Restructured Star Trac emerging from insolvency by summer

Not much more than a year after Michael Bruno acquired a controlling interest in Star Trac, the company will have completed restructuring, moved its manufacturing, and paid off creditors after it declared in November a less common, state-controlled version of bankruptcy.

The Myford, Calif.-based manufacturer, now distributor, of cardio and exercise equipment is undergoing an assignment for benefit of creditors, or ABC, which allows the company to keep its proceedings more confidential than a federal case, Star Trac CEO Mike Leveque told SNEWS®.

Before signing the papers Nov. 19, 2010, to assign a percentage of assets to creditors, Bruno and Leveque personally visited several dozen of the company’s vendors to “get folks on board,” Leveque said. Bruno, who took over Star Trac in July 2010, is owner of Land America Health and Fitness Co. in Xiamen, China. Leveque declined to reveal financial details of the plan.

“We made sure we had their support first,” he said of its vendors, describing weeks of globetrotting and negotiations around the world. The key was to get enough support to be able to continue Star Trac’s operations without disruption, he explained.

“Now we have a plan in place to return the company to its leadership position in the commercial fitness market,” Leveque said.

Restructuring, which began in May 2010 when CEO Steve Nero resigned, includes several key points:

• The company has exited the consumer division and will not return to it. Star Trac is in the process of selling or shutting down that arm, making whichever move is most beneficial or practical by March.
• Manufacturing will move nearly exclusively to Bruno’s 800,000-square-foot facility in China with more than 100 engineers. “We’re transitioning all of our products to be manufactured there,” Leveque said.
• Star Trac will be a distribution company, not a manufacturer. “We’re not a manufacturer anymore,” he said.
• Competing on price will not be a goal. Instead, Leveque said, some pieces will be improved with added features or stability but will maintain the same prices. For example, he said, the Max Rack will now be rated for 500 pounds rather than 350 pounds.
• Customer service, design and development will be the emphasis.

“In the last few years, we took our eye off the ball of the customer experience,” Leveque said. From the company’s start in 1976 as Unisen Inc., with its first treadmills coming out internationally in the late ‘80s, it was known for solid equipment and its relationships with customers. But as it grew from a one-treadmill company to a full-line manufacturer – with accelerated spurts of growth in the last few years – “we lost some of our soul,” Leveque said.

Recently, customers complained of quality control issues, which Leveque said he thinks was less about gaps in quality as the company’s inability to quickly replace parts or fix a problem. With money issues, parts were taking weeks to be delivered, customers weren’t being paid, and Star Trac’s reputation was quickly eroding.

“The difference is how quickly we respond to those (pieces of equipment) going down,” he said.

Although Star Trac will still be several months from completing its restructuring – it laid off nearly 100 employees in May 2010 — the company will unveil dozens of new and redesigned pieces at the IHRSA trade show in San Francisco in March, he said.

“There will be a ‘wow,’ and people will say, ‘this is really different,” Leveque said.

Customers such as Matthew Stevens, CEO of the Western Athletic Clubs, has been buying from Star Trac since the mid-90s, he said. Although he’s a supporter, he told SNEWS, he had scaled back his purchases – “they fell down” he said of the company — and he is now watching the realignments. But he is already looking to ramp up purchases slowly again.

“As they ran into trouble, we definitely scaled back,” he said, “then they named Mike (Leveque) as CEO. We have an enormous amount of confidence in him. I trust his ethics and his values, and I’m confident he’ll move Star Trac back in (the right) direction.”

Despite the restructuring, Mad Dogg Athletics renewed its agreement with Star Trac in January 2011 as its partner in the spinning equipment, Mad Dogg CEO John Baudhuin told SNEWS.

“What it comes down to,” Baudhuin said, “is we trusted in the people we’ve worked with for 10 years…. Maybe they should have taken their foot off the gas a little sooner.”

“We really do have confidence in their ability to get things turned around,” Baudhuin added.

Leveque said he knows people “still root for us,” but he won’t rest on that.

“We have to give them reasons,” he said, “to buy from us again.”

–Therese Iknoian