Q&A With Finish Line’s Glenn Lyon And Running Specialty Group’s Bill Kirkendall

Transcript of Q&A session with Finish Line’s Glenn Lyon and Running Specialty Group’s Bill Kirkendall.

On Dec. 3 at The Running Event Trade show in Austin, Texas, Mark Sullivan, editor of the running industry trade magazine Running Insight, conducted a Q&A session called “Why We Think Buying Your Store Can Help Grow the Running Market” with Glenn Lyon, chairman and CEO of Finish Line Inc., and Bill Kirkendall, president of Running Specialty Group (RSG) in front of a packed-house ballroom audience comprised of retail store owners and managers, running shoe manufacturers, sales reps and other industry officials. Finish Line Inc. (NASDAQ: FINL) is an Indianapolis-based athletic shoe retailer with approximately 650 Finish Line stores, 200 concept stores inside Macy’s department stores and 66 running specialty shops it has purchased or started under its Denver-based Running Specialty Group since 2012. The brand’s foray into the $1 billion running specialty channel has made small, independently owned retailers nervous and annoyed.

Lyon, who joined Finish Line in 2001, has spent his entire 40-year career in the retail industry. Kirkendall joined RSG in April 2014 after working in numerous roles in the golf and branded footwear business over the past 32 years, dating back to his days as a sales rep for Etonic in the early 1980s. Here is the complete transcript of the Q&A.

Glenn Lyon (Finish Line): (Being involved in running specialty) is a very important part of our goals going forward as a company and being able to share with you some of our thoughts and our aspirations in respect to this business is very important to us. We’re very appreciative that you guys have agreed to allow Mark to invite us here and share some of our thoughts.

Mark Sullivan (Running Insight): I have asked you this privately and have to ask you know that we’re here: Finish Line is a $1.4 billion business, right?

Glenn Lyon (Finish Line): It’s closer to $1.6 billion. We have 650 Finish Line stores and we’re now active in 400 branded shops in Macy’s across the country and we have 66 stores under RSG.

Mark Sullivan (Running Insight): So with $1.6 billion, that’s bigger than the entire running specialty channel. The obvious question is why are you getting involved in running specialty?

Glenn Lyon (Finish Line): This is not about dollars and cents for us. This is about where the universe is today. And when you think about what’s going on in the world, this is not about what’s going on in the malls across America. They haven’t opened up a new mall in the U.S. in about 10 years. The world is all about health and wellness, the world is all about digital commerce and this channel is right in the center about all of that. It creates an unbelievable opportunity for all of us to grow our business and be at the center of culture. We don’t think about it monetarily, we just think of it as being the place in the universe where there is going to be growth and opportunity, opportunity for people to grow, both within our company and within the entire segment. You guys are in an unbelievable part of the world and we just want to participate in it.

Bill KirkendalI (RSG): For the active lifestyle consumer, we’ll all in the sweet spot. The main activity an the foundation for this consumer is running. So what could be better than the running specialty space.

Mark Sullivan (Running Insight): So Glen, I have to ask you … since you have been a senior executive at Finish Line, twice in that time frame the Finish Line has stepped out of the way from its finish line: once with the purchase of Man Alive and you also had the concept for a women’s store called Paivaand both of those you quit after a while.

Glenn Lyon (Finish Line): Are you insinuating we failed? It wouldn’t be the first time that I tried and failed.

Mark Sullivan (Running Insight): As an outside observer, how will your foray into running specialty be different than those two efforts.

Glenn Lyon (Finish Line): Better. We live in a world where taking risks is an important part of growing businesses. And if you’re not willing to make some mistakes and face the challenges of a changing world, where sometimes the path that you believe is going … I’ll tell you a quick secret we purchased about 1,000 tablets for our Finish Line stores about three or four years ago. Our intent was to have those tablets set up so that if a customer came into the store, part of the service equation was to get them to go over to the tablet to identify all of the products we had in our system—not just in the store and also where they were available. But shortly after we bought all of these tablets, we recognizes that the customer really didn’t want to get out of the seat that we had finally gotten them into to take off their shoes to try on a new pair of shoes and then go to this computer. What they really wanted was to have the handheld device that the people of today in our stores are using as part of the point of sale. They wanted to sit in comfort and know that you could give that product they wanted, how they wanted it and when they wanted it. So I have a warehouse with about 1,000 tablets in it. These are all things that happen in business. They are challenges that we face. We believe this is a very important space today and it’s growing. I hear numbers that this is a billion dollar industry. This is only $1 billion today. The ability of us and the people in this room to take a bigger share of the active lifestyle business is going to be our success. It’s out there. It’s out there to be hand. And we’re happy to share that with all of you and be part of your lives if you so see fit. I’m tired of making mistakes. I’m looking for a win.

