Adding traction at Fila

New owners seek to re-establish its prominence in sports

May 22, 2007|By Andrea K. Walker | Andrea K. Walker,Sun reporter

Once it was the brand of athletes. Then it was the brand of the hip-hop generation. Later, it was positioned to the elite shopper willing to pay a premium for a trendy sneaker.

Each strategy shift seemed to leave Fila, with U.S. offices in Sparks, in the same place - struggling to gain market share and create a clear identity in a highly competitive $66 billion market. Now under new ownership, the sports apparel company founded near the Italian Alps nearly 100 years ago is hoping to regain its stature by going back to what it once did best.

In the 1970s, Fila dominated tennis and skiing, outfitting two of the legends of those sports, Bjorn Borg and Ingemar Stenmark. It sponsored the U.S. Open tennis tournament for 22 years and introduced cotton rib gear to the sport. Fila's former Korean licensee, Fila Korea Ltd., which bought the entire company from Sports Brand International for $350 million in January, now envisions being dominant in sports like tennis and golf once again and plans to explore expanding its presence into soccer.

"We see a lot of potential in Fila," said Y.C. Cho, president of Global Leading Brands House, the holding company created for the Fila acquisition. "Fila is a good company, but a few years ago it slowed down."

As part of that reach back, Cho, who is based in Sparks, has turned to a somewhat unlikely partner - Fila's former chief executive, Jonathan Epstein, who ran the company from 1998 to 2003 before being caught up in an accounting scandal at one of Fila's main customers, shoe retailer Just For Feet Inc.

In 2004, Epstein was sentenced by a federal judge to five years' probation, six months' home detention and a $10,000 fine for lying to auditors about business dealings with Just For Feet. He falsely told auditors that Fila owed Just For Feet $1.4 million for advertising for 1999. It caused Just For Feet to overstate income by that amount.

Epstein wouldn't answer questions about the case. But members of Fila's management team said they didn't think twice about working with him because he knows the company so well. He now oversees global product development, marketing and sales.

"He has a lot of experience," Cho said. "We are very confident in him to increase revenue. I don't worry about past things. He is now 100 percent clean."

The new owners can point to success turning Fila into a top sporting brand in Korea, but turning around the larger company could be tough.

The new Fila has set a goal of doubling annual sales to $1 billion in the next three years and see making the U.S. market profitable as key to reaching those goals. But the U.S. operations have lost money, and Cho is looking to get them back to break-even next year. "We must stop the bleeding and get back to profitability," he said.

Part of Epstein's job will be to expand distribution.

"Fila has a broad-based appeal to many different consumers from Palm Beach country clubs to kids at Foot Locker," Epstein said via e-mail. "Fila will expand its presence at the country club level and across larger distribution."

Cho and analysts agree that Fila's previous attempt to become a luxury brand was a mistake because the high-end products were expensive to make and had a limited audience.

"It's difficult to find the right kind of distribution," said John Horan, publisher of Sporting Goods Intelligence. "You get in Saks and Nordstrom but there isn't a lot of space to support a major apparel brand at those price points in sports.

"They need to be in more stores," Horan said.

Cho said the new owners had already gotten rid of much of the previous executive team. They are also in the process of slimming down the staff, although they wouldn't provide details, and plan to close more than a dozen retail stores around the country because they lose money.

The management team will focus solely on running the U.S. business and will license out the other divisions around the world, Cho said. Licensing will cut back office expenses - such as marketing and product design - in the United States and give the divisions more independence to decide which products sell better in particular markets, Cho said.

"We're going to work hard to get Fila back to what it was," Cho said. "We still have a lot of loyal customers."

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