DSW Inc.

4150 East 5th Avenue
Columbus, Ohio 43219
Telephone: (614) 237-7100
Fax: (614) 238-4200
Web site: http://www.dswshoes.com

Public Subsidiary of Retail Ventures, Inc.
Incorporated: 1969 as Shonac Corporation
Employees: 4,800
Sales: $961.1 million (2004)
Stock Exchanges: New York
Ticker Symbol: DSW
NAIC: 448210 Shoe Stores

DSW Inc. is a discount retailer of shoes, operating a chain of approximately 180 stores in 32 states. The chain's stores feature self-service fixtures displaying more than 30,000 pairs of shoes in more than 2,000 styles. The stores, operating under the name DSW Shoe Warehouse, typically measure 25,000 square feet with nearly 90 percent of the square footage used as selling space. The company completed its initial public offering (IPO) of stock in July 2005. DSW anticipates developing into a 500-store retail chain.


DSW was created within the corporate folds of the retail operations owned by the Schottenstein family. As such, the company's roots stretched to the beginning of the Schottenstein family business empire, back to the first store opened by the patriarch of the family, Ephraim L. Schottenstein. Ephraim Schottenstein opened his first store, the E.L. Schottenstein Department Store, in Columbus, Ohio, in 1917. His son, Jerome M. Schottenstein, began working for the family business as a teenager, taking on his first executive responsibilities in 1946 when he was 20 years old. Jerome Schottenstein spent nearly a half-century building his father's business into a modern corporation, becoming chief executive officer and chairman of the family's business interests, organized as a privately held enterprise named Schottenstein Stores Corporation, in 1972. Jerome Schottenstein invested in a number of retail concerns, creating the corporate folds that constituted the Schottenstein empire, but the core of the family's empire sprang from the Schottenstein department stores in Columbus. The stores operated under the Schottenstein banner in Columbus; but outside Columbus, where a retail chain developed, customers knew the Schottenstein retailing business as Value City Department Stores. Value City operated as a discount retailer, offering a broad selection of merchandise with an emphasis on apparel items.

DSW was created within the Schottenstein Stores Corp. corporate structure, its initial mission to serve the family's core retail business. The business began in January 1969 as Shonac Corporation, a venture formed by the Schottensteins and another family, the Nachts. Shonac was created to manage the leased shoe departments of Value City and other retailers, the sole function of the company for more than 20 years. Although the company continued to manage the shoe departments of other retailers in the 21st century, its prominence in the retail sector was associated with another aspect of its business, one that did not come into being until the beginning of the 1990s.

The 1990s marked an eventful time for the Schottenstein-controlled businesses. Years of expansion and acquisitions had created an impressive retail empire, one created almost entirely by Jerome Schottenstein. Under Schottenstein's orders, the company had acquired equity stakes in a host of retail businesses, including Hoffman's Ready to Wear, American Eagle Outfitters, Gee Bee Stores, Dollar Bargain, and Sciffran Willens jewelry stores. Together, the company's numerous affiliates, subsidiaries, and divisions represented a $1.5 billion retail empire, the legacy Schottenstein left to his family after he passed away in March 1992. In the months before the transfer of power between Jerome Schottenstein and his son Jay Schottenstein, there were two significant events that had a bearing on the future of DSW. In June 1991, Schottenstein Stores Corp., which was a privately held company, decided to spin off Value City to the public, selling approximately half of the company to investors and keeping the remainder of the company under its control. At the time of the public offering, Value City Department Stores, Inc. operated approximately 60 stores. The following month, Schottenstein Stores Corp. formed DSW Shoe Warehouse, Inc. as a subsidiary of Shonac. The move marked Shonac's beginning as a stand-alone retailer. In the years ahead, DSW developed into a chain of stores, eventually eclipsing the importance of its most immediate parent company, Shonac.

DSW opened its first store in July 1991 in Dublin, Ohio. Like Value City, the retailer it had long served, DSW started in Ohio before making any significant geographic leap, first building a base in the Schottensteins' home state before expanding throughout the Midwest and Northeast. Also like Value City, the company positioned itself as a discount retailer, inheriting the signature trait of the Schottenstein empire. As DSW gradually developed into a chain, its format found a receptive audience, attracting consumers who helped make the 1990s the decade that warehouse, or "big-box," discount retailers flourished. DSW's white-and-black striped color theme, most visible on the awnings in front of the company's stores, became a familiar sight in certain markets, but it was the stores' layout and their merchandising mix that won over consumers and earned their loyalty. A typical DSW store measured 25,000 square feet, with 90 percent of the square footage used as selling space. On display were more than 30,000 pairs of shoes that customers could browse through and try on themselves, a vast selection available for between 20 percent and 50 percent below usual retail prices. Unlike most other discount shoe chains, DSW offered a sizable collection of current-season, designer-label shoes rather than focusing exclusively on mass-market shoe brands.

