Converse Inc. Business Information, Profile, and History

Company Perspectives:

The Company's marketing strategy is centered on the Converse All Star brand, which is positioned as the American performance brand with authentic sports heritage. The company believes that there are significant opportunities to build the brand, which commands high consumer awareness generated by reason of its 91-year history. The company's consumer research has become an integral part of its product development, advertising campaigns and in-store point of purchase materials.

History of Converse Inc.

Converse Inc. is the largest manufacturer of athletic footwear in the United States, producing approximately 8.4 million pairs of shoes domestically in 1998. It owns and operates a manufacturing facility in Lumberton, North Carolina, where it produces the majority of its athletic originals, and leases manufacturing plants in Mission, Texas and Reynosa, Mexico. The Converse All-Star basketball shoe was the first in the athletic footwear industry, and by the early 1990s, more than 500 million pairs, in more than 56 colors and styles, had been sold in more than 90 countries worldwide. In addition, the company has diversified into varied rubber products, sports apparel, and full lines of athletic shoes for tennis, cross-training, team sports, running, walking, and children's recreation.

From Basketball Shoe Innovator to Market Leader in the Early 20th Century

The origins of Converse Inc. date back to 1908, when Marquis M. Converse founded the Converse Rubber Company in Malden, Massachusetts with a capital investment of $250,000. Converse had gained extensive retail experience as a general manager of one of Boston's largest department stores and at Beacon Falls Rubber Shoe Co. He started his own firm after Beacon was absorbed by U.S. Rubber, and, within a year of its founding, the Converse Rubber Company had integrated 350 employees into a full-production team in a new plant. By 1910, the company had expanded its plant to produce 4,000 pairs of boots and rubbers daily.

The young company experienced a dramatic increase in sales after its 1917 introduction of the Converse canvas All Star, one of the world's first basketball shoes. The game of basketball was then in its infancy, having been invented by James Naismith in 1891 at the International Young Men's Christian Association Training School. All Star's rapid success was spurred by the reputation and marketing savvy of basketball star Charles 'Chuck' H. Taylor, who joined the Converse sales force in 1921 to become the brand's first player endorser. In a town outside of Columbus, Indiana, Taylor had graduated from high school to a career in basketball. After playing for barnstorming basketball teams, including the Buffalo Germans and the Akron Firestones, Taylor joined Converse's Chicago sales office in 1921. He traveled around the country selling the shoe and promoting basketball in clinics. In 1968, a year before his death, Taylor was inducted into the Naismith Memorial Hall of Fame.

The original Converse Rubber Company soared beyond the scope of its 1908 designs until 1929 when it fell into bankruptcy. Control of the company then passed on to Mitchell B. Kaufman, who had been president of Hodgman Rubber Company since 1925. After Kaufman's untimely death a year later, his successor, Albert Wechsler, operated the company for the Kaufman estate until 1933, when a depressed economy and reduced profits prompted yet another change in command.

The 1933 purchase of the company by the Stone family began a 39-year period of family ownership during which time Converse became a market leader. After providing protective footwear, special-purpose boots, parkas, and other equipment for the American Armed Services during World War II, the Stones concentrated on rapid growth in a civilian market. In 1946 the company's Granite State Division in New Hampshire began operating two large plants. In 1953 Converse established the Coastal Footwear Corporation in Canovanas, Puerto Rico. Converse brand lines were further expanded with the 1961 acquisition of the Tyer Rubber Company and the 1964 acquisition of the Hodgman brand of sporting goods equipment. The company also opened a new factory in Presque Isle, Maine in 1967 and purchased the Bristol manufacturing company in Rhode Island in 1969.

Expansion and Increased Competition in the 1970s

By the early 1970s, Converse had diversified beyond footwear to provide numerous industries--textile, plastic, automotive, paper, paper converting, photocopying, and leather processing--with products ranging from hockey pucks to teethguards, sports and industrial boots, and rubber compounds for specific applications. Sales were delegated to three separate divisions: Sporting Goods, Footwear, and Industrial.

The Stone family dynasty ended its reign in 1972, when Converse was purchased by the Eltra Corporation. That same year, the footwear division of B.F. Goodrich Co. was acquired, adding a modern manufacturing plant in Lumberton, North Carolina and a large distribution center in Charlotte, North Carolina, which remained the hub for Converse distribution as the company continued to expand.

