Brown Group, Inc. Business Information, Profile, and History

Company Perspectives:

Our strategic intent is to become the most successful footwear company worldwide, by operating high performing, customer-driven businesses that set the standard of excellence in every market we serve.

History of Brown Group, Inc.

Brown Group, Inc.--known through most of its 100-plus years as The Brown Shoe Company--is a leading footwear retailer and wholesaler. The Brown Group wholesales many popular brands of women's, men's, and children's shoes--such as Connie, Naturalizer, Life Stride, and Buster Brown&mdashø department stores, specialty retail stores, and mass-merchandisers. The company operates about 800 Famous Footwear stores (which comprise the largest U.S. branded family shoe store chain) and about 450 Naturalizer specialty stores in the United States and Canada. Founded as a U.S. shoe manufacturer, Brown Group now imports all the shoes it sells, about 78 million pairs a year, with most of the sourcing handled by a division--Pagoda Trading Company, Inc.--with offices in Brazil, Italy, China, Hong Kong, Taiwan, and Indonesia. Another division, Pagoda International, markets footwear to retailers in Europe, Latin America, and the Far East. The Brown Group was involved in retailing a variety of products from the 1970s into the early 1990s, including children's furniture and play equipment, rubber balls, women's clothing, rifle sights, equestrian accessories, and fabric, but by 1995 all of these operations had been divested.

Early History

The company began as a shoe manufacturing concern. George Warren Brown moved to St. Louis from New York in 1873 to work in his older brother's wholesale shoe business. While working as a traveling salesman, George Brown came to see great potential in the St. Louis area for shoe manufacturing. At that time, shoes were primarily manufactured on the East Coast. Skilled workers in New England factories made shoes that were then shipped to jobbers at points west. George Warren Brown believed that shoes could be made more cheaply in St. Louis than in the established East Coast factories. After working for four years in his brother's wholesale business, Brown had accumulated enough capital to test his idea. With two other investors, Alvin L. Bryan and Jerome Desnoyers, Brown founded Bryan, Brown and Company to make women's shoes. Brown paid five skilled shoemakers from Rochester, New York, to come to St. Louis and start the factory. The company grew rapidly. In its first year, 1878, the company had sales of $110,000. By 1885 sales were up to $500,000 and growing. In 1881 the company incorporated as the Bryan Brown Shoe Company. In 1885 when Bryan sold his interest, the name was changed to Brown-Desnoyers Shoe Company. In 1893 Desnoyers retired, and the name was changed to The Brown Shoe Company. Brown shoes were sold all over the Midwest, at prices lower than those of the older New England shoe firms. By 1900 the company was growing at a rate of $1 million a year, and St. Louis was becoming known as a major shoe manufacturing center.

In 1900 Brown Shoe contributed $10,000 to the St. Louis World's Fair, a gala event that put a spotlight on the Missouri town. The company put up a model shoe plant at the fair, and this exhibit won Brown a grand prize. Another exhibitor at the fair was the cartoonist R. Fenton Outcault, creator of popular comics "The Yellow Kid" and "Buster Brown." A young Brown executive, John A. Bush, made a lasting contribution to his company by buying the rights to the Buster Brown character. The little blond boy and his dog Tige became the emblem of the Brown Shoe Company children's line. In addition to printing the Buster logo on its shoe boxes, the company hired 20 little people to dress as Buster Brown and tour the country. Buster and Tige played in theaters, shoe stores, and department stores across the country, to much popular acclaim.

While some youngsters were applauding the Buster Brown little people, others were at work in Brown Shoe factories under deplorable conditions for extremely low pay. Because the cost of plant equipment and materials was relatively fixed, Brown Shoe had to make its profits by keeping its labor costs as low as possible. As manufacturing became more mechanized, shoe factory jobs became less skilled. Increasingly, shoe manufacturing jobs were filled by women and children, who could be paid less than men. For example, a 1911 survey of St. Louis shoe workers found more than half to be between the ages of 14 and 19. Some 84 percent of the women and close to 70 percent of the men were under age 24. An average wage for a girl under 16 was less than $10 per week. More shoe manufacturers had followed George Warren Brown's example and set up shoe factories in St. Louis, making the industry extremely competitive. Under these conditions, the wage paid to shoe workers spiraled down.

By 1902 Brown Shoe was operating five factories in St. Louis. In 1907 the company started its first "out of town" plant, in nearby Moberly, Missouri. Several St. Louis shoe companies began manufacturing in surrounding rural towns because of the cheaper labor available in those areas.