Blossoming in the 1990s

DSW developed into a regional chain during the 1990s, becoming a small but burgeoning aspect of Schottenstein Stores Corp.'s business. During the first years of the company's existence, an average of seven new outlets were opened every year, as DSW fanned out from its base in Ohio and established itself throughout the Midwest and into the Northeast. Later in its development, the company pursued expansion more aggressively, but before it did so, control over the concept changed hands several times—albeit within the confines of the Schottensteins' business interests. In 1998, Value City acquired Shonac from Schottenstein Stores Corp. and Nacht Management, Inc., paying $100 million for full control over the business that operated as the shoe department licensee in all of its stores—Shonac—and for ownership of the DSW chain of stores. In the seven years since Schottenstein Stores Corp. had spun off Value City, the chain had expanded from 60 stores to 95 stores. During this same period, DSW had developed from a single store in Dublin into a 47-store chain, demonstrating a level of commercial success that eluded its new corporate parent as the 1990s drew to a close.

DSW greatly accelerated its pace of expansion under Value City's control, as Value City itself continued to expand through acquisitions. Value City added another retail chain to its holdings in March 2000, paying $89 million for a bankrupt 19-store chain operating under the name Filene's Basement. DSW by this point had expanded aggressively in the two years since its acquisition by Value City, opening more than ten stores a year. In October 2000, the company opened its 70th store, a grand opening that was significant for two reasons. The store was the largest in the chain, measuring 43,000 square feet, and it was located in Los Angeles, reflecting the more ambitious geographic scope of the company after years of concentrating its expansion in the Midwest and the Northeast. Expanding aggressively and entering new markets, DSW exhibited impressive vitality at the beginning of the 21st century, generating an estimated $300 million in annual revenue, or 18 percent of Value City's annual revenue volume. The same could not be said of Value City, which began to record annual losses as the new century began, suffering from flaws in its merchandise mix and in the layout of its stores. As Value City tried to improve its performance, DSW became involved in the troubles of its parent company, ushering in a period of reorganization within the entire Schottenstein retail empire.

Organizational Changes in the 21st Century

The first attempt to reorganize the businesses controlled by Schottenstein Stores Corp. occurred during the tenth anniversary of the DSW chain. In mid-2001, Schottenstein Stores Corp. announced that it intended to acquire all of Value City's subsidiaries. Schottenstein Stores Corp. submitted a $275 million bid to acquire 19 Filene's Basement stores, five Crown Shoe stores, the 136 shoe departments in other stores leased through Shonac, and 87 DSW Shoe Warehouse outlets. Schottenstein Stores Corp. signed a letter of intent to acquire the subsidiaries, but terminated the agreement in August 2001. Organizational changes resurfaced in 2003, when Value City altered its corporate structure by forming a new holding company named Retail Ventures, Inc. Retail Ventures was formed in October, becoming the corporate umbrella under which Value City, Shonac, DSW, and Filene's Basement operated. The reorganization was effected to allow each retail concept to concentrate exclusively on its own merchandising and store operations, a singular focus Value City desperately needed. The chain continued to post annual losses, however, registering a $20 million loss in 2004, its fifth consecutive year of operating in the red.

Company Perspectives:

Since its founding in 1991, DSW has grown into a major force in retail footwear. Conceived originally as a warehouseformat "category killer" for shoes, DSW has evolved into a unique, upscale, consumer-friendly shopping environment. It is distinguished by the vast merchandise selection, the efficiency and convenience of the shopping experience and the exceptional values offered—current styles of quality designer and famous name-brand shoes, sold every day at up to 50% off department store regular prices.

While Value City struggled to find a formula for success, DSW performed admirably, becoming the jewel of the Schottenstein retail empire. By mid-2004, the chain consisted of 151 stores, having more than doubled in size during the previous four years. Sales for the year reached $791 million, an increase of nearly 23 percent from the total collected in 2003. Looking ahead, the company's expansion plans reflected the financial vitality of the chain. After opening 22 stores in 2003 and 35 stores in 2004, Retail Ventures executives announced plans to open 30 stores each year through 2009, setting an ultimate target of 500 stores nationwide. As the company pressed forward with its expansion plans, it used a 30,000-square-foot format, rolling out stores that stocked 40,000 pairs of shoes and offered a range of accessories, including handbags, hosiery, and headwear.

