Kinney Shoe Corp. Business Information, Profile, and History

History of Kinney Shoe Corp.

Kinney Shoe Corp., a subsidiary of Woolworth Corp., is a century-old company that made its reputation as a family shoe store. In the 1970s it also established the popular Foot Locker athletic footwear and apparel stores. At the end of 1994 Kinney Shoe Corp. was operating an empire that comprised 826 Kinney shoe stores; 1,828 Foot Locker, 595 Lady Foot Locker, 136 Kids Foot Locker, and 32 World Foot Locker stores; 539 Champs Sports sporting-goods shops; 200 Athletic X-Press family athletic footwear and apparel stores; 76 Footquarters brand-name family shoe stores; and 61 Going to the Game! licensed athletic-team apparel stores. It also ran three shoe-manufacturing factories. In 1995 the Kinney holdings were divided into two Woolworth divisions, although Kinney retained its corporate existence.

Son of a bankrupt general-store proprietor in upstate New York, George R. Kinney spent more than a decade working as a clerk for footwear manufacturers and paying off his father's debts. In 1894 he invested his remaining savings in a retail shoe store in Waverly, New York. Bypassing jobbers and independent wholesale distributors, Kinney bought footwear in large quantities directly from factories and sold them at the lowest possible prices, but for cash only. Mindful of his father's policy of extending credit to customers, which became disastrous, Kinney generally held to the motto, "Shoes on the Shelf or Money in the Till."

During the following years Kinney opened a number of other shoe stores in New York and Pennsylvania, in collaboration with managers who bought shares in the enterprises and became partners. Kinney was the head buyer, purchasing shoes from manufacturers for 80 cents a pair and discouraging his managers from selling them for more than 98 cents. The stores operated on month-to-month leases and were quickly closed if they were unprofitable. Clerks were paid poorly but were rewarded with profit sharing in the form of bonuses.

There were 15 Kinney stores in 1903, the year Kinney moved his headquarters from Wilkes-Barre, Pennsylvania, to Manhattan, where the previous year he had become the first retailer in New York City to sell shoes for under a dollar. Accordingly, Kinney's footwear had a steady working-class clientele. In Pennsylvania's anthracite coal-mining region, a Kinney stronghold, miners could buy shoes on time despite the company's usual cash-and-carry policy. Especially popular was the durable rubber-and-felt "Woonsocket boot," which kept feet warm and comfortable down in the mines for $2.98.

By 1914 the number of Kinney stores had grown to 40, with total sales of $3 million. By the end of 1916 George Kinney had built the largest footwear chain in America, with 56 stores stretching as far west as Illinois. The following year a closely held company called G. R. Kinney Co., Inc., was incorporated in New York, replacing the former combination of partnerships.

Kinney, who owned the largest number of shares in the new enterprise, died in 1919 and was succeeded as president by an old friend and long-time associate, Ed Krom. By that year there were more than 60 stores with combined annual sales of almost $14 million.

In order to keep footwear costs down and to maintain an adequate supply of merchandise, Kinney had decided before his death to enter the shoe-manufacturing businesses. Four factories were acquired in 1919, each specializing in a different line of footwear. The following year another manufacturer was purchased and a new plant built. A large warehousing and distribution center was opened in 1921 in Harrisburg, Pennsylvania. By 1926 Kinney factories were producing about 14,000 pairs of shoes a day and supplying 60 percent of the merchandise sold in Kinney stores. The company also was buying and selling hosiery from the largest mills in the eastern United States and had been selling shoe polishes, laces, and brushes almost from its inception.

During the growing prosperity of the 1920s Kinney found it possible to pass on higher manufacturing and raw materials costs to its customers. It repositioned itself as the "largest exclusive family footwear chain serving the middle class" with "popular-priced staple shoes of good quality," selling for as much as $5.98. The company also began placing national radio and print advertisements and bought the nationally famous Educator brand of corrective shoes from its Boston owners.

Between 1923 and 1929 Kinney opened 158 new stores, extending its reach to nearly every mid-sized city east of the Mississippi. In 1929 there were 366 Kinney stores in 38 states and 295 cities. The company employed more than 1,400 people and earned $933,549 on nearly $20.9 million in net sales. Its common stock, first listed on the New York Stock Exchange in 1923, reached a 1929 high of $44 a share, not topped until 1955.

The stock market crash of October 1929 ended this period of prosperity. Kinney stock, much of it bought on margin, fell to 50 cents a share. The following year Andre Mertzanoff, an astute investor, acquired a controlling interest in the company, but he soon found that Kinney's troubles were just beginning. By 1932 it had 60 more stores than in 1929 but, because of the general economic collapse, only half the volume of total sales. One week a Brooklyn store posted sales of just 25 cents. Kinney lost money in 1931, 1932, and 1933. Stock dividend payments were halted in 1931 and did not resume on common shares until 1946.