Mark Sullivan (Running Insight): Tell me what you’ve learned so far from the purchase of the 60+ stores, some of the mistakes you feel you may have made and what’s been tougher than you thought it would be?

Bill KirkendalI (RSG): I think the first thing is … I’m from the athletic footwear business. I started with Etonic in 1981 and was very involved with a lot of people that I called on then who we are partners with today and some of you sitting out there now. I think the thing that is just  … the human capital that it is in this channel and this distribution has been phenomenal. We knew it was there, but I think it’s one of the best things that have happened in the acquisitions so far to date. It’s tough when you acquire and change, but you know, so many people have looked at change as opportunity. So I think overall, in what we’ve been able to learn, you know, we’re putting together the best of the best. What I’ve been able to learn from Bob Wallace [Run On! stores in Dallas] and Johnny Halberstadt [Boulder Running Company in Boulder, Colo.] and Garry Gribble [Garry Gribble Sports in Kansas City] and Bob Roncker [Bob Roncker’s Running Spot in Cincinnati]—I could go on and on—has been very, very enlightening and rewarding. So I think, so far, so good.

Glenn Lyon (Finish Line): Our focus is on the learnings. This isn’t about failures. There are good sales days and bad ones. There are disappointing transitions because people choose to move on to some other venue to sell products elsewhere. Many people when we come in and take an ownership of a business, the people in the stores are nervous. They own the customers. We totally get this about the inside out, this is about what happens inside the store and inside the community. We totally get that. And people are uncomfortable so they’ll go to the shopkeeper down the street and they’re going to feel more comfortable there. By the way, that’s a hit and we take that hit. You don’t replace those sales right away. But that’s part of the learnings, it’s part of how we integrate businesses in. We send people in early to share our feelings and our philosophies, rather than to just come in and say, ‘we’re going to change the registers around’ and where the money goes. This has been an unbelievable learning experience. We fully expected that. We fully expect that to reach the kind of performance—profit performance—it’s going to take three to five years to do it. But we’re ready to do that, again, because we think the future is in this room. The future growth in our industry—and quite honestly, we think we bring some expertise to the table, it’s not just a checkbook that we bring to the table. We have great, great systems, we have great warehousing, we have a terrific group of merchants who have worked for us for a long time, we have some great operations people. We have some core competencies that play in this world.

Mark Sullivan (Running Insight): Of those guys you mentioned, Bob Wallace is the only one of those guys remaining with you, right?

Bill KirkendalI (RSG): Bob is with us at RSG, Garry will remain at his store for the next year. Bob Roncker is retiring at the end of this year. I talked to him the other day and he was in the mountains of North Carolina. But Bob Wallace is the only one still with us because …

Mark Sullivan (Running Insight): But let’s talk about that for a minute because the last two days everyone here has been hearing how important it is to invest in your store personnel. Talk about the challenges with that, because you’re moving into an environment where it’s high service, high touch, Glen you said it, the sales people in the stores own the relationships, and when you lose some of those people, you lose some of those relationships and you lose the connection with the community.

Glenn Lyon (Finish Line): No, because we’re shopkeepers too. An anybody who looks at me and thinks I’m walking around in a suit all day and that I’m some corporate guy, is wrong. I’ve been doing this for 42 years. I am a shopkeeper. Do I understand the difference between being a shopkeeper who makes X amount a week running a store versus the owner of the store. Yes, I totally recognize that. But our expectation is that the customers are serviced and taken care of in every way possible in everything that you do and then they do some more. Because we’re going to bring some ability to use technology and use some other things to this segment of the world that has been somewhat lacking and not as competitive as you would like to be in getting the customer to do business with you. So, god, you guys do so many things well. The learnings we’ve had from all of these people—and look, this is an exit strategy for a lot of people, people moving on in years and they’ve spent a lot of time in this industry. We’re willing to come in and purchase all of the assets that they’ve spent their lives building up. If it’s good for them, then it’s good for us. They stay on and they help us and counsel us. And if you talk to those people, I think they’ll tell you that they’re pretty good listeners. We can always do everything exactly the way they were doing it over the years, but, boy, the learnings we’re getting from those folks has been incredible.

