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BUSINESS
Brown Shoe Company, Inc., founded in 1878 and incorporated in 1913, is a global footwear retailer and wholesaler. Current activities include the operation of retail shoe stores and e-commerce websites as well as the design, sourcing and marketing of footwear for women and men. Our mission is to inspire people to feel good and live better... feet first! We are a global footwear company with annual net sales of $2.6 billion that puts consumers and their needs first, by targeting family, healthy living and contemporary fashion platforms. Our business is seasonal in nature due to consumer spending patterns, with higher back-to-school and Christmas and Easter holiday season sales. Traditionally, the third fiscal
quarter accounts for a substantial portion of our earnings for the year.
During 2011, categories of our consolidated net sales were approximately 63% women’s footwear, 24% men’s footwear, 9% children’s footwear and 4% accessories. This composition has remained relatively constant over the past few years. Approximately 66% of 2011 footwear sales represented retail sales, including sales through our e-commerce websites, compared to 70% in 2010 and 72% in 2009, and the remaining 34%, 30% and 28% in the respective years represented wholesale sales. See Note 8 to the consolidated financial statements for additional information regarding our business segments and financial information by geographic area.
We had approximately 15,300 full-time and part-time employees as of January 28, 2012. In the United States, there are no employees subject to union contracts. In Canada, we employ approximately 20 warehousing employees under a union contract, which expires in October 2013.
RETAIL OPERATIONS
Our retail operations at January 28, 2012, included 1,323 retail shoe stores in the United States, Canada, China and Guam. The number of our retail footwear stores at the end of each of the last three fiscal years was as follows:
2011
2010
2009
Famous Footwear
1,089
1,110
1,129
Specialty Retail
234
259
282
Total
1,323
1,369
1,411
With many companies operating retail shoe stores and shoe departments, we compete in a highly fragmented market. Competitors include local, regional and national shoe store chains, department stores, discount stores, mass merchandisers, numerous independent retail operators of various sizes and internet retailers. Quality of products and services, store location, trend-right merchandise selection and availability of brands, pricing, advertising and consumer service are all factors that impact retail competition.
Our family platform includes Famous Footwear, which is one of American’s leading family branded footwear retailers based on 1,089 stores at the end of 2011, net sales of $1.5 billion in 2011 and published information on our direct competitors. Our target consumers are women who buy brand-name fashionable shoes at a value for themselves and their families. In addition to our retail footwear stores, we operate FamousFootwear.com.
Famous Footwear stores feature a wide selection of brand-name, athletic, casual and dress shoes for the entire family. Brands carried include, among others, Nike, Skechers, New Balance, Converse, Puma, adidas, DC, Asics, LifeStride, Dr. Scholl’s Shoes, Reebok, Vans, K-Swiss, Naturalizer, BOC by Born and Bearpaw. We work closely with our vendors to provide our consumers with fresh product and, in some cases, product exclusively designed for and available only in our stores. Famous Footwear’s average retail price is approximately $38 for footwear with retail price points typically ranging from $22 for shoes up to $120 for boots.
Famous Footwear sells various Brown Shoe Company owned and licensed products. Such products are sold to Famous Footwear by our Wholesale Operations segment at a profit and represent approximately 16% of Famous Footwear net sales.
Famous Footwear stores are located in strip shopping centers as well as outlet and regional malls in all 50 states and Guam. The breakdown by venue is as follows at the end of each of the last three fiscal years:
Strip centers
744
762
778
Outlet malls
169
174
181
Regional malls
176
170
Total
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Stores open at the end of 2011 and 2010 averaged approximately 6,900 square feet. Total square footage at the end of 2011 decreased 2.5% to 7.5 million square feet compared to 7.7 million at the end of 2010. We expect to open approximately 55 new stores and close approximately 90 stores in 2012. New stores typically experience an initial start-up period characterized by lower sales and operating earnings than what is generally achieved by more mature stores or the division as a whole. While the duration of this start-up period may vary by type of store, economic environment and geographic location, new stores typically reach a normal level of profitability within approximately four years.
