Genesco Inc.

1924–1996

Genesco Inc. is a major producer, wholesaler, and retailer of brand name shoes and boots for men and women. The company also owns Volunteer Leather Company, a leather tanning and finishing business. Among the shoe brands Genesco owns or produces under license are Johnston & Murphy dress shoes for men, J. Murphy men's casual and dress casual shoes, Domani European-style dress shoes for men, and Dockers and Nautica casual footwear. The company also manufactures and sells Laredo, Code West, and Larry Mahan western boots. More than 5,000 retailers, including leading department stores, discount, and specialty stores, offer Genesco footwear. The company itself operates 463 retail shoe outlets, including Johnson & Murphy, Jarman, Journeys, Factory To You, Boot Factory and J&M Factory stores. In the fiscal year ending January 30, 1996, the company had sales of $434.6 million.

James Franklin Jarman began manufacturing $5 shoes in Nashville, Tennessee, in 1924 and incorporated the following year as Jarman Shoe Company. His son, Walton Maxey Jarman, soon joined the company, dropping out of MIT to do so. Maxey, as he was known, first worked a year at the Nashville plant as a laborer earning $10 a week, then began selling the company's product.

Maxey didn't want to be an electrical engineer, but he did want to build something. In 1933, at age 29, he got his chance. The senior Jarman made Maxey company president and moved up to chairman. Maxey changed the company name to General Shoe Corporation, and, despite the troubled economy of the Depression, started moving the company into shoe retail. He took this step since many shoe stores simply were not interested in more shoe brands, and he saw stores owned by General Shoe as the best way to distribute the company's footwear.

Maxey established four retail chains, bought a tanning plant in Michigan, and, to keep everything in-house, began producing shoe boxes. Through a subsidiary, he provided the manufacturing plants with cement, chemicals and finishes. Maxey became chairman in 1938 upon his father's death, and in 1939 he took the company public, offering 150,000 shares at $15.25 a share.

Opening brand name shoe stores in key cities helped make the Jarman and other General Shoe brands popular. Once that occurred, big independent retailers wanted to have them in stock. The company-owned stores also served as laboratories, providing immediate signals as to what the factories should make. By 1941, General Shoe had sales of $24 million, selling its shoes through its own 43 retail stores and 10,000 other outlets. In 1946, the company made a second stock offering, at $40 per share, with the proceeds going into its general fund.

Maxey Jarman was a devout Southern Baptist and an avid reader. He was reserved by nature, and the results of company psychological tests (which he took under an assumed name) indicated he was too shy to succeed in management. Yet he loved his business, had a great curiosity, and worked hard to overcome his shyness. He also had an entrepreneurial flair.

Aided by the postwar economic boom, General Shoe started the decade by manufacturing and selling $84 million worth of shoes and making a net profit of $4 million. Maxey continued to buy other shoe companies, including Massachusetts' W.L. Douglas Shoe Co., which made men's shoes, and Nisley Shoe Co., with 45 retail stores in the Midwest. Most of the company's brands were moderately priced, in the $10.95 to $18.95 range. With the 1951 purchase of the Johnston & Murphy Shoe Company, Maxey took his company into the high-price ($27.50-$39.50) end of the shoe market. J&M was 101 years old at that time, and its customers had included Teddy Roosevelt and Henry Ford. Part of J&M's marketing strategy, in fact, was to send a pair of shoes to the White House when a new President took office. Within 18 years of becoming head of the company, Maxey had built it up from a single plant in Nashville to the fourth largest shoe company in the United States, with 23 plants, over 200 stores, and 10,000 employees.

But he didn't stop there. Over the next four years he bought 15 more shoe manufacturers and retailers, becoming the country's second largest shoe company. In 1955, the Justice Department brought an anti-trust suit against General Shoe, charging that the effect of the purchases since 1950 "may be substantially to lessen competition or to tend to create a monopoly." Although the company claimed it made only five percent of the shoes manufactured in the United States, it settled with the government out of court in February 1956. General Shoe agreed not to buy any shoe companies for eight months. Then, for the next five years, the company could not make any mergers or acquisitions in the shoe industry without government approval. The decree also required General Shoe to buy 20 percent of its shoes from other manufacturers and enjoined it from requiring independent shoe retailers to buy a specific portion of the company's products.

The success of General Shoe provided Maxey a model for expansion outside the shoe industry. His company was involved in both manufacturing and retail, and General Shoe offered shoes for every taste, from $1.99 to $200. The consent decree may have been the impetus for Maxey to apply that model to the apparel industry.