In response to the poor working conditions at Brown and in other St. Louis-area shoe factories, workers formed unions. The first was the moderate Boot and Shoe Workers Union; the second was the more radical United Shoe Workers of America, associated with the International Workers of the World. Bitter strikes led to increasing militancy among St. Louis shoe workers. George Warren Brown responded by becoming a local leader of the Citizens Industrial Association, a nationwide antiunion propaganda organization that maintained blacklists against union sympathizers. The best way to fight the unions, however, proved to be to leave St. Louis.

The small towns around St. Louis offered many advantages to the Brown Shoe Company. It was standard at that time for a town that wanted a shoe factory to offer to build one for a company, and exempt the company from paying taxes. In return, the company would agree to pay out a certain amount of money in wages over a five- or 10-year period. After the stipulated amount of wages had been paid, the company had no more obligation to the town. There were always more towns willing to subsidize a new shoe factory. While Brown's management remained headquartered in St. Louis, the company opened factories in many rural towns in Missouri and Illinois. Each town's economy became dependent on the shoe factory, and pro-company sentiments within the factory towns created a hostile climate for union organizers. The distance between the factories also made union organization more difficult than it had been in the condensed St. Louis shoe district.

Regardless of worker discontent, the Brown Shoe Company grew. In 1907 the company moved its headquarters to a stately building in downtown St. Louis. In 1913 Brown was listed on the New York Stock Exchange. With the entrance of the United States into World War I in 1917, Brown Shoe won large, profitable army contracts.

The company stumbled in 1920, however, when a sudden change in women's fashions caught Brown by surprise. Hemlines went up, and Brown was left with an overstock of sturdy high-topped shoes that did not go with the new look at all. John Bush, who had bought the Buster Brown logo rights and then worked his way up to president in 1915, when George Warren Brown became chairman of the board, had to go to Boston before he found a bank that would give the company credit. After this crisis, however, Brown Shoe boomed until the stock market crashed in 1929 and the Great Depression set in.

Labor Strife Reached Peak During Great Depression

During the Depression, Brown Shoe struggled to keep its costs down, which meant that workers' wages suffered. A National Labor Relations Board investigation at Brown's Salem, Illinois, plant found that workers were sometimes drawing checks for as low as $2.50 and $3.00 for a 60-hour week. Workers protested worsening conditions in Brown's factories, but the company's management grew more abusive. U.S. President Franklin D. Roosevelt drafted the National Industrial Recovery Act in 1933 to force industries to standardize wages and prices and thus alleviate the workers' downward wage spiral. Two years later, the Wagner Act guaranteed all U.S. workers the right to organize into unions and to strike. Brown's management, however, remained adamantly anti-union. When workers at the Vincennes, Indiana, factory struck for recognition of their union in 1933, Brown closed the plant. William Kaut, the company's general manager in St. Louis, declared that "The intention of the Brown Shoe Company is to do as much for their help as any shoe industry in the United States ... and when Brown Shoe Company does its part and even more and if the help are then not satisfied, there is only one thing left to do and that is to close the mill." What the Brown Shoe Company was doing for its help, however, reportedly included physical intimidation of union organizers, spying on and infiltrating workers' organizations, and hiring a notorious strike-breaking agency, in addition to its policy of closing down "troublesome" plants.

Eventually, Brown attracted national attention when a union representative in Sullivan, Illinois, narrowly escaped being tarred and feathered in September 1935, and the Illinois Federation of Labor forced a grand-jury investigation. No indictments resulted, but the Regional Labor Board in St. Louis later issued a complaint, citing Brown for unfair labor practices and for using officers and agents of the company to intimidate employees. The hearing that followed revealed that John A. Bush had hired the A.A. Ahner detective agency in 1934. Bush testified that he did not know that Ahner was a strike-breaking agency, but Ahner was in fact known as such in St. Louis. In 1929 he had been implicated in an attempted bombing connected with antiunion work. Although Ahner himself claimed he was not hired to break unions, a report in the Nation on January 29, 1936, noted that termination of Ahner's connection with the shoe company coincided with the dissolution of most of the locals of the Boot and Shoe Workers' Union in Brown plants.

It was not only physical threats and the economic threat of plant shut-down that led many union locals to disband. The Labor Board hearings revealed that Brown had kept a paid spy in its Sullivan factory. The spy turned out to be the former head of the union local. After urging workers into an ill-timed strike, he then incited his union's members to burn the union charter and disband. He was later overheard telephoning Brown headquarters to report his success. Attacked from within and without, most of the Boot and Shoe Workers Union locals at Brown plants folded, because workers were desperate to hang on to their jobs. Brown sometimes closed its plants temporarily, later to rehire only workers who had had no union involvement.

