Converse, Inc.

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Converse, Inc.

founded: 1908

Contact Information:

headquarters: 1 fordham rd. north reading, ma 01864 phone: (508)664-1100 fax: (508)664-7258 url: http://www.converse.com

OVERVIEW

Converse, Inc. manufactures athletic shoes and sells them at its 31 company-operated retail stores. Converse led the athletic footwear market for many years with the Chuck Taylor All Star basketball shoe, but when the company encountered brisk competition in the 1980s and 1990s, its sales dropped below those of companies such as Nike, Reebok, and Fila. Nonetheless, Converse still ranks among the six leading athletic footwear producers in the United States. Converse remains well below Nike and Reebok, which in 1997 held 47 and 15 percent of the U.S. athletic shoe market, respectively. In the 1990s Converse Inc.'s revenues fluctuated in part because of the fickle nature of the athletic shoe market, much of which is made up of male adolescents under age 17. In 1997 sales totalled a record $450.2 million, a 28.9 percent increase from 1996. The company registered sales of $349.0 million in 1996, a 14 percent increase over 1995 revenues of $300.0 million. Converse also performed well in 1994 with revenues of $437.0, a 15 percent climb from sales of about $371.0 million in 1993. To remain competitive and increase its share of the sportswear market, Converse plans to continue introducing new shoe lines fortified by endorsements from professional athletes and to enhance its athletic apparel presence.

COMPANY FINANCES

Converse's 1997 sales totalled $450.2 million, a 28.9 percent increase from 1996. Domestic sales represented 63.0 percent of the company's net sales. Non-U.S. net sales accounted for 36.7 percent of total revenues in 1997, compared to 44.4 percent in 1996.

ANALYSTS' OPINIONS

Industry observers expressed mixed feelings about Converse Inc.'s efforts to hasten its turnaround. Some maintain that changing the company logo to the Chuck Taylor patch will not inspire the double-digit growth Converse expects. According to Mark Tedeschi in Sporting Goods Business, analysts believe the company's reliance on Dennis Rodman's endorsement is poor, since the endorsement may fail to drum up substantial new sales because of waning consumer interest in Rodman and competition from Nike's Jordan collection. Even though many observers feel the company lacks a broad enough product focus, they contend that Converse will experience new growth, but at a moderate rate.

HISTORY

In 1908 Marquis M. Converse established Converse Inc.'s ancestor, Converse Rubber Co., in Malden, Massachusetts. After two years of operation, Converse Rubber generated an average of 4,000 boots per day. In 1917 the company launched its most popular shoe of all time, the All Star basketball shoe. The All Star led the company to popularity and prosperity, especially when it received the endorsement of basketball player Chuck Taylor in 1921.

However, in 1929 financial troubles hit Converse and the company went bankrupt. Mitchell B. Kaufman took over Converse in 1929 and ran it until he died just a year later. At that point, Albert Welchsler became the company's owner, but by 1933 Welchsler could no longer afford to run the company, which had experienced poor profits due to the Great Depression. In 1933 the Stone family bought Converse and operated it for 39 years, watching it grow into a major footwear contender. During World War II Converse supplied the U.S. military with footwear and outerwear. After the war Converse shifted its focus back to the consumer market, opening two new plants for large scale production.

In the 1970s Converse began to diversify, adding hockey pucks, boots, and teethguards to its repertoire of products. Converse also created three sales divisions—sporting goods, footwear, and industrial products—to oversee its assorted products. In 1972 Converse changed hands again when Eltra Corporation purchased the company from the Stone family. Eltra held on to the company through most of the 1970s as Converse expanded and acquired other companies. However, when the economy soured in the late 1970s, Eltra's parent company, Allied Corporation, took control of Converse. In 1982 Allied abandoned the consumer market and sought a buyer for Converse, which by then was the leading producer of basketball shoes, manufacturing 12 million pairs of shoes a year. Executives at Eltra eventually bought Converse from Allied for $100 million and took the company public in 1983.

