Q&A With Finish Line's Glenn Lyon

INDIANAPOLIS — Eleven months into his new role as CEO of Finish Line Inc., Glenn Lyon can pinpoint one major difference between himself and predecessor Alan Cohen.

“He is a quiet Midwesterner, and I’m a passionate and emotional New Yorker,” Lyon said. “We go to the same place — we just get there different ways.”

Lyon is clearly carving out his own leadership style, but he insists he’s not going to veer off the path charted by Cohen, who co-founded the chain in 1976.

For Lyon, that means making sure the 680-door chain maintains its “premium” positioning and offers innovative, trend-right product.

Finish Line carries as many as 750 styles per store, and under the direction of EVP and chief merchandising officer Sam Sato, has brought in five to 10 new brands each year for the past several years.

“Breadth offers me the ability to be sustainable to my customer,” Lyon said. “They don’t want less selection because the economy is tough.” (For more on the product strategy, see page 12.)

While the core mission is the same, Lyon has already made some serious changes to the chain in his first year.

The biggest move was the divestiture of the Man Alive chain in June. With the help of Edward Wilhelm, who was brought in as CFO in March, Lyon also has sharpened Finish Line’s focus on expense reduction and inventory management. (For more on the financial focus, see page 14.)

Analysts said the company is taking the right steps by operating more leanly and focusing on the core business.

“We’re enthusiastic about the changes in management — both Glenn and Ed,” said Jeff Van Sinderen, an analyst at B. Riley & Co. “[They are] making some changes in how business is done, and the company will certainly be more profitable.”

Camilo Lyon, an analyst at Wedbush Morgan Securities Inc., characterized Finish Line’s financial performance as among the most impressive in the athletic arena.

“They have been benefiting from having a strong balance sheet in a way that others haven’t, such that they’ve been able to get a better allocation of key marquee products,” the analyst said.

The CEO also has been moving fast to capitalize on other untapped growth opportunities.

Lyon recently created a dedicated Internet division and tapped 21-year company vet Don Courtney to run the segment.

“I see [that business] being one of the real big revenue-building opportunities for us going far into the future,” Lyon said. He noted that online sales, which account for less than 10 percent of the firm’s revenues, are up 8 percent year-to-date.

As for the broader business, Lyon acknowledged that the retail climate will be tough through the end of the year. The company said in its quarterly earnings report in late September that second-quarter comps were down 9.9 percent, compared with a 4.9 percent gain last year, due primarily to traffic declines.

But despite the short-term challenges, Lyon is bullish on the future.

“We have a very strong balance sheet, we have a lot of cash in the bank, we have no outstanding debt and the vendors recognize that.”

Lyon sat down with FN at the company’s headquarters in Indianapolis for an in-depth interview on topics ranging from the importance of a compelling store environment to the big opportunities in e-commerce.

FN: What is your vision for the company?
GL: I’ve been here for eight years, working with Alan in an environment that has been pretty successful for more than 25 years, so part of my vision — maybe the most important part — is to stay true to this brand and to stay true to the things the founders believed in, the things they built this company on, from one store to a $1 billion-plus company.

FN: Which of those founding principles is most important to you?
GL: We’ve always said we are an athletic-based company inspired by sports, but we also recognize that our core customer isn’t necessarily the person who gets up in the morning and runs five miles. Our core customer gets up in the morning, puts on their jeans, matches up their sneakers and goes to school. There’s a phrase we are beginning to use here [to describe that]: everyday sport. Second is the whole ethic of premium positioning, along with [broad] selection. Those are the key differentiators for us in this marketplace. Maintaining a premium position through the great times and through recessions is very important to my vision for the company.

FN: How is premium positioning compatible with price-sensitive shoppers?
GL: Certainly, we’re conscious of value and that component of the business, but to be a premium guy in the marketplace, you’ve always got to be the one who’s ready to be there when the brands come to market with something new. The constant flow of newness is so important. We’re not a company that is built around price. And if we allow price to be the driver of our business, our ability to sustain profitability and success becomes more challenging.

FN: What is your outlook heading into the holiday season?
GL: The customer continues to be cautious. I expect that for the balance of the year we will face continued decreases in traffic. But with [upcoming] product releases and the things we’re doing in terms of service, we expect higher productivity and can convert more [shoppers] to customers.

FN: In a tough climate, how are you differentiating Finish Line from your competitors, especially Foot Locker?
GL: The biggest difference is our continued focus on the running business. We’re very excited and hopeful that [running] is a sustainable business. The market seems to be developing a lot of new product, and we’re anxious to see what [vendors] do for next year.

FN: What’s your outlook for other key product categories, such as basketball?
GL: The basketball business, other than the Jordan brand, has been challenging, mainly because the performance end of the business hasn’t been fashion-right, and [it doesn’t represent] the everyday sports style that our core customer wants. That will cycle, and we have more exciting product coming through the pipeline now. The brands are always trying to reinvent, and they’re all working really hard to rejuvenate that category. The more breadth, the better we are. We’ll be there trying things with all of them and keeping our fingers crossed.

[With basketball shoes], I’m not only competing with the running category, I’m competing with Apple Inc. for share of pocket. So if I can sell a pair of running shoes and a pair of basketball shoes instead of a pair of running shoes and an iPod, then I’m a happier guy. We are continuing to urge all our brand partners to bring more into the marketplace and keep the heritage business to a smaller percentage. New is still better, and something that the customer hasn’t seen before is still better.

