In the Customer's Shoes
Before the slowdown, Larry's Shoes president Elliot Goodwin thought he knew just what people wanted from stores like his. Then he asked his prospective customers, and the race to remake his business was on
Welcome to America's largest shoe store for men. You're in north Dallas, at a shopping center called Prestonwood Court East. And here is Larry's Shoes, one of a 10-store chain, and impressive even by Texas standards.
Picture 10,000 square feet of sales terrain, nearly a fourth the size of a football field. With dress, casual, and athletic shoes -- we're talking one-stop shopping for a guy's footwear needs. The selection is huge -- some 2,000 styles from 60 manufacturers, everything from river sandals to Swiss-made Ballys. The stockroom is packed with 30,000 pairs, an inventory worth more than $1 million, about 10 times what an average shoe store carries.
There's a lot to see here -- the celebrity-shoe museum, for starters, which displays around the store footwear of the famous: Golf shoes worn by Gerald Ford. John F. Kennedy's wing tips. The shoes of Cher, Clark Gable, and many more -- even the telephone shoe used by Don Adams, the goofball spy on the old Get Smart show. "They only made one, and we got it," says the president of Larry's, Elliot Goodwin, who picks up these curios at auctions. The most valuable exhibit, suede pumps worn by Marilyn Monroe, cost him $6,300.
Then there are the vendor shops -- stores within a store. Larry's has seven of them here, showcasing its top brands. Recessed into one corner is the Timberland shop, decorated with old snowshoes and backpacks to play up the brand's claims of ruggedness. Sebago's shop sports a maritime motif; nautical charts cover the walls. All that shopping making you thirsty? Visit the cappuccino bar, done up in red and yellow tile. It's got a big espresso machine and blenders for frozen coffee concoctions and fruit juices. No charge, mind you. While sipping cappuccino, you can catch sports action on the five big-screen TVs around the store, or enjoy a free foot rub from a massage therapist. ("I stole that idea from an old hippie grocery store in Austin," Goodwin admits. "They had somebody giving back rubs.")
Flashback to the same store site, circa 1989. Nobody could bemoan the selection; there were 1,500 styles in stock, so no one could mistake it for an old-time men's shoe store. The company, headquartered in Fort Worth and making its money on high-volume business at 10% to 15% off full retail prices (shoe retailers typically add 50% to the wholesale price), was closing in on $22.2 million in annual sales from eight stores in Texas; there's no question Larry's had critical mass.
But Elliot Goodwin was not a happy man. He was looking at a set of horizontal sales numbers and a bottom line that was yielding to gravity, and he was wondering what was going wrong. One thing seemed clear: doing it bigger didn't mean doing it better.
Plenty of entrepreneurs have been in Goodwin's shoes -- enjoying surging demand, cutting the ribbon on new units, operating on instinct instead of systematic customer feedback, and then hitting the wall, not knowing why it's there. As Goodwin discovered, they have two choices: they can do nothing, in the hope that the wall is only temporary, or they can look for tools to start pulling the wall down. Goodwin wanted Larry's to grow. He chose the latter course. And in the process, he was forced to relearn something he should never have forgotten: that he had to communicate with his customers. That meant discovering who they were, asking what they wanted, listening to their answers -- and believing them enough to start doing something about it.
"We always thought people lived to buy shoes," recalls Goodwin, a bit disappointed. "I had no idea it was a pain in the ass."* * *
Larry Goodwin, Elliot's dad, went into business in 1949, running a pawnshop in Fort Worth. When a local haberdashery folded in 1955, he snapped up its shoes -- some 5,000 pairs. A fifth of them were huge sizes, like 18s. Larry played up that niche, and in time he built a following among the hard-to-fit crowd. The Dallas Cowboys, for example, became regulars. By 1964 Larry's had annual sales of $485,000. The elder Goodwin grew his company on a few core principles: offer a big selection of quality shoes, with an extensive range of sizes; sell them off-price, at about 10% below the full retail price; and provide superb customer service. "When he started out, a good men's store would roll out the red carpet," Elliot says. "He trained his salespeople to pamper customers. We try to do the same."
