Foot Locker

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Foot Locker

founded: 1974

Contact Information:

headquarters: 233 broadway new york, ny 10279-0003 phone: (212)553-2000 fax: (212)553-2018 toll free: (800)991-6681 email: [email protected] url: http://www.footlocker.com

OVERVIEW

Foot Locker is the leading retailer of athletic footwear in the United States and the flagship store of the Venator Group (formerly Woolworth Corporation). With more than 7,200 stores in 12 countries and combined sales of $6.6 billion in 1997, the Venator Group's specialty stores have played a major role in reviving the fortunes of the once-struggling department store chain. Venator's Athletic Group includes Foot Locker U.S. and international, Lady Foot Locker, Kids Foot Locker, Champs, and Sports Authority. Together, these stores make the Athletic Group the largest retailer in terms of stores and sales of athletic footwear in the world, owning approximately 45 percent of the U.S. athletic footwear market in 1996.

Foot Locker is a brand-name footwear and apparel specialty store chain. Merchandise includes athletic footwear, apparel, and accessories for men, women, and children. Woolworth Corporation underwent dramatic changes between 1994 and 1997, not least of which was the final closing of the last 400 F.W. Woolworth stores in 1997. Of these, 100 were converted to Foot Locker or other speciality stores, and the rest were closed down permanently. A year later, Woolworth Corporation announced it was abandoning the Woolworth name and as of June 1998 would be known as the Venator Group.

COMPANY FINANCES

The Venator Group has been in the process of restructuring under the new leadership of Roger N. Farah, chairman and CEO. The company made substantial improvements in its financial position in 1996. For example, net income was $169 million, compared to a net loss of $164 million in 1995. Since 1994 the company's operating results, internal support systems, merchandising strategies, and financial position have improved dramatically. The company has also eliminated old inventory and consolidated its distribution facilities. Now with profitability up 260 percent, the company's capital expenditures for 1997 were targeted at $285 million, primarily in the Athletic Group. On the downside, in 1997 a maturing market and stagnating sales of sneakers hurt Foot Locker, which saw same-store sales drop in 12 of the last 13 quarters through January 1998. While Wool-worth's total 1997 revenues fell to $6.6 from $7.0 billion in 1996, the Athletic Group, led by Foot Locker, enjoyed a modest increase in revenues, from 3.6 billion in 1996 to $3.7 billion in 1997. Operating profits, on the other hand, dropped to $375 million from $461 million.

ANALYSTS' OPINIONS

According to Jeanne Dugan, in Business Week, "Foot Locker is facing increasing competition from superstores and a market whose growth is slowing significantly." Larry Schwartz of JSSI, distributor of British Knights, stated, "They helped create the industry, and all they know is growth. Now they are faced with something they don't have experience with—a mature industry. The sneaker business used to grow 20 to 30 percent a year; now it's only growing 3 to 4 percent a year. They're trying new things. The store format is pretty old and new formats are creating more excitement." In short, in order for Foot Locker to experience growth, the company will need to concentrate on superstores with huge assortments. But, according to John Shanley, a retail analyst with Genesis Merchant Group, "They should have done this three or four years ago and they would have had a shot at it. Now all the competition is there—it's too little, too late in conjunction with the overall slowdown in the athletic marketplace."

By 1998 the soft market for athletic footwear and increased competition were beginning to take their toll on Foot Locker. Venator moved to increase its share of the athletic market and increase distribution by acquiring a competitor, Sports Authority. The acquisition was seen as having the potential to increase operating efficiencies. However, Sports Authority also suffered from weak footware sales and analysts expected a slightly negative impact on financial coverage measures and new difficulties for management. Following the acquisition, Standard and Poor revised its rating of the company from stable to negative. While most analysts felt the company would prosper in the long term, the short term had them worried.

HISTORY

Woolworth Corporation's origins date back to 1879 when Frank W. Woolworth opened the very first "five and dime" in Lancaster, Pennsylvania. Over the century, Woolworth's grew into an $8.1 billion multinational company with over 7,500 stores and related facilities located in 12 countries on 3 continents.

FAST FACTS: About Foot Locker

Ownership: Foot Locker is a publicly owned company traded on NASDAQ.

