112 West 34th Street
It takes a sharp focus to succeed in the competitive world of specialty retailing. At Venator Group we are creating a results-driven organization that balances strategic growth, superior merchandising and thoughtful expense management with a common set of values that each business can embrace to drive future growth. These values commit us to: 1) deliver on our commitments to our shareholders; 2) provide the customer the most wanted product and services first; 3) insist on superior execution in every aspect of our performance; 4) approach every transaction with integrity; 5) create a sustainable competitive advantage by valuing organizational development; and 6) develop strong relationships with our manufacturers. By adhering to these values, we emerge at the start of a new millennium a highly focused athletic organization, competitively positioned to improve our profitability and extend our global reach as the world's leading retailer of athletic footwear and apparel.
Venator Group Inc., known until 1998 as the Woolworth Corporation, is a diversified multinational retailer with stores and support operations in North America, Europe, Australia, and Asia. Since Woolworth's establishment in 1879, it has been involved in general merchandising; in its new incarnation as Venator, however, the company focuses on the retailing of athletic footwear and apparel. Venator's best-performing specialty chains are the various Foot Locker athletic footwear and apparel concepts and the Northern Reflections specialty apparel format and its spinoffs.
Origins as the First Five-and-Ten Store
The history of Venator may be traced through that of Woolworth and that company's founder, Frank Winfield Woolworth, who parlayed the idea of the five-and-ten cent store into an international retailing empire. Born in 1852, in Rodman, New York, Woolworth moved to Watertown, New York, in 1873 where he apprenticed and then clerked with Augsbury & Moore, a wholesaler and dry goods store. Wanting more money, Woolworth soon left Augsbury & Moore for A. Bushnell & Company, a local dry goods and carpet store. His new employer, however, found him a poor salesman and lowered his wages from $10 to $8 a week. In response, Woolworth overworked himself, had a complete breakdown, and spent six months convalescing.
When Woolworth recovered in 1876, he returned to his former employer William Moore, whose business was now called Moore & Smith. There he concentrated on window displays. In 1878, Moore & Smith found itself with high debt and excess inventory. To raise money, the store held a five-cent sale. Smith and Woolworth laid a group of goods such as tin pans, washbasins, button-hooks, and dippers, along with surplus inventory, on a counter over which they hung a sign reading: 'Any Article on This Counter, 5¢.' After the sale, Frank Woolworth was convinced a five-cent strategy could work on a broader basis.
In 1879, Woolworth left Moore & Smith. On February 22nd of that year, he opened his first 'Great 5¢ Store' in Utica, New York. At first business was good, but as the five-cent novelty faded, the store's poor location became a handicap and he closed it in early June. Still, he had repaid Moore & Smith's loan of $315.41, which he had used for his initial inventory, and had made $252.44 in new capital.
On June 21, 1879, Woolworth opened his second Great 5¢ Store in Lancaster, Pennsylvania. This time he had three windows on a main street and $410 worth of goods. The store was a success. The first day he sold 31 percent of stock. In succeeding months, he changed the store's name, first to Five-and-Ten, and later to Woolworth's. The additional ten-cent items allowed him to search out further bargains.
Woolworth soon began opening new outlets. Some stores succeeded, while others failed. By the mid-1880s, there were seven Woolworth's in New York and Pennsylvania. Most were run by partner-managers. These men--Woolworth's brother, Charles Sumner Woolworth; his cousin, Seymour Horace Knox; former employer, W.H. Moore; and Fred M. Kirby--ran the stores in which they held a 50 percent interest. Frank Woolworth ran the initial store and took care of purchasing.
In succeeding years, these partner-managers bought out Frank Woolworth's shares and began opening chains on their own. Woolworth continued opening stores. After 1888, he did so completely with his own capital. In these new stores, he entered into a profit-sharing agreement with managers.
While Woolworth owed much of his success to low prices, his treatment of the customer was also important. In the 1870s and 1880s, patrons usually had to ask for goods held behind the counter, and prices varied according to the customer; it was considered impolite to enter a store without buying. Woolworth changed all that. His merchandise sat on counters for everyone to see. His price was the same for everyone. He encouraged people to enter the store even if they were just looking.