Elliot started working in his dad's store at age 10 and skipped college to enter the business full-time at 18. He steeped himself in marketing, buying, and merchandising -- the basics. By 1974 the company had three locations in the Dallas-Fort Worth "metroplex." By 1987 Larry's had become an $18.6-million company with seven stores -- five in Dallas-Fort Worth, two in Houston. That year the elder Goodwin handed operating control to Elliot, then 29.
The new president's ambitions for the business grew along with his acumen and authority, and he moved briskly, opening a third Houston location in 1988, using bank debt and internal capital, along with landlord discounts. Each store averaged 10,000 square feet, compared with 1,485 in a typical men's shoe store, and stocked an inventory worth $770,000, seven times greater than the norm at the time. In 1989 Elliot Goodwin, with his new top team of managers, wrote up a five-year plan, aiming for sales of $50 million, with perhaps 15 stores. As it stood, Goodwin's 8 units were averaging nearly $2.8 million each, more than seven times the sales number for a typical men's shoe store. Sales per square foot were running well above the industry average. Goodwin and company even hoped to go public, using the proceeds to fuel expansion.
But the flurry of expansion activity blinded the management of Larry's to some dramatic changes in the marketplace. When Larry Goodwin started out, footwear selling was very much a world of tiny local independents. Retailing then meant knowing customers by name, knowing their preferences -- and measuring their feet. These days Goodwin battles precious few independents. But he has plenty of competition. The department stores account for colossal volume: Dillard and JCPenney are big in the areas where Larry's operates, and Nordstrom, famous for its shoes, is coming to Dallas. Then you have Foot Locker, Payless ShoeSource, and other big chains. Also, catalog companies such as Orvis and L.L. Bean sell shoes. And how long, Goodwin wonders, before those home-shopping TV shows get in on the act? "Ten or 15 years down the road we're going to be competing with a lot more people," he says.
From 1986 to 1987 the company's sales had soared from $14.5 million to $18.6 million. But they had begun to dip as early as 1988, dropping back to $18.2 million. It was in 1989, though -- as the grand five-year plan was being drafted -- that things began to unravel. The gain in that year's overall sales, to $22.2 million, came from the new Houston store; the individual stores' sales had plateaued -- "sucking money out," is how Goodwin puts it -- and Larry's came close to taking a loss. Goodwin was forced to look outward to get a glimpse of market forces that demanded responses. For one thing, the local demographics of one of his stores looked bleak as malls and retail action started up in a different part of the city.
In retrospect Goodwin blames himself for the sales slowdown. "I was living in a corporate glass tower," he says. "When you get too wrapped up in the office world, you lose touch with the customer, with the employee. I got immersed in the wholesale side, dealing with vendors who were showing me their hottest new products. Pretty soon you're dictating what the stores should be -- I was analyzing from here what I thought the customers wanted and catapulting those ideas out to the units. That created a store-versus-corporate kind of environment, and morale began to deteriorate."
In 1990 Goodwin had attended a retail convention at which customer surveys were a hot topic. As he cast about for ways to revitalize the company he contacted Decision Analyst Inc., a market-research firm in nearby Arlington. It was hardly an instinctive move: "I'm not a pro-research person," he explains. "I wasn't prepared to follow their advice, but I did want whatever information they could discover." And so early in 1990, Decision Analyst was hired to probe the shoe-buying habits of the male shopper. It ran focus groups consisting of current and former Larry's customers, as well as people who had never set foot in a Larry's store.
The $10,000 effort culminated in a report issued in April 1990, and Goodwin was dismayed by its findings. Despite years of newspaper advertising, for instance, the focus groups revealed that some people thought Larry's was a rack store, with no service. Others thought it was expensive. Some even thought it was a women's store. Another conclusion was that men hate to shop, and they really hate shopping for shoes.