Five months after the settlement, General Shoe announced it had bought a 65 percent controlling interest in the Hoving Corporation, which controlled seven Bonwit Teller stores and jeweler Tiffany & Co. According to a July 28, 1956 article in Business Week, General Shoe paid over $10 million in cash for the shares. The move built on General Shoe's 1953 purchase of Whitehouse & Hardy, a chain of men's shoe and clothing stores.

Maxey, as he was known, first worked a year at the Nashville plant as a laborer earning $10 a week, then began selling the company's product.

1957–1974

In 1957, Maxey's son, Franklin, joined the company as a trainee. In June that year, the company continued its move into clothing retail with the purchase of 100 percent of Henri Bendel Inc., a high-fashion women's specialty shop based in New York. That move seemed to make particular sense since General Shoe already owned Frank Bros. and I. Miller, which operated Bendel's shoe department.

Early in 1959, Maxey gave a clear indication of his plans when he changed the company's name again, to Genesco, dropping all reference to shoes. Shortly thereafter, Genesco moved into the apparel manufacturing business with the purchases of girdle maker Formfit Co. and Kingsboro Mills, Inc., a lingerie manufacturer. In 1960, the company bought L. Greif & Bro. Inc., which made men's clothing. The title page of Genesco's annual report that year proudly announced the company was "First in apparel and footwear." The company had sales of $321 million (not counting $40 million of sales to its own retail stores), with shoes accounting for about half the volume.

As the company grew, Maxey gave each division's management a great deal of autonomy, while insisting the divisions maintain their distinctive personalities. A 1962 Time magazine article quoted a Wall Street analyst: "Genesco gives a lot of leeway to the divisions, and Maxey runs around ready to throw the book at them if they don't perform."

By the end of 1962, Genesco operated 80 factories in 17 states, manufacturing 51 brands of shoes, making girdles and lingerie for women and suits for men, and selling its products through its 1,500 retail outlets. And Maxey kept buying. While most acquisitions were shoe or apparel companies, in 1963 the company went slightly afield with the purchase of the S.H. Kress & Co. chain of variety stores. Frank Jarman was then company treasurer, and Kress was his first acquisition. As Frank told Business Week in a March 10, 1973 article, "I decided that we should buy a company as large as we were. Our net worth at that time was $103 million, and Kress's was $104 million."

In 1968 Maxey achieved his dream. Genesco became the world's first apparel company to reach $1 billion in sales.

Maxey retired in 1969, leaving a company with 85 divisions, 198 manufacturing plants and 1,630 retail stores. Frank was named president. Four months later he was promoted to chairman. Maxey assumed the new position of chairman of the combined finance and executive committees. In 1970 Maxey ran unsuccessfully for governor of Tennessee. In May 1971, with Genesco's earnings falling, Maxey stepped back in to take control.

The next several years were hard ones for Genesco. A steep increase in hide prices in early 1972 hurt the shoe manufacturing side of the business. Even more critically, the company was having problems with many of its apparel and other retail divisions. Kress was not profitable, due largely to its many downtown outlets and the decisions by former variety store competitors such as Kresge and Woolworth to move heavily into discounting. Roos-Atkins, a staid, West Coast chain selling quality clothing had been turned into a promotional chain, competing with discounters, and the move bombed. Additionally stockholders were suing the company. Although sales for 1972 increased six percent (to $1.4 billion), net income was down 45 percent, to $8.9 million. The shoe division, with its 16 shoe companies, was one of the few bright spots.

Early in March 1973, Frank took back control and became chief executive as well as chairman. He rebuilt Genesco's management structure with fairly tight controls over the 85 operating divisions and settled stockholder lawsuits. He also laid off more than 10,000 employees, including some 900 managers, and closed down or sold off losing operations including 177 Kress stores, 10 apparel plants, and I. Miller women's shoe stores. In Europe, Frank sold off San Remo, a manufacturer of men's suits, and five smaller subsidiaries. The $60 million reserve fund needed for the closures caused a $52.9 million deficit that year.

As Frank explained in a May 18, 1974 article in Business Week, "All our businesses have to do with wants, not needs. In managing them, you must somehow give the operating company managers enough authority to react to fashion changes, but at the same time keep tight controls on finances and inventories." Fiscal year 1974 saw earnings from continuing operations increase 18 percent over 1973, to $17.1 million.

However, Frank took over just before the beginning of a long and increasingly steep recession which had a severe impact on apparel sales and manufacturing. With about 60 percent of Genesco's sales coming from apparel--from 22 separate manufacturing companies and the rest from retail chains--1974 saw another deficit for the company, of $14.3 million. Analysts agreed, however, that the loss would have been much larger if Frank had not taken the belt-tightening steps he did.

