Brown Shoe Company, Inc.
Brown Shoe Company, Inc.
8300 Maryland Avenue
St. Louis, Missouri 63105
Telephone: (314) 854-4000
Toll Free: (800) 766-6465
Fax: (314) 854-4274
Web site: http://www.brownshoe.com
Incorporated: 1881 as Bryan Brown Shoe Company
Sales: $1.83 billion (2003)
Stock Exchanges: New York
Ticker Symbol: BWS
NAIC: 316219 Other Footwear Manufacturing; 316213 Men's Footwear (Except Athletic) Manufacturing; 316999 All Other Leather Good Manufacturing; 424340 Footwear Merchant Wholesalers; 448210 Shoe Stores
Brown Shoe Company, Inc., is a retailer, wholesaler, and licenser of men's, women's, and children's footwear. Brown operates 900 retail stores in the United States under the names Famous Footwear, Supermarket of Shoes, Warehouse of Shoes, and Factory Brand Shoes. Naturalizer, the company's flagship brand of women's shoes, supports a chain of nearly 400 retail outlets in North America. The company's wholesale division markets branded, licensed, and private label footwear to mass merchandisers and department stores throughout the country. Buster Brown & Co., which represents the company's children's footwear business, markets Buster Brown shoes as well as other brands geared toward children. Brown operates online through Shoes.com, which features more than 150 footwear brands.
A 19th-Century Shoe Manufacturer
Brown Shoe Company began as a shoe manufacturing concern. George Warren Brown moved to St. Louis from New York in 1873 to work in his older brother's wholesale shoe business. While working as a traveling salesman, Brown came to see great potential in the St. Louis area for shoe manufacturing. At that time, shoes were primarily manufactured on the East Coast. Skilled workers in New England factories made shoes that were then shipped to jobbers at points west. Brown believed that shoes could be made more cheaply in St. Louis than in the established East Coast factories. After working for four years in his brother's wholesale business, Brown had accumulated enough capital to test his idea. With two other investors, Alvin L. Bryan and Jerome Desnoyers, Brown founded Bryan, Brown and Company to make women's shoes. Brown paid five skilled shoemakers from Rochester, New York, to come to St. Louis and start the factory. The company grew rapidly. In its first year, 1878, the company had sales of $110,000. In 1881, the company incorporated as the Bryan Brown Shoe Company. In 1893, Desnoyers retired, and the name was changed to The Brown Shoe Company. In 1885, when Bryan sold his interest, the name was changed to Brown-Desnoyers Shoe Company. Brown shoes were sold all over the Midwest at prices lower than those of the older New England shoe firms. By 1900, the company was growing at a rate of $1 million a year, and St. Louis was becoming known as a major shoe manufacturing center.
Also in 1900, Brown Shoe contributed $10,000 to the St. Louis World's Fair, a gala event that put a spotlight on the Missouri town. The company put up a model shoe plant at the fair, and this exhibit won Brown a grand prize. Another exhibitor at the fair was the cartoonist R. Fenton Outcault, creator of the popular comic strips The Yellow Kid and Buster Brown. A young Brown executive, John A. Bush, made a lasting contribution to his company by buying the rights to the Buster Brown character in 1904. The little blond boy and his dog Tige became the emblem of the Brown Shoe Company children's line. In addition to printing the Buster logo on its shoe boxes, the company hired 20 little people to dress as Buster Brown and tour the country. Buster and Tige played in theaters, shoe stores, and department stores across the country to much popular acclaim.
While some youngsters were applauding the Buster Brown little people, others were at work in Brown Shoe factories under deplorable conditions for extremely low pay. Because the cost of plant equipment and materials was relatively fixed, Brown Shoe had to make its profits by keeping its labor costs as low as possible. As manufacturing became more mechanized, shoe factory jobs became less skilled. Increasingly, shoe manufacturing jobs were filled by women and children, who could be paid less than men. For example, a 1911 survey of St. Louis shoe workers found more than half to be between the ages of 14 and 19. Some 84 percent of the women and close to 70 percent of the men were under age 24. An average wage for a girl under 16 was less than $10 per week. More shoe manufacturers had followed George Warren Brown's example and set up shoe factories in St. Louis, making the industry extremely competitive. Under these conditions, the wage paid to shoe workers spiraled down.
By 1902, Brown Shoe was operating five factories in St. Louis. In 1907, the company started its first "out of town" plant, in nearby Moberly, Missouri. Several St. Louis shoe companies began manufacturing in surrounding rural towns because of the cheaper labor available in those areas.
