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BEYOND WOOLWORTH

Venator Group Chairman Roger N. Farah describes how retailer must break with past to compete in future

When Roger N. Farah, 44, was appointed Woolworth Corp.'s chairman of the board and CEO in December 1994, he found himself at the helm of a company experiencing its most difficult hour. Woolworth's general merchandise stores, once an icon on the American landscape -- not to mention overseas -- were well past their prime. The stores were losing money and customers, and pressure was building on the corporation. Across many of its retail divisions, the company was plagued by a high cost of doing business, caused by an antiquated inventory system and a host of other problems.

But Mr. Farah is presiding over a revolution that has seen a revamping of the corporation's various stores, the purging of some personnel, and a complete change in inventory control and other aspects of the stores' operations. As a result, short-term debt has been eliminated, and operating expenses reduced. Net income for the full year from continuing operations increased 10% to $213 million over the previous 12 months.

In another bold stroke, Mr. Farah shut down the landmark Woolworth general merchandise stores, and retired the Woolworth name itself, renaming the firm Venator. Thus, he brings one era in the company's venerable history to a close so that another may follow. Before coming to Woolworth, Mr. Farah, a graduate of the University of Pennsylvania's Wharton School, served as president and COO of R.H. Macy & Co. Before that, he headed Federated Merchandising Services, the central buying and product development arm of Federated Department Stores. He also has held the posts of chairman/CEO and president/COO at Rich's department stores, Atlanta, and served in various roles at Saks Fifth Avenue. Mr. Farah spoke in mid-March with Edmund Mander,
Executive Editor of Shopping Centers Today.

SCT: In your annual report you mention that Woolworth has lowered its operating expenses.

Roger Farah: We have just released our annual results for 1997, so on a three-year basis we really have reduced our expenses significantly -- $314 million -- over the course of 1995, 1996, and 1997.

What are some of the key ways you did that? Inventory control reform?

Yes, inventory is certainly a piece of it. But really, our strategy is to provide the best value possible for the customer and also earn a reasonable profit for our shareholders. So one of the objectives we set out to accomplish when I first got here was to get our overall expense structure into a very competitive position. We really analyzed at the beginning what might be the right expense structure and we benchmarked ourselves against world-class companies.

We took a look at every single discipline, whether it was distribution, logistics or systems, and said, 'What did the best [companies] in the field invest in those areas?' with an eye towards having a high level of service in the stores.

Because so much of our business is footwear-oriented, we have to provide a level of service to sell shoes that you really don't need in a lot of other formats. We really looked at all functions and said we had to reduce our overall expense structure by 500 basis points over the course of four years. That translated, at that point, because of the volume we had, to almost $400 million. So today, at the beginning of Year Four, we are 75% of the way through it.

What are some of the other companies you see as models and admire?

What we tried to do is benchmark our business against the primary competitors. So if we looked at our specialty store business, we tried to look at the most successful specialty stores, whether it was The Limited or The Gap, or anybody else who has sustained excellence over time. We were really looking for an economic model that would sustain excellence for many, many years.

For some of our nonmall businesses, we looked at people that we felt were sustaining excellence over time and we tried to emulate those.

Which nonmall companies in particular?

Over the course of time, Toys 'R' Us, The Home Depot, [and] Target have certainly sustained a high performance level. In the specialty store field, I think three or four people jump to mind as consistently performing at the high of the spectrum.

How would you characterize the condition of Woolworth when you arrived at the company?

Woolworth had some strengths and had some other areas that we needed to work on. It had a loyal following of very dedicated employees. It had a history of migrating from a primarily general merchandising business into the beginning of a specialty store business. And I think Woolworth had a point of view about international business that was really quite advanced vs. other people. Woolworth, to the best of my knowledge, became an international company back in the 1920s, so those were some of the things we tried to build around.

On the other side, we had some antiquated infrastructure, and we had some store design that had looked a little long in the tooth. We had to spend a lot of time and energy on that.

We have made some people changes that we think make us a little more competitive, and we have taken a more aggressive position about inventory management that hopefully keeps us fresh and current, and continues to provide new merchandise to the customer. So there were some good things and there were some things we had to work on.

How would you characterize Venator's condition now?

We are still a work in progress. Our No. 1 priority when we got here was to fix the financial structure; we were in a very precarious financial condition.