Footwear aficionado Goodwin wasn't buying it. "Frankly, we had trouble believing that the people in the focus groups were really our customers," he recalls. The research firm wanted to press forward with telephone research to quantify the results from the focus groups -- a much costlier endeavor. But Goodwin resisted: "We put the brakes on it from an expense standpoint," he says. "We also figured that if we weren't going to act on the results, why spend the money?"
Meanwhile, sales weren't budging. In the company's 1991 fiscal year they stood at about $23 million, flat from the previous year. Pretax income was $352,000, a meager 1.5% of revenues. It took another couple of years of mediocre returns -- overall revenues were growing some, driven by two new stores in Denver and San Antonio, but individual stores' sales remained flat -- convincing Goodwin that the focus groups hadn't been flukes.
"I did some real soul-searching," he says. "We had to know what customers really thought of us to get the company moving again." He went back to Decision Analyst, and in April 1993 the firm conducted phone surveys, based on a questionnaire designed by the high command of Larry's. "We wanted information that could help in advertising and store design, in inventory, in anything related to sales," Goodwin says. "What price shoes do men buy? Do they buy only when things are on sale?"
The meat of the research consisted of 20-minute phone interviews with 650 men in Dallas, Houston, and San Antonio. There was a random sampling of 450 "qualified" men -- those who lived within seven miles of a Larry's store, who were at least 18, and whose household income was $30,000 or more. A second group of 200 respondents were Larry's customers, drawn from the company's database of 650,000 names. The conclusions of the $25,000 effort, released in June 1993, mirrored those from the focus groups. Decision Analyst found that two-thirds of qualified men had never shopped at a Larry's. And only 16% of qualified men had bought shoes there in the past 18 months.
The polls also pointed to seven key attributes that consumers said they wanted in a shoe store, in the following order:
· Carries plenty of sizes and widths
· Sells quality shoes at value prices
· Offers a wide selection
· Has an easy, pleasant return policy
· Has knowledgeable and friendly salespeople
· Has speedy checkout procedures
· Carries many brand names
Larry's had most of those features already -- that was the good news. The trouble was, it was obviously communicating them poorly to the public. Goodwin got the message: Larry's should build on its existing strengths and send clearer signals to its customers.* * *
The clouds were starting to lift. By the spring of 1994 the Larry's employee newsletter was reflecting the results of the company's having discovered who the customers really were. "The good news is that there are still 84% of our customers out there for the taking. They just don't know they are our customers yet," said marketing director Terry Hillgartner in an article on the company's marketing plans.
"We maximize that 16% by pounding and pounding them with newspaper ads and direct mail."
For years Larry's has advertised in the sports sections of newspapers such as the Dallas Morning News and the Houston Post. But in print ads, the chain's message is brand and price, like everyone else's. "With all the things we were doing, it was like winking at someone in the dark," Goodwin says. Although the company's print campaign won't dry up entirely (newspaper advertising alone will cost $550,000 this year, part of a print-advertising total of $1.1 million), it is being trimmed substantially as Goodwin funnels marketing dollars into other areas, such as TV.
The revamped Prestonwood store, Marilyn Monroe pumps and all, lends itself well to televised pitches. "The driving point of TV is to create a visual image of the store," explains Goodwin. "We need to communicate the message that Larry's is different. We need to project who we are." Larry's began airing TV commercials in late 1994, spending $250,000 in the last quarter to generate Christmas business. The first ads focused on the shoe selection, the sizes, and the value pricing. This year, out of a total ad budget of $2 million, Goodwin will devote $750,000 to TV spots in his multistore markets, Houston and Dallas-Fort Worth. The new commercials will show store interiors, including the coffee bar, the shoe museum, and the foot masseuse.
This is a cable campaign, with commercials running on everything from CNN and ESPN to MTV and VH1. "The idea of TV is new-customer exposure," says advertising director Kim Todora. "Existing customers get spring and fall catalogs and other promotional mailings, but we need to reach people who have never shopped at Larry's. With cable, you can target. We run spots during movies aimed at men on Wednesday and Sunday nights, because that's when they watch the most TV." To zero in on women -- sales "influencers" in trade lingo -- new spots will air on the Discovery Channel and Arts & Entertainment.
