Vans Taking Flight.

SHOPPING mall owners have more than a few reasons for concern these days, with department store sales down, movie theatres on the rocks and consumer confidence levels plummeting.

But Santa Fe Springs-based Vans Inc. has hit on a concept that is bringing crowds to malls, where they stay for hours spending money and hanging out.

The concept is skateparks, and their exploding popularity has convinced Vans to undertake a national rollout. Investors, clearly enthused by the prospects of the fledgling high-margin business, have sent Vans' stock price up a steep ramp.

"When we set out, we thought there was the potential for expansion, but until we got the first one up and running we didn't know what to expect," said Gary Schoenfeld, president and CEO of Vans. "We believed in the concept, but we have sort of a walk-before-we-run strategy."

With the first mall skatepark, which debuted in November 1998 at The Block at Orange, now a verifiable destination, Vans is breaking into a sprint.

Vans, whose primary business has been manufacturing skateboard-oriented clothing and supplies, plans to open six new skateparks in Denver, Atlanta and Phoenix, among other major cities, by the end of the year.

Though mall owners were initially dubious about the concept, the influx of teens - carrying plenty of disposable income - has clearly captured their attention.

"It's been a great addition," said Mark Rivers, executive vice president of Mills Corp., which owns The Block at Orange. "They bring a sense of energy and excitement to the property.

"Whenever you try a retail concept for the first time, you have some butterflies," he said, "but ... young people expend dollars in shopping environments, and the Vans skateparks are well operated. It's been a pretty solid marriage."

That kind of enthusiasm has enabled Vans to negotiate more favorable terms on its skateparks.

"In the first project, the Mills Corp. put up about 70 percent of the financing," Schoenfeld said. "Since that time, we've had some locations 100 percent financed by the developer, but more importantly, we're now getting into markets and malls that were skeptical two years ago."

High margins

The skateparks range in size from 30,000 square feet to 60,000 square feet and cost $3 million to $5 million each to build. Skaters pay between $10 and $14 per two-hour session, or purchase a one-year membership that allows them to skate at a reduced per-session cost, usually between $7 and $9.

"The model is $2 million to $2.2 million in annual revenue for each park, and a 20 percent operating margin, and as skateparks become a larger percentage of their overall business, that enhances their overall operating margin," said Mitch Kummetz, an analyst at investment firm A.G. Edwards.

While that high-margin revenue stream is impressive, the skateparks contribute much more.

Around the perimeter of each park is an observation deck, where parents, friends and passersby can watch the skateboarders' swooping acrobatics. "(The parks) have turned out to be fun places for young people to participate, as well as hang out with their friends " Schoenfeld said.

Vans is also cashing in on the skateparks' power to draw, spectators. It recently inked a three-year deal with NBC Sports to broadcast the Vans Triple Crown Series, which consists of three championship events in various sports, including skateboarding.

Though skateboarding remains a predominantly male activity, the sport's drastic increase in popularity has not escaped the attention of young girls.

"They've found that girls travel in the same circles as the young guys who are skate-oriented," said Steve Morotta, vice president of equity research at Wasserstein Perella Securities.

Girl appeal

Not surprisingly, Vans has already launched a new product line to capture the newcomers. "About a year and a half ago, we launched our strategy into the juniors' market, which was directly tied to the strategy we had used for our existing men's market," Schoenfeld said. "Girls are increasingly participating in and identifying with these same core sports. There was a tremendous opportunity to address."

Addressing such opportunities is shooting straight through to Vans' bottom line. The company reported net income of $12.1 million (84 cents per diluted share) for the fiscal year ended Sept. 30, up from $8.7 million (64 cents per share) for the previous year.

Investors are clearly taking notice of the earnings growth. On Feb. 15, Vans stock hit a new 52-week high of $23.13 a share, almost double its 52-week low of $11.94 last October.

"I think the stock was depressed for a long time," said Jeff Van Sinderen of B. Riley & Co. "We've had expansion in the retail space for the past few months; money's been flowing into that sector."

And after sticking it out for the past few years, Van's executives have lately been taking some profits off the table. On Jan. 17, CEO Schoenfeld sold 84,486 shares at $18.96 each for a total of $1.6 million. In addition, the company's chairman, chief financial officer, two other officers and five vice presidents sold a combined 127,057 shares between Jan. 17 and Jan. 30 at prices ranging from $16.39 to $19.13 per share for at least $2.08 million.

Schoenfeld said the insider selling does not reflect a lack of confidence in the company's future. "I think the Street recognizes what we've accomplished," he said. "And we're focused on maximizing the opportunity which is ahead of us."

"Most of the transactions that have taken place recently were first-time transactions, or the first transactions that have taken place for a number of years," said Craig Gosselin, Vans vice president and general counsel. "And obviously, this is the highest the stock has traded in many, many years. The combination of those things made it a good time to sell."

Vans was founded in 1966 as Van Doren Rubber Co. Inc. in Orange County, originally in the business of a casual-shoe manufacturing. It began marketing to skateboarders 10 years later.

Success and profits in the early '80s convinced the company that it could broaden its product line to include such items as shoes for more traditional sports like baseball and football. High production costs and heavy competition forced the company into debt, and Vans filed for Chapter 11 bankruptcy protection in 1984. In December 1986, it emerged from Chapter 11 and became profitable shortly thereafter. In February 1988, company cofounders - Paul Van Doren, Gordy Lee and Serge D'Elia -- sold Vans to McCown DeLeeuw Co., an investment banking firm. The new owner expanded the business, garnering recognition across the nation and then internationally. Vans' current chairman, Walter Schoenfeld, joined the company's board upon completion of Vans' IPO in August 1991. He became acting CEO in 1993, and was succeeded by his son Gary in 1997.

Unlike the bulk of manufacturers and retailers of skateboard apparel that have gone mainstream, Vans continues to enjoy high standing within the skateboarding community. "Most of the companies that consider themselves skateboard companies limit themselves to the core market," said Miki Vuckovich, editor of Skateboarding Business Magazine. "Vans is considered a legitimate skate brand, but at the same time has branched into the mainstream."

It seems this attitude is due, at least in part, to the company's focus on providing young riders with new facilities, as well as products. "Vans has given back to skateboarding," said Joel Patterson, former editor of Transworld Skateboarding Magazine. "They stuck with it and now they're reaping the rewards."

                                Big Jumper
                        Vans stock has been rising
                             in recent months.
March 1, 2001 $20.38
Sept. 1, 2000 $15.63

Vans Inc.

Core Business: Skateboard-related apparel, accessories

Year Founded: 1966

Ticker: VANS

Headquarters: Santa Fe Springs 

CEO: Gary Schoenfeld

Employees: 1,315

2000 Net Sales: $273.5 million

2000 Net Income: $12.1 million

2000 Earnings Per Share: 84 cents

Total Assets: $171.5 million

Long-Term Debt: $12.1 million

Stockholders' Equity: $108.3 million