To better communicate Famous Footwear’s value proposition to our customers, our new stores will use high-profile exteriors and large interiors merchandised with brand focus shops and key lifestyle areas (e. g., outdoors or sports). These prominently display the most sought-after brands at prices that beat the competition. Early indicators show these new stores to be more productive and profitable than our smaller stores.

While the Naturalizer brand continued to win market share in department store accounts, our 331-store domestic Naturalizer Retail chain struggled in 2000. Improving this chain’s performance remains a top priority. We therefore are expanding its real estate repositioning program, enhancing the talent level within its management, and intensifying our drive to merchandise the stores with compelling product.

In addition to being an important channel of distribution, these stores serve as valuable brand-building vehicles for our Naturalizer wholesale business. In 2001, we will continue to right-size the chain, closing 30 more stores and opening only 10 – in locations that closely match the demographics of our new Naturalizer customer.

Naturalizer’s Canadian operation, which posted a strong 5.9 percent same-store increase in fiscal 2000, will open an additional six new stores in the coming year.

WHOLESALE.

In the wholesale business, Naturalizer is our flagship brand and we are intensely focused on growing this business. The brand had an excellent year in 2000, increasing its sales to department stores by 25 percent over fiscal 1999. We expect to build on this momentum and continue to increase market share.

NATURALIZER We are dedicated to having the right product, at the right price for the right tier of distribution to drive both our retail and wholesale businesses.

Progress for Naturalizer also can be seen in the highly prized brand focus areas it was awarded in department stores during year 2000, including five in Macy’s metropolitan New York stores. Research says our customer base is improving too. Women in the 35-54 age group, with greater spending power and fashion sense, are rediscovering the Naturalizer brand.

This is only the beginning. We look to grow Naturalizer further as we continue to build our business in partnership with major department store chains and specialty footwear retailers. We will continue to market the brand through high-impact point-of-purchase displays, consumer catalogs, national advertising and the support of our Naturalizer Retail chain.