SEW Goes One-On-One with… Foot Locker’s MATT SERRA

July 6, 2009
SGB Update

Last week, Foot Locker, Inc. announced that Ken Hicks, president and chief merchant of J.C. Penney Co., would become its new president & CEO, effective August 17. Hicks will succeed Matt Serra, who has been CEO of Foot Locker since March 2001 and chairman of the board since February 2004.


From 2002 to 2004, Hicks had been Penney's president and COO of stores and merchandise operations. At Penney, Hicks earned credit for enhancing customer service and better attracting female shoppers, making women’s apparel once again one of the department store’s top-selling categories. Previously, Hicks was president of Payless Shoe Source and EVP of merchandising and programming for the Home Shopping Network. Hicks also held a number of senior posts at May Department Stores, including SVP and GMM at Foley's.


Serra, 64, will continue as Foot Locker's chairman until his planned retirement at the end of the company's current fiscal year, Jan. 30, 2010. Here, Sports Executive Weekly talks to Serra about the new CEO hiring, his own plans and legacy, and how Foot Locker is managing the downturn.



SEW: Can you discuss the process and Ken's hiring?
MS: Quite frankly, at our August 08 board meeting I informed the board that I would be retiring from Foot Locker at the end of my contract, which ends January 30, 2010. We have always worked on succession planning from the day I became CEO – not only for me but for all our senior people. And we went through a process of identifying internal and external candidates. I also informed the board at our August 2008 meeting that I was going to engage Spencer Stuart to do an evaluation and process assessment for my replacement. So after reviewing candidates, both internally and externally, the search committee on the board identified Ken as the leading candidate.  I've known Ken for quite some time, and worked briefly with him at May Co. He's a strong merchant, a good businessman and an excellent people person.  And I thought he would be a great fit here at the company.

SEW: Was an outside perspective required?
MS: I think a fresh pair of eyes is probably needed in looking at the business even though I don’t expect there to be dramatic changes. But we had good internal candidates and a lot of external candidates and I'm very pleased that we were able to attract Ken to the company. He's a class act and he's going to do very well here.

 

SEW: The rest of your team is staying on?
MS: Yes.


SEW: You're bringing in someone with a department store background much like yourself. Does that make a difference?
MS: We have a lot of strong shoe merchants here. I'm not looking for a shoe dog. I want a strong general manager, a good businessperson. But in department stores, you still have a big shoe business.

SEW: What was it like for yourself moving from the department store world to mall-specialty footwear?
MS: I had a lot of shoe experience coming into the job. It's basically the same volume but it's more stores and one category. Instead of 20 families of businesses, you're dealing with one family of business. That's the significant difference. But the principles of merchandising and management are the same. And many people now running successful specialty chains have come out of department stores.

SEW: What drove your own move to step down?
MS: It’s been a long run – eleven years– and I think it's time to do something else.


SEW: No plans to retire?
MS: I'll be involved in a business after I retire. It's time for a new challenge for me.

SEW: What type of company will Ken Hicks be taking over? What are his challenges?
MS: First of all, the company's in excellent financial condition. We have a very strong balance sheet. I believe we have strong divisional management and corporate management. I think his challenges will be at the appropriate time to get the top line moving. Right now, that's not principally our focus. You'd like to get the top line moving but we’re controlling the controllables. That means controlling the margins and controlling the expenses and making sure the balance sheet is bullet proof, so to speak. And just getting through this difficult time, which quite frankly none of us has ever seen. I've been doing this for 43 years and have been through four recessions and this one is extremely challenging.


SEW: Looking back, how would you assess your accomplishments at Foot Locker?
MS: We grew sales from roughly $4 billion [when I started] to $5.8 billion in 2006. The last two years have been rough but we've had some good growth. Our EBITDA margin grew from a negative when I joined the company to a high watermark of 10.7%. The last couple of years it's been in the 5% to 6% range but we believe it will come back over time. And I think we put together a very strong organization. I feel very good about the people who are in the senior and middle-management positions here. We also renovated 90% of our fleet over the last decade. We continue to update our stores.  We made the acquisition of Footaction.


SEW: Any disappointments?
MS: There are always disappointments. I had hoped that we would have consummated the Genesco merger but that didn’t' happen. That was kind of a very disappointing period during my tenure. But other than that, it's been a pretty good run.


SEW: Foot Locker's main focus now? 
MS: Controlling the controllables. Everybody likes sales but we're focused on margin, expense and managing that balance sheet. The investment community at large is looking to invest in companies that are gong to be around. So liquidity is an important ingredient.

SEW: Many of your competitors are also focusing more on margins. Has the industry found a new religion?

MS: They better. We learned it the hard way.

SEW: When do you think we'll come out of this downturn?
MS: I've been through four rough recessions and none of us has ever seen anything quite like this. I think it will be some time before it turns around. You hear economists talking about things getting better. I think people are nervous. The consumer is very jittery. This too shall pass but it will be a longer period than people believe.

SEW Goes One-On-One with Foot Locker’s Matt Serra

October 6, 2008
SGB Update

Matt Serra has been Foot Locker Inc.’s chairman of the board since February 2004, CEO since March 2001, and president since April 2000. He was the company’s COO from February 2000 to March 2001 and was president and CEO of the Foot Locker Worldwide division from 1998 to 2000. Prior to joining Foot Locker, Inc. in 1998, Serra served as chairman and CEO of Sterns, a division of Federated Department Stores, Inc., from 1993 to 1998.


This One-on-One conversation this month with Matt Serra was conducted prior to the announcement of the exit of Foot Locker USA CEO Rick Mina and Foot Locker’s acquisition of CSS.