Bill KirkendalI (RSG): It really has. And Mark, when you say, ‘they’re not with us anymore,’ they’ve had people in their organizations that they are so proud to now give the opportunity to step up. And we are giving them that opportunity to step up and run that store and keep the relationships. We’re hopeful that we’re giving opportunity. We’re transferring people around the country. We have tremendous benefits for the people. It’s been very rewarding, but are there tough days? You bet. Integration is tough. But we’re getting better at it every day and I think that the people that are there are proud that are running that store. And they know they’re ready. Whenever you have succession, that’s what you look for. You want people to have opportunities and they’re getting it.

Glenn Lyon (Finish Line): I gave Bill a challenge to take this business and grow this business dramatically, and I’m hoping, I told him in five years, I hope this running specialty segment isn’t $1 billion, I hope it’s $2 billion. Because you’re part of a $25 billion industry and why shouldn’t we have those customers shopping in our stores? It’s not only about core performance and what you knew the business to be five years ago or 10 years ago, or for that matter, 20 years ago. Every part of the universe is changing. And this is part of the change in the world. The products we sell, the way we take care of people, the use of the Internet—all of those things—will add up to a healthier, better place to be with tons of opportunity for thousand and thousands of people. So that’s what excites us in the next—Bill says it’s going to be three years, I thought it would be five and I hope he’s right.

Mark Sullivan (Running Insight): If you asked people in this room why they’re successful, they’ll talk about the connections to the customer, the connections to the community and the things they do outside the four walls of their stores. So for you guys, as a corporate entity, I think a lot of people are skeptical that you’ve lost the community relationship and community involvement piece. Can you talk about that for a bit?

Glenn Lyon (Finish Line): I don’t know the answers. The answers are in here with our people and with these best-in-class people that we have gotten involved with. Again, it’s about our learnings! And some people are great at the training aspect of the business, some people are very good at the registration, some people convert 30 percent of the customers that walk into their store and some of the stores only convert 18 percent. Some of the stores have average transactions of $120-$130. There are others in the room that only do $80-$85. So we’re looking at all of these situations and we’re asking ‘what’s the best-in-class for each part of this and how do we capitalize on that?’ So maybe some people in the New York market are going to learn from somebody in Ohio about how to do higher dollars per transaction.

Bill KirkendalI (RSG): The community is the secret sauce of this business. We understand that. We have 13 or 15 community outreach people that work within our stores in every one of the districts in which we have stores. We very much understand the community, and are doing investing to have  … We want to be the heartbeat of our local communities. We want to inspire, we want to connect. To me, that’s the secret sauce, and so we’re investing in people to be the heartbeat of our local communities.

Mark Sullivan (Running Insight): Glen, you’ve been quoted as saying that running stores are operating at less capacity because of inventory and buying constraints. Can you talk about that?

Glenn Lyon (Finish Line): Every part of what we do is about our relationships. It starts with the customer, goes to all of the brand partners we have, all of the product vendors, all of the technology. We have found that in the acquisitions that we have made, there are inventory turns that range from two to eight. We’ve run inventories for many years, all of us as good shopkeepers and learned our trade, usually through big-store environments—myself and Sam through the department stores, others in our organization from the specialty world. I will tell you that when you can take your inventory—whether it’s shoes or apparel, or even accessories to a great extent—when you can turn that inventory over three times a year, you probably aren’t going to miss a lot of sales because of size or color, and you’re probably not going to wind up with too much inventory at the end. And that’s something we bring to the game. We bring inventory discipline that is at a very high level and we’re improving on that at all times, and that’s going to help profitability of these stores, the margins are going to be higher do it doesn’t have to come out of discounts from the marketplace, but rather more productivity from our stores and for our brand partners.

Mark Sullivan (Running Insight): OK, so a two-part follow-up to that. What do you consider the ideal inventory for a store that does $1 million per year and how does your increased buying cycle translate to better customer service?