Our second major priority was probably to evaluate the portfolio of businesses we had. When I arrived, we had 42 concepts operating in 17 countries, and we had to make some decisions about which of those formats to build around for the future and which we thought we could turn around from a mediocre performance.

Some we decided we couldn't go forward with, so we had to make some hard decisions. We had to get the expenses down to allow us to operate at a more competitive level.

Now, as we come out of successfully implementing all of those work programs, we are focused more on new store design; we are focused on trying to improve our merchandise process. Hopefully, that will begin to drive the top line of our business, which hasn't been really the focus of the last three years.

When we got here at the beginning of '95, we were in a precarious financial position. Today we've paid off 75% of our debt vs. where we were; we have a strong cash position, and we have really reversed most of that significant erosion in our balance sheets.

Which of the 42 concepts will you retain?

We are obviously very excited and very energized about the overall athletic business. Today, Foot Locker, Lady Foot Locker, Kids Foot Locker and Champs, at both the domestic and international levels, really represent key growth vehicles and key profit vehicles. We have redesigned Foot Locker, Ladies Foot Locker, Kids Foot Locker, and we are now working very hard on a Champs prototype that we expect to launch in the summer. Not only domestically but, again, internationally, we think those are vehicles we can do very well with.

In the nonathletic field, we are working very hard to expand and grow the Northern Reflections concept. Today, that's a business in the United States and Canada which has a very successful position with the female customer. There are men's businesses and kids' businesses that come out of that called Northern Elements and Northern Getaway which we are in the process of rolling out. So the whole Northern business we think is really a terrific business.

On the accessory front, we are very pleased with the progress Afterthoughts has made. It's a business that we think is very right for that customer. There is a population boom that's going on in that young teen area that is not expected to peak until 2008. So we think at least for the next 10 years that's a fabulous business that, properly managed, will be a key growth area.

We continue to work on the Kinney business, and feel good about its progress.

So we have several formats that we are pushing hard. We have a business called Colorado which is a small business -- as of the moment about 18 stores -- but we expect that to be a key growth concept of the future because it really addresses a lifestyle change that we think is going to be here to stay.

Many of the businesses that we got out of are helping fund the investment that is going back into the key growth businesses. So we are really disinvesting in some and reinvesting in others. That has been a complicated, difficult process. We have either sold or closed 19 businesses to date, but the short-term key impact of that really gives us the cash flow to turn around and initially pay down debt. Now we are using it to fuel a really aggressive store expansion program.

Any more stores eyed for closure?

We will always look at our businesses to see which ones are progressing and moving ahead, which ones get funding, and which ones we feel comfortable about. There will always be some that are a work in progress.

[For] the ones that we've really committed to, we have a capital program over the next three years of $1 billion that we're investing in the key growth businesses. [That includes] renovating stores, whether it's remodeling stores or whether it's acquisition. All will be part of a strategy that advances those businesses aggressively.

The prototypes in the last year that have opened include Foot Locker, Kids Foot Locker, Lady Foot Locker, Northern Reflections, Afterthoughts, Colorado and Kinney. All of those have new specialty store formats that we spent quite a bit of time and money on, and we feel really good about the customer acceptance of them. We now are rolling those out, starting in the fourth quarter of last year 1997, obviously, 1998, 1999 and 2000.

Woolworth had a reputation for creativity with, for instance, its new concepts. Has it been hard to maintain that creative environment while facing major problems turning the company around?

That's a good question. It is not easy to rehabilitate a financial situation and expense situation, a personnel situation and at the same time be out testing and probing. Woolworth over the years did a good job of testing new concepts. I'm not sure we were as disciplined about which ones we were going to aggressively roll forward and which ones we needed to say, 'The test didn't work, let's get out.' That's partly how you end up with 42 concepts, many not successful.

We are trying to be more creative about running the businesses that we deem to be potentially big businesses. For a company our size, a business has to be really big to be impactful.

I also think that our creativity going forward is going to be channeled into how we take those successful domestic formats and make them international, how to expand them. This may, in the beginning, take the form of going into Canada, or Canada franchises coming into the United States. Then we have to look to the opportunities in Europe or Asia, or some of the other parts of the globe. So we will probably have less formats but the ones we have and invest in will be larger.

Given that what works in America does not always work so well overseas, has it worried you that you have this major overseas expansion program going on while, simultaneously, confronting fundamental issues at home?

Yes, I think doing business overseas is very complicated, and I think that I've certainly learned a lot in the last three years. Interestingly, within the first week of my arriving here, the peso in Mexico was devalued by 50% and the value of our business there dropped in half.