Ticker symbol: Z

Officers: Roger N. Farah, Chmn. & CEO; Dale W. Hilpert, Pres. & COO; Reid Johnson, Sr. VP & CFO

Employees: 75,000 (Venator Group)

Principal Subsidiary Companies: Foot Locker is a wholly owned subsidiary of the Venator Group, formerly Woolworth Corporation.

Chief Competitors: As the number-one athletic footwear retailer in the United States, Foot Locker faces intense competition. Competitors include: Footaction; Niketown; Nordstrom; Modell's Sporting Goods; Footstar; Herman's Sporting Goods; and New Balance.

In the 1920s the Kinney company launched its own manufacturing operations, through which they were better able to meet the varied fashion demands of increasingly style-conscious customers. In the 1950s it opened freestanding stores along highways and "strip" stores in small shopping centers close to new housing developments. Kinney made retailing history in the 1960s as the only family shoe store in America's first enclosed shopping mall. In 1963 Woolworth acquired Kinney, and in the 1970s, the company took a major step into athletic footwear retailing with Foot Locker, which became the leader in the business. The first Foot Locker store opened in City of Industry, California, in 1974. By the 1980s Foot Locker was developing innovative partnerships with vendors, pioneering in sports-event marketing, and spinning off into speciality formats such as Lady Foot Locker for women and Kids Foot Locker for children.

By the 1990s Foot Locker and its sister stores were responsible for the bulk of Woolworth's revenues. As for the old "five and dime" stores, they were being squeezed out of the market by specialty stores on the one hand and superstores on the other. In July 1997 Woolworth chairman and CEO Roger N. Farah announced that the company would be permanently shutting down all F.W. Woolworth stores in the United States. "We made the very difficult decision to close our domestic F.W. Woolworth general merchandise operations to help assure the continuing profitable growth of the Woolworth Corporation and to better serve all of our constituencies," Farah said in a press release. "This will enable us to focus on growing our profitable athletic and specialty retailing formats, including Foot Locker, Lady Foot Locker, Kids Foot Locker, Champs Sports, and the Northern Group of apparel stores." Indeed, 100 of the closed Woolworth stores were to be converted to Foot Locker or other specialty stores. At the same time, Farah announced that the company would be changing its corporate name to "better reflect its global specialty retailing formats." The new name, announced in the spring of 1998, was the Venator Group. The new name became official on June 12, 1998. No longer a struggling five-and-dime operation, Woolworth's had become a sportswear giant that was leading the rest of the industry into the twenty-first century.

STRATEGY

Venator pursues growth by seeking strategic acquisitions, such as the recent purchases of the Eastbay Company (a leading catalog retailer of athletic merchandise) and Sports Authority (a major competitor of Foot Locker). Eastbay provides the company with an additional channel of distribution—direct marketing—through which to reach customers, whether under the Foot Locker, Champs Sports, or Eastbay names. In short, the Athletic Group will be able to increase its array of product offerings. In addition, Eastbay will be able to build on its existing strengths by taking advantage of the strong vendor relationships and product development capabilities of the Athletic Group. Management will continue to look to explore other potential acquisitions in 1997 and beyond.

Domestic strategic marketing programs for 1997 included "Hoop-It-Up," a grassroots three-on-three basketball tournament. The company sponsors the "Foot Locker Athletic Club," which consists of world-class track and field athletes, as well as the "Foot Locker Cross Country Championships." In addition, the company is associated with the National Basketball Association, the National Football League, Major League Baseball, and Major League Soccer sponsorships. European marketing programs include the sponsoring of "World League Football" and "Converse 3-on-3 Basketball," a youth basketball program in Italy, Germany, Spain, and England. Lastly, Foot Locker was the first official "UEFA" retailer during the European Champions League Soccer Final—one of the largest sporting events in the world.

As part of its strategy to continue its growth trend, the Athletic Group is introducing new store designs combining trend-setting assortments with exciting and entertaining retail environments. The company said it would be spending $154 million in 1998 to open approximately 275 new stores and remodel approximately 375 existing stores.

Perhaps the most critical strategic move was the company's decision to change its name to Venator Group. "Venator" means sportsman or hunter in Latin. According to Venator Group's chairman and CEO Roger Farah, "The new corporate name positions the company as a high-performance merchandiser that is invigorated and inspired by the ever-changing marketplace as it strives to win the global retail game."