The National Labor Relations Board cited Brown in 1936 for violating the Wagner Act in connection with the dissolution of the Salem local, but the company refused to reinstate strikers and workers who had been fired for union activity. The workers who had not lost their jobs at Brown were finally given some help in their struggle for decent wages when the Fair Labor Standards Act of 1938 established a minimum wage in the United States. The labor shortage during World War II finally gave a boost to union organization, although unrest continued to some degree.

In 1941 Brown opened a new plant in Dyer, Tennessee. A Brown executive, Monte Shomaker, who was later to serve as Brown's fourth president, urged the move south. Shomaker worked to modernize Brown's factories after the war, and to relocate many of them in the traditionally nonunion South. At the same time, Brown's third president, Clark Gamble, was taking steps to move the company into retailing.

Expanded into Retailing Through 1950s Acquisitions

Gamble assumed the presidency from John Bush in 1948, and in 1950 he initiated a merger with Wohl Shoes. Wohl was a 35-year-old wholesale and retail shoe business with headquarters in St. Louis. Wohl had annual sales of $33 million, 90 percent of which came from women's shoes. Brown had provided only 10 percent of Wohl's shoes before the merger, and the merger provided a large new market for Brown. Wohl wholesaled shoes through 2,500 stores throughout the United States, Canada, Mexico, and Cuba, and operated several hundred retail stores and leased department store shoe salons. With this first major acquisition, Brown took a giant step toward integrating its operations into both manufacturing and retailing.

The Wohl merger was followed by Brown's acquisition of another large retail chain in 1953, Regal Shoes. When Brown acquired G.R. Kinney Corporation in 1956, the company had gone far toward assuring itself of both manufacturing and retailing capabilities. Brown was then the fourth-largest shoe manufacturer in the United States, and Kinney the largest operator of family shoe stores. A U.S. District Court in St. Louis, however, found Brown guilty of antitrust violations in 1959, and ordered the company to divest itself of Kinney. The judge in the case concluded that the Brown-Kinney merger seriously limited the ability of independent retailers to compete with company-owned retail outlets, as well as limiting the market for independent manufacturers. In 1962 the Supreme Court upheld the lower court's ruling. By that year Brown had taken the number-one spot in the shoe industry. Brown subsequently sold Kinney to F.W. Woolworth.

Monte Shomaker took over the presidency of Brown from Clark Gamble in 1962. Despite the setback of the Kinney ruling, Shomaker was able to continue Brown's expansion. In 1959 the company had acquired Perth Shoe Company, a Canadian firm with wholesale, retail, and manufacturing operations. In 1965 Brown bought the Samuels Shoe Company, a high-fashion women's shoe company, and in 1970 Brown acquired a men's shoe importer, Italia Bootwear, Ltd.

Began to Diversify Beyond Shoes in the 1970s

Brown's earnings rose each year in the 1960s, until a flood of imports swamped the U.S. shoe industry in 1968. The company's earnings plunged 25 percent in 1969. A new president, W. L. Hadley Griffin, took over that year. Griffin decided to do what other large shoe companies had been doing for years, that is, to diversify into nonshoe areas. Brown quickly acquired retail fabric chains, the Eagle Rubber Company, Kent Sporting Goods, and a luggage sales company, among others. In 1972 The Brown Shoe Company changed its name to Brown Group, Inc., to reflect the company's diversification. By 1973 close to 20 percent of Brown's sales were coming from its nonfootwear subsidiaries. The Brown Group continued to diversify through the 1970s, buying up companies in two main areas: children's products, and sports and recreation.

In 1979 W. L. Hadley Griffin moved up to chairman, and B. A. Bridgewater became the new president. Bridgewater had worked in U.S. President Richard Nixon's Office of Management and Budget, where he set fiscal priorities for the State Department, the Defense Department, and the Central Intelligence Agency. Bridgewater introduced cost-cutting measures at Brown, including reductions in the workforce and cutbacks in executive perquisites. Bridgewater's first year was a record year for the Brown Group, with sales up 16 percent and earnings up 25 percent, and with net income of $41 million. Increased costs, and foreign competition, however, led Brown to close its St. Louis warehouse in 1980.

