STEVE MADDEN STEPS OUT

Tuning into Generation Y as a platform for growth

By KATHRYN DUBE

Steve Madden stores, like the one at Garden State Plaza in Paramus, N.J. (left), show off the designer's shoes in an atmosphere that reflects their hip cachet. The store's target market, young women ages 16-25, pack The Coconut Grove (Fla.) unit, above

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Young women may desire slim body shapes, but chunkiness is "in" when it comes to shoes -- so much so that young female consumers have made Steven Madden Ltd. one of the hottest footwear enterprises in the country.

Steve Madden is so successful in reaching its core demographic group of 16- to 25-year-old "Generation Y" females, they have been known to line up just to get inside. They also will wait for hours to meet the designer Steven Madden himself.

The store in Roosevelt Field Mall, Garden City, N.Y., which has been open for a little over a year, "does phenomenal business," said Joseph Cilia, the 2 million-square-foot mall's general manager, describing how the center has to organize lines of customers outside the store. "Their volume really took us by surprise."

While the mall's other stores average $560 in sales per square foot, Steve Madden achieves "many times that number," he said.

"We have an unbelievable cultlike following," said Michelyn Camen, vice president of marketing and licensing at Steven Madden. While the company is listed as Steven Madden, the stores use the shortened, and more casual, "Steve."

The popularity of the footwear has enabled the company to launch an aggressive expansion program leading to sales that exceeded projections in all aspects of the business so far this year, according to analysts following the company.

Based in Long Island City, N.Y., with sales offices in New York City, the business is headed by Mr. Madden, who is president and CEO. Mr. Madden, a one-time stock boy at a shoe store on Long Island, still heads the design team and is very much involved with the day-to-day business of Steven Madden Ltd.

When Mr. Madden decided to start his own business in 1990, he had only $1,100 in his bank account. In 1991 the designer helped repopularize the platform shoe. Soon afterward, he developed the thick, chunky shoe that became his signature style. They were the rage with young women, and Steve Madden was on his way to merchandising legend. Today, Steven Madden Ltd., is a fast-growing business that designs, sources, markets and retails women's footwear, apparel and accessories.

"I'm always shocked at my success," he said, attributing his stores' popularity to the vision of a design team that manages to tap into the vibes of young female consumers, and "divine intervention."

The first Steve Madden store was opened in 1993, in New York's SoHo district. That same year, Steven Madden Ltd. went public. By 1996, the business had grown to four stores and over $40 million in annual sales; in 1997, it grew to 17 stores and just under $60 million in sales. There has been no letup in business this year either: In June 1998, Steve Madden Ltd. signed a lease for its 24th store. And by the end of this year, the company expects to have 27 stores and $78 million in sales, retail contributing close to 35% of sales revenue and wholesale the balance.

Not surprisingly, Joseph Teklits, an equity analyst with Ferris, Baker Watts of Baltimore, describes Steven Madden Ltd. as "a very dynamic company." In an April 7 equity update that he co-wrote, he concluded: "We believe Steven Madden Ltd., is one of the most dynamic companies targeting a burgeoning teenage population in the U.S."

A first quarter wrapup reports that sales and earnings both exceeded the projections of Ferris, Baker Watts, with sales increasing 36%. "Earnings exceeded our projections from top to bottom," the May 7 report states. Ferris, Baker Watts terms Steven Madden "a strong buy" for potential investors, noting that "Mr. Madden runs a controlled and profitable business, at the expense of top-line growth if necessary."

"Off-the-wall," "hip," trendy," "funky" and "wild" are often used to describe Steve Madden footwear. Whatever the description, young women are flocking into stores to acquire the company's leopard-print pumps, zebra-print loafers, seafoam sandals, even clunky satin-trimmed prom shoes. Steve Madden's 40-plus styles of shoes have an average retail price of $65. Ms. Camen said,

"Our line is driven by lifestyle. The customer knows exactly what she wants and she has adopted us," she said. "It's a two-way dialogue. We don't have just one look. We address the athletic look, the casual look ... their lifestyle, their culture."

Mr. Madden said the store appeals predominantly to "Generation Y" -- namely, "anyone who listens to the Spice Girls."

When Chelsea Clinton headed off last year to Stanford University for her first year of college, she took several pairs of Steve Madden shoes along. According to Ms. Camen, the Secret Service asked that the Montgomery Mall, Bethesda, Md., store be closed one day last August so Chelsea could shop with her mother. Ms. Camen said Hillary Clinton reportedly vetoed a pair of Steve Madden shoes Chelsea wanted because she thought the heels were too high, but Chelsea persisted and bought them the next day.

During her student days, and before becoming an MTV host, according to a February People magazine profile, Ananda Lewis once took a train from Washington to New York to buy a pair of brown buckskin Steve Madden boots she had fallen in love with, but couldn't find in her size. Steve Madden's flagship store in New York's SoHo district was the nearest one to carry her size. Other Steve Madden devotees are recording artists Leann Rimes, Queen Latifah and Mariah Carey, and talk show hostess Ricki Lake.

The company does not rely entirely on its shoes to attract its core shoppers. It makes itself "a destination location for young women," according to Ms. Camen, "with dark, club-like interiors and music blasting."

Stores have plenty of seating for young shoppers to hang out, and also maintain a continuous flow of inventory to satisfy the consumer who shops weekly. As Ms. Camen puts it, "These women get bored quickly."