CHRONOLOGY: Key Dates for Foot Locker

1974:: Kinney Shoe Corp. opens its first Foot Locker store in City of Industry, California
1982:: The first Lady Foot Locker opens
1986:: Kids Foot Locker is launched
1991:: Foot Locker expands to 1,352 stores, surpassing the 1,312 Kinney stores
1998:: Woolworth, Kinney's parent company, closes its Woolworth stores to focus solely on its sports apparel and specialty retailing ventures

The name change was a clear signal that the old Woolworth's was gone and the new company wanted changes. In March 1998 it announced that it was investing $1 billion through the year 2000 to open or remodel 4,300 stores, mostly in the core business of athletic shoes and clothing, so that half of its stores will be less than three years old. Of the 400 or so Woolworth stores shut down in 1997, 130 were to be transformed into larger Foot Locker, Champs, or Triplex stores, each averaging 12,500 square feet of floor space. Triplex stores feature Foot Locker, Lady Foot Locker, and Kids Foot Locker all under one roof. These were the company's equivalent to the competition's athletic superstores.

INFLUENCES

The Athletic Group is essentially generating all of the Venator Group's profits. While the core U.S. Foot Locker chain is highly mature, with an average store age in excess of 12 years, domestically the chain continues to have numerous opportunities to open additional Lady Foot Locker and Kids Foot Locker stores, thereby not only more effectively targeting specific sub-segments of the market, but enlarging its overall store presence within America's major malls.

At the same time, however, just about all of Foot Locker's competitors were planning to expand in 1998 in spite of the fact that the athletic footwear and apparel industry was enduring a slowdown that had already affected the retailers and manufacturers. Nike, a major supplier to Foot Locker stores, suffered a 69 percent decline in earnings during its fiscal third quarter. Another leading manufacturer of athletic footwear, Reebok, faced a similar, though less severe, slide. As the investor newsletter, The Motley Fool put it, "bad times for the shoemakers means bad times for the shoesellers."

Another problem facing Foot Locker was the fact that most of its competitors had built superstores that were 35 to 50 percent larger than the average Foot Locker store. Venator's plan to convert some of its old Woolworth department stores into Foot Locker superstores looked like a good strategy on paper, but in fact was beset by problems. The most pressing was the fact that the best locations had already been grabbed by the competition. In addition, many of the old Woolworth stores were poorly located. In the face of a contracting market, it seemed likely that Foot Locker might find itself closing more stores than it opened. Venator, however, was confident it could weather the storm and that when the slump in the footwear industry subsided, its new name, new look, and new attitude would lead to prosperity in the next century.

CURRENT TRENDS

Overall, Venator sees Footlocker as its real opportunity to expand. Under the restructuring Foot Locker stores will be made much larger and will include more apparel. The company is planning to renovate and expand 300 Foot Locker stores per year; in addition, they also plan to add 250 new Lady Footlocker, Kids Foot Locker, Champs, and European Foot Locker stores.

Foot Locker plans to open a 40,000-square-foot store in Disney's Wide World of Sports Complex at Walt Disney World Resort in Orlando, Florida, in early 1999. The company refers to this as its "superstore" because it will offer activewear, athletic footwear, and accessories for more than 30 sports. Foot Locker is also the sponsor of the facility's track and field complex and will sponsor track meets at the site.

To expand its market share, Woolworth Corporation purchased 27 Koenig Sporting Goods stores from Koenig Sporting Goods, Inc. for approximately $10 million. Koenig, a Cleveland-based privately held company, was a mall-based sporting goods retailer that operated 40 stores in 6 states, primarily in the Midwest. The acquisition gave Venator stores a presence in key metropolitan markets—including the Cleveland/Akron area, Pittsburgh, and Buffalo—where its Champ's Sports Division operated a limited number or no stores. Venator planned to convert the acquired stores to the Champs Sports format and anticipated that the acquisition would increase earnings.

