Wednesday, October 18
Converse nears corporate extinction
 
 By Darren Rovell
ESPN.com

Before there were Air Jordans, there were Chuck Taylors. Before there were Reebok pumps, there were Jack Purcells. And before Wilt Chamberlain played his very first game in the NBA, Converse was already 50 years old.

Converse remains hopeful
Converse chairman Glenn Rupp denied his company was "on the verge of going out of business."

Rupp issued a news release Wednesday saying things are looking up this year for the company.

"We are experiencing strong demand for Converse products in key U.S. markets and European markets and in Japan, where the Chuck Taylor All Star continues to be the No. 1-one selling athletic shoe," Rupp said

Rupp acknowledged that Converse is still searching for financial help after its recent missed round of financing.

"To be sure, the company faces significant challenges with respect to its indebtedness and continues to talk to its financing sources concerning the restructuring of its obligations," Rupp said.

Rupp added that Converse was shipping orders for spring 2001 and that work on some 2002 products was already "well under way."

The news release also stated that based on preliminary audit results for the nine months that ended at the end of September, Converse "expects that U.S. wholesale sales will be up approximately 10 percent and operating earnings are ahead of last year."

Converse shoes were the common denominator between a Magic Johnson-Larry Bird classic. They were good enough for Larry Johnson's grandmama. They even transcended sport and became part of pop culture as the shoe of choice for Dennis the Menace, Juan Epstein of Welcome Back Kotter and Punky Brewster.

But it's definitely not a Converse world anymore. With Nike, Reebok and adidas dominating store shelves, the 92-year old Massachusetts-based shoe company is taking its last steps. Industry sources have confirmed that Converse has racked up $180 million in debt, and the announcement of the company's death is merely a formality. It has already gone through a series of layoffs, missed a $25 million financing deadline earlier this month and leased space on company property. Its stock (symbol: CVEO) -- offered on the Over the Counter bulletin board -- fell Tuesday to 50 cents, an all-time low. Compare that to February 1997, when shares were selling at $28.

"I think their day in the sun is past and it's time to tip the hat and write off an old friend," said Rick Burton, director of the Warsaw Sports Marketing Center at the University of Oregon.

Converse would not return phone calls seeking comment.

In the '50s and 60s, Converse was a corporate icon. Everyone wore the Chuck Taylor All-Stars. That didn't change when the classic white turned colorful and the suede star was added. Adidas and Puma made a very strong push in the early '70s and Converse was seemingly caught off-guard. Its perch as an industry leader was threatened. Even then, Converse had Dr. J traveling the friendly skies in its shoes. But by 1988, despite having Magic and Larry as its poster boys, Converse was lapped by Nike and Reebok. Then came the '90s, when the "grunge" movement provided Converse with a revival and close to 7 percent market share of the $11 billion retail shoe market. But by the end of last year, industry analysts tabbed Converse's share of the market at 1 percent.

"They had a marketing philosophy, a brand awareness and a share of the market that was very strong," said Bob Williams, president of Burns Sports Celebrity Services, a company that matches athletes and corporations for endorsements. "But when new companies came into the game, for some reason, they were just unable to adapt to the market and by the time they might have tried to change, it was too late. Nike and Reebok grew so quickly and became so big."

Converse All-Star
Converse All-Stars used to cover the feet of schoolboys everywhere

In reality, Converse has been down for the count for a long time. With a scant advertising budget that is dwarfed by the industry leaders, even the long Converse tradition couldn't put its product into most stores. Despite the fact that the shoes are manufactured in the United States, American distribution in recent years has faded.

"Without an advertising budget, retailers won't talk to you and you won't get the shelf space," said John Shanley, an athletic industry analyst with First Security Van Kasper.

Converse's downfall could be attributed to its dizzying round of corporate takeovers. Throughout its history, Converse has been acquired by companies that make ribbon cables (Eltra), aircraft electronics and car parts (Allied) and furniture (Interco, which also produces footwear). Apollo Capital Management, which held on to a majority share for the past couple years, recently sold approximately 30 percent of its stake in the company. And since Converse was rarely the core business of these different manufacturers, it didn't always receive priority treatment.

"Their financial troubles are partly their own doing," said Hal Peterson, Webmaster of the Converse fan site, chucksconnection.com. "But also because they have been the stepchild in a series of takeovers and buyouts that have limited research and development, new marketing campaigns, and product availability."

When the company made the effort to get high-profile endorsements to boost its image, the results failed miserably. Dennis Rodman and Latrell Sprewell, coupled with longtime endorser Bobby Knight, were not exactly the best way to represent the All-American Converse image. Converse still has some stars like Karl Malone wearing the shoe, but the company has little spending money to promote its presence on the court.

According to one industry expert, Converse has held on for so long because declaring bankruptcy will not clear the company from its enormous debt.

"If they turned the lights off and went away, (the majority partner) would still obligated for that debt," Shanley said. "So if Converse filed bankruptcy and went out of business, that doesn't solve the problem. Maybe they're so perplexed they are doing nothing. But every month they do nothing, their brand is worth less to younger kids."

Converse recently sold its non-footwear licensing rights to a company in Japan, a deal reportedly worth between $20-25 million. But it appears as though the company will fade slowly, since even with new investment capital, a comeback seems unlikely.

"Without an enormous infusion of cash, they can't make it," Burton said. "Nike is probably working on product for 2003 now and by the time Converse can get what they can to retail, the new investor money might bleed dry."

Some think the Converse name is just too good to throw out, but some say that with its recent decline, it's better to let it go.

"It would be easier to shut the door and come back under another name," Williams said. "Converse has a stigma attached to it now. It's an oldie, but they've done nothing to change the design and nothing to catch the consumer's eye."

Darren Rovell, who covers sports business for ESPN.com, can be reached at Darren.Rovell@espn.com.