Glenn Lyon (Finish Line): If I told everybody that, I’d have to shoot ‘em. (Laugh). Again, look at a $1 million store and turn the inventory over three times, and I think that’s a formula that I believe, in this segment of the world, enables you to be in-stock on your best-sellers, try new things, make some mistakes, get rid of the mistakes, re-supply something else that’s new and I think that’s what happens. It’s not going to be a physics class

Mark Sullivan (Running Insight): And how does that translate to better customer service?

Glenn Lyon (Finish Line): It’s evident, right? Having the shoe or the item they want in the size and in the color that they want, instead of having to order it from the brands, is a benefit to everybody. And the brands aren’t shipping special orders every week. I’ve learned inventory to be my friend. And, as long as I can maintain disciplines about that, and I make a fair amount of mistakes, which I know I’m going to make, but I know that I know that I’m in business on those core things that you can count on all the time, I think that blending of inventory lends itself to being successful. I look it as a great opportunity to bring the brands into having a better business too.

Mark Sullivan (Running Insight): Let’s talk about brands. At Finish Line, you do 80 percent of your business with Nike … is that the number?

Glenn Lyon (Finish Line): No, it’s less than that.

Mark Sullivan (Running Insight): OK, so more than 60 but less than 80 percent. So now you’re moving into an environment where there are lots of great brands and a consumer will come into run specialty and expect to see different brands, and, as you’ve seen over the past several years, great up and coming brands. Hoka today won the show’s shoe of the year. So talk about how you’ll start to field relationships with different brands … or will you not? Will you go into certain markets with a certain heavy-brand focus?

Glenn Lyon (Finish Line): We want to be where the customer wants us to be. We’re going to give the customers the customers the products that they want in the sizes that they want and the colors that they want from the brands that they want. And we know how to be nimble about doing that. We have no contract with Nike to do two-thirds of our business with them. The customer votes. They vote time and time again. We know that no customer comes into the Finish Line store to buy a Nike shoe. Nike wins in that environment with that core customer—which is a very different core customer than the one that is on run specialty—but that customer, the 18- to 29-year-old, alpha-male customer, votes for Nike. We don’t choose to make that happen. Nike earns that every day, just as the other brands in this room do, based on the quality and the innovation and the technologies and the investments that they make into their business, they either get recognized or not recognized by the customer. And that’s what our job is.

Bill KirkendalI (RSG): I would just like to add that the Running Specialty Group is located in Denver, Colorado, and we have our own merchants who service this business. We collaborate with the Finish Line, but we service our customers. That takes different brands, from accessories to apparel to footwear to nutrition to recovery. Everybody thinks we’re the same, but we’re standing on our own. We have tremendous resources to back us up—from distribution and legal and human resources. But as far as merchandising and store operations, we’re in a different business and we have a different customer. So we have to do what is right for the customer. As for the other brands, we’re going to put in what our customers demand. I don’t care what the name is.

Glenn Lyon (Finish Line): We have a guy in our organization who spent 23 years in the department store business leading the footwear business for Nordstrom. Ideas to help us serve our customers, build assortments, build relationships with people in this room. He spent a lifetime doing that and being a good partner to these people in what you know as well as we know is a very challenging world to operate in. We get all of that. Bill runs this operation out of Denver and we thinks that the way it should be done—that there is a degree of independence but there’s also a strong line of communication with any opportunities we have and discussions of the brands that are in the room.

Mark Sullivan (Running Insight): Let me ask you a question about the Finish Line brand. the Finish Line brand is very strong among your core consumer, but now you’re moving into a new segment for you and you have probably have 15 or 16 different name plates. How do you manage those 15 or 16 different nameplates and maintain the local touch and yet also bring corporate efficiencies to what you’re doing? How do you maintain that local flavor without turning them into just other corporate stores?

Glenn Lyon (Finish Line): I don’t think those two things are necessary mutually … a situation where one depends on the other. I think what happens in a store that creates that local connection to the customer has very little to do with what the name is on the outside of the door. That’s my point of view to the inside-out. And that’s what happens. What name is on the outside is not necessarily going to make us win or lose. Again, we clearly understand that these business need to locally connect in the community. They need to engage in many different ways in the community and we will do that because we think that’s the successful part. But we are working right now with a significant branding company to answer that question and we didn’t come here with an answer today with where we’re going, but I think if you look at us in three to six months, we’ll probably have a better answer. But whether the name on the outside of the store is individual to that particular community or we identify the name of the town in which it exists, part of the initial findings are that’s not necessarily what motivates the customer. They will know that you are locally connected the minute a customer walks into the store. And if we lose that, we will have lost. There is no question about that. We get that. It’s at the top of the pyramid in terms of what we’re doing.