In response to the poor working conditions at Brown and in other St. Louis-area shoe factories, workers formed unions. The first was the moderate Boot and Shoe Workers Union; the second was the more radical United Shoe Workers of America, associated with the International Workers of the World. Bitter strikes led to increasing militancy among St. Louis shoe workers. George Warren Brown responded by becoming a local leader of the Citizens Industrial Association, a nationwide anti-union propaganda organization that maintained blacklists against union sympathizers. The best way to fight the unions, however, proved to be to leave St. Louis.
The small towns around St. Louis offered many advantages to the Brown Shoe Company. It was standard at that time for a town that wanted a shoe factory to offer to build one for a company and exempt the company from paying taxes. In return, the company would agree to pay out a certain amount of money in wages over a five- or ten-year period. After the stipulated amount of wages had been paid, the company had no more obligation to the town. There were always more towns willing to subsidize a new shoe factory. While Brown's management remained headquartered in St. Louis, the company opened factories in many rural towns in Missouri and Illinois. Each town's economy became dependent on the shoe factory, and pro-company sentiments within the factory towns created a hostile climate for union organizers. The distance between the factories also made union organization more difficult than it had been in the condensed St. Louis shoe district.
Regardless of worker discontent, the Brown Shoe Company grew. In 1907, the company moved its headquarters to a stately building in downtown St. Louis. In 1913, Brown was listed on the New York Stock Exchange. With the entrance of the United States into World War I in 1917, Brown Shoe won profitable army contracts.
The company stumbled in 1920, however, when a sudden change in women's fashions caught Brown by surprise. Hemlines went up, and Brown was left with an overstock of sturdy high-topped shoes that did not go with the new look at all. John Bush, who had bought the Buster Brown logo rights and then worked his way up to president in 1915, when George Warren Brown became chairman of the board, had to go to Boston before he found a bank that would give the company credit. After this crisis, however, Brown Shoe boomed until the stock market crashed in 1929 and the Great Depression set in.
Labor Strife Reaches Peak During Great Depression
During the Depression, Brown Shoe struggled to keep its costs down, which meant that workers' wages suffered. A National Labor Relations Board investigation at Brown's Salem, Illinois, plant found that workers were sometimes drawing checks for as low as $2.50 and $3.00 for a 60-hour week. Workers protested worsening conditions in Brown's factories, but the company's management grew more abusive. President Franklin D. Roosevelt drafted the National Industrial Recovery Act in 1933 to force industries to standardize wages and prices and thus alleviate the workers' downward wage spiral. Two years later, the Wagner Act guaranteed all U.S. workers the right to organize into unions and to strike. Brown's management, however, remained adamantly anti-union. When workers at the Vincennes, Indiana, factory struck for recognition of their union in 1933, Brown closed the plant. William Kaut, the company's general manager in St. Louis, declared that "The intention of the Brown Shoe Company is to do as much for their help as any shoe industry in the United States . . . and when Brown Shoe Company does its part and even more and if the help are then not satisfied, there is only one thing left to do and that is to close the mill." What the Brown Shoe Company was doing for its help, however, reportedly included physical intimidation of union organizers, spying on and infiltrating workers' organizations, and hiring a notorious strike-breaking agency, in addition to its policy of closing down "troublesome" plants.
Eventually, Brown attracted national attention when a union representative in Sullivan, Illinois, narrowly escaped being tarred and feathered in September 1935, and the Illinois Federation of Labor forced a grand-jury investigation. No indictments resulted, but the Regional Labor Board in St. Louis later issued a complaint, citing Brown for unfair labor practices and for using officers and agents of the company to intimidate employees. The hearing that followed revealed that John A. Bush had hired the A.A. Ahner detective agency in 1934. Bush testified that he did not know that Ahner was a strike-breaking agency, but Ahner was in fact known as such in St. Louis. In 1929, he had been implicated in an attempted bombing connected with anti-union work. Although Ahner himself claimed he was not hired to break unions, a report in the Nation on January 29, 1936 noted that termination of Ahner's connection with the shoe company coincided with the dissolution of most of the locals of the Boot and Shoe Workers' Union in Brown plants.
We're Brown Shoe. We're moving forward, growing, forever seeking new ways to delight our customers. We believe our success is the result of continual testing and learning—the kind of disciplined approach that leads to new levels of success. People of integrity, true partners, working together to deliver a remarkable footwear shopping experience to today's consumer. We're always striving to be the best, to be the leader in footwear.