Heightened Competition Led to 1980s and 1990s Restructurings

Pressure from cheap imports led to more competitive conditions in the U.S. shoe market throughout the 1980s, and President Bridgewater had to constantly adjust the Brown Group's business strategy. In the 1970s diversification into nonshoe areas had proved essential, but in the 1980s, slimming down the company and concentrating on shoe retailing seemed to be the right thing. In 1982 Brown's recreational products division sagged, and Bridgewater ordered a restructuring, which included plant closings and changes in marketing and management. In 1985 after a very poor third quarter, the company announced it would divest itself of all its recreational products operations. The divestiture left Brown with about 75 percent of its business concentrated in shoe manufacture and retailing. The other 25 percent represented various other retail operations, such as Brown's line of fabric stores, specialty women's clothing stores, and the Meis chain of department stores.

In the mid-1980s, Brown bid to keep its shoe business competitive by moving more strongly into shoe importing. Brown acquired Arnold Dunn, Inc., a women's shoe importer, in 1984. That year Brown established an importing division, Brown Group International, and in 1986 it acquired the Pagoda Trading Company, a Far-East importing firm. Importing proved far more profitable than manufacturing. The company closed several U.S. shoe plants, but at the same time improved the efficiency of its remaining factories. By 1988 Brown was able to produce almost as many shoes as in 1980, in spite of a 40 percent reduction in the number of plants it operated. The company also opted to concentrate on marketing its well-known brands such as Connie, Naturalizer, and Buster Brown, and discontinue its marginal lines.

Ultimately, over the course of the early and mid-1990s--and under the continuing leadership of Bridgewater--Brown dramatically restructured itself into a footwear retailing and wholesaling company, with shoe manufacturing almost entirely jettisoned and all nonfootwear businesses divested. In 1989 the company sold off all of its remaining nonfootwear specialty retail operations with the exception of the Cloth World retail fabric chain. The following year, the Pagoda International division was formed to market footwear to retailers in Europe, and eventually in Latin America and the Far East. Brown closed six of its fast-dwindling domestic shoe plants in 1991 and 1992. And the following year it began to shutter its troubled Wohl Leased Shoe Department operation, which managed 500 shoe departments in 26 department store chains.

Brown's restructuring efforts reached a peak in 1994 and 1995. All of the company's remaining U.S. shoe factories were closed, leaving Brown with only two manufacturing plants in Canada. More than 100 company-owned Regal and Connie specialty shoe stores and 50 Naturalizer stores were closed. Three of the company's five headquarters buildings were sold. And the company sold its Cloth World chain to Fabri-Centers of America, Inc. for $65.7 million, thereby returning to a pure focus on footwear. More than 8,500 jobs were eliminated as a result of these moves, about 35 percent of the overall workforce.

Freed from several burdensome operations, Brown began to bolster its core businesses through acquisitions and licensing deals. In 1995 the company acquired the Larry Stuart Collection, an upscale women's shoe brand. Brown beefed up its offerings in the hot athletic shoe segment with the 1995 acquisition of the le coq sportif brand (a century-old brand popular in Latin America, Europe, and the Far East) from Adidas AG and with 1996 license agreements through which Brown would market athletic footwear under the Russell and Penn brand names. Pagoda International, meanwhile, built up an impressive list of famous brands that it licensed for use on shoes sold to children outside the United States, including Barbie; Star Wars; Disney's 101 Dalmatians, Hunchback of Notre Dame, and Mickey for Kids; and Warner Brothers' Looney Tunes, Batman, and Space Jam.

By 1996 Brown Group's extensive and lengthy restructuring had begun to show signs of paying off. The downsized company's sales of $1.53 billion were still well below the levels of the late 1980s and early 1990s, but when adjusted for discontinued operations sales were on the rise. Profits--$20.3 million in 1996--were recovering as well. In possession of an impressive--and expanding&mdashsortment of brands, Brown looked to step up its advertising in order to further increase sales with $21 million (8 percent of sales) slated for brand marketing in fiscal 1997. The company was also expected to continue to aggressively pursue overseas sales, which although on the increase still comprised less than 1 percent of overall sales.

Principal Subsidiaries: Brown Shoe Company; Pagoda Trading Company, Inc.; Brown Shoe Company of Canada, Ltd.; Laysan Company Limited (Hong Kong); Linway Investment Limited (Hong Kong); Brown Group Dublin Limited (Ireland); Moda Universal S.A. de C.V. (Mexico; 50%); LCS International B.V. (Netherlands).

Principal Divisions: Famous Footwear; Branded Marketing (Brown Shoe Company); Pagoda (Brown Shoe Company); Naturalizer Retail (Brown Shoe Company); Canadian Wholesale; Canadian Retail.