Mark Sullivan (Running Insight): Are you suggesting that you might come up with one name for all of your different stores? Is that one of the possibilities that you’re talking about?

Glenn Lyon (Finish Line): Yeah, that’s a possibility. It’s a possibility. And we’ve seen some initial research on it and it all makes sense to us. The direction we’re going all makes sense to us. And I’m not trying to be sneaky about this. We don’t have an answer yet. When we do, we’ll share that to the world and it won’t be in a way in which we’re embarrassed or ashamed. We believe what happens in that store starts on the inside and that’s something that I am totally committed to.

Mark Sullivan (Running Insight): It will be an interesting challenge for you. When you bought these stores, like Boulder Running Company and Run On! in Dallas, these stores have generations of good will in their local communities, so to give that up would be …

Glenn Lyon (Finish Line): We’re not going to give that up. There’s nothing in our DNA that says we’re giving that up. We are shopkeepers. That’s the ethic of our company. That’s what we do. The mall is a different world and the connectivity to the customer is very different. We have to be shopkeepers in there and we’re some pretty heavy-duty folks in that business. But to get our place in the sun we have to do certain things … If you come visit some of the Finish Line stores with me, I’ll tell you that in five minutes—three minutes!—into the store and you know there is an energy. You’re know there is something going on, just as you know in your stores that you have the right team together and they’re creating energy and they’re connecting or when it’s not there and you have to make a change because somebody leaves you have to go through that. I’ll tell you what, we’re living that today. But we knew that we were going to lose some people along the way who didn’t have confidence or lived with it for a little over a year and knew what we were going to do and we’re sensitized to that. We’re going to have to build a great team of people from the inside out and know that the nameplate on the outside of the door is not what makes you win or lose. And the fact that you put the city’s name on it is not whether you win or lose.

Bill KirkendalI (RSG): You know Mark, when we go in, and we start to talk about how we can get more involved in the community, the name of the store never comes up, it’s the activities. How are we going to get more involved? What are we going to do? How are we going to do it? It’s not the name on the door that we’re talking about. We’re talking about how we can connect with that local community in more and differentiated ways than we do today. I think those two, like Glen said, are two separate subjects.

Glenn Lyon (Finish Line): If you don’t see the passion I have about this business, about our customers, about our employees, about our suppliers—these are all important things that go into every business, no matter what you’re doing, whether you’re selling paper or shoes or technology—those are the people that win. We are a passionate group of business people trying to do something for the community, for our employees and for the customers. That’s what we get up to do every day and I’m sure that’s what you guys get up to do every day.

Bill KirkendalI (RSG): We’re doing the same thing that you all are doing.

Retailer in the crowd: You can’t say you’re not doing the same thing we’re doing. I can’t sit here and listen to this.

(APPLAUSE)

Mark Sullivan (Running Insight): Talk about the running specialty model. That gentleman just said you’re not doing the same thing he’s doing and I think a lot of people in this room will tell you the run specialty model is about heavy, strong community obligation, very intense customer service, a real sit and fit environment. Do you see your future model looking like that or do you think you’re on your way to creating a new kind of model.

Glenn Lyon (Finish Line): Obviously, we think we’re on the way to creating, to some degree, a new model, but it will depend on all the things that happen. I understand, and I apologize if you’re skeptical about the honesty in which I represent myself. I apologize for that. But I can tell you that we’re real people trying to do good things in our communities for our employees and at the end of the day, we believe we will help this segment grow. And the proof will be in the pudding. Some people will join us and the other will be skeptical about who we are and how we represent ourselves, and time will tell for that. I would like to have everybody on our side, but I know that’s not realistic. But that’s where we’re headed.

Mark Sullivan (Running Insight): Talk about the model. What does your model look like and, I’ll flip that question, how is it different than the traditional run specialty model.

