In Tough Times, Brown Shows What It Can Do

CLAYTON, Mo. — Despite a deepening recession and hibernating consumers, the executives at Brown Shoe Co. are forging ahead.

The footwear giant has a number of major initiatives on the agenda for 2009: launching several high-profile collections, establishing a presence in the upscale market, ramping up international growth and expanding its e-commerce business.

“It’s about long-term thinking and being thoughtful about how we’re going to win in the marketplace,” said Ron Fromm, Brown Shoe’s chairman and CEO, during his first joint interview with company president Diane Sullivan.

Speaking at the firm’s headquarters here in late September, the executives acknowledged there has been a noticeable shift in shopping patterns over the past few months.

“There’s no question the consumer has been touched, and she is behaving in a very different way than she has in a very long time,” Sullivan said.  

As with most other footwear firms, Brown’s financials have been negatively impacted by the downturn in consumer spending. Last month, the company — which reported fiscal 2007 revenues of $2.4 billion — cut its third-quarter earnings forecast amid weak same-store sales at Famous Footwear. And several of its big brands, including Naturalizer and LifeStride, had a challenging second quarter.

Despite the obstacles, the pair hasn’t lost their appetite for new and innovative deals.

This year, the execs engineered new celebrity partnerships with singers Fergie and Reba McEntire. In addition, they took Via Spiga to New York Fashion Week for the first time, inked a high-end deal with Vera Wang’s Lavender label and helped grow the hot Sam Edelman brand.

Behind the scenes, the executives have been working to integrate Famous Footwear into the St. Louis headquarters. The decision to relocate the retailer’s offices from Madison, Wis. — where the concept was born in 1960 — was “gut wrenching,” Fromm said, “but it was the right thing to do.”

With that transition nearly complete, the company now thinks of itself as three distinct units: Brown St. Louis, Brown New York and Brown Dongguan/China.

“Those three places help us stay close to our [retail] customers, stay close to consumers and give us really terrific access to talent,” Sullivan said.

The foothold in China is just one part of the company’s international growth strategy. The Naturalizer brand, now in more than 40 countries, is leading the charge, and the duo sees opportunity across the portfolio of brands.

E-commerce is also a priority. To cash in on the booming Internet business, more resources are being dedicated to Shoes.com, Brown’s pure-play site, as well as Naturalizer.com and Famousfootwear.com.

All told, Fromm believes the company will emerge from this challenging period as a more formidable competitor.

“When we saw the economy [getting weaker], we said, let’s get everybody working on the future, so when this thing turns around — and it will — we’ll be even better positioned.”

FN:  How is the economic crisis affecting your business?

RF: Things started to slow down right around this time a year ago. You could start to see the cracks in the consumer. We had already been thinking about doing a lot of things, but we really shifted gears and put ourselves on an accelerated track for change. It was by intent that the [Famous Footwear] Madison relocation came when it did. It’s not an accident that the West Coast distribution center is going to be up and running [by May 2009]. It’s not an accident that the [work on the] headquarters is being done, or that we are moving forward with using SAP management technology.

DS: There’s no question the consumer has been touched, and she is behaving in a very different way than she has in a very long time. There are so many things we can’t control, but we’re focused on setting ourselves up for when she comes back around. We focus on developing great product and building the talent base the way we need to and then making sure we’re delivering value to consumers at the end of the day. I have a lot of confidence about our ability to weather any storm [because of] our inventory discipline and the way we manage assets as a company.

FN: Why is inventory management so important for both your retail and wholesale businesses?

RF: You can run the business on so much less inventory. We decided to buy into the philosophy that we’re going to sell less more often and constantly put ourselves in the position of having fresh [product]. That used to be a huge challenge, but with the incredible competencies we have on the sourcing side, and what we’ve been building with the product development teams and on the marketing side, we have the ability to continuously be out there in the marketplace. When the cycle turns, we’re ready to capitalize on that. [At Famous], when Converse [started to get] hot, we were there right away. And we weren’t just there with product, we were there with marketing. That’s one of the things that this industry needs to continue to learn. We have to communicate more with the customer. You’ve got to get her more interested in constantly being in the store. Maybe in the toughest of times price matters, but most of the time she would rather have fresh and exciting product than last season’s [merchandise].

FN: The economic situation hasn’t stopped you from forging ahead with some big initiatives this year. What are some of the highlights?