By the late 1970s, factors, including increased foreign competition, soaring labor and overhead costs, and a weak domestic economy, forced the company to pare down operations, consolidate, and increase efficiency. The Hodgman line was sold, and the Malden and Andover plants were closed, followed by the Granite State Division. Sales divisions, which had traditionally been divided between sporting goods and footwear, were consolidated into one team.

Converse changed hands once again in 1979. Under the ownership of Allied Corporation, the brand would achieve unprecedented sales and profits. In 1982, however, the giant chemical conglomerate underwent a restructuring and moved out of the consumer products business. Although Converse produced 12 million pairs of sports shoes a year and had become the leader in basketball footwear, Allied put the company up for sale.

Through the combined efforts of a group of senior managers, Converse spun off from its parent to become a privately owned and operated entity. The group, led by Richard B. Loynd, president of Allied's Eltra Corporation, of which Converse was part, and John P. O'Neil, Converse president, negotiated the purchase of the Converse division from Allied for approximately $100 million. By 1983, Converse stock was available on the NASDAQ national market.

Facing the growing pressure of foreign imports, Converse moved to develop its export business to international markets. In 1984 the company signed separate agreements with Moon-Star Chemical Corp., Mizuno Corp., and Zett Corp. to handle the manufacture, distribution, and sale of Converse footwear in Japan. With the opening of an office and warehouse in Osaka in 1984 and plans to develop new shoes specifically for the Japanese market, Converse anticipated that 'within three years, it [would] be a leader in the distribution of athletic footwear in Japan,' according to company president John P. O'Neil. Between 1987 and 1988, Converse's international business increased by more than 60 percent. One driving force behind such growth was the building of direct company operations in key European, Asian, and North American locations, in addition to licensed distributors in more than 90 countries worldwide.

The Beginnings of a Full-Line Athletic Shoe Operation in the 1980s

Converse also faced competition from other domestic shoe companies. Since the early 1970s, the introduction of high-performance, leather athletic shoes strained Converse's leading position with its simple, canvas classic. By January 1986, the New York Times reported that 'Nike of Beaverton, Ore., maker of Air Jordan basketball shoes, appears to be outrunning such competitors as Reebok International Ltd., Converse Inc. and Hyde Athletic Industries.'

Consequently, Converse diversified to become a full-line athletic shoe operation. By the mid-1980s, Converse running shoes had become a popular item. Sales of tennis shoes, including the popular Jimmy Connors leather model, increased 400 percent in 1983 alone. By the 1990s, the Converse brand was associated not only with the famous Chuck Taylor All Star line, but with other fashion canvas shoes and footwear for all major sports played by all age groups.

To ensure continued development of innovative and well-designed footwear, Converse invested in an advanced technologies lab staffed by a 70-member research and development team. Upon its completion in the early 1980s, it was one of only two in-house, biomechanical footwear labs in the country. The facility included work stations equipped with powerful computers, robots, and testing systems.

In addition to designing the most effective shoes possible, Converse enhanced its reputation by sponsoring major basketball organizations and events worldwide. Converse was the first company named the official shoe of the National Basketball Association. Valid from 1995, its contract granted the company permission to use the NBA name in all advertising and promotions and to manufacture shoes with logos of NBA teams or other affiliations. Converse also supplied merchandise to cheerleaders and ball retrievers throughout the league.

Converse was also a sponsor of USA Basketball beginning with its inception in 1975. The Colorado Springs-based group was responsible for selecting national teams to represent the country in various international competitions and served as a class A member of the United States Olympic Committee. After 1977, Converse was contracted as the official shoe of USA Basketball, which agreed to 'use its best efforts to outfit players in Converse shoes,' according to Jeffrey Orridge, assistant executive director for corporate and legal affairs for the sports group, in a September 1992 article in The American Lawyer. That agreement later caused legal conflicts, as USA Basketball team members including Michael Jordan held contracts with competing shoe companies such as Nike. Requiring players to wear Converse shoes introduced ethical and legal problems that had to be carefully resolved.