Steve Madden stores average 1,600 to 1,800 square feet and average $1,200 in sales per square foot, said COO Rhonda Brown, with all but two located in malls The two nonmall locations are the original SoHo store, and one on East 86th Street in New York City.

"We go anywhere that has a cachet for young women," Ms. Camen said. For instance, Steve Madden is located in the high prestige South Coast Plaza in Costa Mesa, Calif., as well as Queens Center in Elmhurst, N.Y., which has a lower economic base, but is a haven for young female shoppers.

There is no cookie cutter design for the stores; each is tailored to reflect the economic status of its area, Ms. Brown said.

The overall target is for 50 Steve Madden stores to be operating by 2000. Stores are clustered in the Northeast; Washington, D.C.; Maryland; Florida; Southern California; and Northern California. There are plans to expand to the Midwest and Southwest as well.

Mr. Madden built his business by staying close to the customer, observers and colleagues say.

"Steve Madden and the team are in our stores often, almost every weekend, asking what's happening with their music, fashions, the shoes they want to wear," according to Ms. Brown. "Also, he gets 'Dear Steve' comments on-line through the Website [<http://www.stevemadden.com.], some 200 e-mails a day.

"The team also goes all over the world to get fashion trends," she added.

"It's rare for Steve not to be in our stores on weekends," said Ms. Camen. "In the Metro area he's a famous person, but he still takes time to talk to customers."

On one occasion, Mr. Madden noticed a teen wearing a pair of his shoes that she had had altered to make them even higher, according to Ms. Camen. He promptly borrowed the pair, which then became the inspiration for the company's "Jupiter" model, one of his most popular shoe designs last year.

"Retail is a good test for wholesale," Ms Camen said. "We can test a shoe on a Monday, get a read-out by Saturday, and go to manufacturing within 60 days."

As his company's stock rises, Mr. Madden finds himself the subject of much media attention portraying him as an entrepreneurial genius with uncanny vision for what young women want to wear. Most often pictured in jeans and a baseball cap, he says of his designs, "It doesn't count unless it sells. And it doesn't mean a thing unless the girls wear them."

He is also fond of quoting Shakespeare. His favorite quote, from Henry IV, Part II: "Uneasy lies the head that wears a crown." Accordingly, Mr. Madden is always on the move, charting his next design or venture.

"He is constantly questioning and challenging us," Ms. Brown reports. Steve Madden has been featured in People magazine and numerous other publications such as Success, Fortune, Brandweek, USA Today and Forbes.

"He is a personality. He loves movies and is very well read. He can have a charming effect on his constituency. When he makes personal appearances, the women sometimes get tongue-tied," Ms. Brown added.

The 1997 business year marked several milestones for the company. In addition to the 13 new Steve Madden stores opened, it put an additional one in SoHo under the David Aaron name, carrying a more sophisticated and expensive brand of footwear geared toward 25 to 40-year-olds. Steven Madden acquired the rights to market David Aaron footwear with the 1996 acquisition of Diva International, a New York based designer of sophisticated footwear..

The David Aaron store has been so successful, there are plans to roll out more stores next year.

"The new stores are likely to be in Chicago, Beverly Hills and Montreal," he said, adding he expects 25 of the stores to be open by 2002.

Meanwhile, there are plans to expand the Steve Madden stores overseas to the United Kingdom and the Pacific Rim, Mr. Madden said.

A new concept shop scheduled to open by the end of summer in the Georgetown area of Washington will be the first to carry all Steve Madden lines, including footwear, accessories and apparel. It will be a much larger store, at 2,600 square feet.

The expansion activity resulted in a 29% increase in net sales for 1997, with net income rising 155%. During 1997 the wholesale business grew by 12%, thanks in part to a number of licensing agreements.

"Steven Madden is not all things to all people. That's why we have lines," Ms. Camen said. Steve Madden distributes shoes to mass merchandisers through its private label Adesso-Madden division. Steve Madden also has seven licenses for sportswear and jeanswear, eyewear, handbags, hosiery, jewelry and outerwear. Agreement was recently reached for a line of Steve Madden Intimates to debut by Holiday 1998.

Even more significant, Steve Madden recently obtained the l.e.i. brand license for footwear to be sold at more moderate prices in May Stores, JC Penney, Sears, Roebuck and Co. and the like in time for back-to-school shopping. The l.e.i. brand is targeted at an even younger consumer.

The company is not too worried about competition. At Roosevelt Field Mall, "Their only real competition is Wild Pair, but it's a smaller store," said Mr. Cilia, the mall's manager.

"Everybody and no one is our competition," said Ms. Camen. "We have carved out a niche and have the look and vibe" of Generation Y women.

Ms. Camen notes that a Steve Madden store and Steve Madden products can be carried at better department stores like Nordstrom or Federated all in the same mall without cannibalizing the business. Major shoe competitors are Rocket Dog and Skechers. But, Ms. Brown said, "No one has the full line of collections that we do."

Despite his success, Mr. Madden is not always at ease.

"I'm in a constant state of panic, I've always been afraid I will end up back in a shoe store with a shoe horn hanging off my tie," he said. "I always thank the first person who comes in during a personal appearance, because I'm afraid no one will show up."

As for his growing star status among his young customers, Mr. Madden is somewhat nonplussed.

"I'm shocked, I'm much too neurotic to ever think that would happen," he said. "It's the silliest thing I've ever seen."