DS: We have three big franchises in our portfolio: Naturalizer, Famous Footwear and Dr. Scholl’s. Our focus, always, is first about how we continue to keep those brands fresh and relevant. So even though we do all this pipeline work, we think about that core business first. [That being said], every brand has been touched by something new and different this year.

We brought more excitement and fashion credibility to Via Spiga with the Vena Cava collaboration. With Vera Wang and Sam Edelman, we’re reaching new consumers, new retailers, new channels that we think are going to provide a lot of excitement in the portfolio.

Vera Wang has a strong international business — more than 40 percent of their business is done abroad — so we think there will be a lot of learning around that. It seems like a long time ago that [Sam Edelman] joined our company, but it’s only been since last summer. That’s an unusual, different kind of relationship. [Brown owns a 42 percent stake.] He has done a fantastic job with the brand, and the traction they’re getting at retail is exciting. The fringe boot is certainly a sellout.

FN: You’ve also added two new celebrities to your roster, with Reba and Fergie. What is the key to creating a successful celebrity partnership?

DS: We have a very clear understanding of the expectations on both sides. The other part of it is that we really understand what the celebrity is all about and the best way to translate that into the right product. So it’s a confidence thing that each of the teams have been building over time. I’m not saying we’ll be successful in everything we do because I don’t think anyone bats 1,000.

FN: What is your acquisition strategy?

RF: We do a lot of looking and listening. We haven’t lost any of the ambition. The good thing about Brown Shoe is that it isn’t about any one thing. There are going to be selected opportunities we are going to pursue. We’re also continuing to prove to ourselves that we can compete at the [high-end] level, we can compete at the Kohl’s level.

FN: How much are you focusing on international expansion?

DS: We have some great opportunities in the U.S. and we’re going to continue to grow. But we also believe in global growth. We’re very thoughtful about what we do. It’s a crawl-walk-run type of situation. You have to have a patient model. [It’s about] learning the market, learning the localization, learning the consumer.  

We really look at Naturalizer as a first step. We’ve got some great initiatives going on, certainly in China. We recently announced a relationship in the U.K. We just opened up in Chile. We believe we will be everywhere over time. For us, it’s all about partners — who are the right people to partner with and what’s the right model? Someday, long past my lifetime, will Brown Shoe be 50 percent outside the U.S.? It’s not the plan, but it’s possible.

FN: How big of an opportunity is e-commerce for the firm?

DS: It’s an area that we’re rededicating the right kind of resources to because we think it’s a significant opportunity for the company. We’ve got a mix of platforms — how much better does it get than Shoes.com [as a pure play]? The e-commerce space is so interesting right now, with Zappos.com changing their focus and moving [beyond shoes]. Shoes.com is sitting in a space where it really is about the passion for footwear. Then, we have a whole other opportunity with FamousFootwear.com and Naturalizer.com.

FN: Why did you decide to move your Famous Footwear headquarters from Madison to St. Louis?

RF: It’s really part of a big strategic plan. Over the past couple of decades, it’s been about how we transform this great, old company into a great footwear marketing company. [This move] truly connects us. [If we] collaborate, we learn together and good things happen. Retail and wholesale are alike. We were replicating a lot of what we were doing [for both sides of the business]. I don’t like to say it was driven by cost savings; it was driven by doing the right thing, creating opportunity for consumers.

DS: To be a great wholesaler, you have to really understand retail. To be a great retailer, you have to understand the wholesale side of it. Now that we have both parts of our company together, our consumers win and our shareholders are going to win at the end of the day.

FN: Was it a difficult decision?  

RF: It was tremendously gut wrenching. I spent a lot of my career there. [I knew] there were a lot of people who wouldn’t make the move and it would create a lot of disappointment. But we just had to rise above that and ask, ‘Why are we doing this?’ We told people we were thinking about it months before we ever did it. A lot of people were concerned, but when it came time to do it, they knew why. We weren’t asking people to be happy about it, but they truly supported it. It’s easier to keep all the secrets, but the better thing — for everyone — is to do things in the light of day. It’s worked well for us.  

FN: Has the process gone smoothly?

DS: We announced it in April, and by the end of July, we had 90 to 95 percent of people moved and all the positions filled. We had more than 12,000 applications for about 200 positions. That’s a testimony to the great work the teams did to make the transition happen as well as it did. And we’d like to think it all goes back to the integrity and character of the company that we were able to attract that many applications.

