52-16 Barnett Avenue
Steven Madden, Ltd. designs, markets, and sells style-conscious contemporary footwear and related products for women and girls. Its core constituency consists of teenagers intrigued by platform shoes in a variety of far-out designs, but the company also designs a wide range of other footwear, including boots, sneakers, slippers, sandals, and evening shoes at prices ranging from $48 to $150 and creates styles for women and for girls younger than teenagers. Steven Madden also owns and operates retail stores, licenses a variety of women's wear under the Steve Madden trademark, and, under license, markets and sells the footwear of other companies.
Steven Madden to 1995
Steve Madden's entry into the shoe business began in 1974, when in his late teens the Long Island resident took a job in a shoe store. 'It was a time of Elton John and David Bowie's Ziggy Stardust,' he later recalled, according to Elaine Underwood of Brandweek. 'It was a tremendously exciting time in the shoe business. Everything was platform. It affected me.' The son of a textile company owner, he enrolled at the University of Miami, where, he told Suzanne C. Ryan of the Boston Globe, he 'majored in girls and drugs.' After two years, Madden's exasperated father yanked him out of school. He took a job as a shoe salesman near his Long Island home in 1978 and two years later moved over to New York shoe wholesaler L.J. Simone Footwear. While there, Madden began designing shoes aimed at the teenage market, such as white fringe boots and penny loafers in pink and white.
After nearly a decade in design, Madden was successful enough to negotiate a deal in 1988 with M.C.S. Footwear, where he designed, developed, and marketed the 'Souliers' line of footwear for women. They put his name on the shoes he designed and gave him 10 percent of the profits. In 1990 he struck out on his own, renting a small office in the Long Island City neighborhood of New York City's borough of Queens with a $1,000 grubstake and one employee. Borrowing money from friends, Madden began manufacturing his own designs and selling them to small and trendy Manhattan stores, where they attracted clothing designers such as Betsey Johnson and Jill Stuart, who used them in their fashion shows. The chunky platform look reportedly was inspired by a 15-year-old customer who added a higher platform to the sole of a pair of his shoes. Steven Madden, Ltd. had revenues of $134,424 in fiscal 1991 (the year ended June 30, 1991), $759,856 in fiscal 1992, and $1.38 million in fiscal 1993. It made a small profit in 1992 but lost $98,351 the following year, which the company attributed to amortization of deferred financing costs and factor interest expenses.
By the summer of 1993 Steven Madden, Ltd. had moved its offices to lower Broadway in Manhattan's SoHo neighborhood, where it also operated a retail store. The company had 13 employees. Its footwear, including boots, clogs, and sandals, was being manufactured in Brazil, Mexico, and New York City, and was being sold in department stores and footwear specialty stores, mostly in the New York metropolitan area, California, and Florida. The company went public in 1993, raising about $5.6 million in net proceeds by selling 1.725 million shares at $4 each. Revenues rose to $5.33 million in 1993 and $8.45 million in 1994. Development costs resulted in a loss of $878,630 in 1993 and $736,988 in 1994. Steven Madden moved its headquarters and warehouse facility back to Long Island City in 1994 and acquired Marlboro Leather, Inc., a marketer of finished leather to manufacturers of shoes, apparel, and accessories.
The public offering was made through Stratton Oakmont Inc., a Long Island-based investment bank and brokerage house that specialized in raising capital for start-up companies. Danny Porush, a childhood friend of Madden, was one principal of the partnership; the others were Jordan Belfort and Kenneth Greene. In return for an earlier $100,000 loan, Madden had agreed to give the partners 40 percent of the stock of Steven Madden, Ltd. However, Stratton Oakmont had a reputation for noncompliance with securities laws. Since a NASDAQ listing for the Steven Madden, Ltd. stock was not possible as long as the partners held so much control, the shares were transferred to BOCAP Corp., a Florida-based company personally owned by Madden, in return for a promissory note of $5.1 million. In 1997 Belfort demanded BOCAP shares equivalent in value to the note and thereby claimed ownership of 15 percent of Steven Madden through an escrow account. In a 1998 settlement, Belfort agreed to abandon his claims to the stock in return for $4.1 million in cash from BOCAP.
Taking Giant Strides: 1995--99
In 1995 Steven Madden acquired Adesso Shoes of Roslyn Heights, Long Island, which, as Adesso-Madden, Inc., became a subsidiary serving as a buying agent for the manufacture abroad and import to the United States of private label shoes. The parent company's sales reached $38.74 million that year and rose to $45.82 million in 1996, when it acquired the David Aaron brand for older, more sophisticated, career- and fashion-oriented women. By 1997 Madden's styles, which included leopard print platforms, zebra print loafers, chunky four-inch heels, and satin prom night shoes, were hits with young women such as 'first daughter' Chelsea Clinton and centerfold Jenny McCarthy. Madden's Long Island City headquarters included a facility for turning out samples--at a rate of ten to 15 a week--by his young designers for testing in the company's four stores. Successful designs then were shipped abroad for mass production, followed by nationwide distribution. The Madden stores also introduced Takeout Tees, cotton T-shirts packed in take-out food containers with a picture of a porno actress on the lid, and Ice Tees, summer styles packed in cans reminiscent of Nestea.
Also in 1997, Steven Madden signed its first licensing agreements for handbags, sunglasses, hosiery, outerwear, and jewelry. In November of that year, Winer Industries was chosen as the licensee for Steven Madden sportswear and jeans. (This license subsequently lapsed.) The chain of Madden stores grew to 17, including units in Miami and Los Angeles, and the David Aaron division opened its first outlet, just across the street from Madden's flagship 1,200-square-foot SoHo store. Moreover, in April 1998 Steven Madden obtained the l.e.i. license from R.S.V. Sport, Inc. This trademark was well known for jeanswear in the junior marketplace and footwear for young girls and teenagers.
