Q&A: Foot Locker’s Ken Hicks

NEW YORK — Ken Hicks, Foot Locker’s new chairman and CEO, walked the floor of the retailer’s flagship store in Manhattan last Monday like a beloved populist, shaking hands with sales associates, doling out compliments and asking about hot-selling kicks.

But what he really wanted to do was draw attention to the company’s merchandising strategy, which has been revamped after relying for decades on basketball shoes. Now, running sneakers will get their share of the spotlight, Hicks said. So will apparel. It’s a sweeping plan that is beginning to unfold, as evidenced by the prominent, upfront displays of footwear by Asics, New Balance and Nike, and the color-coordinated outfits of footwear and apparel throughout the 34th Street store.

Since taking over for longtime chief Matt Serra, who retired in January, Hicks — who joined last August as president and CEO, after leaving the No. 2 post at JCPenney — has put the company on a new path. Much like it’s flagship, other stores will press deeper into the running, toning and skating categories, as well as significantly boost their mix of branded and private-label athletic apparel.

The sharpened focus was triggered, in part, by the recession, which both altered consumers’ thirst for pricey kicks and sped up the decline in the basketball business.

What’s more, Hicks, 57, said he believes the company had offered too much of the same product across its banners, which include Foot Locker, Lady Foot Locker, Kids Foot Locker, Footaction, Champs, Eastbay and CCS.

His move to differentiate the mix is part of a larger, five-year plan — which Hicks unveiled in detail at Foot Locker’s investor conference on Tuesday — to boost annual sales at the 3,500-door chain to $6 billion, from $4.9 billion in 2009, and to raise sales per square foot to $400, from $333 last year.

To get there, Hicks said, the company will tweak the merchandise, in addition to growing its international store base by 50 percent, primarily in Europe.

But hitting those targets won’t be easy.

“It’s a big stretch,” said Sam Poser, an analyst at Sterne Agee. “They can change the assortment easily over time, but the problem is that they have to get permission from the consumer to be something different. They’ve been too associated with basketball. To do that, they’ll need to spend a lot of money on updating their stores and separating each banner. They’re doing the right thing, but it will take until late next year and a lot of money to execute the whole thing.”

Still, Hicks said that by expanding into more categories and calling on more brands, the goals are “realistic and achievable.”

Here, the CEO tells Footwear News in an exclusive interview how he plans to do it.

FN: You’re about to unleash an aggressive five-year plan. What’s the major focus?
KH:
Our goal is to be the leading global retailer of athletically inspired shoes and apparel. We want to be a leader, and to do that, we have to improve our performance and make sure we do better at the things that count: growing sales, increasing profitability, making sure we’re taking care of our customers by converting higher, taking care of our associates so they’re inspired to engage the customer and give them an exciting experience. Globally, we’re one of the few U.S. retailers that has been successful in Europe, Canada, Australia and New Zealand. We’ll continue to build on that in those markets and will look at other markets.

FN: How will the Foot Locker structure change?
KH:
You’ll know what Foot Locker Inc. is because it will have a number of highly differentiated banners that address certain customer segments. … Instead of everything being moved together, which is what happened during the downturn, we’re going to make things stand on their own. [Each banner] will have its own customer and capability.

FN: Will that translate into new store design?
KH:
We’re looking at new ways to make the stores easy and exciting places to shop. We’re going to show shoes and apparel together. We’re going to think about what kind of media we have playing in the stores that’s exciting to the customer. And anything we do in the store, we want to be able to create the same thing online.

FN: Earlier this year, you made some management changes to align the divisions.
KH:
We did a number of things. First, to get more of a focus on women’s, we consolidated women’s into Foot Locker, which allows us to get the women’s focus across all our banners: Foot Locker and Lady Foot Locker. In doing that, I brought Dick Johnson in from Europe [to be president and CEO of Foot Locker U.S., Lady Foot Locker, Kids Foot Locker and Footaction]. He’s done a terrific job there. He really understands the multibrand idea and pulling it under one roof. He also understands how to coordinate and work the dotcom world because, at one point, he ran our Eastbay business.

FN: You also cut staff. What was the reasoning behind that decision?
KH:
We did a reduction in workforce at the corporate office. We always hate to do that, but our expenses were too high. We lost sales over the last couple of years, and we needed to take steps to bring our expenses more in line with the sales level we were at. We dropped about 120 people, all in the corporate office in New York. And we also closed 180 stores.

FN: Are more organizational changes coming?
KH:
We’re not looking at more structural changes. We’re processing operational changes. For example, having better interaction between [online] and the stores. How can we improve that? We’re working on making sure we learn more from each of the divisions.

FN: Where’s the biggest opportunity for the company?
KH:
In terms of new stores, it would be Europe. There’s opportunity to open several hundred stores in Europe and Eastern Europe, growing by 50 percent there. There’s opportunity to expand in countries that we’re not in, in South and Central America and Asia. At the same time, dotcoms offer a tremendous opportunity, and we should be able to double that business in the life of our plan. We’ve got a nice-sized dotcom business in Eastbay, but where we really have our opportunity are the banner sites: Footlocker.com, Footaction.com, Ladyfootlocker.com.

FN: Which division is the hottest right now?
KH:
It depends on how far back you go. We’re 12 weeks in a row right now with positive comps, but Lady Foot Locker has been very good with toning, and Champs has been doing very well. I’d say that over the longer period of time, Lady Foot Locker is hot.

FN: Let’s talk brands for a minute. Where’s the strength coming from?
KH:
Reebok EasyTone and Skechers Shape-ups. Some of our Nike launches have been phenomenal. Nike’s been the most consistent brand.