Sales per square foot were $186 in 2011, which was down from $187 in 2010. Same-store sales declined 1.2% during 2011. Same-store sales changes are calculated by comparing the sales in stores that have been open at least 13 months.
Famous Footwear relies on merchandise allocation systems and processes that use allocation criteria, consumer segmentation and inventory data in an effort to ensure stores are adequately stocked with products and to differentiate the needs of each store based on location, consumer segmentation and other factors. Famous Footwear’s distribution systems allow for merchandise to be delivered to each store weekly or on a more frequent basis, as needed. Famous Footwear also utilizes regional third-party pooled distribution sites across the country. Famous Footwear’s in-store point-of-sale systems provide detailed sales transaction data to our corporate office for daily update and analysis in the perpetual
inventory and merchandise allocation systems. These systems also are used for training employees and communication between the stores and corporate office.
Famous Footwear’s marketing programs include national television, print, radio, in-store advertisements, viral and digital marketing and social networking, all of which are designed to further develop and reinforce the Famous Footwear concept and strengthen our connection with consumers. We believe the success of our campaigns is attributable to highlighting key categories and tailoring the timing of such messaging to adapt to seasonal shopping patterns. In 2011, we spent approximately $57.3 million to advertise and market Famous Footwear to our target consumer, a portion of which was recovered from suppliers. Famous Footwear has a robust loyalty program (“Rewards”), which informs and rewards
frequent consumers with product previews, earned incentives based upon purchase continuity and other periodic promotional offers. In 2011, approximately 62% of our Famous Footwear net sales were generated by our Rewards members. We continued our focus on social media throughout 2011, which helped us to build a stronger connection with our consumers, allowing us to both listen to and communicate with our core market. We will continue to seek new and expand existing channels for consumers to connect with Famous Footwear (beyond email, Facebook, Twitter, YouTube and proprietary mobile applications) to drive our fans from the digital world into profitable and loyal consumers in our multi-channel selling environments.
Our Specialty Retail segment, composed of 234 stores as of January 28, 2012, includes the following retail concepts and our Shoes.com and other e-commerce businesses, with the exception of FamousFootwear.com, which is included in the Famous Footwear segment.
Naturalizer retail stores are a showcase for our Naturalizer brand of women’s shoes. These stores are designed and merchandised to appeal to the Naturalizer consumer, who is style and comfort conscious and who seeks quality and value in her footwear selections. The Naturalizer stores offer a selection of women’s footwear styles, including casual, dress, boots and sandals, primarily under the Naturalizer brand. Retail price points typically range from $69 for shoes to $189 for boots. The majority of products sold in our retail stores is purchased from our Wholesale Operations segment at a customary gross margin.
At the end of 2011, we operated 100 Naturalizer stores in the United States and 97 Naturalizer stores in Canada. Of the total 197 stores, approximately 58% are located in regional malls, with a few stores having street locations, and average approximately 1,200 square feet in size. The other 42% of stores are located in outlet malls and average approximately 2,400 square feet in size. Total square footage at the end of 2011 was 335,000 compared to 354,000 in 2010. In 2011, we closed 30 stores and opened 12 stores in the United States and Canada, primarily in regional malls. We expect to open 13 stores and close 14 stores in 2012.
At the end of 2011, through our majority-owned subsidiary, B&H Footwear Company Limited (“B&H Footwear”), we also operated 23 stores in several of China’s largest cities. We expect to open 13 stores in China in 2012. In addition, our joint venture partner, Hongguo International Holdings Limited (“Hongguo”), operated 70 stores at the end of 2011 and expects to add approximately 20 stores in 2012. Naturalizer footwear is distributed through these stores operated by B&H Footwear and Hongguo. See Note 17 to the consolidated financial statements for additional information about B&H Footwear.
Marketing programs for our Naturalizer stores have complemented our Naturalizer brand advertising by building on the brand’s consumer recognition and value proposition, and reinforcing the brand’s focus on effortless style, comfort and quality. Naturalizer utilizes a database-marketing program, which targets frequent consumers through catalogs and other mailings that display the brand’s product offerings. Consumers can purchase the products in these catalogs from our stores, online at Naturalizer.com and Naturalizer.ca or by phone.