Bill KirkendalI (RSG): I think the model today is very much the same. But the model is going to change. We’re all not doing the same thing we were doing 10 years ago. The model is going to be what serves the customer the best. If that dictates a change in the model, then we’ll do it. But if not, we’ll do what we’re doing today. But I think change is inevitable. Change is constant and I think we’ll continue to evolved the model to meet the needs of the customer, and the customer is changing. How are we going to embrace all of these new customers and get them to shop at running specialty? If it takes a change in the model, we’ll do what we have to do. I think that change and evolution is inevitable in any business.

Mark Sullivan (Running Insight): You’ve acquired 50+ stores and you’ve opened some new doors as well. Can you talk about the balance of your portfolio going forward in terms of acquisitions versus new store openings?

Glenn Lyon (Finish Line): We’re heavier on store acquisitions than we are on new store openings. Our belief is that, depending on how the marketplace responds to us, we would like to go into any particular marketplace with the customer base built-in, the things that you guys have built over years or lifetimes and that seems to work best for us. When you’re in the marketplace in a particular investment class retail store has two locations in a market and that market has the ability—based on its population, based on its demographics—to have four stores in it, we’ll probably open up a couple more stores. When we went into Dallas [and purchased the Run On! stores], we opened up four or five new stores and filled out the market in the Dallas-Fort Worth. It’s going to differ by marketplace and that story will be told over time. But we actually do like the acquisition model because we do inherit profitable businesses and we are capitalized in a way that we’re happy to pay for that profitability. But we recognize that adding 50 to 75 doors over time to fill in the markets that we end up participating in is probably where we’ll end up.

Mark Sullivan (Running Insight): Talk about the importance of human capital. I think any store owner in here will tell you the reason they’re successful, or not, is because of their staff. If you look at others who have a model in the active lifestyle space—most people bring up Lululemon as an example of a good operator—Lululemon pays their store managers $90,000 a year, but you guys don’t. The question I would ask, and the question a lot of the people in this room would ask, is if you put a store manager in one of your stores and pay them $50,000 to $55,000 and another store owner with an independent store whose livelihood depends on winning every day, how is a store manager making $55,000-$60,000 per year going to compete against somebody who is living it, breathing it 24/7, 365 days a year?

Glenn Lyon (Finish Line): I don’t know the difference sometimes between an ambitious young person that we pay $50,000 and someone who has 10 years of experience in the retail world who you pay $90,000. I think we’re always of the opinion that doing higher-volume business in stores enables you to create a better service model. That goes whether you own the store or whether you’re operating it. I don’t think it’s about how much you pay them. I think it’s about the environment that you create. We have 15,000 employees in our company. I wouldn’t say everybody is happy, but we work damn hard at making people feel like they’re respected, that we collaborate with them, that we care about their well-being and I think that’s something worth it. You know that in society today, versus 10 or 20 years ago, it’s not as much about the money as it is about the environment. So I know there are skeptics in the audience. I get that, but that’s where we’re at. Take me on my word on that. We spend a lot of time and energy talking about behaviors in our company and respect that we give to the people who work for us and we work really hard at that and it really matters to us. So the human capital thing is the real deal. Whether we pay somebody $50,000 or $90,000 or $100,000—I think the Lululemon model is a model we’d all like to have, but they’re also doing $3 or $4 million a store. And we can do that. Change is inevitable and there will be more lifestyle type of business. Women are coming on as a more important part of this world and women have different needs in terms of products and make them want to spend money. If this segment averages about $1 million per store around the country, well, we inherited the Finish Line seven years ago and they were averaging $1.2 million per store and now they’re doing $2 million per store. We rationalized the store base and have done a lot of good things. And that enables you to give people more opportunities.

Bill KirkendalI (RSG): In any successful business, it’s all about people. We’re going to do what we have to do to have the best things for our people. What are we going to pay them? We’ll pay them the maximum we can pay them for that volume or for that industry or for that store. But it’s all about people. We have tremendous benefits too. There are lot more things than just money. In any successful business it’s all about the people, and ours will be no different or we won’t be successful.

