SEPTEMBER 18, 2009
TIMOTHY A. LUEHRMAN
JOEL L. HEILPRIN
Mercury Athletic Footwear:
Valuing the Opportunity
In March 2007, John Liedtke, the head of business development for Active Gear, Inc., a privately
held footwear company, was contemplating an acquisition opportunity. West Coast Fashions, Inc.
(WCF), a large designer and marketer of men’s and women’s branded apparel had recently
announced plans for a strategic reorganization. The plan called for a divestiture of certain non-core
assets and a renewed focus on WCF’s higher-end business, business-casual, and formal-wear apparel
businesses. One of the divisions WCF intended to shed was Mercury Athletic, its footwear ...view middle of the document...
Consequently, active management of inventory and production lead times
were critical success factors. Although a few firms sold their products in company-owned retail
stores, the large majority of athletic and casual footwear was sold through department stores,
independent specialty retailers, sporting goods stores, boutiques, and wholesalers. In 2007, many
companies were actively engaged in attempts to sell directly to customers via web-based e-commerce
platforms. So far, successes in this venue had been small in both size and number.
HBS Professor Timothy A. Luehrman and Illinois Institute of Technology Adjunct Finance Professor Joel L. Heilprin prepared this case
specifically for the Harvard Business Publishing Brief Case Collection. Though inspired by real events, the case does not represent a specific
situation at an existing company, and any resemblance to actual persons or entities is unintended. Cases are developed solely as the basis for
class discussion and are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.
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4050 | Mercury Athletic Footwear: Valuing the Opportunity
New footwear was produced on a cycle that required 8 to 10 months to complete a new design,
associated samples, and production specifications. Another 4 to 6 months were required for
manufacturing start-up before new orders could be filled. Despite significant import taxes and tariffs
in the United States and European Union, the great majority of North American and European
footwear companies used independent contract manufacturers to produce their shoes. Most of these
independent manufacturers were located in China.1
Active Gear, Inc.
Active Gear (AGI) was founded in 1965 to produce and market high-quality specialty shoes for
golf and tennis players. The company’s products were among the first to incorporate sculpted
cushioned insoles and a selection of high-performance tread patterns designed for specific surfaces
and/or playing conditions. AGI began selling its shoes primarily in golf and tennis pro shops and a
few specialty sporting goods stores. As its products became more established, AGI moved into larger
department and retail stores. The company also exported its shoes to Europe and, to a lesser extent,
Japan. Sales outside the United States were made through a network of wholesalers, which the
company still employed in 2007.
Beginning in the 1970s, Active...