FN: What brands have potential for growth at the stores?
KH:
Reebok. I said EasyTone, but that’s a small part of Reebok. Reebok has tremendous opportunities. Adidas and Under Armour are also brands we see tremendous opportunities with.

FN: In Foot Locker’s fourth-quarter earnings call, you specifically cited running and toning as growth categories. Is that a long-term push?
KH:
They’ll be more important parts of our business going forward. How big they are, the customer will determine. One of the questions someone asked on the call was whether we thought toning was going to be a long-term category. I don’t know at this point, but what I do know is that it’s something the customer wants now, so we’re offering more of it. We’ve got shoes from, obviously, Reebok and Skechers, and we’re bringing in New Balance. We’ll have the best toning assortment out there.

FN: Do you think the toning product actually works?
KH:
What I said on the call is that it depends on what the behinds look like a few months from now. One of the things that I’ve seen when I’ve been in stores is the number of women who are on their second or third pair because they feel that it’s doing something for them. I saw two different women come in and buy their second pair. I asked one, “How do you feel?” She said, “I just feel better with them. My legs feel stronger. I got one color and I wanted another color for when I wore something else.” Guys aren’t into that as much as women.

FN: Why is that?
KH:
It’s because [brands have] just introduced men’s product. We actually had a reasonable sell-off on the Reebok toning shoes this past week.

FN: What’s the biggest challenge facing retail today?
KH:
The biggest challenge is to excite customers to buy. Right now, people are very, very conservative with their money and what they’re buying. They want to make sure it’s a good value. They want to make sure it’s something they really want. Something you really want doesn’t necessarily have to be about value, it’s just something that motivates and excites you. So you have to be able to talk to the customer at a couple of different levels.

FN: How concerned are you about the economy and the consumer’s mindset?
KH:
First of all, I think the consumer will return to spending. That’s one of the things that when you live long enough, you see the different cycles and trends. We are in a down cycle and every other down cycle has been followed by an up cycle. The question is, when and how big and how fast. I believe the customer will come back at the same level. Whether they will buy the same things is the question. So that is a concern, but at the same time, we have a lot of people in our stores who are not buying. One of the challenges we have is how do we get the people who are in the store to buy. We would all like more traffic, but when you look at the conversion rate in retail for somebody who walks in the store, buys something and walks out, it’s not particularly high.

FN: Many shoppers have shifted away from sneakers in favor of casual shoes. Is that a source of worry?
KH:
Again, we have to look at what’s athletically inspired. That doesn’t necessarily mean they’re athletic shoes. [In the past], we allowed ourselves to get too focused into one type of shoe: basketball. When you think of what Foot Locker was when it first started, it traded much broader. It had running, it had court sports, it had casual footwear. That’s where we’re looking to go with our strategy, trading broader. We’re seeing, for example, running as a business that we hadn’t been as aggressive with as before. We’re going to be more aggressive with that. We’re not giving up the assortment in basketball or our position in basketball. It’s just that we really didn’t play in running. [Now] we’re going to have more running.

FN: So how important are brands that aren’t specifically performance-driven?
KH:
Those are very important to us. I would say 80 percent of our basketball shoes never hit the hard court. People wear those as streetwear. I was shopping recently and I’m watching all the shoes go by and almost every single person had sneakers on.

FN: At one time, Foot Locker was rumored to be buying a retailer in the brown shoe category. Would you entertain that idea?
KH:
We’re going to look at all opportunities for growth, whether internally or externally. But right now, our focus is on internal because there’s tremendous opportunity there. That’s not to say we wouldn’t consider that. Right now, we have a lot of new concepts. We’re very excited about House of Hoops. We’ve got some in the U.S. and Europe that have been successful, and we think that could be 100-plus stores, up from a dozen now. At CCS, we’ve opened two and we’re going to open 10 more and we’re going to see how much that chain could be. That could be 100 to 200 stores. We just opened a new running store, Run by Foot Locker. We’ve been quite surprised by how it’s started, and we haven’t even had the grand opening yet.

FN: How does your leadership style differ from Matt Serra’s?
KH:
I would say we’re the same, but different. He’s an ex-marine and I’m ex-Army. He was a very good leader. I probably delegate more than he did. But both of us are similar in that we work to get the people that we work with excited about doing what it is they’ve got to do. We just go about it differently. He’s more vocal; I’m probably more cerebral. Both of us are believers that a leader gets people to want to do what the leader wants them to do. Neither of us are in the mode of telling people what to do, it’s more about how we get them to want to do that.

FN: Your predecessor also went through some very public battles during his tenure. What advice did he give you?
KH:
One of the things he told me was to make sure you take advantage of the opportunities you have. It doesn’t have to be a war to build the partnerships — he learned from that. He gave me a lot of counsel and advice in developing relationships with Nike, Adidas, New Balance. Some of the advice and counsel was “don’t do what I did.” I learned from that. Other things were “learn from what I did.” And [he told me] to make sure we differentiate the banners. He was critical of himself over the last couple of years for letting them get a little close and realizing that that’s a tremendous opportunity.

FN: You’ve got some serious competition from sneaker boutiques, department stores and e-tailers. How can you stand out?
KH:
I like good competition. I’ve been competitive all my life. I wouldn’t be in retail if I didn’t like it. We do have good competition, but we’re going to stand out because we’re going to offer the best assortment and value to the customer for athletic shoes and apparel. We’re going to be the place to go. If you need a sneaker, you’re going to think of Foot Locker. I don’t think our competition will be able to do that. It’s one of the challenges that general merchandise stores have with specialty stores. Having been in general merchandise for a bit of my life, it’s like a decathlete: You can shot-put, you can run a sprint, you can high-jump, but you’re never as good as the shot-putter, the sprinter or the high-jumper. We’re the specialty store here, and we’re going to beat them all on shoes.

 

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