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January 23, 2001
Converse Files for Chapter 11
By Meg Vaillancourt, The Boston Globe
93-Year Old Converse Stumbles and Falls ... Weiss comments
BOSTON - Decades before Nike's swoosh became the stuff of marketing legends, Converse sneakers were the shoes of choice for uber-athletes like Julius Erving and Larry Bird.
But the competition sneaked up on Converse. As a result, the 93-year-old company, famous for the Chuck Taylor high-tops that the Celtics of the '60s wore proudly to championship after championship, filed for bankruptcy yesterday.
Under its restructuring plans, the North Reading-based sneaker maker will shift production to Asia and close its plants in Mission, Texas, Lumberton, N.C., and Reynosa, Mexico, eliminating about 1,000 jobs, by March 31.
The company has also agreed to sell its Massachusetts headquarters, where 150 people work, for $15.1 million.
Burdened by debt, Converse hopes to emerge from Chapter 11 by cutting costs, restructuring debt, and becoming a licenser of Converse brand products, rather than a manufacturer. The company began making athletic shoes in Malden in 1908.
"This was a difficult but absolutely essential action for the future of the company and all of its stakeholders," chief executive Glenn Rupp said.
Converse is seeking protection that would allow it to continue operations and keep creditors at bay while it's being reorganized. Company officials said they hope to make Converse a leaner, financially healthy business.
"We believe the strength of our brand provides our business with a solid foundation," Rupp said. "Recent, positive trends in order backlog for our products as well a reduction in secured debt ... point to significant prospects for renewed growth and profitability, provided we put our financial house in order."
"We are proud of the company's history as a domestic manufacturer, but to meet today's tough industry challenges, we have no choice but to move to a more competitive system of production," Rupp's statement said.
Converse officials said their casual shoes continue to be popular, including the longtime best-selling Chuck Taylors, named for a basketball star in the 1920s. "Chuck Taylors are one of the best-selling products in the world," crowed spokesman Mark Shuster "In Japan, the Taylor All Star continues to be the number one selling athletic shoe."
Converse, which was facing a Jan. 31 deadline to satisfy creditors, missed a $25 million interest payment in June and was delisted by the Nasdaq Stock Market.
In its bankruptcy filing yesterday, Converse asked the court to approve a plan that would complete the shift from a manufacturing to a licensing model, already accomplished overseas, here in the United States. It's also seeking approval for an agreement with Global Brand Marketing Inc., the California-based worldwide licensee for Diesel Footware, to become US licensee for Converse.
We hate to show our age, but we remember when everybody wore Converse All-Stars if they could afford 'em (or Keds if they couldn't). Now, this hallowed American institution is padlocking its factory doors and becoming a brand in name only.
It's part of a disturbing trend -- first Montgomery Ward closed its doors. Now Converse hits the skids. These are companies that survived the Great Depression! They thrived through other bad economies, but now they're dead in the water.
What's more, another American institution, Sears, is closing 89 stores. How many more victims will it take to convince Washington and Wall Street that the bear is raging through the economy, ready to chew up one formerly rock-solid company after another.
It just goes to show you that bellwether companies we've been told are "sure things" may be the next to go. When it comes to the stock market, there is no such thing as a safe investment.
Many corporations continue to declare that their product will never be out of fashion, antiquated, or marketed off the shelf by competitors because they're too big, too popular, or they have too much brand awareness -- and a lot of investors believe them. Well, everybody knows what Converse All-Stars are. But it certainly didn't help the company survive.
Many of today's hottest tech companies are facing their first economic slowdown. Maybe they'll survive like Converse did during the Great Depression, but maybe they won't. Just look at the stock of Lucent -- flattened because the company missed the next generation of technology, or Dell and Gateway -- shredded because they couldn't foresee that the New Economy suffers from the same product cycles as the Old Economy.
Most economists -- and the Fed -- seem to think that we aren't in a recession, that the economy is just "decelerating." Ha! As a recent article in Barron's pointed out, the Fed argued the same thing back in February 1991. A month later, the National Bureau of Economic Research determined that a recession had begun in July 1990.
In other words, the Fed, the economists, and Wall Street's bull market cheerleaders won't notice the ship is sinking until water is already washing across the decks -- and over the tops of our Converse All-Stars.
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