Another reason for Woolworth's success was the decline in wholesale prices during the first 12 years of Woolworth's existence. This led to wider availability of goods in the five and ten cent price range, wider margins, and higher profits. As operations grew, Woolworth found he needed a New York City office from which he could govern his stores. In July 1886, he took an office on Chambers Street. Soon after, he began writing a daily letter that went out to all store managers.
In 1888, Frank Woolworth contracted typhoid. Until then, he had handled everything from accounting to ordering to inspecting stores; however, after two months in bed, he realized the importance of delegating authority. With that in mind, he chose Carson C. Peck to run day-to-day operations. Peck had been a fellow clerk at A. Bushnell & Co. and a partner-manager in Woolworth's Utica, New York, store. He became Woolworth's first general manager.
Freed of day-to-day operations, Woolworth made his first European buying trip in 1890. On his return, U.S. consumers flocked to his stores to obtain pottery from England and Scotland, Christmas decorations from Germany, and other goods from the great commercial fairs of Europe.
The same year, Woolworth established the 'approved list.' On the approved list were goods that Woolworth would reorder for his managers. This system allowed managers the leeway to adjust stock for local preferences while at the same time benefiting from the chain's buying power. In 1897, Woolworth opened his first Canadian store, in Toronto, Ontario. Three years later, there were 59 Woolworth's with sales of $5 million.
Tremendous Growth in Early 20th Century
By 1904, Woolworth was opening stores at a fantastic rate. He opened some stores from scratch. Others he converted from small chains he bought. In 1905 he incorporated as F.W. Woolworth & Co. At this point, Woolworth had $10 million in sales and 120 stores. In 1909, Woolworth sent three associates overseas to open the first of what was to be a hugely successful group of English stores, known as Three and Sixpence stores. In 1910, he appointed the first resident buyer in Germany, and, in 1911, he opened his first overseas warehouse at Fuerth, Germany.
At this point competition began to increase from such retailers as J.G. McCrory and S.S. Kresge Company. Also, many former partner-managers had chains of their own. In 1912, Woolworth saw the opportunity to create a huge new entity. He merged with five other retailers: W.H. Moore, C.S. Woolworth, F.M. Kirby, S.H. Knox, and E.P. Charlton. All were former partner-managers except for Earle Perry Charlton, who had built a chain of his own west of the Rocky Mountains. F.W. Woolworth & Co. became the publicly traded F.W. Woolworth Co., a nationwide retailer with 596 stores and $52 million in sales. Frank Woolworth was chief stockholder and president. The new retailing behemoth took residence in the 60-story neogothic Woolworth building in New York City. Frank Woolworth's office, within the $13.5 million 'Skyline Queen,' was a replica of Napoleon Bonaparte's Empire Room.
In 1915, Carson Peck died. Peck had been supervising day-to-day operations since 1888. Woolworth assumed Peck's duties, but the strain proved to be too much. On April 8, 1919, Woolworth himself died. To succeed him as president, the board named Hubert T. Parson, Woolworth's first bookkeeper and later a company director and secretary-treasurer. The board also named Charles Sumner Woolworth, F.W. Woolworth's brother, chairman of the board.
Expansion continued under Parson. The company sent its first buyers to Japan in 1919. In 1924, it opened stores in Cuba. Woolworth inaugurated a German operating subsidiary in 1926, and, in 1927, opened its first German store. By the company's 50th anniversary in 1929, there were 2,247 Woolworth stores in the United States, Canada, Cuba, England, and Germany. Sales topped $303 million. In the United States, F.W. Woolworth was far and away the biggest five-and-ten retailer. Its 2,100 U.S. stores had 1929 sales of $273 million. By comparison, J.G. McCrory had about 220 stores with $40 million in sales, and S.S. Kresge had about 500 stores with $147 million in sales.
The Great Depression caused the first decline in the company's sales since 1883, reaching a low of $250 million in 1932. In 1931, the company sold off part of its British operations, allowing that subsidiary to become a public company.
