Diane’s Day: Q&A With Brown Shoe’s CEO

Leaner, faster, stronger.

Those were Diane Sullivan’s chief goals for Brown Shoe Co. when she assumed the helm in May 2011, and 17 months later, the CEO is forging ahead with an aggressive overhaul. “If you can lay out a clear vision for what you want to do, people will rise to the occasion, rally around it and help you start moving,” she said in an exclusive interview with Footwear News last month.

From the start, Sullivan was determined to make Brown more profitable. To do that, the executive, who had been president and COO prior to assuming the top role, had to make hard decisions about what was working and what wasn’t.

“I decided we really needed to focus — because resources are not unlimited and you have to bear down on the things that are going to give the biggest returns,” she said.

Sullivan simultaneously stepped up expansion of growth drivers — namely the contemporary fashion portfolio — while scaling back on excess infrastructure by closing stores to ramp up store productivity. She also exited businesses and brands that didn’t have long-term potential, such as niche athletic player And1 and the kids’ business, which was licensed to BBC International.

“The good news was that 80 percent of our brands and assets fell into the three consumer platforms we identified: contemporary fashion, healthy living and family,” said Sullivan. “I never thought about the strategic realignment [as a drastic measure]. I just thought about it as something that was the right thing to do. If you spread your time, energy and resources across too many things, it’s ultimately not going to work.”

Another major part of Sullivan’s transformation has been assembling a new executive team, including chief information officer Mark Schmitt; CFO Russ Hammer; and VP of investor relations Peggy Reilly Tharp.

Sullivan and her new crew have made sizeable inroads on Wall Street so far, and analysts credit the CEO with taking bold steps to overhaul a company that was losing touch with its customer.

Brown’s stock has doubled year-to-date to about $16.20 per share, after losing a third of its market cap in 2011. The firm also recently set new long-term targets for a 15 percent return on invested capital and 8 percent operating margin.

“One thing I’ve noticed talking to employees is they all describe how there’s a new level of accountability [with Diane at the helm],” said Scott Krasik, analyst at BB&T Capital Markets. “It’s fair to say she’s energized the company.”

Susquehanna Financial analyst Christopher Svezia agreed: “She really needed to step out a bit and show she could put her own stamp and mark on things. The stock has certainly reacted pretty favorably to some of what she’s done. I’d give her decent marks for attempting to steer the ship in the right direction, but there’s still a long road to get where they want to be.”

Retailers, too, have welcomed the new leadership.

“Diane has done a great job of further evolving and extending the company’s strategy to achieve success,” said Scott Meden, Nordstrom’s EVP and GMM of the shoe division. “There’s no question that, across their brands, Brown is focused on providing more modern, trend-right product.”

Here, Sullivan shares her thoughts on how she’s handling her expanded role, the company’s bright and weak spots and her biggest priorities in the ongoing portfolio realignment.

How have your day-to-day duties at Brown Shoe changed since becoming CEO?
DS:
When I took over, I didn’t fill my [previous COO] position — I expanded my responsibility, so I had to do all of what I did before, plus the new piece. What I’ve had to think about differently [with respect to associates in the company] is the cadence of communication [with them], how to do it better. I walk around a lot, talk to everybody and make it a point to know people’s names. The newer part is really the board and shareholders, and that took up a lot of time in the first 12 months or so [because] the board is ultimately who I’m responsible to.

What’s been your biggest challenge in this role so far?
DS:
Probably two things: From an operating perspective, it was stabilizing [logistics systems] SAP and AFS. When companies go through that, it takes a while before everything works. The second thing was making sure I [could manage my] time. I had to learn how to do what I did before, but do it smarter and faster, and [also how to] deal with the board and the Street.

Is it hard being in a male-dominated industry?
DS:
I’ve been in this industry 25 years, so I feel like I have so many friends [in it] that I don’t really notice. Obviously, Carol Baiocchi, [Kohl’s Inc.’s SVP and DMM of footwear], and I, through Two Ten Footwear Foundation and WIFI (Women in Footwear Industry), are trying to give women more of a platform to get together, network and talk. That’s been very important for me over the last couple of years. You’d like to see more women in leadership positions for sure.

What excites you about the opportunities for the company right now?
DS:
In the contemporary fashion space, we have a pure growth opportunity. If you looked at our company five, 10 years ago, we weren’t there. Now we have Sam Edelman, Via Spiga, Vera Wang, Franco Sarto and Vince, which we just licensed. The other one is Famous Footwear, which is starting to hit its stride. We are the best alternative in the marketplace for family footwear shopping. We’re getting better in terms of brands and assortments that we offer, and we see this whole omnichannel thing as a real growth opportunity for us. The last thing is we’ve been doing a lot of work around product innovation in our healthy living areas of Dr. Scholl’s and Naturalizer and taking it to a brand-new level.

Is there a weak spot?
DS:
I don’t think it’s a weakness but I’d say we have to close the loop on a lot of the projects that we’ve started and get the restructuring done so it’s behind us. We’ve got to consistently deliver to the consumer and to the Street and to our shareholders. Our long-term goal is an 8 percent operating margin and 15 percent return on invested capital, and right now, our three-year road map gets us a portion of the way there. We have to earn it quarter by quarter, year by year, and I am determined we’re going to get that done.

