La Gear
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Executive Summary
Founded in 1985, L.A. Gears primary focus was on a young female market and promoting a trendy California lifestyle. Later, the company altered its focus to include the mens performance athletic market. Consequent company restructuring in 1991 led to a change in top management, new advertising campaign, reorganization of product groupings, and significant cost reductions. Tough competition from Nike and Reebok compounded with internal weaknesses has led to declining market share and low profits.
To revitalize the brand, the company must take actions towards brand development. The company should create a new brand to represent the premium line. By divesting some of the mens shoe line, the company will be able to fund the marketing efforts to build brand awareness. The new brand will focus on the fashion strength of the company in a trend changing market. To manage these expectations, the company should invest in a production facility to have quality control measures in place.
Recommendations
Invest in a production facility.
Divest mens shoe line to crystallize company focus on young female market.
Create a new brand name.
Rebuild current premium brand.
Increase research and development.
Conclusions
There is a lack of quality.
L.A. Tech brand not viewed as high performance.
Sales have decreased.
L.A. Gear has lost market leadership.
Technology is a factor in performance shoes.
Detail of Findings
The management at L.A. Gear consists of; Stanley Gold, Mark R. Goldston, Christopher Walsh and William Benford. Mr. Gold, CEO, is considered to be a turn around expert. He is highly educated and experienced. Mr. Goldston, COO, was previously the chief marketing officer at Reebook International. He is the president of Faberge USA cosmetics.
The rivalry among existing firms is high because of the large number of consumer options available for shoe products and also the large number of competitors both domestic and abroad. The low threat of new entrants is determined because it requires a high degree of financial commitment to start up research, development and manufacturing facilities, along with the relatively low barriers to entry. There are many choices in footwear leading to a high threat of substitute products. The low bargaining power of suppliers is due to the many materials suppliers have to choose from to make footwear. Many choices and a saturated market lead to a high bargaining power of buyers.
Opportunities available are; the changing trends allow for innovating new product development, overseas markets and the potential for niche markets. The threats are: trends indicate low sales, buyers fashion trends lead to a fickle market and increasing competition. The strengths are: southern California fashion-minded image, historically sexy advertising and historically strong product innovation skills. The weaknesses are: the current lack of Research and Development investments, acknowledged need to enhance current product line, no high profile celebrity/athlete endorsements, ineffective distribution process and low employee morale.
In looking at the Boston Consulting Grid, the company is relying upon the strength of the womens shoe line. However, a star performer for the company has been the L.A. lights technology. The concern for the company has been the mens shoe line as well as the disappearing brand recognition of the L.A. Gear brand name (Exhibit 3). Therefore, the company must consider these elements in the future.
In facing potentially several different changes in the environment, L.A. Gear must be prepared with solutions to fit the needs of the organization. In the current environment, the competition is fierce in the mens athletic performance shoe market. Competitive leaders such as Nike, Reebok, and Adidas hold strong footholds among consumers in quality and brand recognition. If the current market competition continues, L.A. Gear would be unable to compete in the mens performance shoe market. Therefore, L.A. Gear should divest the line of mens performance shoes.
In divesting the mens shoes, the company would be able to utilize the additional funding to further develop the stronger lines. This also allows the company to regain share of the large womens market, their historical cash cow. After realizing losses in sales, it is important for L.A. Gear to rebuild its cash cow before it further loses sales. While the company has lacked research and development, it has always achieved high fashion and attractive shoes. Divesture of the mens athletic line will provide for company resources to focus on the ladies fashion line. In addition, there is potential to build a stronger international line of shoes. The L.A. look may be passД© in the domestic market, but internationally, it is seen as an exotic flare in style. There would be opportunities to develop a niche brand in other countries. The growth of the Asian market as well as the increased interest in American products by this segment provides growth potential. In 1990, international sales accounted for 19% of total sales, but in 1992, the percentage increased to 28% (Exhibit 3). By continuing to develop other segments, L.A. Gear would be able to penetrate and develop markets and build star segments internationally.
While divesting the line is optimal in the highly competitive market, there are downsides to this solution. There is a substantial loss in market share for the company. The mens shoe line does account for 24% of sales and this may create a company that is risk adverse towards entering new markets in the future. By increasing funding in the womens shoe line, the company has less potential developing new products. This solution lacks long-term development for the company in emerging markets. Worldwide, there are strong fashion competitors in the European market. Divesting the mens shoe line would require additional support to make this solution work properly. Consequently, international sales are not necessarily a strong suit for L.A. Gear.
The L.A. Gear and the L.A. Tech name do not offer enough separation in marketing.