In 1932, Hubert Parsons retired and Byron D. Miller became the company's third president. Miller had worked his way up in the company and had helped start Woolworth's U.K. operations. Among Miller's first acts was to raise the ten cent price ceiling to 20 cents. Woolworth was the last five-and-ten chain to raise its prices. After three years in office, Miller retired and Charles Deyo became president. On taking office in 1935, Deyo and the board of directors removed all arbitrary price limits.
Sales turned upward during the late 1930s, but World War II posed new problems. Nearly half of Woolworth's male employees entered the Armed Forces, as did many female employees. During the war, women managed 500 stores. Demand expanded. Supplies were limited, but consumers tolerated substitutions, and because the war meant labor shortages, consumers also tolerated less service.
Prolonged Slump Following World War II
In 1946, Alfred Cornwell succeeded Deyo as president, while Deyo remained on as CEO. Under Deyo and Cornwell, Woolworth had difficulties adapting to the postwar rush of discount houses, supermarkets, and shopping centers. According to a 1965 Dun's Review article, 'Woolworth was mired in a depression mentality. It was keeping costs down and prices low at a time when customers wanted service and when prosperity made prices a secondary consideration.'
The situation began to deteriorate, and, in 1953, earnings hit a five-year low of $29.8 million. Concerned with what was happening, three board members--Allan P. Kirby, Seymour H. Knox, and Fremont C. Peck--forced Woolworth to create a new forward-looking finance and policy committee to combat what they saw as the management's overly conservative tendencies. Woolworth's British operation was having similar problems. Consumers were abandoning the stores for supermarkets and rivals such as Marks & Spencer, British Home Stores, and Littlewoods. In response, Woolworth increased the number of stores in England but did little to upgrade the existing outlets.
In 1954, James T. Leftwich became president. Leftwich addressed some of Woolworth's problems and spent $110 million to expand, modernize, and move stores. In 1956, Woolworth opened two stores in Mexico City, and, in 1957, began operations in Puerto Rico. Much was left to be done, however, under the leadership of Robert C. Kirkwood, who took over as president in 1958.
Under Kirkwood, Woolworth raised price limits and added profitable soft goods such as clothing and fabrics. Kirkwood also introduced self-service, opened hundreds of new stores, enlarged or relocated hundreds of others, and pushed Woolworth into shopping centers. Further, he increased advertising, instituted formal job training, and shortened hours and improved benefits for traditionally underpaid sales people, a move that reduced costly employee turnover from 43 percent to 19 percent.
Yet while Kirkwood was rejuvenating Woolworth, competitors such as Kresge and W.T. Grant had already overhauled their stores and were moving into new lines and new locations. Each was able to surpass Woolworth in earnings growth. In fact, while Woolworth sales surpassed $1 billion for the first time in 1960, U.S. earnings dropped from $14 million in 1960 to $12.6 million in 1963. It was only the return from British Woolworth that enabled consolidated earnings to keep moving upward. British stockholders later accused the U.S. board of milking the English operation without infusing the proper amount of capital.
Diversifying in the 1960s and 1970s
Woolworth and Kresge both sought new types of stores that would better fit the changing retail environment. In 1962, Woolworth opened the first Woolco, and S.S. Kresge opened the first Kmart. Each offered the services of a full-line department store and was very large--in some locations, more than 100,00 square feet. Woolworth had 17 Woolco stores by 1965, and as the 1960s continued, Woolworth expanded, diversified, and modernized. In 1965, it acquired the G.R. Kinney Corporation for $39 million. Founded by George Romanta Kinney in 1894, Kinney had 584 family shoe stores in 45 states. The same year, Lester A. Burcham became president of Woolworth. Under Burcham, Woolworth expanded operations into Spain and established a buying office in Tokyo. Two years later, it opened the first Woolco in England.
In 1968, sales topped $2 billion, and, in 1969, Woolworth acquired Williams the Shoemen, an Australian shoe store chain that has since become a dominant force in Australian shoe retailing with more than 460 stores ranging from high fashion to athletic and family footwear. Also in 1969, Woolworth acquired Richman Brothers Company, a manufacturer and retailer of men's and boys' clothing. Finally, as part of a 90th anniversary celebration, Woolworth replaced the old 'Diamond W' logo with a modern looking white 'W' on a light blue field.
