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Overview
LA Gear is a company that enjoyed a meteoric rise to become the number three branded shoe maker in the country. Through a combination of excellent advertising campaigns and perception in to what kinds of shoes would sell, LA Gear became a major force in the industry in a relatively short period.
Beginning in 1990 however, a convergence of poor decisions and bad luck led to a run of declining revenues and stock price. There were three big factors in this decline that were aggravated by bad decisions and a poor business structure that only seemed to work as long as revenues continued to increase.
The release of the Michael Jackson Shoe in 1990 was supposed to coincide with the release of a greatest hits album. The album failed to materialize and the shoe was a huge failure. The Kareem Abdul Jabbar shoe, the catapult, also failed to sell. To top off the 1990 year, in December, before a nationally televised audience, a basketball player wearing a pair of LA Gear shoes stumbled and fell to the floor when the shoe fell apart as he was running.
Because LA Gear operated with an at once ordering system which forced then to carry a huge amount of inventory, when the new shoes failed to sell and the quality of their shoes were called into question because of the televised incident, they were left with massive inventory costs. They dealt with the inventory by dumping it at deep discounts to wholesalers. This decision angered their full margin customers like Nordstrom¡¦s who felt that the LA Gear brand had been cheapened by the decision to dump that a discount or value stores.
A good but poorly planned decision to move to a futures ordering system like most of the rest of the industry further s ...