The issues you have to deal with are economic instability, political instability, and social and legal issues which do not exist in the United States. First you want to make sure you have fully explored all of the opportunities in the United States, because there is more risk in the international opportunities.

People like Wal-Mart, who have grown to be such a large presence in the United States, in the long run they felt they had to start doing some investing in the international markets, even if initially it's either a learning experience or, quite frankly, it may not be profitable.

Many of our international operations, while they look sexy in an annual report, were not really producing profit. One of the things we did over the last three years was really try to figure out, 'How do we make money in a foreign country? How much is similar to the United States? How much is different? How much risk tolerance do you have when you do business internationally, and should the upside be greater, therefore, to offset the potential downsides?'

We've gotten comfortable over the last couple of years with where we're willing to take risks and where we're willing to invest.

We have also gotten out of some countries: We've closed our operations in Mexico [in 1997], we have gotten out of Hong Kong. Yet we are investing heavily in Europe and investing heavily in Canada. We think, in the long-term, the Far East is a good bet, although in the short run there clearly is some disruption.

Why did you get out of Hong Kong and Mexico?

Well, really, different reasons. With Mexico, we just felt that there was not a big enough market for the price point of product we were selling, particularly in the athletic group. At the time, there was an embargo on Chinese-made goods [and] a lot of the athletic product comes from [there]. The instability of the currency is very difficult to manage in a thoughtful way.

While I think long-term, Mexico has great prospects, in terms of our order of priority it was not one of the markets we wanted to be exposed to.

Recently, Mexico's economy has seen some stabilization.

If you are going to make an investment in what is fairly expensive product, we really felt we'd rather be in Japan where the income is higher, the per-capita consumption is higher, the affinity for the branded product is higher, and the long-term size of the market says, 'If you get it right, there's a huge potential.' Once you get past Mexico City for our type of product, the market falls off rather quickly. I'd rather put that money into a developed economic model in Europe or the Far East.

What about Hong Kong?

The issue was that the cost of real estate for a specialty store is so high, that unless you can have unusually high productivity it is really hard to make money. While we were doing a pretty good sales job, we couldn't figure out how the model worked to convert that to profit. So again, we decided to disinvest and try to get much more focused on those countries we thought we would do well in.

Does that mean that you're not looking to China for the foreseeable future, either?

We believe that for the long term in Asia, we've got to get established in Japan. If the Japanese market, with its high per-capita consumption and its high propensity for branded product, is successfully established, then we can go to other developed worlds.

Our products really are not for developing countries. It is very hard to sell a $100 piece of footwear where the average income for the year is so low. Most of our focus is on parts of the world that have a pretty high per-capita consumption. So we think there is a huge opportunity in Europe. We are in eight [European] countries and we will be expanding. We just recently entered Austria, and we will go into other countries. We think Europe can hold as much as 800 stores, so we would rather focus our energies there.

Which countries in Europe are you looking at?

I can tell you where we are: We're in Germany, France, Italy, Spain, England, Holland and Belgium, and we recently went into Austria.

Was Germany presenting some special challenges?

We have two businesses in Germany: one is the athletic business, which is not dissimilar to the business we have here; the other is a much larger business, which is the general merchandise business still trading under the Woolworth name. That's a very large business that has been there since the 1920s. It has had many great years, and after the Berlin Wall came down and the integration of East and West Germany, there was a brief euphoric period when business boomed. Since that time, every year in succession has been more difficult economically. The high taxation of the West Germans to support the rebuilding of the East really has made doing business there very tough. So our business has suffered pretty much on a continuum down from that high point when the Wall came down. Although last year we did turn a profit, it's been a struggle.

Did you also have some special problems in terms of customer service? They're notoriously rude in their stores. Is that something you have had to address in your stores?

The issues in Germany are not different than a lot of other non-U.S. countries, where customer service and the profession of being a sales associate in a store is not always viewed in the high manner it is viewed here. Our business in Germany, which is founded on convenience and founded on value, is in fact well-received. In many cases the Woolworth name there is well-received, because it's been there 70-plus years, [and is seen] as a German business.

Business is really more impacted negatively at this point by higher unemployment. They are riding over 12% unemployment in Germany, which is staggering. So they are really struggling with their whole economic model. How they work their way through the social issues and the political issues is going to take some time to play out.

But you're optimistic?

I'm realistic.