Yet Woolworth was still not growing at the rate of its competitors. By 1970, sales at Kresge were running essentially neck and neck with Woolworth. One problem was British Woolworth. In 1965, Woolworth's 52.7 percent-owned subsidiary, F.W. Woolworth Ltd., had contributed 50 percent of the parent company's profits, but during the late 1960s it began a steep decline. The reasons included a lack of investment, a devaluation of the pound, and an increase in employment taxes. By 1969, the British subsidiary was contributing just 30 percent of profits. In an effort to gain market share, British management cut prices. Sales grew, but profits fell.
John S. Roberts, who became Woolworth's president in 1970, also needed to address problems at Woolco, which was performing at nowhere near the rate of Kmart. His solution was to consolidate Woolworth and Woolco in one division in 1972. Rather than providing economies, however, the consolidation only blurred the identity of each chain. Woolworth's 1973 sales were $3.7 billion; Kresge's were $4.6 billion, 90 percent of which was generated by Kmart. A positive event occurred, however, in 1974, when the Kinney shoe division opened the first two Foot Locker stores, athletic-shoe retailers that would later prove highly profitable.
With stock prices on the wane, the board recognized the need for change, and, in 1975, named outsider Edward F. Gibbons president. Gibbons in turn named W. Robert Harris the first president of the U.S. Woolworth and Woolco Division. In 1978, consolidated annual sales topped $6 billion, of which Kinney, growing at a rate of 18 to 20 percent a year, contributed $800 million. Also in 1978, Harris became president and Gibbons became chief executive officer.
Juggling of Store Lineup in 1980s and Early 1990s
While Woolco continued its sluggish growth and Woolworth stores suffered neglect, F.W. Woolworth Co. continued diversifying. In 1979, Woolworth opened the first J. Brannam, a men's clothing store whose name stood for 'just brand names.' J. Brannam was a quick moneymaker and often stood within or beside otherwise lackluster Woolco department stores. No matter how much the management tinkered, the problems of Woolco refused to go away. After the stores lost $19 million in 1981, Harris and Gibbons hired Bruce G. Albright to revive the ailing chain. Albright, who had come from competitor Dayton Hudson's Target stores, had a plan to revive Woolco, but company projections still saw the stores losing money. After Woolco lost $21 million during the first six months of 1982, Gibbons decided to shut down all 336 Woolcos in the United States, shrinking the $7.2 billion company 30 percent and laying off 25,000 employees. Closing costs were estimated at $325 million.
In the fall of 1982, Woolworth disclosed plans to sell its interest in British Woolworth to a syndicate of English investors, for $279 million. One analyst, quoted in Business Week, October 11, 1982, blamed British Woolworth's failure on the U.S. parent, saying, 'The American Woolworth has been milking the British unit for years, insisting on high dividend payout that has forced it to scrimp on investment and to take on more and more debt.'
Analysts, however, were pleased with the company that remained. Left were the profitable, but shaky, 1,300 variety stores, Richman Brothers, and Kinney Shoe Corporation--a $1.1 billion division that had done well with Kinney, Foot Locker, a women's clothing store known as Susie's Casuals, and the newly created and profitable J. Brannam. Woolco's closing, however, left 28 of the 41 J. Brannam outlets homeless.
Edward F. Gibbons died suddenly in October 1982. Contrary to expectations and much to the chagrin of younger talent, the board named company veteran John W. (Bud) Lynn chief executive officer. As a variety store man, Lynn paid close attention to Woolworth's. He changed merchandise, reducing the number of high-priced items such as appliances and dresses and expanding basic lines like candy, and health and beauty aids. He arranged stores in arrow patterns to cut down on unprofitable corners.
Lynn pushed the company to adopt a set of strategic priorities that angled Woolworth away from money-losing businesses and toward specialty retailing. Kinney's Canadian operation had started the remarkably successful Lady Foot Locker in 1982, and in 1983 Woolworth paid $27 million for Holtzman's Little Folk Shop, a full-price children's clothing merchandiser and its subsidiary, Kids Mart, a discount operation.