The contrasting fortunes of Value City and DSW led to another organizational change with the Schottensteins' collection of businesses, one that had a profound effect on DSW. Retail Ventures, realizing a need to sharpen its focus on the beleaguered Value City chain and wanting to take advantage of DSW's success, decided to spin off Shonac and the discount shoe chain in an IPO. The offering was expected to raise $185 million, the bulk of which ($165 million) was to be given to Retail Ventures to pay down debt. In February 2005, in anticipation of the IPO, Shonac changed its name to DSW Inc. The following month, as Retail Ventures prepared to file for DSW's IPO with the Securities and Exchange Commission (SEC), a security breach threatened to scuttle plans for the IPO. A computer hacker obtained credit card information from 1.4 million customers who had shopped at more than 100 DSW stores. The U.S. Secret Service launched an investigation into the security breach, casting a pall over DSW's debut as a publicly traded company, but Retail Ventures decided to move forward with its original plan. "We didn't want to allow a computer criminal to hold the process hostage," Retail Ventures' chief financial officer explained in a March 16, 2005 interview with the Columbus Dispatch.

DSW made its debut on the New York Stock Exchange in July 2005. Slightly more than 14 million shares were offered for $19 per share, marking the beginning of DSW's new era of independence—although, as ever, the Schottenstein family remained connected to the business it had created. Jay Schottenstein was appointed the company's chairman and chief executive officer. Further, Retail Ventures, which was 60 percent-owned by Schottenstein Stores Corp., owned 60 percent of DSW's stock and controlled more than 90 percent of the voting rights associated with the company's stock. Positioned within this framework, DSW pushed forward with its ambitious expansion plans, pursuing its goal of becoming a 500-store chain.

Principal Subsidiaries

DSW Shoe Warehouse, Inc.

Principal Competitors

Federated Department Stores, Inc.; Payless ShoeSource, Inc.; Rack Room Shoes Inc.

Key Dates:

Shonac Corporation is formed.
DSW Shoe Warehouse, formed as a subsidiary of Shonac, opens its first discount shoe store in Dublin, Ohio.
Shonac and DSW Shoe Warehouse are acquired by Value City Department Stores, Inc.
Value City forms Retail Ventures as the holding company for assets that include Shonac and DSW Shoe Warehouse.
Shonac changes its name to DSW Inc. and completes its initial public offering of stock.

Further Reading

Belgum, Deborah, "Upscale Shoe Retailer Entering L.A. Market," Los Angeles Business Journal , October 23, 2000, p. 3.

Bohman, Jim, "DSW Planning Initial Public Offering," Dayton Daily News , March 15, 2005, p. D1.

Crawford, Dan, "Value City Still Mulling Offers for Subsidiaries," Business First-Columbus , November 30, 2001, p. A3.

"DSW Hacking Affected 1.4 Million Credit Cards—Far More Than First Reported," Cardline , April 22, 2005, p. 1.

"DSW Latest Retailer to Suffer Massive Theft of Credit Card Information," Atlanta Journal-Constitution , April 20, 2005, p. B1.

Kraeuter, Chris, "Shoe Retailer Horns in on Union Square," San Francisco Business Times , January 28, 2000, p. 5.

Leopold, Jason, "DSW to Merchandise Stein Mart Stores," Footwear News , August 19, 2002, p. 2.

Nelson, Bernard, "Columbus, Ohio, Family Makes Bid to Buy Clothing, Shoe Retailers," Boston Globe , July 11, 2001, p. B3.

Niemi, Wayne, "Analysts Give DSW IPO Big Thumbs Up," Footwear News , March 21, 2005, p. 18.

Roberts, Ricardo, "Schottenstein Bid May Invite Higher Offers," Mergers & Acquisitions Report , July 16, 2001.

Scardino, Emily, "DSW Fills Big Footprint for Well-Heeled City Shoppers," DSN Retailing Today , November 8, 2004, p. 4.

——, "DSW Promotes Thrill of the Hunt," DSN Retailing Today , May 23, 2005, p. 16.

Sheban, Jeffrey, "Columbus, Ohio-Based Retailer Loses $19.4 Million in 2004," Columbus Dispatch , March 16, 2005, p. B3.

——, "Columbus, Ohio-Based Retail Company Struggles to Increase Sales," Columbus Dispatch , April 16, 2005, p. B2.

——, "Retailer Plans IPO for DSW Shoe Warehouse," Columbia Dispatch , March 16, 2005, p. B2.

Thompson, Kelly, "Value City Buyout May Happen Sooner Than Later," Footwear News , July 16, 2001, p. 2.

"Value City Terminates Plans to Divest Subsidiaries," MMR , February 25, 2002, p. 4.

Zmuda, Natalie, "DSW Plans to Debut 35 New Stores in '04," Footwear News , June 14, 2004, p. 4.

——, "DSW to Open First 2 Manhattan Doors," Footwear News , October 11, 2004, p. 6.

—Jeffrey L. Covell

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