l generate sales velocity and establish L.A. Gear more strongly as a traditional footwear brand. In addition, L.A. Gear has acquired Ryka, a Massachusetts-based footwear company that specializes in high performance footwear for women. Thus it appears that L.A. Gear is preparing to revisit their initial market niche (USSEC 10K, 1995, 6).
In 1993, L.A. Gear entered into a joint venture with Inchscape to market the L.A. Gear brand in selected far eastern markets. Also in 1993 the company acquired its previously independent distributors in Europe. In 1994, the company acquired certain assets of its exclusive distributor in Mexico. By selling through its foreign subsidiaries, L.A. Gear realizes a wholesale margin on the sale to the retailer that is greater than that on sales to independent distributors. In 1994 sales to L.A. Gear's foreign subsidiaries' customers represented 12.0% of consolidated net sales (USSEC 10K, 1995, 11).
Considering that L.A. Gear has no control over currency fluctuations or business inconsistencies in foreign countries, the tradeoffs for profitability are chancy. Overseas market share may eventually help L.A. Gear to compete in a bigger market, but the more sure profits for the parent company are domestic. There are no exchange rates to consider, and no labor difficulties that cannot be calculated.
Due to the fact that L.A. Gear has expanded its base of operations via distributorships in Europe, Mexico, and the Far East, the revenue incurred from these sources varies in liquidity and availability. Although all of the company's inventory purchases and product sales are denominated in U.S. dollars, L.A. Gear's product costs, pricing structure and profit margin depend, on part, on the currency exchange rates between the United States and the countries where the products are manufactured (USSEC 10K, 1995, 13-14).
As a result of L.A. Gear's use of foreign manufacturing facilities, the customary ris...