FN: Does that mean the heritage business is dead?
GL: Sometimes the newness comes from bringing back a heritage shoe [the customers] haven’t seen. In many cases, our 18-year-old customer has never seen a heritage style from Adidas, so to them, it’s brand-new, [although] that will not typically be technology as we define it. There’s a balance.

FN: Has there been enough innovation in the athletic world in general?
GL: Anybody who’s satisfied and says there’s enough of anything is not going to be successful in the world we live in. Things are going too fast and changing too rapidly, and consumer expectations are higher and higher. So we’ve got to stimulate and excite customers, and you do that through newness [and technology]. And the more visible it is, the more they like it. Hidden technology, to our customer, is not as important as visible technology.

FN: How much of your sales are derived from footwear versus other categories, and do you have plans to alter that ratio?
GL: Footwear is about 85 percent of our business. We’ve worked hard for the last three years on what we have called right-sizing our apparel and accessory businesses, and maintaining the same premium positioning that we have established over the years in the footwear business. And right now, that mix — 85 percent footwear and 15 percent apparel and accessories — makes me real comfortable.

FN: How important are exclusives to your product mix?
GL: Exclusives are a big part of our business. Exclusivity on desirable brands, products, styles and colors is still critical. At any point in time, between half and two-thirds of our inventory in footwear is colors that are exclusive to Finish Line.

FN: How willing are you to test new product labels?
GL: Over the last couple of years, under Sam’s leadership, we’ve been able to bring in between five and 10 new brands each year. Some of those brands are able to stick and be successful — some aren’t. But that doesn’t mean we won’t try the one that wasn’t successful again and again. Customers who visit us frequently are not surprised to see brands come in and go away for a period of time. Our buying team is the eternal optimists. When they see new product that excites them and they think it’s going to excite the customer, they bring those things in. We have a very strong balance sheet, we have a lot of cash in the bank, we have no outstanding debt and the vendors recognize that. They know we are reliable, we don’t have to slow down, we’re anxious to get the product and we have the money to pay for it. We’re the people who will be there to help [our vendors] launch new products.

FN: And are you willing to experiment with new categories?
GL: We’re always searching for something new to be in our assortment, no matter what the category is. [But], if we venture too far off the center of sport, the customer [won’t follow], and we’ve learned that. We learned how elastic our assortment can be.

FN: How elastic is it?
GL: [The shoes] certainly need some sort of sport inspiration. We started with boat shoes two or three years ago. We introduced Sperry Top-Sider and [boat styles from] some of our existing vendors: Timberland, Nike, Puma. We’ve carried a pretty big assortment, and it’s been a category. [But] will it last forever and be a sustainable business? I rather doubt it.

FN: What has been a disappointment?
GL: Three years ago, when it was very evident to us that flip-flops were becoming a very important part [of the women’s wardrobe], we put together a fair assortment of product and price points. We weren’t too cheap, we were premium, we dealt with good brands, [but] we had no success.

FN: Why was that?
GL: I think that was expanding [beyond] what people could expect from Finish Line, beyond what they were comfortable with. Now does that mean we’ll never go back to that? I’ve learned one thing in 35 years in the retail business, and that is you never say never.

FN: Beyond the product itself, how do you create an appealing store environment?
GL: We’re constantly striving to make our stores more and more shoppable, meaning great lines of sight, open landscapes and lots of displays. When you carry 750 styles in a store, getting the customer to see as many of those styles as possible is critical. We’re constantly improving our fixtures and enhancing vendor presentations. We’re a house of brands, so getting the customer to know the brands [is crucial]. We’ve done a very good job of freshening up our stores, keeping our inventories clean and bringing in new and exciting product from existing brands, as well as new brands. [But] I don’t think we’re a 10 at anything yet. There’s always room for improvement.

FN: After introducing the Finish Line LTD retail concept with Nike last year, you recently reverted that store back to a traditional format. Why didn’t LTD work?
GL: This was a move to try a different assortment and put it in a different ambiance. [In focusing on] high-end, high-intensity running, we eliminated some of the typically profitable elements of a Finish Line store. We took kids out, we didn’t have Jordan or any basketball. It was running and lifestyle, with a more intense apparel assortment. And it was a beautiful buildout and a great-looking store, but it didn’t create the kind of profits that the store had created in the past.

FN: Has the concept been abandoned?
GL: Out of LTD came four or five great ideas about how to service customers and how to present product, so we’re incorporating those in our existing stores right now. We believe [new concepts] can come out of our existing store, and [we’re focused] on how to elevate that experience.

FN: You’re also working to elevate your Web presence and recently created an Internet division. How much opportunity is there online?
GL: Over the last 10 years, we’ve had consistent growth in the Internet business. It has outpaced our in-store business now for three or four years. We will continue to invest our marketing dollars, our technology dollars and our human resources to elevate that business. It is less than 10 percent of our total business today, but I believe it ultimately can be in excess of 10 percent. That’s because of who our core customers are. They’re 18 to 29 years old, and they live on the Internet. I see it being one of the real big revenue-building opportunities for us going far into the future.

FN: Are you planning any upgrades for the site?
GL: We’re constantly looking at that. Our Website, visually, has been competitive, [but] we continue to strive to get ahead. You’re going to see some new things happen [by the end of the fiscal year] that are going to make it a more exciting experience for our customers.

FN: Mobile phone platforms are considered the next big frontier. Will Finish Line get in on the action?
GL: We don’t want to be the first in the game, but we want to be early and we want to be recognized by the customer as being on-trend to satisfy their needs. So I would estimate that in the next six months, you’ll be able to get on your phone and order from us. I’ve got to give the customer the ability to buy any way they want to buy under the Finish Line brand.

— With contributions from Kristen Henning