FN: Sourcing has been another big focus for you this year. With prices rising up and down the supply chain, how is the company being affected?

DS: One of our terrific competencies is in sourcing. We source 70 million to 75 million shoes a year. The price increases have been coming around the bend for a lot of different reasons. [We’re seeing] labor rate increases, higher petroleum costs and just [overall] inflation. In terms of price increases, they’re still talking anywhere from 5 percent to 15 percent depending on what kind of product it is.

FN: Are you looking to areas outside of southern China to mitigate the cost increases?

DS: We’ve continued to look for ways to move some of our sourcing north to other factories, while keeping some of it in southern China. The teams are pretty aggressive, and we have great partnerships with a number of factory groups who are also going to new territories. So we’re constantly trying to push the envelope and look for what the next frontier is going to be.

FN: Are consumers noticing the price increases?

DS: It’s early in the cycle. It’s really been the last 30 to 60 days that consumers have seen the first increases at retail. So it’s hard to tell how they’re going to behave, but we’re keeping our eye on it very carefully. How a woman in Wal-Mart looks at [the situation] might be different from a family in Famous Footwear or someone shopping at Macy’s. That’s the great thing about our platform. We have the ability to see what’s happening in multiple channels of distribution.

RF: I have a tremendous amount of faith in the resourcefulness and intellectual capability of our company and the industry. We’re going to continue to develop ways to meet those consumer needs in a very efficient and effective way. When the pricing mechanism first came down, we didn’t lead our customer conversations with cost. We led those conversations by talking about how we could create product and prices that work for each customer. That’s the beauty of working in such a broad spectrum. [Whether customers] are trading up or trading down, we still have an opportunity to serve them.

FN: What’s your take on the current trade show landscape, given the addition of two new FFANY shows and declining attendance at WSA?

RF: Right now, it’s chaotic, a little bit like the marketplace. We need to keep dialoguing amongst the industry to figure out how we [go forward] in an orderly fashion. How many shows are necessary will blossom out of the work. People have to get used to the fact that not every show is going to be attended by every person. It’s got to be an efficient and effective model.

There’s a reason for FFANY and WSA, a reason for Micam, for all of them. It’s up to each company [to figure out] how they execute their strategy. It would be great to organize when those shows occur so they would coincide with when product flowed, when orders are placed. We talked about the philosophy of managing inventory, about less, more often. Does that mean more shows? Probably. But then it also probably means different shows.

FN: Which other executives do you admire in the footwear industry?

RF: There’s a group of people who always stand out. You’ve got to admire what Vince Camuto has done, what Robert Greenberg has done, what Stuart Weitzman has done. [They have] a combination of great marketing and great product, and they have been able to make a great statement in the industry. I’ve always admired Wayne Weaver. He started at Brown and he’s just a really talented shoe guy. Another person I admire in a different way is Steven Nichols. He’s quieter [about doing things], but he has a strong perspective and [runs his business] with a lot of character. And it’s never a bad thing to talk about the best, Nike. Phil [Knight] has just done amazing things for that company — from an organizational and marketing process. We’ve got lots of people to emulate.

DS: The industry is loaded with terrific and talented people, and Ron’s mentioned a lot of them. It’s so hard to pick your favorites, but I really respect Steven Nichols a lot, and Tim O’Donovan. What he’s done with that whole team at Wolverine World Wide is terrific. And how many people have done it twice like Robert Greenberg? The company I really admire right now is VF Corp. They have done an amazing job in transforming the company over the past five years.

FN: Is being a public firm more difficult in challenging economic times?

RF: Yes, it’s more challenging today — and maybe different than it was — but one of the really good things about being a public company is that we have a great board of directors and we’re very committed to doing things for the long-term success of the enterprise. We don’t focus on quarterly numbers. We’re doing the right thing for our shareholders. And there’s a stability with being a public company that our employees like.

DS: The other upside of it is that you’re forced to think about your shareholders in a balanced way. Your shareholders, your customers, your retailers — they’re all your partners.

FN: You’ve accomplished a lot over the past few years. How much do you have left to do?

RF: Good is the enemy of great, so we can always do better.  Our concept is continuous improvement. We think we are doing better … so that gives us the motivation and desire to seize on that.

You can play, you can compete, or you can win. And we want to win. There’s more to achieve and there’s more to give.

Access exclusive content