To articulate our strategy and explain how we’ll concentrate resources going forward:

• We will focus our resources on profitably growing our highest profile businesses – Famous Footwear and Naturalizer.
• We will continue to nurture the strategic retail partnerships that are the catalyst for building our wholesale division, with its strong portfolio of brands and licenses.
• We will improve our operating margin by dramatically improving inventory utilization, eliminating infrastructure redundancy, and implementing enterprise-wide processes, thereby capitalizing on the unique synergy that our retail and wholesale businesses afford us.

Brown Shoe, with its retail/wholesale mix, is uniquely positioned in the shoe industry. Through our retail division, we monitor the shopping patterns of 120 million consumers. Our wholesale business analyzes fashion trends across all channels of distribution. When we talk about synergy, we mean using this wealth of consumer information to identify emerging footwear trends for both our own stores and our retail partners. It also means being able to test and launch new styles within our retail stores.

Growth is our mission, and profit improvement is our yardstick. In the following review of our businesses I will describe how our strategies are working, evidence of tangible progress, and plans for continued growth in 2001 and beyond.

RETAIL.

FAMOUS FOOTWEAR / LAFAYETTE, INDIANA We will focus resources on profitably growing our two highest profile branded businesses – Famous Footwear and Naturalizer.

Our highest priority is to continue to grow Famous Footwear. It’s our largest division. In fiscal 2000, Famous Footwear posted yet another year of record sales and earnings, topping the $1 billion sales mark and returning operating earnings of $58.0 million, a 7 percent increase over last year.

Looking ahead, we are convinced that Famous Footwear has the ability to grow by up to 50 percent over the next five years. To grow the 925-store chain and continue to increase its productivity, we have been aggressively repositioning its real estate, honing its operations, and attracting new talent.

In 2000, our Famous Footwear team took on significant challenges. They opened 92 stores, assimilated an additional 26 stores from the acquisition of the Mil-Mar chain, and closed 60 lesser-performing stores, to finish the year with 925. Famous Footwear also is stepping-up its real estate repositioning strategy to transform the chain over time, from 5,000 square-foot locations to 10,000 square-foot “destinations.” In 2001, we anticipate opening 100 mostly larger-format stores, 84 of which are planned for high-traffic, power strip-mall centers where American families like to shop. At the same time, we’ll close 90 of the chain’s smaller, lower-volume stores. In 2001, total square footage will grow by about 7 percent.