In Japan, will you be having a partnership with another company?

No. We actually looked at what would be the best way to do business in Japan, and we talked to a lot of retailers, some of whom had partners, some who had license deals, some who had their own business. It seemed that over time people ended up wanting to run their own business, even if they would tell you that initially it is easier to get started with a partner. So, after a lot of analysis, we decided to start our business there on our own. Starting last fall, we built a handful of stores, we put a team on the ground, we put in some experienced Foot Locker people, we matched them up with some experienced Japanese people, and we are now just beginning. But while we are in our infancy, we see the long- term potential of that market to be quite large.

Are all your concepts over there?

Well, today we are starting with Foot Locker. That is really the vehicle we've used to stretch ourselves internationally. But, obviously, the lessons we've learned in trying to get Foot Locker established on a worldwide basis will give us a lot more confidence when we look at other concepts for that kind of growth as well.

Are there any concepts you see working over here that won't necessarily work overseas? There have been some successful U.S. retailers who have gotten burned when they have gone into other countries.

Yes, it is not clear to me that you can start out knowing that. What you have to do is be willing to figure out how much you're willing to risk. If you really added up the accumulative profits of a lot of U.S. retailers and their international ventures it would be a small number. Having said that, there are people who are proving that they can do business internationally, and some of them are relatively young companies like Toys 'R' Us. I think it depends on your formula, I think it depends on your format, I think it depends on which countries, I think it's too broad a statement to say international is too risky; it depends on where you're locating. Canada is certainly a different market than Mexico, so just here in North America, the pros and cons of those markets are very different. So, depending on your format, you may come to different conclusions.

Coming back home, in 1996 you were repositioning and remodeling the Woolworth stores, and then suddenly you turned around and closed them. Why this sudden turnabout?

If you are talking about the Woolworth U.S. business, I guess at its peak Woolworth in the United States in the late 1950s or early 1960s had thousands of stores, and had stores in Canada, Europe and the United States. Over the years, the company got out of the Canadian business, sold the business in the United Kingdom, and the number of stores in the United States over time shrunk from thousands to about 400 when I got here. Our belief was, with their quality locations, if we could find the right merchandise formula, it was a business worth trying to save. Even though it's been in a declining mode for 30 years, it is fair to say that when you really look at when Woolworth last was at its peak, it was many years ago.

So we attempted to take three stores and turn them into laboratories to determine whether or not we could roll out [a model].

These were the experimental ones in Delaware?

These were the ones in Delaware. I think we learned a lot from those three stores and found the customers enthusiastic. But we found out that with the cost to rebuild all 400 stores, expand them to a chain that again was of significant size and could have impact, and the ongoing losses from the nonrenovated stores, it really didn't make sense to put more money into trying to fix that business, when the alternative was athletic or other businesses.

For too many years we took the profits out of our athletic business and put them to bad use in some of these other businesses, and I don't really think that was the right decision. So we learned a lot from the prototypes, and part of what we learned was that it was not a good decision to go forward. When we made the difficult decision to get out of that business, it was really the culmination of a 30-year decline.

Having said that, there are about 130 of those Woolworth locations that, after careful review, we believe can be used for one of our existing concepts. So we are converting about 1.5 million square feet of former Woolworth space into new retail, whether it be athletic or any of the other businesses. And we are getting rid of the rest of the stores.

Was it a very difficult decision? After all, Woolworth has been an American icon.

It is difficult on two levels. One is the position it has held in the mind of the public for 100-plus years -- that's not an insignificant issue. The second issue is that it affects lots of people, I mean it affects your employees directly, the ones who worked at Woolworth, and suppliers and other people. So it is not a decision you make lightly. But for us the question was, do we continue to support a business that is losing money and risk the future of the rest of the corporation? Or do we try to make the right business decision, try to handle it in the best way we can, and try to treat the people as fairly as we can, and move forward?

Most of the reaction we got from the outside world was, 'I have a bit of nostalgia over Woolworth's. My mother used to take me there.' But they didn't say they had been there last week or last month. So while there was definitely a customer shopping there, it had been diminishing over the years.

Did you get some protests from the public when you announced the decision?

No, actually, what I think we got was a real expression of sadness. But it's hard to argue with the economic facts. The business had thousands of stores in the 1960s, and was down to 400. This was not a decision that was made overnight, and we put a lot of time and energy into making the right decision and trying to treat the people fairly. But what we have to be clear on is that we could not let that business drag down the rest of the corporation. It had sucked a lot of resources for many years, and it was time to deal with it.

