Fila, flying high, tries to step into No. 3 spot

THE BALTIMORE SUN

As he looks down at the new pair of Filas on his feet at Mondawmin Mall, Thomas Whitby can sum up one of Maryland's biggest business successes of the 1990s in 10 words.

"It's a different look," the 28-year old said. "That's basically why I bought these."

In the three years since the Italian maker of athletic shoes and apparel bought out its U.S. licensee, Fila USA Inc. has been skying. Sales of the U.S. arm jumped 61 percent last year. The Hunt Valley-based company is doubling the size of its East Baltimore sneaker warehouse this year and opening a half-dozen boutiques and two dozen factory outlet stores. And it has added 100 local jobs since 1991, tripling the size of the Hunt Valley operation.

"It's amazing that they're growing this fast," said Bob Carr, editor of Bob Carr's Inside Sporting Goods, a New York-based newsletter. "The market hasn't been growing fast, and people don't take risks in this market. They do what's safe, and Nike and Reebok are what's safe."

But Fila has been crushing the market, boosting shoe sales 160 percent in 1992 when the market was growing only 5 percent. Last year, Fila's shoe sales jumped 25 percent to $250 million, according to Sporting Goods Intelligence, a Glen Mills, Pa.-based newsletter. The New York investment bank Goldman Sachs said 1994 footwear sales will jump to $308 million.

Fila's smaller apparel division is also growing, from $25 million in 1991 U.S. sales to nearly $68 million this year. The Italian company does not report earnings separately for its U.S. division.

The fight is really just beginning, though. All Fila's work so far has only gotten it to sixth place among U.S. athletic shoe companies. Its market share is only 4 percent.

Nike and Reebok are out of reach for now. But L.A. Gear Inc. (4.65 percent and falling) and Interco Inc.'s Converse brand (4.25 percent and rising) are fourth and fifth, and Fila is gunning for them.

"Possibly, by the end of the year, we'll be No. 3," said Howe Burch, the company's director of advertising and communications.

The last thing Jack Steinweis looks like is a fighter. Fila USA's 40ish, long-haired senior vice president for footwear is a sneaker junkie, with tours at Puma and Diadora under his belt and jargon like "shelf keeping units" (he means different styles of shoes) on his lips. But it's a sneaker war out there, so he's a warrior.

The war room at Fila USA is a conference room that looks suspiciously like a shoe store, on the 12th floor of a Hunt Valley office building -- the very space the Baltimore Colts left behind when they fled for Indiana. The walls are lined with hundreds of sneakers, mostly models not on the market yet.

The shoes seem much wilder than he does as Mr. Steinweis explains the plan to get from No. 6 to No. 3. He doesn't talk much about the big star Fila hopes to sign to an endorsement deal this week, or the flashy "Change the Game" commercials with NBA forward Jamal Mashburn that drive Fila's marketing. In short, he doesn't dwell on personalities, even though this business has made everyone from Michael Jordan to Nike's enigmatic founder Phil Knight famous.

"The formula is product, product and product," he insists. The opportunity is clearly there. But it's not a slam dunk.

"After the top two, there's a big drop-off," said Andrew Gaffney, editor of Sporting Goods Business, a Manhattan trade publication. ". . . After the one or two spot, anyone could grow substantially. It's just a question of who it's going to be and how much share they can grab."

Keds, Converse and L.A. Gear are Fila's immediate rivals. Keds is not a major problem, since its canvas-topped shoes compete for a different market than Fila. Overtaking L.A. Gear appears to be a matter of time. Converse is the problem.

Converse and adidas are firing hard. Converse has revived the Ancient Mariner of the shoe business, repositioning the Chuck Taylor line of canvas basketball shoes it founded in 1917 as a fashion statement. "They even show them on women in Vogue," said Jennifer Black-Groves, an analyst at Black & Co. in Portland, Ore.

Converse has also brought its other shoes and their marketing into the 1990s. Hurt by the retirement of spokesmen Magic Johnson and Larry Bird, Converse has signed Charlotte Hornets star Larry Johnson and dressed him up as slammin', jammin' Grandmama in high tops, the high tops in question being Converse's React line. Converse is also expanding into cross training shoes and running shoes.

Adidas is also showing signs of bouncing back from years of stagnant U.S. sales after the creation of a separate U.S. unit 18 months ago. Figures from 1993 show that adidas still wasn't growing, but industry magazines expect a much better performance this year. The company has signed New York Knicks guard John Starks to join longtime endorser Patrick Ewing, but its heaviest ad play goes to ESPN sportscaster Dick Vitale.

Converse, up 23 percent last year in the Sporting Goods Intelligence survey, is another story, though the industry magazine Footwear News reports that Converse's basketball line is being redesigned to be lighter after a slow Christmas last year.

Fila's big advantages in battling Converse are an established reputation for hot styles and a big foothold in inner-city markets that set trends for the athletic shoe business.

Though Fila executives are visibly uncomfortable discussing it, Fila has a reputation as a black-oriented brand in an industry where that is a badge of honor.

"They could have stayed a tennis brand and they could have stayed No. 20," Mr. Gaffney said. "That [the black connection] is definitely what catapulted it. They don't mind the label really. They just don't want to be known as only that."