Lynn retired in 1987, and the board named Harold Sells as the new chief executive officer. Sells continued to push Woolworth's profitable mall-based specialty operations. Managers sought out new ideas for stores, and those that the company liked were tried. If the stores were profitable, Woolworth's opened more. If they were not profitable, the company tried another idea at the same location.
In 1990, Woolworth opened 896 stores and closed 351. Many of the new ventures were specialty stores, such as Kinneys, Kids Marts, Foot Lockers, and Lady Foot Lockers. The latter two sold a full 20 percent of all brand-name athletic footwear in the United States in the late 1980s. The 40 types of specialty stores included After Thoughts, seller of costume jewelry and handbags; Champs, seller of athletic goods and apparel; and Woolworth Express, seller of the fastest-moving goods of a traditional Woolworth.
In 1993, Sells retired and was replaced as by CFO William Lavin, who quickly made moves toward the elimination of the company's general merchandise stores in favor of an exclusive focus on specialty formats. Four hundred Woolworth's were closed in the United States, and 122 Woolco stores in Canada were sold to Wal-Mart, terminating Woolco altogether. Woolworth also sold 300 underperforming Kinney outlets and liquidated the 286-store Richman Brothers/Anderson-Little men's and women's clothing stores. Along with the nearly 1,000 stores, about 13,000 jobs were eliminated. As a result of these moves, the company recorded a $558 million charge resulting in a net 1993 loss of $495 million.
These radical moves were barely complete when an accounting scandal arose in early 1994, revolving around alleged false reporting of quarterly results during 1993. Several lawsuits were filed which were eventually combined into a class-action lawsuit. This suit appeared to be settled by mid-1997 when Woolworth agreed to make undisclosed cash payments to affected shareholders. Later in 1994, Lavin was forced out, and Roger Farah became chairman and CEO in December 1994.
Rebuilding in the Late 1990s
Farah, a longtime department store manager who had most recently been president of R.H. Macy & Co., took over a Woolworth in shambles. Thanks to dwindling profits, by early 1995, the company was nearly out of cash, and short-term debt had swelled to $853 million. Consequently, Farah's first task was to improve cash flow in 1995. To do so, he broke Woolworth's string of 83 straight years of dividends; restructured company debt, reducing total debt by $475 million and shifting $290 million of short-term debt to longer-term financing; reduced operating spending by $100 million; wrote off $241 million of inventory; and began to sell off nonstrategic chains and real estate. Early in 1995, Woolworth sold the Rx Place chain of pharmacies for $37 million and the 331 Kids Mart/Little Folks children's clothing stores to the LFS Acquisition investor group for $15 million. Two other Canadian chains, Karuba and Canary Island, were also closed during the year. The various charges incurred as a result of these actions led to a net loss of $164 million.
In 1996, Woolworth continued to restructure. Short-term debt was eliminated altogether, and total debt was reduced an additional $116 million. Another $100 million in operating spending was eliminated, and $222 million in cash was generated from the disposal of additional nonstrategic chains and real estate. Among the divestments were the Accessory Lady chain in the United States; the Silk & Satin lingerie chain in Canada; the Lady Plus apparel chain, the Rubin jewelry chain, the Moderna shoe store chain, and the New Yorker Süud jeans business, all in Germany; and the Gallery shoe store chain in Australia. All told, 1,443 unproductive stores were disposed of in 1995 and 1996.
In the midst of these moves, institutional investor Greenway Partners forced to a vote a shareholder proposal to spin off Woolworth's Athletic Group, which included the profitable and growing Foot Locker and Champs chains. However, the plan was soundly defeated. Unlike his predecessor, Farah was not ready to give up on the neglected Woolworth's chain. To better monitor and plan sales, point-of-sale equipment was installed at all locations in 1995, and purchasing, pricing policies, and promotional strategies were all centralized. He assembled a management team of veterans of successful high volume specialty stores and streamlined merchandising systems.