Now past 40, Madden did not resemble the average chief executive officer. Ryan observed him at company headquarters in blue jeans (with a gaping hole in the seat), a baseball cap atop wavy red hair, and white gym socks in black Gucci loafers. Saturday afternoons would find him trolling his stores to find out what shoppers were wearing and query them about their tastes. Insecurity, he claimed, was the motivation for his continuing search for new concepts and trends in the shoe trade. 'I never think I'm good enough,' he confessed to Amanda Plotkin of Footwear News. 'You have to keep updating. The worst thing that happens is you get comfortable in your success and stand around and tell yourself how great you're doing, and then you're not doing so great anymore.'
Steven Madden, Ltd. kept doing great in 1998 and 1999. Net sales rose to $85.78 million and then nearly doubled to $162.04 million in 1999. Net income doubled to $5.45 million in 1998 and more than doubled to $11.45 million in 1999. Early that year the company began selling Jordache footwear under license, primarily to girls ages 10 to 16. An affiliate of Jordache Enterprises, Inc. also agreed to manufacture, market, sell, and distribute sportswear and jeanswear under the Steve Madden trademark to better department stores and specialty shops. By the end of 1999 Steven Madden's own roster of licensed products now also included belts, hair accessory products, and intimate apparel.
In January 2000 Steven Madden announced the creation of its new Stevies brand of footwear for girls ages six to 12. The brand, with styles created by spinning off variations on designs of the Steve Madden brand, was to be sold in department and specialty stores but not in Madden's own stores. Instead a Stevies accessories concept shop for retailers was established. By the end of March the company had signed licensing agreements for a wide range of Stevies accessories: hair and fashion accessories such as hats, ponchos, and neckwear; jewelry; sunglasses; belts; and handbags and backpacks. 'Apparel will be my next step,' licensing director Corinne Moroney told Claude Solnik of Footwear News. 'The whole focus right now is to develop Madden from head to toe in both Steve Madden and Stevies.'
The Steve Madden line of shoes at the end of 1999 included a wide range of footwear, including boots, sneakers, evening shoes, slippers, casual and tailored shoes, and sandals, designed to appeal to girls and women ages 16 to 25. They typically sold at retail for prices ranging from $48 to $70 for shoes and up to $99 for boots. The David Aaron line, aimed at women ages 26 to 45, generally was priced at $70 to $85 for shoes and up to $150 for boots. L.e.i. footwear was being targeted to attract girls and young women ages six to 20.
Steven Madden, Ltd. owned and operated 41 retail stores under the Steve Madden name at the end of 1999; by mid-2000 that number would increase to 58. The company also fielded one store under the David Aaron name and six outlet stores at the end of 1999. Forty-one stores were located in major shopping malls in 15 states. Four stores were in Manhattan. The remaining three were in highly traveled urban street locations in Philadelphia, Washington, D.C., and Coconut Grove, Florida. Each was designed to appeal to young, fashion-conscious women by creating a 'nightclub'-type atmosphere. Retail sales accounted for 30 percent of the company's total sales in 1999.
The remaining sales of Steven Madden, Ltd. in 1999 came from creating, sourcing, selling, and marketing the company's brands to major department stores, better specialty stores, and shoe stores in the United States and Canada. The Steve Madden wholesale division alone accounted for about 48 percent of the company's total sales. The l.e.i. wholesale division accounted for about 17 percent and the David Aaron wholesale division for about 5 percent. The private label division
was manufacturing women's footwear for large retailers and was also sourcing and selling footwear under the Soho Cobbler and Jordache trademarks. The private label division generated commission revenue of $2.56 million in 1999.
Founder's Arrest in 2000
Madden's ties with Stratton Oakmont came back to haunt him in 2000, when he was accused of receiving shares below the offering price in many of the companies for whom the firm underwrote initial public offerings. Madden, it was alleged, would then reap a substantial profit once the offering had been completed. Following the demise of Stratton Oakmont, Madden allegedly established a similar relationship with another such firm, Monroe Parker Securities, paying back a portion of these prearranged 'flip' trades. A former Monroe Parker executive testified in 1999 that Madden gave him $80,000 in a brown paper bag as part of the stock-manipulation scheme.
In June 2000, federal prosecutors indicted Madden on charges of securities fraud, conspiracy, and money laundering in 22 initial public offerings of stock, including the IPO of his own company. The frauds were alleged to generate about $7 million for Madden and others. Shares of Steven Madden stock fell 40 percent on the news. Clad in jeans, cap, and a white polo shirt, Madden, who pleaded not guilty and was released on bail, temporarily relinquished his position as chairman of the company but continued as chief executive officer. Wellington Management Co., the largest shareholder in the company except for Madden himself, reduced its holdings by about two-thirds between the end of April and the end of June. A share of Madden stock, which reached a high of $22.70 in April, dipped as low as $5.50 during the summer of 2000. Steven Madden owned 18 percent of the shares in May 2000.
Principal Subsidiaries: Adesso-Madden, Inc.; Diva Acquisition Corp.; Steven Madden Retail, Inc.
Principal Divisions: The David Aaron Wholesale Division; l.e.i. Wholesale Division; Private Label Division; Steven Madden Retail Division; Steven Madden Wholesale Division.
Principal Competitors: Kenneth Cole Productions Inc.; Nine West Group Inc.