A bid to regain footing Recovery: Jon Epstein, Fila's new chief executive, wants to take the right steps to restore the faded luster of the once-shining brand.

August 30, 1998|By Lorraine Mirabella | Lorraine Mirabella,STAFF

Basketball shoes sit toe to heel on the window ledge of Jon Epstein's office at Fila U.S.A. in Sparks, and portraits celebrate Fila-clad tennis stars and runners. But the more treacherous sport of mountain climbing dominates Epstein's thoughts as the new chief executive struggles to revive the athletic footwear and apparel company.

Epstein draws inspiration from the first climber to scale Mount Everest without bottled oxygen, Fila endorser Reinhold Messner, he wages an uphill fight of another sort -- restoring the faded luster of the once-shining Fila brand.

"People climb because the mountain is in front of them. I needed this kind of challenge," said Epstein, 43, who left rival Adidas America in June after two decades to come to the subsidiary of Italy's Fila Holdings SpA. "It's a great brand. It has tremendous potential, something to give to the world. I want to be one of the people who can help it become great again."

Epstein may be in for the rockiest climb of his life -- and of the company's, industry experts and analysts say.

"It's easy to slide down, but harder to get back up," said Mark A. Millman, president of Millman Search Group Inc., a Lutherville retail consulting firm. "They have really lost contact with the consumer over the last couple of years. He has a long road ahead of him to regain their position."

A Wall Street success story, Fila Holdings hit it big in the early-to-mid '90s, when its footwear and active apparel, which had been popular in the inner cities, quickly caught on in the suburbs.

Basketball shoes endorsed by Detroit Pistons star Grant Hill sold millions, driving sales from $349 million in 1992 to $1.5 billion last year -- with 45 percent generated by the U.S. division -- as quarterly earnings consistently beat analysts' expectations. Its American depositary shares rocketed, peaking at $105 in September 1996 on the New York Stock Exchange.

But starting late last year, the trends reversed, as consumer tastes shifted and competition intensified. Sales and earnings plunged, its shares took a nose dive and the jackets and running pants sporting the Fila brand name seemed to disappear from the streets.

This month, Fila Holdings SpA reported a second-quarter loss of $58 million, or $2.19 per American depositary share, reversing a second-quarter 1996 profit of 56 cents per share. U.S. footwear sales plunged 56 percent, to $59 million, and U.S. apparel sales fell 39 percent, to $22.7 million, for the quarter. Fila's shares have plummeted nearly 90 percent from their high, closing at $8.75 Friday. In 1997, with branded athletic footwear sales of $488 million, Fila lost its third-place market share ranking, behind Nike and Reebok, to Adidas.

Epstein watched it all as a competitor, for the past four years as Adidas' national sales manager based in Portland, Ore. Now, just two months into his new job, Epstein looks to Messner's against-the-odds Everest climb and says he can lead the company out of its steep decline, overcoming fickle consumer tastes, the rising popularity of the hybrid outdoor-style, yet athletic brown shoes, an overall slowdown in sales growth of athletic footwear and growing competition from non-athletic designers.

The key, he says, is capitalizing on the Italian heritage of the company to make it the Ferrari of the sneaker industry, an elite brand that looks good and performs well. The brand, he says, should be endorsed by the most elite athletes, with a focus on the international arena and sports such as basketball, running, tennis, training and soccer, and with products sold almost exclusively in athletic specialty stores.

Analysts say Fila's recovery depends upon Epstein's ability to regain the confidence of retailers, rebuild the brand with consumers, improve the company's cost structure and, perhaps most importantly, create new and better product design.

Initial moves

In his first few weeks, Epstein has already spearheaded the design of a new basketball shoe, a slimmer version of the chunky shoes he says have fallen out of favor with youngsters. He is also working to reduce inventory and expenses. Cost-cutting measures will likely include seeking licensees for products such as in-line skates and baseball gloves and outsourcing distribution, which would mean shutting down or consolidating company-leased distribution centers.

Two warehouses in the Baltimore area that employ 209 Fila and contract workers could be among those turned over to a contractor, paid on a per-unit basis. However, an outside distributor would likely hire those employees and possibly more, Epstein said.

Prior to his arrival, the company had announced cutbacks of 265 jobs nationwide, including 26 layoffs last week, some at the Baltimore warehouse and the Sparks headquarters, which employs 217. The company had also previously planned to close retail shops in New York, San Francisco, Chicago, Costa Mesa, Calif., and Short Hills, N.J.

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