Tell me about the Woolworth name change.

The Woolworth name served us well, we want to retire it with dignity but, quite frankly, we want to move forward with something that has less to do with variety stores and the images of the fifties and sixties and has more to do with where we are going. I'm not sure the name itself is the key issue as much as it is the symbol of change that it represents.

What image would you like to project through the new name?

We want a name that attempts to capture the global nature of what we are doing, the sense of high performance that we aspire to, the sense of fair play and sportsmanship that really world-class companies have. I mean they compete, they try hard, they play by the rules, and in fact show sportsmanship about how they go about it.

Having said all those nice things, trying to get the worldwide clearance for a name has proved to be very complicated. In the past, when a lot of businesses were given family names like the Woolworth name, it was a lot easier. Today, when you're trying to come up with a name that has some significance, yet is not protected anywhere in the globe, you can imagine how complex that exercise is.

Yet in the end I am not sure the name itself is as much the issue as the quality of the company that eventually gets associated with that name. And that takes time, that's not an announcement on Monday and everyone gets on with life on Tuesday.

So the name will still live on in places like Britain?

The Woolworth business in the U.K was sold to a company that operated under Woolworth. We still operate a Woolworth business in Germany, but it will be a division of a new corporate name.

Do you think this is going to be part of a trend? Are going to see other venerable American names disappearing now with the change in the retailing world?

Well, I think if you look back on what names were important in the retail scene in the 1900s and the '20s, '30s, '40s and 50's, there has been a lot of change. Here in New York you could point to people like B Altman, you could point to people like A & S, which were pillars of the community. You could point to lots of names that really had wonderful runs and wonderful lives and then ceased to be relevant. I think other names have been reinvented, and thrive and continue to prosper long after they were originally perceived. So I think that the Woolworth name, which is a terrific name and really had a major place in the American scene, has been not nearly as relevant in the recent past, and we have to move on. There's a long laundry list of names of companies that no longer operate just in the last twenty years. I think to some degree this will continue. I think you either become very good or eventually you go away, there is very little room for mediocrity anymore.

The athletic shoe business seems to be in the doldrums at the moment. We hear of cheap sneaker imports, and aging baby boomers who no longer exercise, and kids bing fickle. Any of that worry you ?

I would say that the athletic shoe business has been soft, although I am not sure those would be the reasons that I would cite. But if you take a step back, I believe in the long term health of the sports business. We have some numbers that are being quoted that range anywhere on a worldwide basis between 100 billion and 130 billion as the size of the world wide market. If you then take the common point of view that half of that business is done in the U.S., that puts the U.S. sports market at 50-65 billion. So while for the athletic shoe business at the moment '97 and '98 cannot be said to be robust years, I don't believe sports is going away, I don't believe people's interest in sports is fading, be it participation or spectator.

I think things will ebb.and flow and there's been some ups and downs, and we have had cycles in this and we will continue to have cycles. But what I think we have to do is take a long term view of our belief in the category, and we'll have good years and we'll have tough years, and I don't know any way to get around that.

But you and I will go home and put on a pair of jeans and sneakers -- my father did not do that at my age -- my kids will. I believe if you look at the level of participation by girls, it's never been higher, and if you look at the interest in sports, it's never been greater. So I think that there may be a blip on the scene here and there, but over the long term it's a great industry that has proven to expand pretty regularly, if you look at it with a little perspective. If you're going to look at it in a time of a three month cycle or a year cycle, or even a two year cycle, I think you're always going to find ups and downs.

Do you see some fallout in this retail segment?

We think that it is going to be a time of consolidation, we actually think it is a good time for us as an important player to try to make some smart decisions. We've made three acquisitions in the last year-and-a-half, so while we are getting out of 19 businesses, we have begun the process of trying to make some smart decisions. We acquired two regional chains in the last year -- Koenigs and at the beginning of this year we acquired Athletic Fitters. We also acquired an athletic catalog company called East Bay, as we think that the direct marketing channel is an important channel. And we will continue to look for opportunities where we think it fits in strategically. Those people that are not as well capitalized, or who are not in for the lulls in the market and only want to be there on the up-ticks, may see this as an opportunity to sell; I think we have to be considered one of the perspective buyers.

How many Foot Locker stores do you see there being room for in North America?