It's too soon to measure the payoff from the investment in TV. Early returns are encouraging, though: in-store surveys show that the spots have raised the chain's profile.
Meanwhile, Goodwin has been working to respond to the seven shoe-store attributes uncovered in the research. Specifically, he's paying attention to --
· Sizes and widths. Where stockroom space permits, Goodwin has boosted his size runs from 5 to 20 in some brands, up from 5 to 18, carrying widths from AAA to EEEE. "If someone picks out six styles of shoes," he says, "I want him to be able to try them all on. In most stores, you pick out six hoping they will have one or two in your size. I knew this would slow our inventory turns, but it was more important to have the shoes in stock." He has also launched a "never out" program for his best-selling models.
· Quality shoes at value prices. Larry's doesn't bill itself as a deep discounter, but Goodwin has started a "can't be beat" policy. When competitors advertise sale prices, Larry's matches them. Store managers enter the advertised prices in the computer system, adjusting their own pricing to meet the competition's lowest offer. "I don't want anyone to open the paper at night and see that he could have paid less someplace else," Goodwin says. "He's going to go, 'I just got screwed.' So we read the paper for him."
· A wide selection. When Goodwin expanded the Prestonwood store to 15,000 square feet (doubling the sales floor to 10,000 square feet), he could display 500 more styles than he could before the renovation. He also raised awareness of his top brands with the seven vendor shops. (It's the same idea as, say, the Ralph Lauren boutiques in today's upscale department stores.) "The vendors were fighting for more shelf space," Goodwin says. "I thought the shops would strengthen my relationship with them and add some entertainment value." The vendors split the $25,000 average cost of the shops with Larry's, happy to have the exposure. "By having a nice piece of geography in the store, we can really tell our story," says Dennis Walker, a sales manager for Rockport, the best-selling brand at Larry's. "We have 80% of our patterns on display. Nobody else gives you that kind of product spread and presentation."
· A hassle-free return policy. Based on Decision Analyst's research, Goodwin instituted a 30-day "walk test." Shoes can be returned for any reason. "We thought returns might go through the roof. They have gone up, but minimally. We have to eat some shoes, but I think this policy is great for word of mouth," says Goodwin.
· Knowledgeable and friendly salespeople. Nearly all Larry's salespeople are full-time professionals, earning $25,000 to $40,000 a year. No one goes on the sales floor with less than 60 hours of training in stockroom logistics and the fine points of a huge selection. "They can review the inventory in their heads and decide which product best fits a customer's needs. That's rare," observes Walker, the Rockport rep.
A salesperson always measures a customer's feet and takes time to make sure the shoes fit well. The service ethos goes back to Larry Goodwin, who used to make a practice of stopping every customer he saw walking out without a purchase. It surfaces in the employee newsletter. "Did you know," reads one headline, "two customers a day stopped at the door and turned into buyers could bring close to a million dollars a year in sales and $300,000 of profit?"
The salespeople work on a 7% commission, but if a customer returns within a year, the original salesperson earns 10% on subsequent sales to that customer -- a change Goodwin instituted in 1993. "I'd like to invite every customer over for dinner -- that's how you feel when you own a company," Goodwin says. "But how do you get employees to treat the customer like that?" He wanted employees to feel they had a vested interest in their clients, and to help build repeat business he began supplying them with business cards, thank-you notes, birthday cards, and the like. (The company pays for materials and postage.) Marketing director Hillgartner pulls no punches about the program in the employee newsletter: "The single most important factor in maintaining existing customers is our Call Book Program. . . . Thank-you cards to every customer are a must, along with notifying customers of sales and new products when they arrive."
· Speedy checkout. Goodwin took steps to reduce customers' time at the cash register. Larry's spends $500 a month to keep an open phone line between its mainframe computer and a credit-card clearinghouse; there's never a busy signal. When a customer pays with plastic, credit confirmation takes only five seconds instead of perhaps a minute, a seemingly minuscule benefit but part of Goodwin's determination to impress the customer. Then, using a CD-ROM containing white-page telephone listings for the local market, MIS director Tom Thomason loaded into the mainframe 450,000 names, addresses, and phone numbers of noncustomers within the areas where Larry's operates. Those names, combined with the 650,000 names Larry's already had, brought the total database listing to 1.1 million. At checkout a customer need provide only his phone number. The computer system generates the rest.
