Shoe Carnival Inc. - Company Profile, Information, Business Description, History, Background Information on Shoe Carnival Inc.

8233 Baumgart Rd
Evansville, Indiana 47711

History of Shoe Carnival Inc.

Shoe Carnival Inc. is a leading retailer of family footwear in the United States. The company differentiates its shoe stores with value pricing and a carnival-like shopping atmosphere. Following rapid growth during the early 1990s, Shoe Carnival was operating about 90 stores in the Midwest and South in 1995.

Shoe Carnival was inspired by shoe salesman David Russell of Evansville, Indiana. Russell worked for 20 years selling shoes in the traditional fashion: He knelt in front of customers to measure their feet, carried boxes from the back room, and earned a commission from every pair of shoes he sold. Throughout his career, though, he had the feeling that there had to be a better way to sell shoes. Finally, in 1978, the 34-year-old Russell quit his job at Kinney Shoe Corp. to open his own shop. He combined his savings with money from his in-laws and opened a small shoe store that he dubbed "Shoe Biz." His idea was to create a selling environment completely different from the traditional, staid shoe store that was so common at the time. He wanted to create a shoe store that was fun. Thus, Shoe Biz offered thousands of boxes of shoes on self-service racks. Jukebox music that featured tunes from the 1950s blared away, though the music was often interrupted by announcements by the store manager, who was authorized to hawk footwear and cut deals with customers on the spot.

Russell's idea was a hit. Sales were so strong that he was able to open a second store in Evansville that he named Shoe Shower, although it and the other stores were later converted to the Shoe Carnival name. Russell also opened a third Shoe Carnival across the river from Evansville in Owensboro, Kentucky, in the early 1980s. Like the original store, the new stores enticed shoppers with low-cost shoes and self-service shopping, a chaotic and entertaining shopping environment, and a sort of let's-make-a-deal atmosphere. Only "Elvis music or older" was allowed on the jukebox, and customers were encouraged to haggle over the price of the shoes. Managers were instructed to beat any price in town, and the stores featured an elevated stage where a store employee hawked specials on the intercom every few minutes. The deals occasionally involved spectacular giveaways that generated valuable press for the stores. The shop in Owensboro, for example, once gave away a cow, and one of the Evansville stores awarded $25,000 in cash to a customer.

Russell also grabbed attention with screaming advertisements. Once, Russell had to prove to the Better Business Bureau the validity of an advertising claim that he literally had "miles of boots" in stock. He measured a boot and multiplied the length by his inventory to discover that he was stocking exactly 5.7 miles of boots. Once the promotions got the customers into the stores, the carnival atmosphere was honed to get them into a buying mood. A free pair of tennis shoes might be offered to anyone who could hula-hoop for a minute, or to the first person who could bring an aspirin to the manager. Customers were also enticed by the sheer size of, and selection at, the stores. The shops eventually offered an average of more than 10,000 square feet of floor space, upon which name-brand stock was displayed on tall, self-service racks. By using a smaller number of salespeople, the company was able to keep prices low and generate profits through high-volume sales of name-brand shoes.

By 1984 Shoe Carnival was generating a lofty $8 million in annual sales from its three stores. Sales at the private company continued to grow and to catch the attention of other shoe industry players. In 1986, in fact, Russell sold a controlling interest in his company to Fisher-Camuto Corp., although he remained as chief executive in charge of the company's operation. Based in Stamford, Connecticut, Fisher-Camuto was the manufacturer of name-brand shoes including Gloria Vanderbilt, Enzo, Esties, and Nine West. Fisher-Camuto bought into the chain because it believed that it had access to the financing needed to expand Russell's proven concept outside of Evansville. To that end, in October and November of 1986 Fisher-Camuto financed the construction of three Shoe Carnival outlets in Indianapolis. The success of those new stores mimicked that of the Evansville-area outlets. Enthused, the Shoe Carnival organization opened a total of 15 additional outlets in major midwest markets in less than two years.

Realizing the potential of the Shoe Carnival concept, J. Wayne Weaver, with Russell's help, purchased Shoe Carnival from Fisher-Camuto in 1989 for a lowly $17 million. Weaver was serving as president and chief executive of Nine West at the time. After the buyout, Weaver became chairman of the again-independent Shoe Carnival (as well as chief executive of Nine West) and Russell retained his chief executive slot. Shoe Carnival continued to expand at a rapid clip under their tutelage. By the end of 1989, in fact, Shoe Carnival was sporting 30 stores spread throughout nine states in the Midwest and South--in Kentucky, Indiana, Illinois, Iowa, Michigan, Tennessee, Ohio, and Alabama. To support this growth, the chain employed a total of 1,500 part-time and full-time workers. At one point, Shoe Carnival was opening an average of one store per week. Russell and Weaver planned to open only six or seven additional outlets in 1990, however.

Russell managed the expansion of Shoe Carnival during the late 1980s and early 1990s with the help of a close-knit management team that consisted of longtime friends and executives lured from competing shoe companies. The executives stayed close to the day-to-day operation of the stores, and Russell himself was occasionally seen packing merchandise in the company's Evansville distribution center, manning the microphone at Shoe Carnival outlets, and even handing out $1 bills to customers waiting in the check-out lines. Although his retail management experience was limited prior to the start-up of Shoe Carnival, few could argue with his success. The rapid expansion had not been without minor setbacks, however. "Initially, we expected to have the success of the Evansville store in every city," said Laura Ray, vice president of marketing, in the November 1989 Indiana Business. "But after the opening it tended to slow down a little. So it has been an education for us, getting customers used to the Carnival and our way of doing things. But overall we're pleased as punch with everything."