Are investors being hard on the firm?
DS:
I don’t know if they’re hard or, quite honestly, fair. We have to take responsibility for our own performance. Some of the expectations were too high in the past, so we had to live with it. Now we feel we’re setting expectations in a proper way and we met the last two quarters, so the guidance is in the right place and we’ll deliver.

Do you still believe the American Sporting Goods Corp. acquisition was a good idea?
DS:
We thought it was an opportunity for us to expand our branded foothold in the healthy living area and round out our fitness and outdoor portfolio a little bit. It was a little further afield for us than we anticipated, but we have a team of people that knows how to build brands and products. We’ve made significant investments in new product development and design. With Famous Footwear being an important customer of both brands we get pretty good reads pretty early on what’s working. And DSW has been phenomenal, doing really well right now with Ryka. I believe we’re able to do what we want to do [even if] it might take us a little longer than we might’ve thought. It’s never a quick fix.

Why wasn’t And1 a good fit?
DS:
We never thought [basketball] was core to what we were doing, but it came with the package. And then we were able to find somebody that saw more value [in it].

Were you interested in acquiring Collective Brands Inc. as some sources suggested?
DS:
No. We might have been interested in a portion of it, but we never were active [in the bidding process].

What’s a priority for you, to add to or subtract from your portfolio?
DS:
It’s definitely more important to add. Our subtraction will be over by 2012 and our adding will start again. [In the process of] managing the life cycle of the brands in the portfolio, sometimes you can’t always reinvent them. By the end of this year we’ll be done with the significant changes.

What brands in contemporary fashion are on the top of your list?
DS:
I can’t tell you that, but I will say I meet a lot of young people with brands that have started from scratch, like the way we invested in Sam Edelman, which was a $13 million to $15 million business when we acquired it, and it’s now substantially more. So I’m always looking at whether there are opportunities out there. On the other hand, you also think about sizeable brands that you can scale without [large] costs. We’re not ruling anything out, but we’re focusing on finishing everything we started this year.

What are your thoughts on the battle of the department stores, both as a vendor and as a retail competitor?
DS:
It’s exciting because it brings a lot of attention to footwear and it ups everybody’s game in the industry. Be it Macy’s or Saks or Barneys, it’s just bringing attention to shoes, from every angle and, most importantly, the consumer angle. There’s enough room for everybody to win there.

How do you plan to improve as an omnichannel retailer?
DS:
Sales at Famousfootwear.com grew 16.5 percent in the second quarter, and we’re making investments around access to inventory and making sure all touchpoints are the same. It involves things like a mobile app, which we’ve been testing. It’s one of those things that is very fast-growing, but still very small in terms of impact. Our philosophy is we have to test a lot of things. They may not all work out, but technology and the consumer are moving so fast that you can’t stay in one place and wait. You’ve got to dabble in many things and then edit out what doesn’t work for your brand and customer.

How confident are you of the longevity of the current footwear cycle?
DS:
There are a couple of things that are driving it right now: lightweight running and [general] athletic. And we’re in a really neat fashion cycle right now, too. The consumer’s looking for color, she’s being a little bolder than what she might have been in the past. We’re a little better than the typical year.

WHAT BROWN EXECS SAID ABOUT DIANE…

Edmundo Castillo, creative director of Via Spiga
“I immediately liked her the minute I met her. She has a clear idea of what has to be done, [but she doesn’t tell] me what to do. She hired me and she trusts my vision. [We both] want to take the brand to a more leadership category instead of a follower category with great product at a great price.”

Sam Edelman, founder and division president of Sam Edelman Shoe
“We all know Diane’s the boss. But on a daily basis, I like to think of it as a partnership between us, and she has asked me consistently to look at it this way. The most exciting thing is we showed the naysayers they were wrong, that an entrepreneur can work in a corporate environment if the CEO of a company has the objectivity and trust that Diane has [and has put] in me over the last five years.”
 
Jay Schmidt, president of contemporary fashion brands
“Diane is all about vision and strategy. It’s amazing how she links the two together, and that’s been transformational for the company. If it’s the right thing to do for the business, we find a way to do it. Her charisma is also contagious and it gets everyone up in the company and moving in the same direction.”

Rick Ausick, division president of Famous Footwear
“She’s engaging and dynamic; she listens and has an opinion. She knows there are things she’s an expert at and [if she’s not, she] is willing to have people educate her on that topic in a way that helps her make strategic decisions for the company.”

Will Smith, SVP of marketing for Famous Footwear
“Diane is a leader who doesn’t believe in the status quo. She likes to dig in to find where the opportunities are and how we can align ourselves to that end. She’s someone who wants to be that change agent looking to put her imprint on the business. She wants to hear how we can change things and contributes to and supports that.”

Keith Duplain, SVP and GM of Dr. Scholl’s Shoes
“The great thing about Diane is she really cares about consumers. As much as she fulfills the role of CEO to the public, she walks around and takes the time to come down and spends five minutes reviewing the product lines when they arrive from overseas. She’s very appropriately engaged in the businesses.”