Posted on 07/09/2003 9:26:33 PM PDT by HAL9000
OS ANGELES --In a deal with cultural significance that far outweighs its monetary value, Nike Inc., the $10.7 billion-a-year maker of the world's highest-tech sneakers, will pay about $305 million to acquire Converse Inc., the 95-year-old maker of some of the world's lowest-tech ones. Nike will also assume some Converse debt.
Converse posted $205.3 million in sales in 2002. This came mostly from the enduring popularity of the rubber-toed canvas Chuck Taylor All-Star sneakers that, for many high school and college kids, have come to represent the antithesis of Nike. Although the simple, $35 shoes boast high profit margins and steady demand, overambitious owners and a reliance on manufacturing mainly in the U.S. sent Converse into bankruptcy court protection in 1991 and again in 2001. In that latter year, the company, under a new management team, sold its U.S. and Mexico factories and announced in late 2002 it was seeking to raise $ 86.3 million in an initial public offering.
Instead, Converse has ended up in the arms of Beaverton, Ore.-based Nike. Thomas Clark, Nike's president of new business ventures, said the company was buying Converse to expand a brand portfolio that now includes a hockey company and a surfwear label. Nike intends to leave Converse's current management, headed by former The North Face Inc. executive Jack Boys, in place.
"He's really established a great brand that has a lot of elasticity," said Mr. Clark. "We like their business plan and we don't plan on making any changes." Converse's mid-priced offerings will fill a gap in Nike's basketball shoe portfolio, which in general tends to be more expensive.
Introduced in 1917 as the All-Stars, the shoes were renamed in 1923 after a semiprofessional basketball player from Akron, Ohio, became a particularly avid member of the Converse sales force, driving to playgrounds throughout the Midwest selling the high-top shoes to players from the back of his car. "Chuck Taylor was the original Phil Knight," says sneaker industry historian Dan Wetzel, referencing the Nike founder who got his start selling running shoes at track meets from the back of his van during the 1960s.
Converse Chuck Taylors and later, leather iterations of the shoes were donned by most major N.B.A. stars until 1985, when Nike signed Michael Jordan to its roster and decided to throw all its marketing muscle behind the Chicago Bulls star. That was the start of an era of hysterical demand for flashy, futuristic sneakers marketed around a star athlete.
During the Air Jordan era, however, Chucks unwittingly acquired a new crop of customers: young, antiestablishment types looking for a no-frills reaction to the advanced polymers, flashy marketing and $100-plus price tags of modern footwear. That Converse still made shoes in the United States at a time when Nike and other sneaker giants were coming under fire for conditions in their factories overseas was not lost on such consumers, who were becoming increasingly anti-corporate, anti-globalization and interested in finding " antibrands" that reflected such philosophies. Molly Ringwald's record store clerk character in "Pretty in Pink" wore Chucks; so did Nirvana frontman Kurt Cobain. He was wearing an alternative version of Converse sneakers, red suede " One-Stars," when he committed suicide in 1994.
During the mid 1990s, Converse tried to diversify into "performance" footwear, developing a helium-soled shoe and acquiring clothing line Apex One in 1995. But the acquisition, along with the profit margin handicap the company suffered by sticking to its U.S. manufacturing base, sent the company into financial ruin. By the time the most recent wave of Chucks-donning "antiestablishment" icons like the rock band the Strokes and pop star Avril Lavigne sent sales of the shoes soaring anew, the shoes were being made in China.
"Chucks first mean old-school, and then everything that represents," says John Horton, a 17-year old from Bethesda, Md. "They represent the fundamentals of basketball, like playing defense, foul shots, rebounding and playing hard - like in Hoosiers."
Nike has acquired three other companies in its 31-year history, with less- than-stellar results. In 1989 it bought Cole Haan, the conservative "brown shoe" brand, hoping to hedge its exposure to ups and downs in the athletic shoe business, a wish that didn't come true because of Cole Haan's weak growth. In 1995 the company bought hockey gear manufacturer Canstar Inc. at the peak of the in-line skate cycle; the company lost money steadily until last year. Finally, last year, Nike bought Hurley International LLC, a youth-oriented "surfwear" label based in Costa Mesa, Calif.
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