1962–1991

In addition to the financial problems, Frank was also confronted with the inevitable and on-going clash between the money side and the creative side of the business. A "numbers freak" who always had a calculator close at hand, Frank selected people with management or people skills for top positions in the company. Despite introducing Laredo, a line of traditional western-style boots, the fact that few of the executives had merchandising experience drew complaints from the operating divisions.

Management discontent combined with shareholders who were angry that they hadn't received a dividend since 1973 and creditors who were worried about $70 million in debt, added up to a bleak outlook for Frank. In January 1977, despite a profit of $16 million for 1976, the board ousted Frank as president and chief executive. Although Frank remained chairman, the fifty-three years of Jarman family control were ended.

John Hanigan, retired chairman of Brunswick Corp., became CEO, with a four-year contract. Hanigan arranged a new $130 million line of credit and began negotiations to sell various parts of the company. "I found an organization that over the years had focused on gross sales. I had to change that focus," Hanigan told Business Week in April 1978. After his first year, the company reported a net profit of 84¢ a share, compared to a loss of $11.12 for 1977. Hanigan sold or closed almost 50 of the 80 companies the Jarmans had bought--60 percent of the non-shoe retail business. On the retail side, he sold the Bonwit Teller, Plymouth Shops and Whitehouse & Hardy chains, the Henri Bendel store in New York City, Baron's menswear units in New York and Atlanta and Burkhardt/Davidson's in Cleveland. He closed Kress and the Roos-Atkins stores. He also took Genesco completely out of the business of making women's and children's clothing and, except for some profitable men's suit makers, out of men's apparel manufacturing as well. "This is going to be run again as a shoe company," Hanigan told Business Week in 1980. "It took a while to get that accepted by everyone around here, but we're all singing from the same hymn book now."

Hanigan shifted the company's footwear focus from manufacturing to retail, largely in recognition of the impact of shoe imports. He built 100 new shoe stores in 1979, bringing the total to 960, and directed the stores to sell any brand that was in demand, not just Genesco brands. By the end of 1979, shoes accounted for nearly half Genesco's sales of $849 million, up from only one-third in 1970. However, the emphasis on retail rather than manufacturing resulted in the closing of six of the company's 18 shoe plants over a two-year period.

In April 1980, Richard W. Hanselman was selected as president and heir apparent to Chairman Hanigan. Hanselman headed the $1.5 billion Samsonite Corp. under Beatrice Foods Co., and a plaque in his office reminded visitors that he had trebled sales at Samsonite to $296 million and increased net profits sevenfold to $43 million.

Hanselman agreed with Hanigan that shoe retailing was the company's future and&mdash an experienced marketer--stressed brand loyalty. He concentrated his efforts on improving the market share of the company's mid-priced brands--Jarman, Flagg and Hardy--and thinning out the number of retail store names, but corporate debt thwarted his plans.

In January 1986 Hanselman resigned as the company announced it had lost almost $34 million for the fiscal year and its banks were refusing to extend its credit lines. William Wire II, the company's chief financial officer who had been with Genesco since 1962, was promoted to president and chairman.

Wire's first priority was to raise money. He sold off company divisions which did not relate directly to the businesses of footwear and men's clothing, including BBC and Camp Hosiery and the box making company. In 1987 he sold the company's Canadian operations for $63 million. He also moved several shoe plants abroad and downsized some of Genesco's retailing and men's suits businesses. In addition, he dismantled the company's centralized operations. According to a May 11, 1987 article in Barron's, what Wire wanted to do was simple: "I keep saying to everyone here that we will never, ever be the low-cost producer of shoes. So we've got to be something else: fast and flexible, with the right product. And the best way to do that is to have small units that can move very quickly."

Wire's approach began to pay off. He reduced debt significantly and, after a year of assuming control, reported net earning of $20.4 million, and a book value at $2.45 a share, up from 77¢ in 1986. The Johnston & Murphy division set sales records, the Mitre Sports soccer footwear unit moved successfully into softball and baseball shoes, and Greif Cos. turned an operating loss of $2.4 million into an operating profit of $2.5 million for its men's suits. The company introduced the Code West brand of boots for the fashion segment of that market, and the plant making those and Laredo boots worked overtime shifts. With an exchange in 1988 of about 5.5 million common shares of stock for most of the company's preferred shares, he eliminated over $28 million in dividend and redemption arrearages. That move cleared the way for the company to pay dividends on its common stock.

