Star Trac restructures, seeks new capital after president’s resignation, huge layoffs

Star Trac hit a bump in the road on its recently accelerated growth path and has been forced to make massive layoffs and quicken its search for capital investors.

Although not totally unexpected — the company has been talking to investors for 60 days, the consumer division was informed six weeks ago of its consolidation to California, and rumors of financial concerns have circulated for many months — Star Trac’s woes became highly public on May 27 when its President and COO Steve Nero resigned, followed by huge layoffs a week later.

“Clearly, we are preparing the company for an infusion of capital,” Randy Bergstedt, vice president of marketing, told SNEWS. “We’re shrinking the size of our overhead. We’re doing the pruning necessary to get back to growth. It’s a necessary step, as painful as it is.”

Combined with a smattering of layoffs in the last few weeks, the 35-year-old Star Trac company has cut 102 employees — 50 from its strength division, the former Flex Fitness in Murrieta, Calif.; nine from its consumer segment out of Colorado begun in 2007; and 43 from all other areas both in California and at global offices. The layoffs, most of which occurred on June 3-4, took the company down to 450 employees globally, although about half of the cut jobs are in manufacturing and some of those could be added back during fall and winter, SNEWS was told.

Layoffs included Paul Ireland, vice president of sales; and Chris Brewis, director of customer support. Kevin Lamar, the vice president and general manager of the company’s ST Fitness consumer division that has been Colorado-based, will remain through July to assist in the transition and integration to the California offices. Lamar told SNEWS that during his 2½ year run, he and his team enjoyed building the consumer division and seeing its success. “I look forward to a smooth integration into California,” he added. “I also look forward to exploring all of my options for the future.”

Larry Domingo, the former vice president of sales at Precor who was hired in November 2009 as Star Trac’s vice president of global sales, will now oversee sales. Stepping into Nero’s role as president and COO is Mike Leveque (photo – right), who has been with Star Trac for 17 years, most recently as head of European operations out of the United Kingdom. Leveque has also served as director of finance and worked in both inside and outside sales. Leveque said he has been splitting his time between the United States and the European offices for the last three years.

“We have taken steps to gain efficiency in the business by reducing staff, integrating the consumer division, and preparing for a move into one building in the Irvine area,” Leveque told SNEWS. “Working our way out of this situation will take some time, and my No.1 focus is taking care of our customers through the process.”

Gaining efficiency, trimming costs

Now based in Irvine, Calif., Star Trac, which was incorporated as Unisen Inc. in 1975 under its founder James Sweeney, will make a decision in the next few months about where it will move to consolidate all of the company from commercial to strength to consumer in one Southern California building as one way to slice costs and gain efficiency, Bergstedt said.

“It’ll bring the entire company under one roof,” said Bergstedt, who has been with the company 12 years. “Clearly, the commercial real estate market is very favorable now and there is availability of buildings the size we need.”

Bergstedt blamed the scramble for capital infusion on several factors, including the unexpected length and severity of the economic downturn and Star Trac’s continued optimism during the economy’s doldrums.

“We were overly optimistic in our ability to generate continued growth,” he explained. “With the economic downturn, that was not possible.”

Retailers and dealers have told SNEWS that product delivery, support, service and parts have been difficult to get and slow to arrive with long delays, leaving the company’s customers frustrated. As a part of the restructuring, Terry Woods is the new director of customer support.

“Our focus needs to be on getting parts and supplies to our current customers,” Bergstedt said. “We’re not comfortable with the level of back orders we have on parts at this point. We’re sensitive to this situation, and we’re working very hard to get parts to our customers.”

Capital infusion

Executives confirmed that Star Trac is talking to a number of possible investors, but declined details about whether it would be acquired or it would simply gain an infusion of cash. It is also unclear whether owner and chairman Jim Doody will remain. Doody declined comment about the changes and the company’s future.

“We are aggressively pursuing growth capital for the company that will stabilize the business and allow us to better serve our customers,” Leveque said. “Jim Doody and the entire board of directors are supporting this process and are working to expedite the acquisition of capital.”

Bergstedt and Leveque declined comment on what the capital’s structure could be or when it could be finalized, but Bergstedt noted progress was being made daily.

“We are addressing the fundamental structure of the business,” Bergstedt said.

For years reputed as the maker of solid treadmills, the company in its early days was known as Unisen, short for its original name of Unique Sensors, and was contracted to manufacture the original LifeCycle. By the early ‘80s, it came out with its own first piece, a treadmill, and by 1988, the first batch of Star Trac 2000 treadmills was delivered internationally. Its name morphed into Star Trac by Unisen until Unisen was dropped for the stand-alone name of Star Trac.

Growth began under the leadership of Nero, who came to the company in 2003 as vice president of marketing and engineering. (Click here to see the Nov. 17, 2003, SNEWS story, “New Star Trac VP unifies strategy, sets lofty goals.”) Nero became COO in early 2004 and then added the role of president in June 2004. (Click to read a June 7, 2004, SNEWS story, “Star Trac’s ‘Mac’ steps down, Nero named president.”)

One of his first steps was to acquire Flex Fitness later that year. (Click here to see a Nov. 12, 2004, SNEWS story, “Star Trac pumps it up with acquisition of Flex Fitness.”). At that time, he told SNEWS that acquiring Flex was not a departure from his earlier assertions that Star Trac didn’t need a strength category. He called the acquisition a “huge opportunity,” adding that “with very little investment, we’d be able to change the paradigm and transform the category.”

Partnerships, including MYE Entertainment and Koko Fitness, and acquisitions continued as the company added equipment categories and spread its wings on expansive marketing plans, including B2C, and built sprawling, two-level show booths. In late 2008. Some have since been discontinued. A license of the Ironman name also came under ST Fitness’ umbrella for consumer equipment (click here to see a Feb. 16 story about the retail division, “Star Trac retail division starts second year with Ironman brand as new feather in its cap”), and it’s believed that will continue.

A partnership with Mad Dogg’s Spinning, which began in February 2002 continues today. (Click here to see a Feb. 12, 2002, SNEWS story.)

“I believe in Star Trac and I believe in the management team there,” John Baudhuin, Mad Dogg’s president and CEO, told SNEWS. “We’re squarely behind them and working with them to get through this situation.”

Bergstedt maintained that all of Star Trac’s product lines and partnerships will continue as they are today, despite the unknown factor of the kind of capital that will allow Star Trac to move forward. However, Leveque acknowledged that you never know 100 percent before investors are onboard. “It certainly is our intention that our relationships will stay the same, and our products will remain as they are,” Leveque said.

Bergstedge noted, “Star Trac historically was always known as having raving fans and having great customer service, and we’re getting back to our core competencies.

“That,” he said, “is how we’ll rebuild our business.”

–Therese Iknoian