With the globalization of basketball, Converse increased its overseas contacts. In 1988 the company signed a sponsorship for the World Association of Basketball Coaches (WABC), located in Rome, Italy, and responsible for more than 50 clinics worldwide. In February 1990, the company began a five-year, seven-figure contract as the sponsor of the Federation Internationale de Basketball (FIBA). Founded in 1932 and based in Munich, Germany, FIBA included 176 member countries and approximately 119 million registered players. Its competitions included the European Championship Club Cup Final and the European Championship for both men and women.

Converse also made a presence at the Olympic Games. Though the company had provided Olympic footwear every year since 1936, in 1984 it became the first footwear supplier ever chosen to officially represent the games. The honor was not cheap: Converse paid the Los Angeles Olympic Organizing Committee (LAOCC) $4 million and spent an additional $3.5 million for national television advertising. Total promotional costs approached the $10 million mark.

New and Innovative Marketing Strategies in the 1990s

Ever since Chuck Taylor served as its first player endorser, Converse has continued to promote its footwear through high-profile sports celebrities and athletes. By 1990, the brand had contracted endorsements with more than 14 pros representing 11 different teams across the United States. In addition, company statistics showed that 21 percent of all professional basketball players wore Converse shoes.

In the case of basketball endorser Earvin 'Magic' Johnson, Converse received more publicity than it may have bargained for. In 1979 Johnson was enlisted as an official company endorser until 1994. By the late 1980s, Johnson showed dissatisfaction with the deal, which placed him in the top income echelon of Converse endorsers, but yielded less than those of other top endorsers with other leading brands. After Converse filed suit against the player for failing to comply with his long-term endorsement contract in 1987, matters were resolved temporarily.

When Johnson won the NBA's most valuable player award, Converse created a 30-second highlight piece of his best moves in the NBA tournament filmed in slow motion to the accompaniment of 'Amazing Grace.' In 1990 the brand allotted a quarter of its $40 million advertising campaign to launch its Magic Johnson footwear and apparel line. After the player announced that he had tested HIV positive in the winter of 1991, Converse aired a $1 million public service campaign called 'Magic's Athletes Against AIDS.' Yet, in 1992 old friction resumed with Johnson's public statements that Converse marketing was outdated and that he was terminating his contract before the official date. 'Converse as a company is stuck in the '60s and '70s. They think the Chuck Taylor sneaker days are still here,' Johnson told reporters in Monte Carlo after the U.S. basketball team practiced for the Olympics. 'I've been trying to get out for years.'

Despite Johnson's criticism, Converse moved into the late 1980s and early 1990s with new and innovative marketing strategies aimed at regaining lost market share. In 1985 the brand paired two rival coaches--Denny Crum from the University of Louisville Cardinals and Joe B. Hall of the University of Kentucky Wildcats--on one poster to promote the Converse brand. Other promotional strategies included free trial shoes at the 1985 Sports & Runners Expo in Boston; environmental sponsorship of the Windstar Foundation of Snowmass, Colorado; and sponsorship of the Hoop-It-Up three-on-three basketball tour, bringing the game of American streetball to 13 European cities and to youth groups at home.

In the late 1980s, Converse stressed advertising and promotional campaigns to compete with such brands as Nike, Reebok, L.A. Gear, and Keds. Even under the financial strain of its bankrupt parent, Converse garnered an effective creative team at its New York agency, Ingalls Quinn and Johnson, which developed a hit campaign featuring NBA Rookie of the Year Larry Johnson dressed up as his basketball-playing 'grandmama.' In her new, light Converses, the ad proclaimed, grandmama could blow by you 'faster than a passing thought. She'll eat point guards for lunch and pick her teeth with a power forward.'

In October 1986, Converse was acquired by Interco Incorporated, a broad-based manufacturer and retailer of consumer products and services primarily in the areas of footwear and furniture products. Citing doubt regarding Interco's future profitability, Standard & Poor's placed the company on CreditWatch. Nevertheless, Converse announced record sales for fiscal 1987, breaking the $315 million barrier and representing a 36 percent increase over 1986.

In January 1991, however, Standard & Poor's doubts proved justified. Interco filed for relief under Chapter 11 of the federal bankruptcy laws. Until it emerged from bankruptcy proceedings in the autumn of 1992, support for rapidly slipping Converse brands was limited to a dangerously low budget. Apollo Investment Fund, led by former Drexel Burnham Lambert dealmaker Leon Black, wound up with 60 percent of the company's stock.