During the mid-1930s Kinney closed many unprofitable stores, dropping the total number to 321 by 1937. Many of the remaining stores were refurbished or moved to better locations. Management established cost controls and centralized purchasing for the factories and ordering for the stores, assigning each store a specific quota of every item in stock.

World War II posed different problems. The federal government sharply curtailed supplies of raw materials and imposed price ceilings and strict regulations on inventories and styles. Consumers were limited to one pair of leather shoes every six months. Kinney experimented with sole materials like rope, canvas, compressed paper, plastic scraps, and carpet bottoms. Its factories produced more than two million boots for the armed forces, about one-quarter of their total output. They also manufactured combat footwear for the Soviet Union.

After World War II and the subsequent population exodus to the suburbs, Kinney was quick to recognize and exploit the trend. It opened its first suburban store in Alexandria, Virginia, in 1947. Within five years the company had also opened five large stores in urban "strip centers"--rows of stores with big parking lots along main roads near new housing developments. In 1954 Kinney opened its first freestanding roadside store, in Berlin, Connecticut. These suburban stores had complete inventories of 1,000 styles in about 6,000 square feet of space, dwarfing the traditional downtown stores. In 1954 Kinney also entered the West Coast market for the first time. In October 1957 the company opened seven stores in one day in the Los Angeles area.

Kinney sold nearly 8.3 million, and produced nearly 3 million, pairs of shoes in 1955. It had 352 stores that year, net sales of $51.7 million, and net income of $1.7 million. All these figures were records. The price of its stock rose as high as $69 a share, compared to an average of $18 in 1951. Nevertheless, Kinney lacked the financial resources to expand further, and several large stockholders wanted to sell. In 1956 the company was purchased by Brown Shoe Co. of St. Louis, then the nation's fourth-largest shoe manufacturer and third-largest retailer. (Kinney was then the nation's eighth-largest retailer.) Brown produced several nationally advertised brands, such as Buster Brown, and supplied the Regal shoe stores.

The deal ran into opposition from the U.S. Department of Justice, which maintained that it would violate federal antitrust laws by giving Brown excessive market power. Brown spent millions of dollars fighting a federal lawsuit but eventually lost its case in the courts in 1962. In 1963 Kinney was sold by Brown to the F. W. Woolworth Co. for $45 million in cash and promissory notes.

During its years under Brown, however, Kinney continued to increase its number of stores and volume of sales, plowing its profits back into the operation. Outmoded manufacturing plants were replaced by new one-story, air-conditioned factories on the Brown model. In fiscal 1962 Kinney earned about $2.5 million on sales of just under $100 million and operated 570 stores.

Kinney was Woolworth's first acquisition since the variety store chain's formation in 1912. Renamed the Kinney Shoe Corp., it retained its own management and control over its finances. The company began to move upscale in 1964 with "Flings," a new in-house brand for young women. Soon it was opening 60 to 70 shoe stores a year. It also opened its first leased shoe departments in 1964, in Woolworth's Woolco discount stores. Within three years, the new Stylco division operated 100 leased departments. It also began to operate leased shoe departments in other discount stores.

In 1965 Kinney moved its retail operations into Canada, first in six Woolco stores and then in two shopping centers. In 1967 the company achieved its 24th consecutive year of record sales, opening 90 new retail units. A new factory for boys' shoes was opened that year in Romney, West Virginia, and a large new distribution center in Mechanicsburg, Pennsylvania. Kinney Shoes of Canada acquired its second factory. In 1969 it purchased two more Canadian shoe factories and the Montreal-based chain of H. Lewis and Sons. By the end of 1968 Kinney had 716 stores and 157 leased departments. That year it acquired two women's lingerie companies, which it held only briefly, and started a necktie manufacturing operation, which it sold in 1975. It also bought "Williams the Shoeman," Australia's oldest shoe chain.

By 1974 Kinney sales had reached $358 million a year. More than 90 percent of its retail sales came from suburban stores, compared to 100 percent from downtown locations 25 years earlier. Between 1971 and 1973, 136 U.S. regional shopping centers opened, and Kinney had retail units in 134 of these. On assuming the company's presidency in 1974, Richard L. Anderson announced his aim to have a unit in every major shopping center, with freestanding stores only to be built in areas with no shopping centers. He also vowed to build a new factory every two years, and to keep them filled throughout the year. In 1974 Kinney had 940 stores and was manufacturing 40,000 pairs of shoes daily in 11 domestic plants.