Consumer desires regarding shopping locations have changed, and many now shop outside the mall. Consumers enjoy more retail options than ever before, from megastores to catalogs to computer shopping. Therefore, focusing on convenience, in December 1997 Woolworth opened a new Foot Locker that combined the Foot Locker, Lady Foot Locker, and Kids Foot Locker format under one roof. The new "Triplex" store was specifically designed to compete with the superstores operated by Woolworth's rivals. In addition, in November 1996 the company joined with Toys 'R' Us to sell children's footwear within the toy store chain's KidsWorld, which was another opportunity for Foot Locker to establish itself outside of a mall-based setting. In another move, Venator acquired Sports Authority, another major retailer of athletic footwear and apparel.

In mid-1998 the Venator Group announced plans for a web site that would enable shoppers to price, view, and purchase athletic footwear and apparel over the Internet. The site was to be a fully integrated online entertainment and retail environment featuring a database engine providing users with the largest selection of athletic footwear, apparel, and sporting goods in the world. Customers would be able to purchase styles that are in stock and receive them within 24 to 48 hours. "This is a paradigm shift in retailing," said Robert Landes, chief executive officer of Guidance Solutions, the company developing the site.

PRODUCTS

The Athletic Group purchases footwear and apparel merchandise from vendors worldwide. For example, Nike, Inc. supplied approximately 25 percent of the company's merchandise purchases in 1996. The major brands of merchandise Foot Locker carries include Nike, Reebok, Adidas, Fila, Converse, New Balance, Asics, L.A. Gear, Champion, Starter, and Air Walk. Foot Locker also distributes athletic footwear for most sports, including running, basketball, tennis, aerobics, fitness, track, baseball, football, and soccer. In addition, the company sells licensed team (NBA, NFL, MLB, and MLS) and fitness apparel. Accessories such as socks, athletic bags and hats, and foot-care products are also sold.

CORPORATE CITIZENSHIP

Foot Locker sponsors a National stay-in-school program whereby middle- and junior-high students create a video with a stay-in-school message. In addition, Foot Locker and Fila have replaced, refurbished, and maintained basketball backboards in public school playgrounds in five cities for the past three years. All billboards bear inspirational messages such as "Winners Never Quit." Foot Locker and Nike, Inc. collect and recycle old athletic shoes to reconstruct play courts in cities across the country. All Foot Locker Club athletes adopted a middle school in their hometown to share trials and tribulations of training for competition.

Most important, Foot Locker was one of the sponsors for "The Silent March Against Gun Violence" in 1994. The company offered shoes-for-guns exchanges in six cities throughout the United States. The march was an effort to influence Congress to support two bills that were to be introduced in 1995 that would increase gun licensing and registration requirements for owners as well as dealers.

GLOBAL PRESENCE

The Athletic Group, Venator's largest and most profitable business, operates 3,394 stores in North America, Europe, Asia, and Australia. Europe has 228 Foot Locker stores in the Netherlands, Belgium, England, Germany, France, Italy, Spain, and Luxembourg. In the United States, this division operates the Foot Locker businesses including Foot Locker, Lady Foot Locker, Kids Foot Locker, and World Foot Locker, as well as Champs Sports and Going to the Game. The 2,914 stores are located primarily in regional malls throughout the United States. In Canada, the division operates 188 Foot Locker and Champs Sports stores, located primarily in regional malls. The company believes that the overseas markets offer potential growth opportunities, and is beginning to probe the Asian market.

EMPLOYMENT

In 1995 Woolworth implemented a cost-reduction program through which it saved more than $100 million by reducing staffing levels, occupancy costs, and overhead at both the corporate and divisional levels. Furthermore, the company has targeted an additional $300 million in savings through 1998.

Foot Locker's parent company, Venator, offers most of its employees benefit pension plans based on years of service and career-average compensation. The company also sponsors post-retirement medical and life insurance plans, which are available to most of its U.S. employees. In order to be eligible for these plans, employees must retire from the company and be covered under the company's active medical or life insurance plan. However, the level of benefits available depends on the year of retirement and the plan in effect at that time.

In January 1996 the company established the Woolworth Corporation Savings Plan. This plan allows eligible employees to contribute 1 to 15 percent of their income on a pre-tax basis to this savings plan, and the company matched 25 percent of the first 4 percent of the employees' contribution. The company also offers employee stock plans to corporate officers and other key employees.

SOURCES OF INFORMATION

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