Can L.A. Gear’s Gold Put It Back in the Race? : Footwear: Some say the turnaround artist has already failed; others see success just over the next hill.

There are lots of reasons to suggest that Stanley Gold, a corporate turnaround artist, has lost his footing trying to save the ailing sneaker maker L.A. Gear Inc. But it might also be too soon to bet against him.

In the year since succeeding Robert Y. Greenberg--one of the company’s founders--as chairman, Gold has yet to stop L.A. Gear’s financial losses and tumbling market share.

Still, Gold has made major changes at the company, such as improving its cash reserves, selling off inventory and hiring a new executive team.

Gold became chairman after Trefoil Capital Investors, a Burbank investor group organized by Gold and Walt Disney Co. Vice Chairman Roy E. Disney, paid $100 million for a 34% stake in the sneaker company.

Trefoil stepped in after Santa Monica-based L.A. Gear suffered a collapse in 1990-91 that was nearly as sudden as the shoemaker’s earlier stellar growth.

In the last two years, the company has lost more than $140 million, and its share of the U.S. athletic-shoe market has plunged by more than half. The company had nearly 12% of the market in 1990, third behind industry giants Nike Inc. and Reebok International Ltd., which jointly control half the industry. But last year, L.A. Gear fell to fourth (behind Keds) with only a 5% share, the trade publication Sporting Goods Intelligence estimates.

For Gold and Disney, L.A. Gear’s distress was familiar territory even though they were new to the shoe business. Another of their partnerships, Shamrock Holdings Inc., has earned more than $160 million in profit over the last decade by investing in troubled companies, turning them around and then cashing out a few years later.

L.A. Gear is the first major investment for Trefoil, a “white squire” bailout fund that Disney and Gold formed in 1990 with $450 million raised from investors.

Gold’s inheritance with the L.A. Gear leadership included past marketing gaffes, poorly made shoes, bloated inventory and an ill-fated apparel division.

Gold bristles at any suggestion that L.A. Gear is a quagmire from which his investment, and reputation, won’t escape intact.

“We’re on or ahead of plan,” said Gold, 50. “We’ve probably hit bottom and we now need to build up. We are going to have a successful company with good integrity and good products that makes a profit. There is no question about that.”

Actually, there is. Although Gold sharply cut costs, it’s not yet known how well the company’s new styles will sell this year in the fiercely competitive sneaker market.

Small wonder that as of mid-January, more than 1 million of L.A. Gear’s 37 million common shares and equivalents outstanding had been sold short and not yet bought back by investors expecting the stock to drop further. (The stock, which peaked at $50 a share in 1990, closed at $10.125 Friday, down 25 cents in New York Stock Exchange composite trading.)

“There’s still a great deal of uncertainty as to where L.A. Gear is going to end up,” said Adele Archer, who follows the company for Standard & Poor’s Corp.

But L.A. Gear also has crucial supporters. Bob Corliss, president of the 260-store Herman’s Sporting Goods chain, said he has just placed major orders with L.A. Gear for the spring and fall, although he declined to disclose specific figures.

“They’re definitely much better,” Corliss said, adding that Herman’s held off its orders until seeing Gold’s new styles. “The styling is much better and the shoe is a high-quality product.”

Steven Nichols, chairman of K-Swiss Inc., a smaller but profitable sneaker company in Chatsworth, agreed that “it’s a very big if” whether Gold can succeed. But he added: “L.A. Gear is under tremendous pressure, and that often breeds success. I wouldn’t count them out at all.”

L.A. Gear says it expects to lose up to $81 million for the 1992 fiscal year ended in November--the final figures aren’t out yet--and to continue posting losses through May. L.A. Gear’s fiscal 1992 sales ran about 30% behind the prior year, when they totaled $618 million.

Nonetheless, Gold has pared L.A. Gear’s once-bloated inventory of 12 million pairs of shoes to about 5 1/2 million, thanks to cut-rate clearance sales. Those reductions and two private sales of securities bolstered L.A. Gear’s balance sheet. Nearly out of cash in late 1991, the company now has more than $125 million and minimal long-term debt.

Gold also replaced most of L.A. Gear’s management, including hiring Mark R. Goldston--from Reebok--to be president and chief operating officer. L.A. Gear’s troubled apparel division was abandoned.

The company overall slashed its work force by 35%, to about 850 people, enabling Gold to sharply cut overhead costs. Gold also agreed to work without a salary, although he does have stock options.

Gold has sliced L.A. Gear’s product line to about 250 styles from 500. The company’s production of the remaining styles, which is done overseas, was relocated to different plants because L.A. Gear’s past merchandise was plagued with quality problems.

And L.A. Gear spent about $20 million to settle lawsuits brought against the company by irate stockholders and others.

Indeed, the only major case still pending involves rival lawsuits between L.A. Gear and singer Michael Jackson; both are seeking at least $40 million for alleged breaches of contract. The suits stemmed from Jackson’s endorsement--for an estimated $5-million fee--of a new line of footwear in mid-1990. But the shoes, some laden with buckles, had abysmal sales despite millions spent on advertising.

Gold’s recovery plan is to equally divide his business between casual shoes, children’s shoes and athletic footwear. But in the athletic market Gold is staring directly at Nike and Reebok, whose marketing budgets dwarf L.A. Gear’s.

In 1991, the most recent year available, Nike and Reebok spent $223 million and $127 million on advertising, respectively, according to Advertising Age.

In the performance-shoe niche, some of L.A. Gear’s upscale styles costing $65 or more carry the new “LA Tech” brand name, and some new training and jogging sneakers have small, red safety lights embedded in the heels that blink while people are jogging in the dark. Some of the women’s and children’s styles also have flashing lights for decoration.

“Innovation is what the consumer is looking for,” Gold said. “We’re not going to copy other people’s brands. We’re going to create our own.”

Even if L.A. Gear’s lights and other gimmicks appeal to some consumers, “it takes a lot of money to defend your brand” in that sector, said S&P;’s Archer. “L.A. Gear was never known” for its athletic shoes and “there might be credibility problems.”

A key test will come this fall, when Gold’s new management team sees how its overhauled line performs in the critical back-to-school selling season.

“We’re not going to fall on our faces here,” Gold said. “We like things at the bottom. We will be a very profitable, very admired company in three to five years.”

L.A. GEAR’S SHRINKING MARKET SHARE

Percent of U.S. athletic shoe market

1992 Nike: 30.0% Reebok: 24.4% Keds: 6.1% L.A. Gear: 5.0% Other: 34.5%

1990 Nike: 28.7% Reebok: 21.4% L.A. Gear: 11.8% Keds: 5.1% Other: 33.0%

Source: Sporting Goods Intelligence