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Specialty shoe firm feels the pinch

LOS ANGELES — LOS ANGELES - Fed up with pinched toes and aching arches, Americans are increasingly walking out of their dress shoes and into more comfortable, casual footwear.

Yet not enough have beat a path to Walking Co. After growing too big for its all-terrain sandals and chukka boots, the Los Angeles-based company plans to shutter nearly a third of its 101 shoe stores and reorganize its finances.

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The retailer, which filed for Chapter 11 bankruptcy protection last month, stumbled after management changes made about three years ago steered the company away from the small, specialty-store format that had proved profitable and into rocky, debt-laden territory, Chief Operating Officer Mike Grenley said.

Walking Co., founded in 1991 with stores in 31 states, bills itself as a seller of technically advanced "luxury comfort" footwear. The company identifies its customers as workers who are on their feet all day, as well as travelers, hikers and weekend warriors hitting the road and trail.

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Like Nordstrom Inc., one of its main competitors, and sporting goods and recreational outfitters, Walking Co.'s stores feature shoes by Mephisto, Teva, Ecco, Birkenstock and Dansko, all brands that frequently retail for more than $100 a pair.

As baby boomers snapped up these "comfort" brands and others like them, the company embarked on a major expansion and opened 54 stores from 1999 to 2001, many of them double the size of its typical 1,300- square-foot to 1,800-square-foot locations.

The larger stores, many in upscale malls, carried generic sportswear in addition to the high-end clogs, sneakers, slip-ons, low-tech boots and other footwear that make up 75 percent of Walking Co.'s $86 million in annual sales.

But the retailer didn't generate enough sales to support the larger inventories and higher rents. The privately held company found itself staggering under more than $34 million of debt.

"We burned capital on the wrong things," said Chief Executive Officer Greg Milne, noting that the company was forced to write off $2.4 million in inventory in the last year alone. "We could have done the same volume in stores half the size."

Walking Co. competes mainly in a niche area of the $50 billion U.S. shoe market. Total sales of walking footwear, hiking and low-performance shoes, sport sandals and recreational boots were $3.2 billion in 2002, a 4 percent drop from 2001, according to trade publication Footwear News.

Observers attribute the decline to longer-lasting shoes, the poor economy and bad weather across most of the country that kept shoppers home.

Still, some leading comfort shoe brands are experiencing sales growth.

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Deckers Outdoor Corp., based in Goleta, Calif., reported a 15 percent second-quarter increase last month to $22.4 million in sales of its Teva sandals from a year ago.

Birkenstock, a privately owned German company that makes shoes and sandals with contoured insoles, has posted significant sales increases in the past few years, said Gene Kunde, chief operating officer for Novato, Calif.-based Birkenstock USA. And European clog maker Dansko is expected to have one of the biggest jumps in product orders this year, according to the National Shoe Retailers Association.

Today "looks are good, but comfort reigns supreme," said Bill Boettge, president of the National Shoe Retailers Association. "If you don't have some comfort features in your shoes, you are going to have a hard time selling them."

Even so, Boettge says, he wasn't surprised by Walking Co.'s retrenchment. Independent retailers of national brands have an especially difficult time in high-rent mall locations, he said, because their profit margins are lower than those of stores that sell under their own label. "Very few independent retailers are left in the major malls," he said.

It didn't help that Walking Co. tried to boost its sales by offering more merchandise. Although the retailer has long sold accessories such as orthopedic shoe inserts, ergonomic backpacks, sun-shielding hats and walking sticks, its more recent introduction of such apparel items as women's cashmere twin sets and fashion handbags seemed to blur the company's focus.

"We went through a period where we took away the specialty element," said Milne, who was hired last year to lead the company's turnaround. "A lot of retailers have fallen into this trap. They think if they go into bigger stores they will get a higher return on investment and bigger sales."

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Walking Co. said it had met its budget so far this year and hoped to emerge from U.S. Bankruptcy Court protection within 12 months. The company will close 29 stores, and will shut down its wholesale division and Westwood design studio.

"No one likes to go into Chapter 11," Milne said. "But it gives us the opportunity to get rid of the bad stores faster."

The Los Angeles Times is a Tribune Publishing newspaper.


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