Goodwin admits it's hard to measure a return on those attributes, but that's OK by him. "Some of it is blind faith that the money I'm investing will pay off," he says. "We're trying to look at things through the customer's eyes, to enhance the experience in the store. If we don't have good customer service, everything else is just window dressing."* * *
In September 1993, when Goodwin spent $400,000 to remodel the outmoded Prestonwood store, virtually everyone in the company looked askance at him. "They thought I was nuts," he says. "Cappuccino? They wondered if deep down inside I wanted a restaurant." But the glitzy bar was a calculated move. "A full-page ad on Saturday costs you about $14,000," says Goodwin. "But for $35,000, I can offer something nice all year long."
The vendor shops are kicking up dust, too. Sales of New Balance shoes, for instance, leaped 44% last year at Prestonwood. The Allen-Edmonds line was up 42%, and Nike climbed by 30%. And with Ringo Starr's psychedelic sneakers slowing down customers, the superstore garners an average per-ticket sale of $146, $13 higher than the other Larry's stores. Hillgartner says people linger in the superstore 15 or 20 minutes longer than they did before the remodeling. "I could spend hours looking around here," said Michael Meteus, a software rep shopping at Prestonwood one day last January.
Goodwin sums up Prestonwood's ambience this way: "When someone comes into our store, he has to see more than just shoes. We're trying to trigger some emotional energy, a feeling that this is a fun place to shop. So we're redefining expenses by what's important to the customer. I want that 'Wow!' reaction -- it generates great word of mouth."
It seems so. Opened in November 1993, the reconditioned Prestonwood store hit big numbers immediately. In its first full year, sales jumped 24%, to about $5 million, compared with the store's 1.12% average growth rate over the preceding four years. That brought the company to sales of about $27.5 million in fiscal 1994, up from $25.8 million in 1993, just after the chain had grown from 8 to 10 stores. Goodwin is budgeting for revenues of $31 million this year.
Companywide, Larry's sold some 300,000 pairs of shoes last year to 215,000 customers -- the rate of 1.4 pairs per customer compares well with the sector's average of 1.2. That makes the company the highest-volume independent men's shoe retailer in the country. Goodwin has learned to read the dynamics of the marketplace: this year he's shuttering two declining stores and moving them to more-lucrative locations. He hopes to build two new stores in Denver this year or next, and possibly branch into Phoenix or Atlanta.
Meanwhile, he's remodeling three key stores this year -- in Denver, Dallas, and Houston -- giving each of them the Prestonwood look. Eventually, every Larry's unit will feature cappuccino and a shoe museum, as well as coloring books for kids and diaper-changing tables in the bathrooms. "The vendors love it, the employees love it, and the managers are excited as hell that this stuff is going to happen in their stores," says Goodwin.
Now all he has to do is remember to keep communicating with his customers.
Larry's stores may be huge . . .
Per store 1993
(men's shoe stores only) Industry average Larry's Shoes
Average sales $373,170 $2,755,536
Average overall size 1,672 sq. ft. 10,143 sq. ft.
Average inventory (at cost) $96,981 $748,801
Annual inventory turnover 2.1 2.1
. . . but it's the marketing dollars that help bring results
(as % of revenues) 2.7% 5.5%
Sales per square foot $224 $272
Pairs of shoes sold per customer 1.2 1.4
Source: "National Shoe Retailers Association 1994 Business Performance Report," Columbia, Md.; Larry's Shoes
The new superstore gets buyers to tarry awhile -- and spend
Prestonwood Other Larry's
1994 superstore stores
Average time spent in
store by a customer 40 minutes 20 minutes
Average per-ticket sale $146 $133
Pairs of shoes sold
per customer 1.41 1.39
Source: Larry's Shoes n
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