Financial Analysis
Threats and vulnerability: A case study of Shoe Carnival, Inc.
Shoe carnival overview
Shoe Carnival Inc. is a publicly traded company that offers a range of footwear products for all categories of customers, men, women, children and sportswear. It also offers casual wear products and other assorted products such as handbags. Its headquarters are situated in Evansville, Indiana and it runs over 300 stores across several states mostly concentrated in South, Midwest, and Southeastern states of the U.S. David Russell, who had sold shoes for over 20 years in the traditional way, founded Shoe Carnival after feeling convicted that that was what he wanted to do. In the year 1978, and with is personal savings and some capital from his in-laws, he opened his first store that he called "Shoe Biz." His main idea was to create a shoe store made shoe-shopping fun. The major difference with Russell's stores was the self-service where customers were free to try out different shoes on their own and select the ones they preferred. He also availed a Jukebox that played favorite music at the time. The store manager also used this system to carry out sales promotions by making necessary advertisements (FundingUniverse.com, 2012).
This strategy bore fruits and Russell was able to open a second store in Evansville that he christened "Shoe Shower" which comprises the chain of stores within Shoe Carnival Inc. A third store came soon afterward in Owensboro, Kentucky in the 1980s. Russell employed a system of giving special offers, which in turn generated a lot of press coverage for the stores. For example, a customer was once rewarded $25,000 in one of the stores in Evansville, and as expected, this caused a lot of public interest. This strategy translated to more sales for the stores. Early statistics reveal that Shoe Carnival was generating a whooping $8 million in annual sales by 1984. Due to this great success, many players in the industry wanted to be part of this success. Therefore, in 1986, Russell sold a controlling of Shoe Carnival to a competitor, Fisher-Camunto Corporation based in Stamford, Connecticut. However, he remained the CEO and was in charge of the company's operations. The main interest of Fisher-Camunto was to expand the proven strategies employed by Russell to other areas other than Evansville. Therefore, in the months of October and November of 1986, they realized this dream by commissioning three Shoe Carnival stores in Indianapolis. The success of these new stores paved way for rapid growth that saw the creation of 15 stores across Midwest markets in the U.S. In a period of less than two years (FundingUniverse.com, 2012).
J. Wayne Weaver, who was at the time the CEO of Nine West company, aptly recognized this great growth potential. He managed to purchase Shoe Carnival from Fisher-Camunto for $17 million in 1989. As was the case in the Fisher-Camunto buy-out, Russell retained his position as CEO and Weaver became the chairperson. The expansion of Shoe Carnival continued at breathtaking speed and by the end of 1989, Shoe Carnival was boasting of over 30 stores spread across nine states in the U.S. This success can be attributed the management team at Shoe Carnival which comprised mostly of friends and other personnel from competitors. This team stayed in touch with the day-to-day operations of Shoe Carnival and closely interacted with their customers (FundingUniverse.com, 2012).
By mid-1993, Shoe Carnival was running 41 stores concentrated mostly in the Midwest. However, in the same year (1993), Shoe Carnival decided to go public in order to raise capital. The Initial Public Offer (IPO) managed to raise $28 million and left 7% ownership to Weaver and Russell. After this IPO, revenue from sales doubled hitting the $157 million mark. By 1994, Shoe Carnival was regarded as a powerhouse in the family footwear fraternity (FundingUniverse.com, 2012). The figure below gives a representation of the major categories of footwear that brought in most of Shoe Carnival sales.
Fig. Percentages of various categories of products sold by Shoe Carnival in 1994
Shoe Carnival continued with its strategy of sales promotion to attract and retain customers. One such strategy included giving customers and opportunity to spin a wheel, which was divided with several possible rewards such as discounts and free prizes. The deal given to the customer depended on where the wheel landed, and this was the deal offered to the customers at the store at that particular time. However, Russell suffered poor health in 1996 and was forced to resign. Mark L. Lemond took over as CEO who had been serving as the Chief Financial Officer at Shoe Carnival. Under Lomond's leadership, Shoe Carnival closed unprofitable outlets and embarked on...
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