SEW: We’ve seen a lot of improvement from the athletic mall-based chains so far this year. What do you attribute that to?
MS: It’s principally inventory control and margins.

 

SEW: Are all the key players just operating a little smarter these days?
MS: Just talking about Foot Locker, Inc., we were carrying too much unproductive inventory and are really now honing in, as you always should, on key items and key drivers. So we really took a step back and looked at the kinds of inventories we were carrying, the productivity those inventories were producing, and we’re reducing the unproductive inventory significantly.

 

By the close of this year, our goal is to operate with at least $100 million less inventory at cost than the prior year. We’ve been achieving that. The last quarter we were $50 million less and that was by design. We wanted to make sure we were set up properly for back-to-school. And we’re fortunate that the marquee business, which is a very important business for us, is doing extremely

well.


SEW: What’s working on the marquee side?
MS: All the brand Jordans, particularly retros, are doing very, very well. The higher-end of adidas is very strong. We’re getting good sell-through in the high-end of New Balance and also Asics Kayano – $135 retail shoes – are doing extremely well.  Of course, Shox is a very, very powerful running shoe.


SEW: What else is particularly working?
MS: Chucks continue to perform extremely well and the overall skate category is coming on strong. It’s a business that we’re focusing on as a corporation.


SEW: Do you think athletic footwear has turned around?
MS: It’s turned around at Foot Locker.


SEW: Can you talk about your efforts reviving apparel?
MS: We feel there’s an opportunity for us to get back into branded apparel in a much more meaningful way than in the past couple years. That appears to be coming back. And by the end of October, we’ll have Under Armour in almost 900 of our doors in the Foot Locker chain in America.


SEW: What’s been the cause of the struggles in apparel?
MS: It’s a fashion thing. Being here now 10 years, this is the third time I’ve seen it decline and it’s now coming back. Licensed remains challenged.


SEW: Can you talk about your differentiation efforts?
MS: We made a decision towards the beginning of last year’s first quarter that just following our best practices was beginning to hurt us. Our different brands were starting to look too much the same. So we put the full-court press on differentiating first, the look of the stores and second, the products in the stores. So by the end of this year, we’ll have 300 Foot Lockers remodeled under the new look. They’re brighter with new flooring, flat screen TVs – they’re hotter looking. And that’s the evolution in the renovation program that we began with nine years ago. We’re now going to the next phase.


At Champs, which has a much larger apparel and accessories business than Foot Locker, we’re also differentiating the look of the stores, as well, by focusing a lot on mixed martial arts. We have the TapouT exclusive in the mall and that brand has been growing like crazy.

 

Champs also currently has Under Armour in 250 doors. Their apparel business is very, very large so that’s one of the key differentiators between Foot Locker and Champs. And we do play in the licensed business a lot more aggressively in Champs than Foot Locker.

SEW: And you’re adding several new brands?
MS: We’re trying to differentiate by adding brands like Ed Hardy to doors and trying to get newer and more exciting things that are on the horizon. In the skate area, we’ve got Ecko and Zoo York.  And many people don’t realize it but Chuck Taylor is the biggest skate shoe in the country.


Both Foot Locker and Champs now have identified skate areas in their stores where we’re putting a lot of products that are not traditional skate brands or shoes. But the kids are using them, like Dunks and Blaze from Nike, and obviously Chucks.

 

SEW: Why has the women’s business been so soft recently?
MS: In general, women’s athletic footwear and apparel is weak. A lot of it right now has to do with price. We’re selling to the 14 year-old to 18 year-old kid at Foot Locker, but the Lady Foot Locker customer is the older customer and I don’t think she feels like spending over $100 on a pair of sneakers – although Shox is our number one women’s shoe and we also sell a lot of Asics and the high-end of New Balance technical running.


SEW: Are you feeling any inflationary pressures from China?
MS: Not so much. A lot of shoes are up $5 or $10 on the high-end product but we have not experienced any problems at all with any of our price increases.


SEW: Do you think weak traffic is particularly a problem with regional malls?
MS: I think traffic is off at all malls-regionals, strip centers, etc.  The only guys that seem to be doing consistent business is Wal-Mart.  The cost of getting around is very expensive today versus even a year ago.  There’s just less traffic. We also have a tremendous amount of street stores.  It’s close to half our fleet both in the U.S. and international.


SEW: Is Foot Locker putting a bigger emphasis on value in its offerings?
MS: We always offer value. We always offer clearance in the back of our stores to keep our inventories fresh and current. And you’ve got a certain customer where that’s all they buy. But the clearance value price of the business will never go away. As the retail experts say, the retailers that figure out how to sell more at full price and less on sale usually wins the game at the end of the day.


SEW: How’s the mid-priced, $70 to $90, range doing?
MS: We have a big business in that range. We sell a lot of Air Force Ones, we sell a lot of adidas Superstars and Stan Smith footwear.  It’s a very big business for us. We’re rolling Original walls in 600 to 800 doors, and all that plays in that $70 and $90 range.  When you sell 1.3 million pairs of shoes per week, you just can’t be selling $100-plus shoes.


SEW: Obviously, the focus is on keeping inventories lean in the current environment.  How do you decide it’s the right time to chase sales again?
MS: It’s a daily, weekly, monthly process. You look at your sales results. What’s working?  What’s not working?  Which vendors are working?  Who’s more cooperative?  Who’s giving you shorter lead times to buy in?  One of the tough things in our industry is that most of our product is at least six-to-nine months out. 

 

At least the good stuff; there’s always plenty of merchandise out there.  So I think a lot of our competitors are taking a much more focused approach in planning out sales more conservatively. Our focus obviously is on keeping our market share and I think we’re expanding it, from the numbers I see.  And our other focus is on really managing our balance sheet.

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