Fila also has a bold eye for color and the use of new materials in its shoes. Mr. Carr said the high-top suede sneakers Fila brought out in the late 1980s were widely copied. Mr. Gaffney and Mr. Horan said that the company's strength in fashion is backed up by its clothing lines, a part of the business that has confounded Nike and Reebok.

"One of their real strengths has been in apparel, which supports the name and supports the brand," Mr. Gaffney said. "And they're new, where no one else is really a new brand. A lot of the kids want something that's their own."

"I think it's the matching of apparel with the shoes," said Robert White, a manager in training at the Foot Locker store at Mondawmin Mall. "That's what helps them the most."

But Fila has big weaknesses, too. The product line has been narrow, keeping it out of big markets like running and cross training until recently. Chief Financial Officer Giorgio Spagliardi said Fila has a 10 percent share of the basketball shoe market, more than twice as much as its overall share. The challenge is to get into the rest of the pie.

The company is trying. In 1992, only 3 or 4 percent of Fila's U.S. shoe sales came from running shoes, Mr. Steinweis said. Last year it was 30 percent. The company is trying to reach cross-trainers, hikers and women, and opened the Massachusetts product development center last year to help.

"Just a few years ago, we had 10 or 12 [styles]," Mr. Steinweis said. "Now we have 280."

Fila has also had to fight nagging doubts about whether it is a "serious" shoe. Only a few American pro athletes wear Filas, and ordinary customers buy them mostly for their looks.

The company signed Mr. Mashburn last year to try to begin to change that, but was disappointed when he was drafted by the Dallas Mavericks, a team where he gets little national exposure. Mr. Burch said Fila is on the verge of signing one of this year's top draft picks.

"Mashburn was important for a couple of reasons," Mr. Burch said. "Basketball is a very important category, and he enhanced our performance credentials."

Mel Sokotch of Foote, Cone & Belding in New York who heads Fila's outside advertising team, said there was another important, related reason.

"He was chosen to help us, well, cross over is the wrong word," Mr. Sokotch said. "But we're trying to market our product outside the inner city."

Both performance and crossing over are big issues for Fila. Fila executives are convinced that to make it to the next level they have to convince the market that they make more than just another pretty shoe.

To do that, Fila is tinkering with the design of its shoes, which customers at the malls say are often too heavy to compete head-on as performance shoes. On top of broadening into cross training and running markets, the company is expanding on its 2-A technology, a compressed air bladder in the sole that adds cushioning and support, to compete with Nike's Air technology and Converse's React sole insert.

The 2-A, already used in some of Fila's high-end shoes, lets the shoes give the same support with less weight. It is also adding a Spoiler, a flap on the rear of the shoe that when unfastened looks like a pair of wings. But whether it should bother divides people who know the business.

Even Howe Burch knows his talk about "performance credentials" contains at least a little hokum. He points out that 80 percent of athletic shoes are rarely or never used for serious workouts. But the sneaker business is driven by marketing, and Fila believes it needs the marketing edge that seeming to be a top performance shoe provides, especially to adult suburban customers.

"Their disadvantage is their need to be accepted by people our age as a good product," Mr. Gaffney said.

The Spoiler may give the shoes a snugger fit, the way the Pump does for Reeboks, but mostly it looks way radical. In a hip-hop styled TV commercial coming soon, it flies.

"It gives you something to talk about, but I don't think it will save the company," Mr. Carr said. "It's all going to come down to a comfort feature. That's what Nike Air is."

Mr. Carr is skeptical of Fila's push into performance. He doesn't think it's necessary, and he points out that fashion-oriented L.A. Gear stumbled disastrously in the performance business despite endorsements from Karl Malone and Kareem Abdul-Jabbar.

"No one is buying them [Fila] to be a performance shoe," Mr. Carr said. "There's nothing wrong with being in the fashion shoe business. It has been a good shoe at a good price."

But fashion is fickle. Remember aerobics? Reebok and L.A. Gear do. When aerobic shoe sales waned by the early 1990s, both ran into trouble. Reebok's athletic shoe sales fell 10 percent last year. L.A. Gear did much worse in 1992.

Fila knows that lesson well. Performance may be the key to big growth, but it can also be a ticket to stability.

"The performance market is a little more stable," said John Horan, editor of Sporting Goods Intelligence. "It's less price-sensitive. Once you establish a bond with a customer in the performance market, they tend to stay with you. A fashion customer, you have to keep reinventing that customer."

But Mr. Horan said that it will take years to tell whether Fila's push into the performance market has worked. What he does not say is that the world will be able to tell much sooner if it bombs.

"I think they're just getting started on it," he said. "It took Nike years to establish Air. The growth they're going to get in the intermediate term will be in the fashion business, and they're uniquely good at that."

THE TOP TEN

1993 market share of 10 top-selling brands of athletic shoes in the United States:

Nike ... ... ... 31.41%

Reebok ... .. .. 21.18

Keds ... ... ... 5.78

LA Gear .. .. .. 4.65

Converse ... ... 4.25

Fila ... ... ... 4.01

ASICS .. ... ... 3.75

Adidas .. .. ... 3.05

K-Swiss .. .. .. 1.93

Avia ... ... ... 1.76

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