In 1996, the chain began testing new formats featuring higher-quality (and higher-priced) merchandise, with more brand names. Based on customer surveys, the prototype stores were aimed at the time-pressed and budget-minded working woman looking for products for herself, her home, and her family. So, rather than carrying everything from hamsters to beach chairs, the product mix included more cosmetics and housewares. The antiquated lunch counters were replaced by small coffee bars. The three-store 1996 test was successful enough to justify an expansion of the test to 13 more stores in 1997.
Overall, Woolworth's fortunes improved in the late 1990s, as the company posted a net profit of $169 million in 1996. The company appeared to be on track with the paring back of its unwieldy portfolio of retail formats. Farah began piecing together a sporting goods conglomerate on the foundation of Foot Locker and Champs Sports, acquiring the operations of Sporting Goods, Athletic Fibers, and Eastbay Inc., a Wausau, Wisconsin-based catalog company specializing in athletic footwear. Woolworth and Eastbay planned to develop catalogs for such Woolworth retail brands as Foot Locker and Champs.
Nevertheless, in a telling psychological blow, Woolworth was replaced by Wal-Mart on the Dow Jones Industrial Average in 1997. The chain experienced a $24 million operating loss for the first quarter as compared to a loss of $37 million for all of 1996. Unable to withstand such hemorrhaging long enough to turn the chain around, Woolworth announced on July 17, 1997, that it would close its more than 400 five-and-dime stores in the United States, lay off about 9,200 Woolworth's workers (about 11 percent of the company's workforce), and take a $223 million charge for the discontinued operations. The company planned to convert about 100 of the Woolworth's locations to Foot Locker, Champs Sports, and other specialty formats. Although the Woolworth's chain had seen the final chapter written on its history in the United States, the chain's saga would continue in Mexico and Germany, where about 700 of the five-and-dimes still operated. The German stores were sold off in 1998.
The company also announced that it planned to change its name, according to company literature, 'to better reflect its global specialty retailing formats.' The new corporate name, the Venator Group, inspired by the Latin word for sportsman, was intended to describe 'a global team of retailers ... invigorated by the challenge of winning in the world's marketplace.' In preparation for the change, the company spent more than $130 million to streamline merchandising and back office operations. Over the next three years, it went on to spend another $149 million to redesign the architecture of its information systems for the development of an integrated global retailing approach. In the United States, the Venator Group established 719 such stores and remodeled 582 in 1998. It simultaneously debuted its web site, which featured virtual stores selling athletic footwear, equipment, apparel and accessories from the various Foot Lockers, Champs Sports, and Eastbay lines.
Unfortunately the retailing environment for athletic footwear had become difficult during this time, as consumer tastes shifted to street shoes, fleece, and denim. Foot Locker, as the largest athletic specialty store, while not alone in missing the shift, was more affected by it than its smaller competitors. The Venator Group, under the direction of president and chief executive officer Dale Hilpert since late 1999, responded by expanding its catalog and e-commerce interests, by exiting eight of its non-core businesses, and by closing stores and slashing jobs. The cutbacks continued into January 2000 when Venator announced the closing of 123 Foot Locker, Lady Foot Locker, and Kids Foot Locker stores, 27 Champs Sports units, and 208 Northern Group stores. Venator also began to consolidate the managements of Kids and Lady Foot Lockers concepts into one organization and to reduce expenses and workforce.
By the second half of 1999, Venator Group began to generate significant same-store sales gains, fueled by growth in the high-end footwear category. The company experienced a small increase in comparable-store sales, and its athletic stores gained in market share in 1999. In addition, the direct-to-customer business enacted via Footlocker.com enjoyed a 21.9 percent increase in business that year. By spring 2000, shoe sales throughout the industry were showing signs of rebounding. With 17 percent of the $14 billion U.S. athletic footwear market, 3,700 athletic retail stores in 14 countries, $3.8 billion in annual sales, and significant opportunities in the global market, the Venator Group was looking forward to gaining market share through increased productivity at its retail stores and through its catalog and Internet businesses.
Principal Operating Units: Global Athletic Group; Northern Group.
Principal Competitors: The Sports Authority, Inc.; The Finish Line, Inc.; Just For Feet, Inc.
Comment about this article, ask questions, or add new information about this topic: