wal-Mart then resulted in another leader from within the company, Bruce MacGregor,
former president of marketing, being exalted to president of LA Gear overall. Unlike his two
predecessors, MacGregor took a sharp U-turn and decided that LA Gear’s brand was beyond salvage as
a result of its many snafus in the limelight. All of LA Gear’s joint ventures were discontinued and
it tried to sell its products internationally to take advantage of its newness factor
outside of the United States. Nothing stuck. This all begs the question of, “how abysmal did it
actually turn out for Trefoil?” Well, they ended up selling their $100 million stake for $228,000 in
1997. This all begs the question, who should we feel worse for? Greenberg and Saemann for being
ousted from the company they had co-founded, or Trefoil? I’ll leave you to make that call.
Brand Identity Conclusion Well, with LA Gear having now
slipped into the realms of semi-obscurity, what can we actually learn? One standout lesson is
that brand identity is extremely important. LA Gear is the perfect case study of Brand Identity.
There’s definitely a difficult juggling act when trying to maintain brand integrity and appeal
to your core customer base while also trying to reach new customers and adapt to changing trends.
Knowing what your core product and audience is and refashioning it for the times is a
painstaking business, but as still-successful brands such as Nike and Adidas have shown,
adapting to new fads is key to staying relevant and hip most of the time. While there are peaks
and dips in most businesses, as long as you’re still at the top of people’s minds when it
comes to time for them to buy in your product category, then you’re still a contender.
Another important lesson for all current and aspiring entrepreneurs is understanding and
mastering how to market to your core audience. Today’s world is more interconnected than ever,
with YouTube stars becoming business owners offline as well, and sports and music stars
becoming entrepreneurs in the field that made them famous. Think Tom Brady and TB12 supplements and
exercise equipment. Or Gwyneth Paltrow with GOOP. With that said, it’s still important to realize
that despite all these crossovers, businesses tend to thrive when focusing on what they’re already
known for doing well and associating themselves with people who are famous for related fields.
Did it make sense for LA Gear to spend so much money on a collaboration with Michael Jackson, a
celebrity best known for singing and dancing? It’s not far-fetched, but perhaps they would have been
better served by collaborating with celebrities in the vein of Paula Abdul, the epitome of the
California sunshine, energy, and fitness that initially drove LA Gear’s surge in popularity.
Though LA Gear is still around, it’s most recent annual revenue is estimated at 1.7 million by
Owler.com and they’re only distributed at Payless Shoes stores. To put this in context, Nike’s
estimated annual revenue was 38.3 billion, Adidas at $4.9 billion, and Vans at $3.2 billion. LA Gear
is a story of going from Premium to Payless. Although they brought in new creative director,
Alexander-John just last month, with almost two decades of being a second-rate shoe company,
I’m not hopeful that LA Gear will be the next big thing again, anytime soon. What do you think?
So with that said, thank you so much for watching my video. There was a significant amount of
research and production that went into making this video possible, so if you wouldn’t mind giving
the video a LIKE and leaving a comment in YouTube section below, it would really help out a lot. I’m
proud to say if you made it this far in the video, you’re now one of the most knowledgeable experts in
the ENTIRE world on LA Gear. Congratulations! Be sure to check out some of my other videos,
like the Rise and Fall of New York and the Rise and Fall of Discovery Zone from the 90’s.
Thank you again for watching and stay tuned for another episode of Company Insight next week.