After a momentous run in the retail business, outgoing Foot Locker, Inc. Chairman and CEO Matt Serra takes a look back at the business and offers a look ahead for the industry where he left such an indelible mark.


When Matt Serra first joined Foot Locker, Inc. in October, 1998 as president and CEO of Foot Locker Worldwide, the athletic footwear industry and the company were not on solid footing.  Externally, the industry was witnessing a major fashion shift away from high-end athletic footwear to more moderately-priced footwear, as well as weak branded and sports-licensed apparel sales.

 

Markdowns were rampant in what had become a highly-overstored, unsegmented and undifferentiated industry overnight. Eventually, Just for Feet would file for bankruptcy, Footstar, which was Footaction’s parent, would follow suit five years later and The Sports Authority would be swallowed up by Gart Sports.  

 

Internally, Foot Locker, formerly known as Woolworth, Inc. and then Venator Group, was losing money and continuing to shed non-athletic businesses such as Kinney and Northern Reflections. By 2001, when Serra took over as CEO, the name would change once more to Foot Locker Inc. to mark its sole commitment to athletic retailing. With demand remaining dormant, however, the athletic business was struggling as the recession took hold.


With his offical retirement date slated for January, Sports Executive Weekly sat down with Mr. Serra to get his persepctive on his tenure as one of the most influential players in the athletic footwear business:
SEW: Let’s start way back. What drove you to pursue a career in retail?
MS: I began my retail career on my 16th birthday as a stock boy at Macy’s. Once I finished school and was discharged from the service, I joined the Macy’s’ training program at the age of 21. I enjoyed the competitiveness of retailing. I was a pretty good athlete as a kid and found the competitiveness of retailing to be similar to that of playing a sport. In retailing, you can measure your results every day similar to tracking wins and losses in a sporting event. While some people try to avoid pressure, I believe that I have had a lot of success operating in pressure situations. In retailing, I believe that the difference maker in success is one’s ability to handle the  pressure of various situations effectively.


SEW: What would you consider the turning point in your career?
MS: I am very fortunate to have enjoyed a long career – 43 years. My years at both Bloomingdale’s and Saks Fifth Avenue were very beneficial and helped fast-track my career. At Bloomingdale’s, I learned a great deal about merchandising. While at Saks, I learned a lot about the customer. We used to have a saying in those days, “Saks has something other stores don’t have – “customers.” My eyes were just completely opened! The same merchandise that I was buying for Bloomingdale’s was selling at a much faster rate at Saks Fifth Avenue.  Bloomingdale’s was always pretty upscale. Saks was at the next level, which really opened my eyes to the opportunity and ability to sell high-end quality merchandise.


SEW: How would you assess your stewardship of Foot Locker?
MS: During my early years at Foot Locker, we improved the profitability of the company significantly.  We capitalized on our market position and increased sales, earnings and EBITDA. We also focused our efforts on strengthening our capital structure. When I joined the company, we had no cash. At the end of last year, we had over $400 million in cash and very little debt on our balance sheet.  Overall, the financial results of the company during six of my eight-and-a-half years as CEO were very strong. In late 2007, however, we began to be affected by the slowdown in the external environment. Fortunately, we adjusted our operating strategy accordingly, thereby protecting our balance sheet and improving our cost structure.


SEW: What accomplishments particularly stand out at the flagship chain?
MS: During the past decade, we essentially renovated over 80 percent of the Foot Locker store fleet, providing a more relevant shopping experience. Today, a large percentage of our Foot Locker stores, whether they are located in Europe, California, New York, Canada or Australia, have an updated look and atmosphere. We merchandise the stores differently based on the fashion tastes of the local market consumers. 


SEW: What was the situation like when you joined in 1998?
MS: Overall, 1998 was an opportune time for me to join the company. The industry was in turmoil and the company’s financial position was very weak. The athletic industry was over-stored with competitors such as Just for Feet, with almost $1 billion in sales, which was soon to be liquidating. 

 

The weakness in the industry led to a lot of discounting, financial issues with competitors and, ultimately, consolidation. At that time, I recognized that we had a lot of opportunities at Foot Locker. The company was somewhat disorganized and not using best practices.  One of the company’s early accomplishments after I became Chief

 

Operating Officer was the turnaround at Champs. We changed and strengthened the management team at Champs and in a short period of time set new records for both sales and division profit. We had a great run at Foot Locker Europe during the early part of this decade, rapidly growing that division in terms of stores, sales and profits. While we have fallen off from the high water marks that we achieved in Europe a few years ago, this business remains very profitable and important to our company. The progress that we made with our internet/catalog business also stands out as a significant achievement for our company. We basically doubled the sales volume of a business that was barely breaking even in the late 1990’s to one that generates double-digit division margin rates.