The beginning of the new decade brought additional downsizing to the company. In January 1991, Wire closed Genesco's footwear components plant in Reynosa, Mexico, and in February, sold parts of The Charm Step/Easy Street division and liquidated the remaining assets.

1989–1996

By 1992 he felt confident enough about the financial picture to introduce new lines of men's casual shoes. Genesco got the exclusive license to market Levi Strauss's Dockers in the United States and the exclusive worldwide license for the more expensive Nautica brand of canvas footwear. In April, Wire selected E. Douglas Grindstaff, a 30-year marketing veteran from Proctor & Gamble, to become Genesco's president.

Grindstaff had headed P&G's Canadian activities, more than doubling sales there in five years. His first steps were to fill gaps in the company's product line with a younger, less expensive line of Johnston & Murphy shoes called J. Murphy, and an expensive Italian soft-soled loafer called Domani. He also poured money into advertising Genesco's western boot brands and added new colors and styles to the Code West line, taking advantage of the western-look fad. The boot lines were so popular that stores easily sold out of stock. To meet the demand, Grindstaff switched production lines, replacing low-margin shoes with more boots.

Grindstaff also started buying companies with well-known brands, taking the company into new footwear markets. In May, he acquired British soccer shoe maker Mitre Sport U.K. from Grampian Holdings plc for about $29 million. A few months later he expanded Genesco's children's shoe division with the $8 million purchase of Toddler U Inc. and its popular Toddler U brand, the second largest name in the children's market. At the end of the fiscal year, earnings were up to $9.7 million on sales of $540 million, a 14 percent sales increase. A large part of the increase was due to boot sales, which increased 50 percent.

In January 1993, Grindstaff was named CEO, Wire became chairman, and the Johnston & Murphy unit continued its marketing tradition by sending President Clinton a pair of handmade blue suede loafers. However, a new resident in the White House was not the only change occurring. The recession was ending, styles in men's footwear were more casual, and men were buying almost twice as many shoes as they had ten years before.

Grindstaff indicated the company would focus on developing strategies for its 14 brands of shoes, hoping to double sales over the next five years. Unfortunately, Grindstaff misjudged the western boom. After an unexpected $38 million writedown, sales for the year ended January 31, 1994, were $573 million, but the company had a loss of $51.8 million.

Grindstaff initiated a company-wide reorganization aimed at improving the company's bottom line within 12 months. He began closing several footwear and men's clothing manufacturing plants, eliminating approximately 1,200 jobs (20 percent of the company's work force), and shutting down 58 retail stores. In the middle of the downsizing, however, the company's subsidiary, GCO Apparel Corporation, bought the men's tailored clothing manufacturing assets of LaMar Manufacturing Company.

Despite Grindstaff's measures, the picture did not improve. For the six months ended July 31, 1994, the company had a net loss of $3.2 million on sales of $271.6 million. The company traced the weak results to the tremendous fall off in the sales of women's western boots, a sharp drop in sales for the University Brands division, the departure of Toddler University founder and president Jeff Silverman, and continuing problems in the retail division. In a May issue of Fortune, Nancy Rotenier also pointed to problems resulting from trying to take the Mitre soccer brand into clothing and pricing the Levi's Docker shoes too high. In October, Grindstaff resigned, and David M. Chamberlain, a Genesco director since 1989, was named interim president, CEO and chairman.

In November, the company's board approved a plan to concentrate on men's and women's footwear. As part of the 1995 restructuring, Genesco sold its children's shoe business (University Brands) and the Mitre Sports soccer business. Getting out of the men's apparel business altogether, it liquidated the Greif companies and sold GCO Apparel Corporation. By the end of 1995, net sales from ongoing operations in both the retail and wholesale operations were up. The Volunteer Leather Company was a major supplier to the U.S. military for its boots and other footwear.

Genesco was once again solely a manufacturer and retailer of footwear and appeared to be stabilizing. Net sales from ongoing operations for the first half of its fiscal year increased 17 percent to $203.2 million and net earnings were $3 million, at 11¢ per share, compared to a net loss of $164,000 in the first half of 1995. Demand for boots and western wear continued to be soft, but new lines introduced during 1996, including the high-end Larry Mahan western boot and a work boot with western influences, appeared to be popular. The company also planned to introduce a boys' line of Nautica footwear. Chamberlain announced he would stay as chairman and CEO through the year and that Neale Attenborough, president of the Laredo Boot Company, and Ben Harris, president of Genesco's retail operations, had been named executive vice-presidents for operations.

Since its near bankruptcy in the late 1960s the company has made numerous turnaround attempts by refocusing on its core footwear business. Perhaps this latest effort, which succeeded in eliminating all non-footwear operations, will prove successful.