It was not only physical threats and the economic threat of plant shut-downs that led many union locals to disband. The Labor Board hearings revealed that Brown had kept a paid spy in its Sullivan factory. The spy turned out to be the former head of the union local. After urging workers into an ill-timed strike, he then incited his union's members to burn the union charter and disband. He was later overheard telephoning Brown headquarters to report his success. Attacked from within and without, most of the Boot and Shoe Workers Union locals at Brown plants folded, because workers were desperate to hang on to their jobs. Brown sometimes closed its plants temporarily, later to rehire only workers who had had no union involvement.
The National Labor Relations Board cited Brown in 1936 for violating the Wagner Act in connection with the dissolution of the Salem local, but the company refused to reinstate strikers and workers who had been fired for union activity. The workers who had not lost their jobs at Brown were finally given some help in their struggle for decent wages when the Fair Labor Standards Act of 1938 established a minimum wage in the United States. The labor shortage during World War II finally gave a boost to union organization, although unrest continued to some degree.
In 1941, Brown opened a new plant in Dyer, Tennessee. A Brown executive, Monte Shomaker, who was later to serve as Brown's fourth president, urged the move south. Shomaker worked to modernize Brown's factories after the war and to relocate many of them in the traditionally nonunion South. At the same time, Brown's third president, Clark Gamble, was taking steps to move the company into retailing.
Expansion into Retailing in the 1950s
Gamble assumed the presidency of Brown from John Bush in 1948, and in 1950 he initiated a merger with Wohl Shoes. Wohl was a 35-year-old wholesale and retail shoe business with headquarters in St. Louis and had annual sales of $33 million, 90 percent of which came from women's shoes. Brown had provided only 10 percent of Wohl's shoes before the merger, which provided a large new market for Brown. Wohl wholesaled shoes through 2,500 stores throughout the United States, Canada, Mexico, and Cuba and operated several hundred retail stores and leased department store shoe salons. With this first major acquisition, Brown took a giant step toward integrating its operations into both manufacturing and retailing.
The Wohl merger was followed by Brown's acquisition of another large retail chain in 1953, Regal Shoes. When Brown acquired G.R. Kinney Corporation in 1956, the company had gone far toward assuring itself of both manufacturing and retailing capabilities. Brown was then the fourth-largest shoe manufacturer in the United States, and Kinney the largest operator of family shoe stores. A U.S. District Court in St. Louis, however, found Brown guilty of antitrust violations in 1959 and ordered the company to divest itself of Kinney. The judge in the case concluded that the Brown-Kinney merger seriously limited the ability of independent retailers to compete with company-owned retail outlets, as well as limiting the market for independent manufacturers. In 1962, the Supreme Court upheld the lower court's ruling. By that year, Brown had taken the number-one spot in the shoe industry. Brown subsequently sold Kinney to F.W. Woolworth.
Monte Shomaker took over the presidency of Brown from Clark Gamble in 1962. Despite the setback of the Kinney ruling, Shomaker was able to continue Brown's expansion. In 1959, the company had acquired Perth Shoe Company, a Canadian firm with wholesale, retail, and manufacturing operations. In 1965, Brown bought the Samuels Shoe Company, a high-fashion women's shoe company, and in 1970 Brown acquired a men's shoe importer, Italia Bootwear, Ltd.
Diversifying in the 1970s
Brown's earnings rose each year in the 1960s, until a flood of imports swamped the U.S. shoe industry in 1968. The company's earnings plunged 25 percent in 1969. A new president, W.L. Hadley Griffin, took over that year. Griffin decided to do what other large shoe companies had been doing for years, that is, to diversify into nonshoe areas. Brown quickly acquired retail fabric chains, the Eagle Rubber Company, Kent Sporting Goods, and a luggage sales company, among others. In 1972, The Brown Shoe Company changed its name to Brown Group, Inc., to reflect the company's diversification. By 1973, close to 20 percent of Brown's sales were coming from its nonfootwear subsidiaries. The Brown Group continued to diversify through the 1970s, buying up companies in two main areas: children's products and sports and recreation.
- Bryan, Brown and Company is formed, incorporating as Bryan Brown Shoe Company three years later.
- The company buys the rights to the Richard Fenton Outcault cartoon character, Buster Brown.
- Brown Shoe Company debuts on the New York Stock Exchange.
- Brown Shoe Company acquires Wohl Stores, marking its entry into the retail sector.
- Brown Shoe Company begins to diversify, changing its name to Brown Group, Inc. in 1972 to reflect the company's variegated interests.
- Brown Group announces the divestiture of its recreational products assets.
- The acquisition of Pagoda Trading Company, an Asia-based importing firm, signals the company's move away from manufacturing.
- The last company-owned shoe factory in the United States is closed.