I don't have a number. There are probably 1,600 malls in the U.S., and maybe 150-200 in Canada. If you see yourself primarily as a mall-based business, that's probably an order of magnitude. We have had some interesting experiences with the Woolworth stores in non-mall situations, so I think we're beginning to look at some places to go with the Foot Locker that we haven't in the past; I think that Champs at 600-plus stores has a long way to go before we get anything close to saturation; I think that Ladies and Kids Foot Locker have a long way to go before we get anything close to saturation.

Something that we didn't probably do well in the past is, we have to go back and reinvest in our existing stores -- not only cosmetically, but we have to understand if they're spaced right or located right or appropriate for that changing market. If we had opened a store in the '70s that might have been right on the money the, but here we are in the latter half of the 1990s, maybe we'd have to do something.

You mentioned in your annual report that you'll be expanding your mall operations, and expanding outside the malls. What sort of locations are you looking for?

We're looking for customers. ... We're looking for customers. It could be an urban setting, it could be a street location, it could be a strip center, it could be a neighborhood. Our real estate strategies are really aligned with where our customers shop. The primary place today is the malls. That's why we are so excited about the opportunities in malls. But as we develop a new format for After Thoughts, we're going to try some non-mall-based locations to see what reaction we get. I think there are retailers like The Gap who have proven to be very successful with doing both, and I think we have to go to school on some of that.

What do you see as the future of the regional mall?

The regional mall is a fabulous concept. If you go into the right regional mall, and if you don't get excited about the energy and the passion and the customers' belief in that, I think you're missing something. Not all malls are created equal, some of the malls need to be freshened up like some of our stores do. I think there needs to be an understanding of the customer and what they're interested in seeing. I think the malls have to be careful about duplicating assortments. You can't put five or six people in a mall who all do the same thing, and then wonder why everybody's trading off. I think malls have to have an understanding what roles food or entertainment are going to play.

But the properly run mall is a very exciting place and a very compelling place for customers, so I believe very strongly in the mall. Local or regional malls continue to be the main shopping experience for the customers in the U.S. And when you travel outside the U.S., and you go to places like Europe or Asia, where regional malls do not play nearly the same dominant role, in many ways it's a mess. It's very difficult for the customer to have to walk from store to store, from street to street, all over the place to shop. So, I'm very pro-mall, and I think, properly run, it's a wonderful vehicle. And I have two teenage children, or young adults, who at 16 and 13 think that mall is the greatest thing since sliced bread.

If there was one thing you could change about dealing with real estate developers, what would it be?

I think what's probably necessary is that, as the developer side of the business has consolidated, and there are fewer developers who own larger chunks of properties, and as the retail world has consolidated, and there are fewer retailers to deal with, I wish that we were dealing more on a strategic level, and then had executional details to follow up on. I still think the business is too much site-by-site discussed, and then whatever it rolls up, it rolls up. With over 7,000 stores and multiple concepts, I really wish we were dealing with a developer who had multiple properties on a strategic basis first. Once we had an agreed-upon strategy, then we'd go about executing it. What I have seen is that we still seem to be in a discussion one-by-one. I think the time is coming when we've got to elevate that really to a more strategic discussion where people really understand what our strategy is about, really understand what our format's about, and then really understand what is the mall profile that we would be most successful in, what are the adjacencies and tenant mixes that work. Then we would have a game plan to execute and follow up on. Today I think we're still dealing one-on-one with a mall even if they're part of a four or five hundred mall group.

So you would view consolidation in the development industry quite positively, at least from that point of view?

At the end of the day what you want is the best mall operators operating as many malls as possible. What they'd like is to have the best retailers operating more of their real estate. I think that expertise is very important.

Do you prefer to own or lease your real estate outside the mall?

Today we're primarily a company that leases real estate. We do own some properties, but they're more an ownership from a different era. Today I'm not saying we wouldn't own property, but for the most part it's a business where we lease as we go.

You talk about new merchandising initiatives. Can you tell me about some of these?

First, we are trying to take existing formats and expand the assortment that's in them. For instance, After Thoughts a couple of years ago was primarily an accessory and jewelry business; today we've added cosmetics, we've added gifts, we've tried to expand product that the young teen would relate to.

As we've built larger stores for a Foot Locker, we've tested whether or not the customer wants to buy more than just athletic footwear and apparel; we've tried accessories, we've tried fragrences, all as a way to expand that shopping experience.

So the creativity that was exhibited in starting a new chain we're now trying to apply to the existing businesses, which we think could really yield a payback.