The company's next owner, Interco, acquired Converse in 1986 and sales rose to $315 million the following year. However, its new parent company suffered from a series of financial problems and filed for bankruptcy in 1991. Converse remained an Interco subsidiary until November 1994 when the ailing company sold its shares of Converse, spinning off the shoe maker as an independent company.

STRATEGY

From its entrance into the athletic shoe market, Converse has used endorsements of famous athletes to promote its products. Basketball player Chuck Taylor promoted the company in the 1920s and 1930s, and basketball stars such as Earvin "Magic" Johnson and Dennis Rodman carried the company's banner in the 1990s. Converse has sought to diversify its footwear offerings and expand its product line to include more athletic apparel. In 1996, apparel represented $9 million of the company's total sales, and the company projected a 10-percent increase for apparel in 1997.

FAST FACTS: About Converse, Inc.

Ownership: Converse, Inc. is a publicly owned company traded on the New York Stock Exchange.

Ticker symbol: CVE

Officers: Glenn N. Rupp, Chmn. & CEO, 53, 1997 base salary $476,538; Donald J. Camacho, Sr. VP & CFO, 47, 1997 base salary $192,837; James E. Solomon, Sr. VP Marketing, 42, 1997 base salary $285,577

Employees: 2,249

Principal Subsidiary Companies: Converse has 17 international subsidiaries in France, Netherlands, Belgium, Germany, Portugal, Spain, Italy, Japan, Scandinavia, Mexico, Brazil, and Barbados.

Chief Competitors: Competition in the athletic footwear market considers fashion, price, quality, performance, and durability. Some primary competitors include: Reebok International, Inc.; adidas AG; and Nike Inc.

In the mid-1990s, Converse removed its star and chevron logo of the 1980s and 1990s, replacing it with the Chuck Taylor patch. In 1996 Converse introduced a new line of basketball shoes, the All Star 2000, as part of its campaign to increase new product offerings. Furthermore, Converse eliminated its baseball and football shoes and tightened its focus on basketball, cross-training, leisure, and children's shoes. Converse also renovated a North Carolina production plant so it could produce more shoes in the United States, thereby expediting the company's shoe deliveries.

INFLUENCES

Because of the initial success of the All Star shoes, Converse relied on them to drive its sales. This strategy helped the company become the leading basketball-footwear provider for many years. Eventually this success eclipsed the company's vision. Consequently, Converse failed to continue developing innovative shoes as competition in the athletic footwear market started to intensify in the 1970s. Companies such as Nike and Reebok introduced leather performance shoes (previous models had been canvas), which received a strong response from both consumers and players. However, in the 1980s Converse followed this trend and launched numerous new athletic shoe styles, boosting its sales by 400 percent.

Converse Inc. also learned some lessons from its disastrous 1995 acquisition of Apex One Inc., a producer of licensed athletic apparel from professional sports teams. Converse quickly attempted to increase its presence in the apparel market by purchasing the nearly bankrupt Apex One, but Apex had fallen so far behind in delivering products to retailers that the retailers scaled back business with Apex or severed their connections completely. As a result, Converse lost $41 million from the purchase and closed the apparel manufacturer just three months after buying it.

CURRENT TRENDS

With the 1997 emergence of two professional women's basketball leagues as part of the Women's Professional Basketball Association (WNBA), athletic-shoe producers expanded their basketball shoe lines to target women for what some analysts predicted may be the fastest growing product area. As of 1997, only Nike and Reebok sold women's basketball shoes, but others (including Converse) planned to introduce them in 1998.

PRODUCTS

Part of Converse Inc.'s plan to improve its sales included the introduction of new high-performance and athlete-endorsed shoes. In 1996 Converse rolled out its All Star 2000 shoes, which proved popular and helped the company improve its sales. To compete with Nike's Air Jordan concept, Converse decided to launch a series of four shoes designed around the styles of Dennis Rodman. The first style released featured splashy colors, while the remaining were planned to be more conservative, given the lukewarm response to the first. In addition, Converse continued to manufacture and market its classic Chuck Taylor All Star canvas athletic shoe, which sold more than 560 million pairs since its introduction.

CHRONOLOGY: Key Dates for Converse, Inc.