- After changing its name back to Brown Shoe Company, Inc., the company attempts to revitalize its image and brands.
- More than 100 Naturalizer stores are closed and 700 Famous Footwear outlets are remodeled as part of the company's sweeping restructuring efforts.
- The company signs a licensing agreement to design, source, and market footwear under the Bass label.
In 1979, W.L. Hadley Griffin moved up to chairman, and B.A. Bridgewater became the new president. Bridgewater had worked in President Richard Nixon's Office of Management and Budget, where he set fiscal priorities for the State Department, the Defense Department, and the Central Intelligence Agency. Bridgewater introduced cost-cutting measures at Brown, including reductions in the workforce and cutbacks in executive perquisites. Bridgewater's first year set a record for the Brown Group; sales were up 16 percent, earnings up 25 percent, and the company posted a net income of $41 million. Increased costs and foreign competition, however, led Brown to close its St. Louis warehouse in 1980.
Competition Leads to Restructuring in 1980s–90s
Pressure from cheap imports led to more competitive conditions in the U.S. shoe market throughout the 1980s, and Bridgewater had to constantly adjust the Brown Group's business strategy. In the 1970s, diversification into nonshoe areas had proved essential, but in the 1980s, slimming down the company and concentrating on shoe retailing seemed to be the right thing. In 1982, Brown's recreational products division sagged, and Bridgewater ordered a restructuring, which included plant closings and changes in marketing and management. In 1985, after a very poor third quarter, the company announced it would divest itself of all its recreational products operations. The divestiture left Brown with about 75 percent of its business concentrated in shoe manufacture and retailing. The other 25 percent represented various other retail operations, such as Brown's line of fabric stores, specialty women's clothing stores, and the Meis chain of department stores.
In the mid-1980s, Brown bid to keep its shoe business competitive by moving more strongly into shoe importing. Brown acquired Arnold Dunn, Inc., a women's shoe importer, in 1984. That year Brown established an importing division, Brown Group International, and in 1986 it acquired the Pagoda Trading Company, a Far-East importing firm. Importing proved far more profitable than manufacturing. The company closed several U.S. shoe plants but at the same time improved the efficiency of its remaining factories. By 1988, Brown was able to produce almost as many shoes as in 1980, in spite of a 40 percent reduction in the number of plants it operated. The company also opted to concentrate on marketing its well-known brands such as Connie, Naturalizer, and Buster Brown, and discontinue its marginal lines.
Ultimately, over the course of the early and mid-1990s—and under the continuing leadership of Bridgewater—Brown dramatically restructured itself into a footwear retailing and wholesaling company, with shoe manufacturing almost entirely jettisoned and all nonfootwear businesses divested. In 1989, the company sold off all of its remaining nonfootwear specialty retail operations with the exception of the Cloth World retail fabric chain. The following year, the Pagoda International division was formed to market footwear to retailers in Europe, and eventually in Latin America and the Far East. Brown closed six of its fast-dwindling domestic shoe plants in 1991 and 1992. The following year, it began to shutter its troubled Wohl Leased Shoe Department operation, which managed 500 shoe departments in 26 department store chains.
Brown's restructuring efforts reached a peak in 1994 and 1995. All of the company's remaining U.S. shoe factories were closed, leaving Brown with only two manufacturing plants in Canada. More than 100 company-owned Regal and Connie specialty shoe stores and 50 Naturalizer stores were closed. Three of the company's five headquarters buildings were sold, along with its Cloth World chain to Fabri-Centers of America, Inc. for $65.7 million, thereby returning to a pure focus on footwear. More than 8,500 jobs were eliminated as a result of these moves, about 35 percent of the overall workforce.
Freed from several burdensome operations, Brown began to bolster its core businesses through acquisitions and licensing deals. In 1995, the company acquired the Larry Stuart Collection, an upscale women's shoe brand. Brown beefed up its offerings in the hot athletic shoe segment with the 1995 acquisition of the le coq sportif brand (a century-old brand popular in Latin America, Europe, and the Far East) from Adidas AG and with 1996 license agreements through which Brown would market athletic footwear under the Russell and Penn brand names. Pagoda International, meanwhile, built up an impressive list of famous brands that it licensed for use on shoes sold to children outside the United States, including Barbie; Star Wars; Disney's 101 Dalmatians, Hunchback of Notre Dame, and Mickey for Kids; and Warner Brothers' Looney Tunes, Batman, and Space Jam.