Shoe Carnival slowed its expansion during the early 1990s and concentrated on whipping its existing operations into shape. About ten new stores were added between 1990 and mid-1993. That grew the chain to a total of 41 outlets, most of which were in the Midwest. Throughout this period, Shoe Carnival was effectively a private company and was not required to release sales and earnings information. Early in 1993, though, the company converted from a Chapter S corporation to a public company. The change was made because Weaver and Russell wanted to generate expansion capital by way of a public stock offering. To that end, Shoe Carnival conducted an initial public offering that brought about $28 million into its coffers. That left Russell with about seven percent ownership in the company. Russell, who was also a significant owner of Nine West shares and several other interests, retained a 54-percent stake in the company. Subsequent stock offerings shortly thereafter brought additional funds into Shoe Carnival's war chest.

Shoe Carnival generated sales of about $127 million in 1992. Rapid growth following the initial public offering, however, would nearly double that figure within a few years. This revenue gain was primarily the result of new store openings. By the end of 1993, in fact, Shoe Carnival had opened a total of 57 stores in 15 states. Sales in that year climbed to $157 million, about $6 million of which was netted as income. Importantly, Shoe Carnival also realized improvements in its net profit margins and sales-per-square-foot of floor space, which were among the highest in the industry.

Going into 1994, then, Shoe Carnival was an emerging power in the U.S. family footwear industry. Athletic and women's shoes represented 33 percent and 29 percent, respectively, of company sales, while children's and men's shoes accounted for a combined 33 percent. Miscellaneous accessories like belts and purses made up the remainder of the company's revenues. Popular name brands sold at Shoe Carnival outlets included Nike, Reebok, Hush Puppies, Dexter, Florsheim, Rockport, and many more.

Shoe Carnival continued to add new stores to its chain during 1994. By the end of the year, in fact, there were 87 Shoe Carnival stores operating in 15 states. Besides increasing the store number, the company upgraded its Evansville distribution center to 108,000 square feet and installed a mechanized merchandise handling system. The new system allowed Shoe Carnival to reduce its store inventories and to more quickly deliver shoe styles that were hot sellers. That system was augmented by a new computerized point-of-sale system that connected all of the store's cash registers into the company's headquarters computer system. This arrangement enabled managers at both the store and headquarters levels to make decisions based on up-to-the-minute sales, inventory, and payroll data.

Meanwhile, store shenanigans and promotions continued to draw customers. For example, one long-time practice was for Shoe Carnival stores to offer deals at selected times by having an employee spin a big roulette wheel that was part of a Spin-'n-win game. The wheel was divided into specials such as "$1 off," "$2 off," or "free prize." The deal that came up on the wheel was the one offered to people that were in the store at the time. Another example of Shoe Carnival's unique promotional efforts was its kick-off of the sale of the popular Fila brand of shoes. Shoe Carnival brought in Pop-A-Shot electronic basketball games and invited customers to come in and shoot to win prizes, and in some cases to engage in shooting contests with well-known basketball players. Rounding out the carnival-like atmosphere in all of Shoe Carnival's stores were neon signs, colored lights, colorful displays, large mirrors, and 1950s jukebox music similar to what Russell played in the first Shoe Biz outlet in 1978.

Shoe Carnival's revenues rose 37 percent in 1994 to $214 million. At the same time, the company's sales-per-square-foot figure declined slightly and net income fell to just $1.2 million. The slide in net income was attributed to a number of factors. Several of the new stores that had been opened in Detroit, Alabama, and Georgia failed to live up to management's expectations. Additionally, Shoe Carnival's attempt to market private-label shoes was a flop. The company had hoped that they could boost profit margins by offering private-label women's shoes. But the shoes consumed valuable shelf space previously occupied by name brands, and Shoe Carnival lost money on the project. "We got a little bit out of our element," Russell said of the experiment in Forbes in 1994. Another part of the problem, according to some analysts, was that the shoe market was become increasingly crowded with other discount retailers that were eating into Shoe Carnival's piece of the pie.

To boost the profitability of existing stores, Shoe Carnival reduced its expansion plans for 1995, although it still expected to open up to 15 new outlets. Executives were also planning to further reduce sales of private-label shoes, and to trim the organization's inventory and overall operating costs. By mid-1995 management had made significant progress toward those goals. The company planned to sustain its basic strategy through the mid-1990s. Ongoing sales gains and a relatively meager debt load in 1995 boded well for Shoe Carnival's long-term prospects.

Additional Details

Further Reference

Basch, Mark, "Weaver to Sell $11 Million of Shoe Stock," Florida Times Union, October 20, 1993.Darlin, Damon, "Send in the Clowns," Forbes, August 1, 1994, p. 89.Derk, James S., "The Shoe Carnival," Indiana Business, November 1989, p. 28."Glitz, Glitter, and, of Course, Shoes Galore," Tribune Business Weekly, August 11, 1993, p. 3.Kent, Jennifer, "Shoe Carnival Coming," Cincinnati Post, May 26, 1993.Massa, Sherri, "Shoe Carnival Swings Into Town With Low Prices, Crazy Gimmicks," Indianapolis Business Journal, January 19, 1987, p. 12.Miller, Laura Novello, "Shoe Carnival Spins IPO Wheel to Finance Expansion," Indianapolis Business Journal, May 23, 1994, p. 9B."Shoe Carnival Reports Second Quarter Results," PR Newswire, August 24, 1995.Wilson, Melinda, "The Shoe Carnival is Coming to Town," Detroit News, February 25, 1994, p. 1E.

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