The second issue you've asked about is. are there other shopping experiences beyond a store in a mall or a nonmall setting? If you really look at the statistics there has been great growth in the direct marketing business in this country. There is a part of that customer population that is time-poor, that finds shopping through a catalog or through another vehicle very comfortable. Even with the QVCs of the world, although their product is fairly limited in terms of what the customer will accept, people are willing to shop that way.

The acquisition of East Bay, which is into our core competence of athletic, is run along that principle, which says 'Look, there are customers who can't get to a store, there are customers who are in a part of the country where we don't have a store; there are customers who want a broader assortment than we can give in your standard mall store.'

For them, the breadth and depth of extended sizes of a catalog today -- tomorrow maybe the Internet -- is really the way to go. And if we're going to be players and full service providers, then we have to understand how we can turn that into a successful channel.

Do you have any concrete plans to go onto the Internet?

Yes. We actually have this month (March) opened our sites for East Bay, Foot Locker, Ladies, Kids and Champs.

Can you buy on these sites?

Right. Now how much commercial volume is done off that initially, how much information is provided, we'll see. But, because of the capabilities of East Bay in terms of taking an order and shipping it out of a central warehouse, -- which is really what you need to make that a viable business -- we're going to try to see what the reaction's is.

We think this young customer who's interested in these kind of products and who is computer savvy really is going to be the first generation who's going to be very comfortable using this. It's not always easy in a sized product. It's one thing to buy a book, it's another thing to buy something that has to fit. What you do with returns and all that, what you do with people who order three pairs and return two that don't fit, all this still has to be worked out. We think it's going to be part of the equation. You're going to have to have some staying power to get started, but we think it's going to be a real business.

Your last jobs were at Macy's and Richies. How are you applying your department store knowledge to specialty store retailing?

Really, if you think about a department store, it's a mini mall of specialty concepts. There's a shoe business, there's a men's business, there's an accessory business, there's a cosmetic business, there's a home business, and really when you're in a department store, you have strategies for each one of those businesses that's executed within your floor plan. The economic model that gets built around that series of businesses is not different than trying to manage a series of specialty businesses. We've got a shoe business, we've got an accessory business, we have an apparel business. The difference is, in department stores, you tend to pay a very different rent structure, you have a much higher promotional marketing expense, and you're driving business through various marketing activities during the week or weekend, or one-day activities that populate your store. When you're in the specialty business you tend to drive your business differently. You're driving your business with a different level of freshness of assortment, you're driving your business with a different level of customer service, and you're really paying for a different kind of real estate.

So the economic model is different, but in terms of merchandising a specialized assortment, it's not significantly different. The truth is, over the last three years, I personally haven't done a lot of that. Because of the nature of the turnaround we faced, and because our priorities have been, in order, from financial restructuring to a lot of store issues to portfolio, the amount of time that I used to spend in my department store assignments on merchandising was significantly greater than as the chairman of a global company, where almost 40% of our business is outside the U.S., managing at one point as many as 40 formats. So my actual day to day activity or time investment in the pure merchandising function has changed significantly.

Are you going to bring back the Kinney party?

We had a party in early December of 1997 where we had several hundred developers here in New York. We used it as a kick-off for our new athletic formats. I think it was a productive evening, I think people came away with a better sense of how we're going forward, and I think that where we have that kind of message, we'll be happy to host a gathering. If the question is, are we going to hold an annual party for the sake of having an annual party? I think the answer would be probably 'no.'

What would you like people to see as your legacy at this company?

I don't think it's my legacy. I think what this management team is trying to do is really build a world class company. At the end of the day, we may or may not be successful, there's no guarantees in this world. But I think if this management team is viewed as a group that aspired to be world class, that tried to stay focused on that, tried to build an organization of people who were commited to that and really had a lot of people working very hard to deliver that, I'll feel good about the legacy of what we're trying to do. Easier said than done, but that's what we're trying to do. It's not something that was built overnight. Most great legacies are built over decades, and that's trying to make good decision after good decision after good decision that accumulates over time to the right conclusion. And I think that at any one time you can view a decision in itself as a good or bad decision, but I think it's the accumulative effect of having the right people working on the right issues aspiring to a high level of accomplishment, and I think that takes time.

I think we're a long way down the road to survival and to prosperity, but we still have a lot of work to do. Nobody should be fooled by how much work we're still anxious to get done.

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