1908:: Marquis M. Converse establishes the Converse Rubber Company
1917:: Converse introduces the Converse canvas All Star, one of the first basketball shoes
1921:: Charles "Chuck" Taylor becomes the brand's first endorser
1929:: Converse Rubber Company files for bankruptcy
1933:: The Stone family purchases Converse
1953:: Converse establishes the Coastal Footwear Corporation in Puerto Rico
1972:: Eltra Corporation purchases Converse ending the Stone Family's 39 years of ownership
1977:: Converse is contracted as the official shoe of USA Basketball
1979:: Allied Corporation takes over control of Converse from Eltra
1982:: Allied abandons the consumer market and seeks a buyer for Converse
1983:: Eltra buys back Converse and takes it public
1986:: Interco Incorporated acquires Converse
1994:: Interco spins off Converse and it becomes an independent public company
1996:: Converse introduces the All Star 2000 in an effort to increase new product offerings

Recently Converse used its tag and marketing statement "Stay True." The reasoning behind this slogan is that athletes should "stay true" to themselves, be proud of their success, and appreciate those who have helped them succeed.

CORPORATE CITIZENSHIP

Federal, state, and local laws monitor companies regarding possible environmental contamination, such as waste disposal and emission of various materials. The main materials used in Converse's shoes are canvas, linen, and rubber. The company believes any negative environmental claims they may incur will not affect its business.

Converse maintains a state-of-the-art biomechanics research laboratory that supports an ongoing search for new technology and enhancements to shoes geared for specific sports. The company's patented REACT shock absorption technology acts as a cushion in certain areas of the shoes' construction to protect athletes' feet from high impact.

From 1936 to 1984 Converse sponsored the Summer Olympic Games and provided footwear for the athletes. In addition, Converse has funded an abundance of basketball organizations and events around the world. The sportswear company supported USA Basketball, which organizes basketball teams to represent the United States in worldwide basketball tournaments. Converse also has sponsored international basketball organizations including the World Association of Basketball Coaches and Federation Internationale de Basketball, an organization composed of members from 176 countries.

GLOBAL PRESENCE

Converse products are marketed in 90 countries outside the United States. Foreign sales in 1997 were 36.7 percent of total earnings, compared with 44.4 percent in 1996. Although the majority of the company's footwear is sourced from various Far East factories, most of the athletic originals products are manufactured domestically. In 1997, 16 manufacturers in China, Taiwan, Macau, Vietnam, and the Philippines sold over 13.3 million pairs of shoes to Converse.

EMPLOYMENT

Converse has a 38-member sales force that markets its footwear through approximately 4,200 active retail accounts. In 1997 domestic sales represented 63 percent of the company's net sales. The 13 account executives who service national and regional accounts are paid salaries plus bonuses. The company has a non-contributory pension plan for domestic salaried employees based on years of service and final annual compensation. Hourly employees also have a non-contributory defined contribution plan. Converse also sponsors a savings plan and offers stock options to key employees. In addition, the company has a Non-Employee Director's Plan, which encourages non-employees of outstanding ability to enter and remain with the company as directors.

THESE SHOES WERE MADE FOR BASKETBALL

One of Converse, Inc.'s greatest accomplishments came early in its history, in 1917. That year brought Converse its most successful product, its trademark All Star basketball shoes. At that point, basketball was still in an embryonic stage, invented fewer than 30 years earlier in 1891 by James Naismith at the International YMCA Training School.

Nonetheless, with the endorsement and marketing abilities of basketball star Charles "Chuck" Taylor, the shoes' success soared to great heights. Taylor joined the company in 1921 and his signature was added to the shoe in 1923, helping launch Converse All Stars as the standard for basketball players for many years. Since no professional teams had been established, Taylor built his reputation as a basketball player in high school and adult leagues. While working for Converse, Taylor traveled around the country, hosting basketball clinics, meeting coaches, and promoting his signature Chuck Taylor All Stars.

Eventually, Taylor was inducted into the Naismith Memorial Hall of Fame. The shoe has a kind of "hall of fame" status as well—the Chuck Taylor All Star canvas athletic shoe has sold over 560 million pairs since its introduction.