Shoe Chain Steps Into A More Modern Look
Monday December 9, 10:36 am ET
By Marilyn Much
Investor's Business Daily
When you walk into the Naturalizer store in midtown Manhattan, you know you're not buying the stodgy brand your grandmother used to wear.
Gone are the days when sporting a Naturalizer shoe meant comfort at the expense of fashion. Thanks to a makeover that began in 1999, the retailer now boasts fresh, chic styles that appeal to a younger group of consumers than in the past.
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That's the way Ron Fromm sees it, anyway. He's chief executive of Brown Shoe Co. (NYSE:BWS - News), which owns the Naturalizer brand and the roughly 400 North American stores that bear its name.
The midtown Manhattan store opened in February as a way to preview and test new styles before they hit other Naturalizer stores.
The store has a more upscale look than most Naturalizer units. And its shelves are lined with new styles such as square-toed boots trimmed with metallic studs and suede handbags with a fringe border.
That's a far cry from yesteryear. By the end of the 1990s, Naturalizer's growth was starting to stall, says analyst John Shanley of Wells Fargo Securities.
One problem was the firm's products. They had grown dated, and appealed mainly to an older crowd. The makeover is intended to lure more women ages 30 to 45, who buy more shoes than any other demographic group.
Brown Shoe also aims to make the Naturalizer brand more compelling to department stores, which account for a big chunk of the chain's wholesale business.
The efforts are paying off. In the fiscal third quarter ended Nov. 2, Naturalizer stores posted $1.5 million in operating earnings vs. a $1.4 million loss the prior year. Naturalizer's same-store sales gained 10.8%.
"In spite of the tough retail environment for department stores . . . the Naturalizer brand has done extremely well," Shanley said. "It's considered a good value by consumers and retailers that sell the brand."
Brown Shoe gets about 30% of sales via its wholesale unit. It carries Naturalizer-brand shoes as well as Buster Brown, LifeStride and Connie. It also markets licensed shoe brands such as Carlos Santana and Dr. Scholl's.
But the retail end of the business holds the most growth potential, Shanley says. That's why Fromm has also led efforts to overhaul the Famous Footwear chain, Brown Shoe's biggest retail business with 900 stores.
Famous Footwear is a family shoe chain that sells name brands at value prices. That business hit a snag a couple of years ago, due in part to a lack of uniformity in size and merchandising.
"We needed to raise our operating margins, and when we looked at what that meant it correlated to increasing our fashion relevance and value," Fromm said.
Last year, Brown Shoe revamped Famous Footwear's buying, merchandising and distribution.
The product development team was instructed to deliver shoes to stores closer to the season they're aimed at. The move assured that aged items were moved out quicker and fresh ones were in stock.
In the fiscal third quarter, companywide inventories fell 14% from the prior year to $64 million. Of that reduction, $56 million came from Famous Footwear.
Brown Shoe also made the Famous Footwear store format more uniform. The company closed smaller 5,000-square-foot stores and opened larger ones.
"The improved store operations in terms of inventory and locations has opened the doors for new styles from vendors," said analyst Dave Turner of BB&T Capital Markets.
For one thing, sneaker maker Nike Inc. now carries more styles at Famous Footwear. Such additions might serve to drive more traffic into stores, Turner says.
Something's working. Brown Shoe's fiscal third-quarter sales rose 5% to $486.3 million, while earnings grew 74% to $1.18 a share.
"The big surge in our earnings improvement came from (gains) at Famous Footwear," Fromm said. "We believe we're on the threshold of stabilization for the chain."
Famous Footwear's operating earnings rose 59.2% from a year ago despite a 0.6% drop in same-store sales.
No analysts officially follow the company because of its relatively small market cap of $409 million. But according to company guidance, fiscal 2002 earnings should fall in the range of $2.30 to $2.35 a share. It pegs 2003 earnings at $2.75.
"My sense is they're out of the early stages of a turnaround," Turner said. "There may be a couple more steps to take."
Shanley figures it'll take another six months before the company fully turns around. The big gains in the future will stem from the retail unit, he says.
"If they get Famous Footwear fully up to its potential, it can be an unbelievable machine," he said. "But that will take a while to accomplish." |