SEW: Does the industry need new brands?
MS: Our business thrives on newness, and with newness comes excitement.  Our business performs the best when our existing suppliers introduce new fashion-right assortments to the mix, when out-of-favor suppliers make a comeback, and when new ones to the industry emerge.  Two good examples of out-of-favor suppliers that have made a comeback in a very big way are Puma and Converse. Under Armour is probably the best example of a new vendor that has made the most impact on the apparel side of the business in a very short period of time. So yes, I do think that we need some fresh blood in the business, but we also need the existing suppliers to continue to develop new fashion and technology.


SEW: Much media attention was drawn to the feud between Nike and Foot Locker earlier this decade.  For the record, what was that all about?
MS: I think the relationship issues at that time were blown out of proportion by sources external to both companies. Over the years, there have always been a few disagreements between our companies regarding operating philosophies. Unfortunately, this is the first time that a disagreement became public. The nature of our relationship over the years is two large companies doing a lot of business together creating what I call a lot of ‘productive tension.’ At that time, the tension got overly productive. Today, I am pleased to say I believe the relationship is as good as it’s ever been.


SEW: What’s driving the footwear business these days?
MS: The casual part of the business has been driving growth in the current environment. Skate product, which is kind of a casual look, has been one of the fastest-growing categories over the past couple of years. Converse and footwear with vulcanized soles have also been hot. The classic piece of the business, – the more basic white and black shoes – are just not selling at the same rate as the more recent past.


SEW: Can you discuss the opportunity in skate?
MS: We believe that the skate category will continue to grow in importance to our business, which is the key reason that we acquired CCS. At the time of purchase, CCS was already well established as the place to shop online for skate product. Earlier this year, we opened two test CCS stores in Santa Monica, California and in Garden State Plaza, New Jersey. The stores are off to a good start and meeting our expectations. Based on the initial success, I believe the company will look to expand this chain meaningfully over the coming years.

SEW: Do you see more skate reaching Foot Locker’s doors?
MS: I think that is an opportunity that we will capitalize on over time. We ran a test in Europe this year by adding skate product in 160 of our stores. It’s gone well and is currently being expanded to over 200 stores. I’m hopeful that our U.S. operation will get the skate product in the near future.    

 

SEW: What’s causing the weakness in the urban market?
MS: While all the markets have been difficult due to the external environment, I believe that the urban customer has been hit the hardest. I believe the issue is due more to economic factors than to fashion changes.


SEW: How is basketball holding up?
MS: The basketball category has been our most consistent business. In fact, I can’t remember more than one year where we had a decline in our basketball business. In aggregate, we do close to $1 billion annually in the basketball category – both footwear and apparel. Our basketball business, both footwear and apparel, is led by the Jordan brand by Nike. We also benefit from having Kobe Bryant exclusive styles in the mall and Lebron James is now emerging, as well. In Europe, basketball is still a small percentage of our overall business, but is now growing at a good pace.


SEW: It seems that pushing towards leaner inventories across the channel has been healthy for the industry.  Are there any downsides?
MS: One of the current developments in the athletic industry that is concerning to me is the increase in price points. As a result, we are carrying fewer units and a lower dollar investment than in the recent past. In fact, over the past three years, a lot of prices have gone up 25 to 40 percent. Due to these price increases by our suppliers, being in stock is more challenging than the past because we have both fewer SKUs and a lower dollar investment on hand in our stores. 

SEW: Can you discuss prospects for Lady Foot Locker?
MS: I think that the female consumer has gravitated from pure athletic to a more lifestyle fashion look, ala Lululemon. Overall, our Lady Foot Locker stores, in my opinion, look good and are merchandised well. With that said, we need to rethink our strategy with that division and possibly re-position ourselves to better meet the consumer’s current taste.  


SEW: Might it be a more upscale positioning?
MS: Quite frankly, the female consumer is currently buying a lot of inexpensive product at Lady Foot Locker. Unlike Foot Locker, Lady Foot Locker has never sold a lot of footwear priced over $100. In our Foot Locker stores, the higher-priced marquee footwear represents, at times, approximately one-third of our business. By contrast, the core customer at Lady Foot Locker is more interested in footwear priced in the $60 range.


SEW: What opportunity does Ken Hicks have as he takes over Foot Locker?
MS: When I joined the company, I looked at the opportunity as long-term in nature and it turned out to be that way. We had a lot of success at the company during most of my tenure. Part of my job was to identify my successor and I am very pleased that we were able to get Ken to join our company. A smooth transition to Ken is progressing as expected. He is fortunate to be taking over a company with a strong organization, a financially solid financial structure and opportunities to improve the company’s profitability over the years ahead. In fact, I believe that Foot Locker’s best days lie ahead.

SEW: What’s next for Matt Serra?
MS: I’ve been working very hard for 43 years and I need a little down time to catch my breath. But after the downtime, I will look at some opportunities.