Famous Footwear 2006 Annual Report Download - page 6

Historically, the footwear industry has lagged the fashion industry in its ability to fulfill consumers’ desire for
a continuous flow of fresh, compelling product. Now, with recent supply chain improvements in technol-
ogy and transportation, companies with the requisite talent are beginning to overcome this challenge. We
are addressing it through our overarching consumer-driven model, which emphasizes the consumer’s role in
seeking trend-right, fresh, and compelling product – “pulling” our shoes through the market.
Integral to this model is a deeper and sharper understanding of the consumer. That means more investment
in marketing research, particularly that which helps us segment the market more skillfully and adapt style
and trend to each of our brands. Our goal is to understand the nuances of different consumer segments so
well that we can build highly-differentiated, market-leading brands.
In addition, we established an operating model focused on partnerships, operational excellence, portfolio
optimization, and brand power. To help drive this model, we launched our earnings enhancement program.
It is aimed at two key goals: 1) achieving top quartile operating performance in the footwear industry over
the next several years; and 2) putting us on the path to becoming the leading footwear marketer, with a
compelling portfolio of brands. The earnings enhancement plan, in other words, is aimed at building the
infrastructure to support Brown Shoe’s future growth and long-term brand equity.
Through this set of initiatives, we expect to generate ongoing after-tax benefits, beginning in 2008, of $17
million to $20 million. The after-tax cost of executing these initiatives is expected to be approximately $23
million over the 2006-2008 timeframe.
In summary, we are focused on achieving sustainable, profitable growth in both our wholesale and retail
operations. Central to that effort will be accelerated growth at our Famous Footwear, Naturalizer, Franco
Sarto, Dr. Scholl’s, Via Spiga and Shoes.com brands in the United States, along with thoughtful expansion
of Brown Shoe’s international presence. We believe that Famous Footwear in and of itself has significant
growth potential, and we plan to open 350-450 new stores in the United States over the next three years.
These strategies will enable us not only to continue expanding our sales, but also to continue targeting annual
double-digit operating profit growth. In addition, as our industry continues to consolidate, our increasing
financial strength and flexibility positions us to capitalize on external growth opportunities that meet our
well-defined criteria.
LOOKING AHEAD
As our company grows, we will continue to demonstrate our belief that how we do business is as important
as how much business we do. One example: We believe that in all our relationships – with customers, ven-
dors, suppliers, consumers, and shareholders – the core of our competitiveness is in being a great partner. As
in any partnership, that sometimes requires taking the long view.
Giving back to the community is a part of how we do business too. Through our product donations and
financial support, we are a major sponsor of the annual “FFANY Shoes on Sale” event, produced by the
Fashion Footwear Association of New York along with the footwear industry, to raise millions for breast
cancer research and education. Likewise, with our employees, we are energetic supporters of the March of
Dimes, United Way, Two Ten Footwear Foundation, and many other organizations.
Our corporate citizenship also is reflected in our approach to our employees. Development programs, such
as our Accelerated Career Track, expose exceptional college graduates to many different areas of our busi-
ness, while supporting their pursuit of an MBA. We also work hard to find, employ and retain people from
all backgrounds, so we can better meet the needs of our consumers. In addition, we help fund scholarships
for students of color through our support of the Jackie Robinson Foundation, from which we also recruit
talent as part of our diversity initiative.
By necessity over the last 10 years, Brown Shoe was often focused on the short-term. Now we have strength-
ened our position to the point where we can begin to concentrate on a longer horizon. By building upon
our solid foundation and consistently improving our operating performance, we can restore our legacy as a
market leader and innovator in the footwear industry – and secure our company’s future.
We have accomplished a lot, but we’ve really just begun. We appreciate your support and look forward to
reporting on our continued progress.
Sincerely, Ronald A. Fromm, Chairman and Chief Executive Officer
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