L.A Gear Essay

2318 WordsDec 2, 200910 Pages
EXECTIVE SUMMAR L.A. Gear was a quintessential 1980’s company. The notion was to capture the L.A. lifestyle. This is a company that went public in 1986. Its stock doubled on the first day of trading. It had the third-largest percentage gain on NASDAQ. In 1989, the equity reached a market capitalization of $1 billion. It was the largest appreciation that year on the New York Stock Exchange. That’s the rise of L.A. Gear. And this is the fall. In 1990 and 1991, fashion moved from glitter to grunge. The problem was, L.A. Gear didn’t make much of a transition in terms of its style and, from 1990 to 1996, revenue declined from $820 million to $196 million. In 1998, by the time the company filed bankruptcy, the common stock was literally worth zero. Why is the rise and fall of L.A. Gear so interesting now? For one thing, we’ve been seeing an awful lot of this rise and fall business lately in the market. Studying this case can give us insights into the kinds of failures we can expect in the high-tech and dot-com sectors over the next two or three years. L.A. Gear designed products, outsourced its manufacturing and distributed products, but it didn’t have plants, and it didn’t have a lot of employees, even at its peak. There were not a lot of physical assets. What assets it did have were highly liquid—most of the assets were inventory, which played a critical role as its demise unfolded. By the time the decline started, professional turnaround management was involved. They had a top management team and a board of directors, both of which had substantial equity stakes in the firm and considerable turnaround experience. But one of the most interesting things about L.A. Gear is that it rises quickly and falls very slowly. How can this company continue for so long without solving its management strategy problems; without substantial

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