Glenn Lyon (Finish Line): And the truth is the thing we admire most about what we see as we go around to these stores of ours is the camaraderie and respect that goes on in the stores. There is another word that we use a lot and that’s fun. People have a lot of fun in these stores and they’re passionate about running and they’re passionate about their customers and they want to do the right things for their customers and give them the right products that satisfy their needs. I think that this is going to be a little bit of a broader world that we’re all going to live in. We’re going to have to loose the parameters on how wide we spread this inventory. By the way, we have experimented through the years and when we took the Finish Line, we expanded the assortment a little bit and we found that the customer pushed back on us, so we brought it back in. But we’re always looking for the ability to grow the breadth of what we offer without losing the core of what we stand for.

Glenn Lyon (Finish Line): Maybe I’ll ask you a question: how many customers that walk into a Lululemon store today are doing yoga?

Mark Sullivan (Running Insight): I would say less than 50 percent

Glenn Lyon (Finish Line): I would say less than 25 percent. And I think they’ve not lost anything in terms of being the place to go for clothes to wear doing yoga. I think they’re still the leader in that, but they’ve broadened out the assortment without losing the essence of what they stand for. That is a very hard thing to do. They’re aren’t a lot of people who can accomplish that and it’s part of our goal.

Mark Sullivan (Running Insight): Are you saying that you can have running stores for people who don’t run?

Glenn Lyon (Finish Line): No, I think that, as all of you know, there are different degrees of engagement in running. I think we’re always going to be rooted in running and I would say to you that 99 percent of the customers who walk in the door are going to be running to some degree. But they’re not all going to be running 30 miles a week or five days a week. They’re going to be out for a run with their family or their kids once or twice a week and maybe only a mile or two. Running becomes a social event, and that’s something that I think we’re going to see a lot of. Health and wellness today encompasses a huge part of the population. With this running community and the core people that segment has always been primary to, I think is getting bigger. There are more people who want to buy running shoes and all for the same performance—to perform—but I think there is some elasticity to having the right kinds of shoes and apparel that can be bought in our stores.

Mark Sullivan (Running Insight): Let’s pull it back a bit and talk about big picture retail. Can you talk about some of the things you’re doing in your store? Can you talk about what omni-channel business means in a Finish Line store and what it means in a running store?

Glenn Lyon (Finish Line): There’s a very blurred line today for retailers as to what the digital universe is and what the opportunity is there and what the opportunities are in the brick and mortar world. The fact is that, today, they depend on one another. You can’t be in the brick and mortar business and not have some connectivity to the customer digitally or by social media because more than half of the customers are out in the digital universe looking for information, perhaps purchasing through the digital world. But for the most part—and we’ve done all kinds of tests on this—people do research on the web and still choose to come into the stores to buy. Today at the Finish Line, it’s no secret, we do 85 percent of our business in the stores, and our conversions are getting better because people have done their research and are coming to the store more purposely to buy. In fact, through available information they know what sizes and colors are in the store before they get there. Those are all things technology is enabling us to make the customer’s experience better. So omni-channel is the ability to have the customer make a choice as to how they want to do business with us on any given day depending on what is convenient. A lot of customers still like the experience, and in this world (of running specialty), it’s probably even greater. They love the social aspects of the running specialty brick and mortar store. They love to come in to talk about or brag about their runs that week in a social process, just like at the coffee shop next door where everybody is sharing a cup of coffee in the morning. It varies a little bit by the business you’re in, but all of those things are real and the omni-channel is real, whether your name is Macy’s or Finish Line or RSG.

Mark Sullivan (Running Insight): What is the conversion rate at Finish Lines stores?

Glenn Lyon (Finish Line): The conversion rate at a Finish Line store is a lot less than it is at an RSG store. The competitiveness is not as much about the product at the RSG store as it is in the Finish Line store because if we don’t have the Air Jordan in size 8 they’re going to go to Foot Locker. But if they come into an RSG store and we don’t have a size 10 in a running shoe, they’ll allow you to get something else. They’ll give you some room to do it because the connectivity is there, the loyalty is there. There isn’t as much loyalty at the mall stores as there is at running specialty.

Bill KirkendalI (RSG): I think, regarding omni-channel, within the specialty stores we have to realize that our customer is shopping online as well and getting information online. I think we’re no different. We have to be able to have the consumer get the product how they want it, when they want it, where they want it and we need to be able to provide that service. We will supply that to our customer and they will choose—it’s their choice—but we’ll provide a good service.

Mark Sullivan (Running Insight): Most of the people in this room will tell you that one of the best things about running specialty is that you can create your own customer with couch to 5K programs and other similar programs that develop runners. Is that something you think you’ll have to do in order to be successful in the run specialty channel?