Interco's 1992 financial restructuring, however, freed up new funds for Converse investments and marketing plans. In June of that year, Converse's advertising team at Ingalls startled Madison Avenue by pulling up stakes and moving across town to Houston, Effler & Partners Inc. The $25 million Converse account followed along one day later. Houston took off with a new generation of ads to sell new shoes. In 1993 Converse introduced its Run `N' Gun, featuring a patented React cushioning device with a combination of gas and gel built into the heel to absorb shock and provide additional maneuvering control. After some critics objected to the shoe's name as too violent, Converse changed it to Run `N' Slam.

Houston also designed a 30-second television spot featuring Kevin 'KJ' Johnson of the Phoenix Suns, with music by pop group En Vogue. The spots primarily targeted cable channels such as the Black Entertainment Network and MTV. In another 1993 award-winning campaign for the new AeroJam shoe, the agency again played off Larry Johnson's 'grandmama' theme. While grandmama performed staggering jumps and dunks in her AeroJams, Johnson narrated: 'There was an old lady who lived in a shoe. ... And that shoe let her do things that no man could do.'

These and other aggressive promotional programs began to pay off for Interco's shoe business. Footwear group sales by Florsheim and Converse for the second quarter of 1993 were $162.1 million compared with $146.2 million in the same period of the previous year. In 1994, however, despite record revenues of $437 million, increased profits of $17.6 million, and the success of Converse's Jack Purcell racquet sports shoe, Interco Inc. decided to sell its Converse subsidiary. It was spun off in November 1994.

Diversification into the Apparel Business in 1995

Diversification followed for the once-again independent company. In 1995 it entered into a licensing deal with Shalom Children's Wear to manufacture infants' and toddlers' sporting goods apparel. It also purchased Apex One Inc., a designer and marketer of sports-related footwear and apparel that also made products under license with professional sports teams, leagues, and institutions of higher education. Following the acquisition of Apex, Converse launched an 'integrated head-to-toe apparel program' of coordinated outfits bearing the colors of top college teams. The universities of Arkansas and Kentucky were the first to take to the court in Converse garb and matching sneakers.

But the second half of 1995 unfolded in a fiasco for Converse, with layoffs, leaky shoes, and trouble at its new subsidiary. In June, it announced the cutback of 200 jobs at its Lumberton plant; in August, just 85 days after its Apex One acquisition, it decided to close down that business given unexpectedly slow orders and high costs in the face of a soft apparel market. In fact, the undercapitalized Apex, which had long had trouble making orders, no longer had the trust of most retailers, despite its affiliation with Converse. Converse eventually won $25.6 million in settlement from Apex for misrepresentation, but the episode hurt Converse, which was having financial troubles of its own--an operating loss of $8.4 million in the second quarter--and in September, it moved to indefinitely suspend operations at its Mission, Texas factory. In October and November, it laid off two more rounds of employees, and in December, just when it looked as if Converse was getting back on track with the decision to eliminate its outdoor, running, walking, tennis, and football product lines, its RAW Energy and RAW power basketball shoes literally sprang a leak, and the company was faced with the embarrassment and recall of 400,000 pairs of shoes. By year's end, Converse posted a loss of $71.7 million, compared with profits of $17.6 million in 1994.

New Management and the Retro Trend in the Late 1990s

Looking to regain momentum in 1996, Converse hired Glenn N. Rupp, former head of Wilson Sporting Goods Co., to replace Gib Ford, who retired as chief executive in that year. Rupp believed Converse should play to its strength as one of the few shoe companies with sizable domestic production facilities. Exploiting the marketability of the 'Made in the U.S.A.' label, Rupp's goal was to decrease the time it took for an order to be filled from six to only a few weeks. Together with President Michael 'Mickey' Bell, who would resign abruptly in August 1996, Rupp undertook a restructuring of the nation's No. 5 athletic shoe company.