Also in 1974, Kinney opened its Foot Locker sports specialty division to retail branded athletic footwear and accessories, none of it under the Kinney label. Another new division was created for Susie's Casuals, a group founded in 1968 that comprised 85 women's boutiques in major mall locations. Kinney's sales reached $495 million for the fiscal year ended January 31, 1975. In 1976 it operated 1,449 stores and 291 leased departments in other stores.

Kinney dubbed itself "The Great American Shoe Store" in the 1970s, promoting itself through network television commercials featuring country-and-western singer Ken Berry. The company mounted an enormously successful publicity campaign around the Bicentennial in 1976, and sponsored Walking Tours of America and Great American Running Trails. In 1979 it launched the Kinney Cross Country Championships, the first national competition for high-school runners.

The first Foot Locker opened in 1974 near Los Angeles, with shoes for running, hiking, track and field, basketball, bowling, golf, roller skating, and ice skating. Within five years, some 70 Foot Locker stores were racking up a total of $20 million in sales. Meanwhile, Kinney's 14 manufacturing plants reached peak production of 53,000 pairs of shoes a day in 1978. The company's growth in this period was phenomenal, lifting it to fourth place among shoe companies in the United States. It passed the $1 billion mark in annual sales in 1980 and operated 2,115 stores that year, not counting 368 leased departments.

However, these figures obscured a pattern of shrinking sales growth and profit margins that began in 1979 and continued in the early 1980s. Kinney's operating profit margin rose steadily from 1976 to a peak of 12.9 percent in 1978, then declined to 10.6 percent in 1979 and 9.3 percent in 1980, when the company had operating income of $96 million. Sales per square foot in Kinney stores dropped 5.7 percent in 1980. Soon after, an increasingly troubled Woolworth for the first time began to draw on Kinney's profits to help pay its dividends. When Woolworth closed its Woolco operations in the United States in 1982, taking a $600 million loss, Kinney's Stylco division was also closed.

Kinney's best performer in this period was Foot Locker, which in mid-1982 was operating 316 units in the United States and Canada. By the following year, when Foot Locker had 522 stores, athletic footwear accounted for half of the company's sales. The first U.S. Lady Foot Locker store opened in 1982, selling women's athletic footwear, apparel, and accessories. Also in that year, Kinney recruited Fredelle, a Canadian boutique, to sell branded, high-fashion women's shoes in the United States. Kids Foot Locker was launched in 1986, and Athletic Shoe Factory (later Athletic X-Press) was acquired in 1984 to combat discounters. When running began to fall out of fashion in the mid-1980s, Foot Locker highlighted basketball, developing the "Foot Locker Slam Fest." And during 1987 and 1988 Kinney merged two sporting-goods chains it had acquired to create Champ Sports mall stores, offering apparel and footwear as well as athletic hardware and accessories.

Other Kinney segments were not doing as well. Its shoe stores, concentrating on leather shoes in the $25 to $40 range, had been criticized for lack of fashion direction and were not expanding rapidly in number. And a flood of imports, plus the rising popularity of athletic footwear, had taken its toll on Kinney's shoe-manufacturing operations. In 1989 only five shoe factories remained, all in Pennsylvania. By 1994, there were only three, turning out about 13,000 pairs a day. The rest of Kinney's shoe supply was coming from Asia.

By late 1991, the number of Kinney shoe stores was down to 1,312, with its sales for the year expected to be down three percent, to $688 million. Foot Locker, by contrast, had expanded to 1,352 stores in the United States and sales of $1.5 billion. Champs' sales had grown from $18 million in 1987 to an estimated $397 million in 1991. In 1992 some 300 underperforming Kinney shoe stores were dropped, and in 1993 another 300 were closed. Some of them were to be converted to specialty formats.

In 1994 Kinney was the largest of Woolworth's divisions, contributing $3.5 billion in sales and providing 60 percent of the parent company's profits. It was operating more than 4,500 stores. Foot Locker, with more than 1,700, had moved into Europe, Mexico, and Australia, with plans to expand into Asia, and was located in virtually every U.S. mall.

In February 1995 Woolworth split Kinney into two separate divisions. The Athletic Footwear and Apparel Division was given operation of more than 4,100 stores worldwide, including the Foot Locker group (which included Athletic X-Press) and Champs Sports stores. Kinney Shoe Corp. president and chief executive William DeVries was appointed to hold the same posts in this division. The Specialty Footwear Division was given operation of Kinney's manufacturing facilities and 655 stores in the United States under the names Kinney, Footquarters, Colorado (an outdoor-apparel chain), and Basics.

Principal Subsidiaries: Armel, Inc.; Janess Properties, Inc.; Kinney Service Corp.; Kinney Trading Corp.; Menlo Trading Co.; Robby's Sporting Goods, Inc.; Simpson's Ferry Leasing Corp.