Glenn Lyon (Finish Line): Absolutely. This is one of the great strengths and one of the things that our stores have been built on for a long period of time. That’s an expectation. Do it well and you will engage people to be more loyal to you. Again, at Finish Line they’re only as loyal as a smiling face and a size 8 of the shoe that just came out yesterday. We get that. What’s going on (at running specialty) and what those guys have created is what matters. I know there are some skeptics, but we have nothing but respect and all we want to do is take the best of the best and put it into a group of stores that enables us to perform better based on all of the knowledge that’s been gained. Let the skeptics rest on this, OK? We’ll go by what we’ve done and how we’ve interacted with people and the respect we’ve given them along the way here. We want to be best in class. That’s simply the goal of our company.

Bill KirkendalI (RSG): In our business, it’s about solutions. People come to us for solutions and we have to provide those. When people come to us with a need or they want expertise or they want education or they want inspiration and they want to be connected. And if we lose that, we won’t be special. They can buy our stuff anywhere in most cases. Those things are what specialty is all about.

Glenn Lyon (Finish Line): Part of our commitment to the community is a very big involvement that we have with the Special Olympics. I would love to share some of the notes we get from people about the differences we make in their lives and how many Special Olympics we employ today in our stores and how important that is to who we are and what we want to be. That’s a big deal. Those letters that we get where we’ve changed peoples lives are important to us as it is to anyone.

Mark Sullivan (Running Insight): Are there any questions I haven’t asked you that you think are important? Anything else you’d like to say to the people who are here?

Glenn Lyon (Finish Line): I said when I started, and you can take me on my word for that, we’re very proud to be a part of this and we respect what’s happened in this industry. For all of you who have invested your lives in theses businesses and we can be part of that and that can be beneficial to you, then let’s join hands and figure out a way that it works for both of us. If not, I hope that, when it’s all said and done, we’ve added something to this business and that everybody in the room has some benefit from some of the learnings that we have and some of the successes we’ve had and there are some things that you can put into your businesses to help you get more successful.

Bill KirkendalI (RSG): I’d just like to thank you for having us today and letting us share our story. We’re a part of the business and the industry and we’ll do everything we can to grow this business for all of us.

After the main Q&A sessions, two questions were fielded from the audience.

Retailer from New Jersey: I don’t have a question but more of a situation I’d like to know how you’d handle: If you had four high school kids walk into your store all of which had just enough money to pay what cost would be for product, would you allow the store or the manager in there at that money to sell those kids the product at that price?

Glenn Lyon (Finish Line): Absolutely not.

Bill KirkendalI (RSG): No.

Retailer from New Jersey: You would not? That’s not local. If I had kids come in and they needed shoes so they could perform, I would take whatever money those kids had or not take any money. That’s what local is.

(APPLAUSE)

Retailer from Australia: In addition to making money, what is success for your company in one to three years time? Is it the number of stores or is it something else?

Glenn Lyon (Finish Line): If everything we do is based on the financials, then we won’t win. No business will win. If we don’t stay focused on the customer, if you don’t stay focused on your customer, no matter what happens, you won’t win. So here me loud and clear: This is all about making the customer experience better. You guys are doing that in many ways and all we want to do is play in that game. And again, very respectfully, we have earned a tremendous amount about best-in-practice customer service, best-in-practice training programs, best-in-practice methodologies for signing up people for races, best-in-practice in terms of how to get the customer into the right shoe based on all of the technologies that are available. I don’t know why you’re trying to break me down, when all we’re trying to do is participate in all of the good stuff that you’re doing for the customers. And I’m not trying to do it at your expense. I’m trying to be helpful. If you’re skeptical about that, I’m sorry for that. I’m really not, that’s not what we’re here to do. There is plenty for all of this. We want to double this world. We would like to be part of doubling this world and making the place that you live in a better place. If you want to be skeptical about that, I can’t help this.

Bill KirkendalI (RSG): I think success for us is to be able to service the customer to the utmost. And if we can do that, we will be just fine and everybody will be just fine. And that’s what it’s all about. It’s not just about how many doors we have. We won’t have a lot of stores if we don’t do a great job servicing the customer because we won’t know them.

(End of session)