Fortunately, for Converse, 'retro' was in, and the company undertook its biggest campaign ever aimed at recapturing the glory of its past. Its All Star 2000, a leatherized update of its traditional basketball show, which featured an old-fashioned Chuck Taylor All Star patch, began selling at a rapid clip in 1997. In the wake of this success, Converse made plans to market the Dr. J 2000 basketball shoe and the All Star 91, or Dennis Rodman shoe, in spring 1997 in time for the NBA's 50th anniversary. The company entered into deals with Rodman, Latrell Sprewell, Larry Johnson, and ABL star Theresa Edwards (40 percent of Chuck Taylor high tops were purchased by women) to help market its updated old shoe designs. In addition, Converse initiated a licensing agreement with A4 of Los Angeles to produce its Star 91 line of apparel and footwear, as well as two other men's apparel lines. The idea was to leverage the company's history as a long-time staple among professional athletes and to play up the emotional ties people had to the Converse brand.

Unfortunately, by the end of 1997, people had shifted from wearing basketball sneakers and other athletic shoes to what the industry called 'brown shoes'--work boots, hiking shoes, and casual footwear in brown or black. Converse slipped to sixth place in its industry, posting a $5 million loss despite record sales of $450 million and an increase in revenues, while throughout the sector inventories bloated and sales showed signs of going flat. In early 1998, Converse cut more jobs and changed its marketing strategy, instituting its new 'Stay true' campaign, designed to appeal to 12- to 18-year-old athletes and featuring younger players at the start of their careers. The campaign was at least in part a reaction to the embarrassment brought upon the company by Rodman and Sprewell, whose behavior on and off court was no longer something with which the company wanted to be associated. The company also continued to promote its athletic originals, its Chuck Taylor and Jack Purcell shoes.

Converse continued to struggle throughout 1998, at which point it moved to reduce its heavy reliance on its basketball category and to institute other footwear categories, such as men's and women's athletic originals and action sports. Rupp's goals for the year included marketing the retro look, expanding the supply of children's lines, pursuing a larger share of women's and girl's athletic shoes, and garnering a significant portion of sales in its new action sports category--gear for boarding and eco-training. Still the company's market share slipped further, from 3.6 percent in 1997 to 2.3 percent in 1998, and revenues for the year dropped about 30 percent to $308 million despite an increase in action sports sales.

The company's strategy for 1999 was likewise broad. With sales outside of the United States now close to 50 percent of net revenues, Converse formed Converse Canada and assigned the new division exclusive distribution and license rights for footwear, apparel, hats, and bags in Canada. It also continued to promote its athletic originals in Japan, where they were a huge success, and its skate casual shoes in Europe. Back home, it instituted a new approach to its children's product market, focusing on colorful and imaginative footwear designed specifically for children and partnering with OddzOn, Inc., marketers of Koosh sports toys. It also introduced a women's line of athletic originals in the spring of 1999.

Drawing upon the fruits of the $6.5 million, $8.8 million, and $7.7 million it spent on research and development in 1996, 1997, and 1998, respectively, Converse introduced a new shoe technology in 1999: He:01, a helium gas-cushioned shoe and the company's first technological innovation since the early 1990s. To better market its products, it partnered with pro basketball hopeful and recording artist, Master P, on a line of sneakers to complement its joint No Limit apparel, the All Star MP. It also signed a licensing agreement with Genender International design to manufacture and market a line of Converse clocks and watches. In this way, despite the ongoing layoffs and losses that continued to plague Converse into the first half 1999, the company aimed to position itself to take advantage of the anticipated improvement in industry conditions.

Principal Divisions: Converse Canada.

Principal Competitors: Adidas; Fila; Nike; L.A. Gear; Keds; Reebok.

Chronology

• Key Dates:

• 1908: The company is founded as Converse Rubber Co.
• 1917: Converse introduces the All Star, one of the world's first basketball shoes.
• 1929: Converse Rubber Co. falls into bankruptcy.
• 1972: Converse is purchased by the Eltra Corporation and acquires the footwear division of B.F. Goodrich Co.
• 1979: Allied Corporation purchases Converse.
• 1982: Allied Corporation sells Converse to a group of its senior managers.
• 1983: Converse stock becomes available on the NASDAQ national market.
• 1984: The company signs agreements with Moon-Star Chemical Corp., Mizuno Corp., and Zett Corp. to handle the manufacture, distribution, and sale of Converse footwear in Japan.
• 1985: The company is named the official shoe of the National Basketball Association.
• 1986: Converse is acquired by Interco Incorporated.
• 1994: Converse is spun off from Interco in November.
• 1999: Converse introduces the He:01 shoe.