By 1996, Brown's extensive and lengthy restructuring had begun to show signs of paying off. The downsized company's sales of $1.53 billion were still well below the levels of the late 1980s and early 1990s, but when adjusted for discontinued operations, sales were on the rise. Profits—$20.3 million in 1996—were recovering as well. In possession of an impressive and expanding assortment of brands, Brown looked to step up its advertising in order to further increase sales with $21 million (8 percent of sales) slated for brand marketing in fiscal 1997. The company was also expected to continue to aggressively pursue overseas sales, which although on the increase still comprised less than 1 percent of overall sales.
Turnaround at the Turn of the 21st Century
The return of Brown's exclusive focus on footwear was reflected in a revival to the company's long-used corporate title. In 1999, the company again began calling itself Brown Shoe Company, Inc. Ronald Fromm, a Brown executive promoted to president in 1998, was appointed chief executive officer and chairman of the company in January 1999. The name change and the appointment of a new leader marked the beginning of a sweeping reorganization program, as Brown sought to revitalize its operations and brands, endeavoring to lose its "reputation for making shoes only grandma could love," as Knight Ridder/Tribune Business News noted in a May 18, 2003 article. The company was in dire need of improving both the appeal of its brands and the fundamental way in which it operated. Fromm invested heavily in product design and marketing research, registering notable success with the company's Naturalizer brand. An advertising campaign aimed at attracting younger customers was launched in 1999 that, along with more stylish designs, dramatically increased the brand's popularity. In 1998, Naturalizer ranked as the eighth-largest women's shoe brand sold at department stores. Within five years, the brand ranked as the second-largest seller.
While the Naturalizer brand was making its march up the industry rankings, Fromm initiated a cost-cutting program and revamped the company's retail operations. He implemented stricter control over inventory, closed under-performing stores, and improved efficiency by removing redundant functions with the company's operations. "We looked realistically at the fact that we didn't return a competitive operating margin," Fromm explained in an April 17, 2003 interview with Business Week Online, "and we saw a number of things we could do." After two years of restructuring the company, Fromm realized positive results in 2002, when the company's operating profits swelled more than 50 percent. Brown's retail operations also received attention Fromm's salubrious touch. In 2002, Fromm closed 106 Naturalizer stores that were performing poorly. He also remodeled 700 of the company's 921 Famous Footwear stores, adding new lighting, fixtures, and signage. In the future, Fromm intended to open new 8,000- to 12,000-square-foot Famous Footwear shops near retailers such as Target and Wal-Mart.
As Brown prepared for the future, its progress during the early years of the decade offered consumers and investors a more dynamic version of a company that had been in business for over a century. After posting a $4 million loss in 2001, the company registered a $45.2 million profit in 2002, prompting its stock to increase nearly 80 percent in value during the first half of 2003. At the end of 2003, Brown signed a long-term licensing agreement to design, source, and market footwear under Phillips-Van Heusen Corp.'s Bass label. As part of the deal, Brown also gained a new senior executive. Diane Sullivan, a 20-year veteran of the footwear industry who served as vice-president of Phillips-Van Heusen's footwear group, became Brown's president at the end of 2003. Under the leadership of Fromm and Sullivan, Brown continued with its turnaround efforts, attempting to breathe new vitality into one of the country's oldest footwear companies.
Brown California, Inc.; Brown Cayman Ltd. (Cayman Islands); Brown Group International, LLC; Brown Group Retail, Inc.; Brown Missouri, Inc.; Brown Retail Development Company; Brown Shoe de Mexico, S.A. de C.V.; Brown Shoe Investment Company, Inc.; Brown Shoe International Sales and Licensing S.r.l. (Italy); Brown Shoe International Sales and Licensing Ltd. (Hong Kong); Brown Texas, Inc.; Buster Brown & Company; CV Missouri L.L.C.; DongGuan Leeway Footwear Company Limited (China); Leeway International Company Ltd.; Maryland Square, Inc.; Maserati Footwear, Inc.; PIC International Corporation (Cayman Islands); Pagoda International Corporation do Brazil Ltda.; Pagoda International Footwear Ltd. (Hong Kong); Pagoda Leather Ltd. (Hong Kong); Shoes.com (91%); Sidney Rich Associates, Inc.; Whitenox Ltd.; Pagoda Trading North America, Inc.; Brown Shoe Company of Canada, Ltd.; Laysan Company Limited (Hong Kong); Brown Group Dublin Ltd. (Ireland).
Brown Shoe Retail; Brown Shoe Wholesale; Famous Footwear; Naturalizer.
Footstar, Inc.; Payless ShoeSource, Inc.; Wal-Mart Stores, Inc.
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—updates: David E. Salamie; Jeffrey L. Covell