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William Lavin: new financial vision for the old five & dime.

William K. Lavin, chief financial officer of Woolworth Corporation, is a busy man. The company whose finances he oversees owns, in addition to its flagship Woolworth stores, over 40 specialty chains--ranging from Kinney Shoes to Champs Sports--with retail outlets operating throughout the United States, Canada, Europe and the Far East.

But one thing immediately evident about Lavin is that he thrives under pressure, which might explain why he seems to take such joy in his job.

"A lot of big corporations have a predetermined opinion of what their accounting and financial people should do," notes Lavin, in his office atop New York's landmark Woolworth Building. In contrast, Lavin says his philosophy is simple: "You always have to keep your mind open."

Lavin's trek to the top began after his 1965 graduation from St. John's University on Long Island. He started his career in the New York office of Peat, Marwick, Mitchell & Co. While he is quick to say public accounting gave him a well-rounded education for business, he adds, "I was always evaluating somebody else's decisions." He also found himself becoming more and more interested in finance rather than auditing.

After seven years with Peat Marwick, Lavin took his first step away from public accounting and into the world of industry. He landed a position at Kennilworth Management, a real estate development company that specialized in building shopping centers. "My function was purely finance," he says, "and it gave me a good understanding of real estate, property values, the whole grammar." This background would later prove instrumental.

In the early 1970s, when interest rates started getting tight, the company's two principal partners decided to take their money and move on to new and better things. But what others might have considered a setback, Lavin turned into an opportunity. He was hired by J.C. Penney as manager of financial reporting.

"I had hardly any retail experience," he remembers, "so I asked if the company would mind letting me go through what was normally the training program for newly hired store managers. I did it in a condensed form, to get a feel for the flow of merchandise--and the flow of information."

At Penney, he drew on his public accounting experience in auditing and financial statement preparation and on the finance experience he had gained dealing with banks and lending institutions at Kennilworth--all of which proved helpful in serving as part of Penney's corporate finance team.

After seven years, Lavin left Penney in 1981 when he was recruited to become the assistant controller of Woolworth Corp. In 1983, he was promoted to senior vice-president-chief financial officer. Capping his rise, in 1986 Lavin was named executive vice-president of finance and CFO.

Lavin, it should also be said, has managed to be productive in more than just his work. He and his wife, Eileen, have seven children: three in college, two in high school, one in grammar school and a baby at home.


"Woolworth has changed dramatically since I came here," Lavin notes. "We've gone from being a variety store--a five-and-dime, if you will--to a specialty company and we're quite proud of the transformation."

In fact in 1982, just after Lavin arrived at Woolworth, the company went into a major restructuring, which included closing all 336 U.S.-based Woolco stores in what has been called the biggest retailing liquidation in U.S. history. Almost a billion dollars worth of inventory was sold within 90 days.

"The hardest part of that decision was the fact we had to put 35,000 people out of work," reflects Lavin. "But at the time it was a question of survival. I think if the company had not made that decision Woolworth wouldn't be in existence today."

A major part of the restructuring has been to refocus financial resources to move aggressively into specialty retailing. The company, Lavin says, recognizes that its flagship Woolworth stores are no longer a growth vehicle but, instead, "a good, strong cash cow that enables us to fund our growth into other specialty formats."

Today, Woolworth is truly a conglomerate of high visible specialty stores (see the chart on page 85). Even more impressive, it has become one of the few truly multinational retailers. "We operate in the United States, Canada, Mexico, West Germany and now the Netherlands, Belgium and Australia," Lavin observes. "We have a trading office headquartered in Hong Kong, which has offices in 12 Far East cities."

The changes have bolstered the company's bottom line. Sales in 1989 were $ 8.8 billion, with a net income of $329 million--slightly more than a 14% increase over the prior year.

Although the company has spent some $1.2 billion in capital expenditures since 1983, it did so without incurring any debt, "another fact that we're quite proud of," Lavin says. "It comes down to conservative capital management. We want to expand rapidly but we want to expand rapidly in a controlled environment."

And "rapidly" it did expand. Last year the company opened a total of 735 new stores. "Most chains are not that big and we did it in a year. In 1990 we're again looking at opening over 700 stores."

An interesting advantage of owning so many types of shops is the ability to play a kind of retail roulette. If a Kinney Shoe store isn't working out in a mall, it can be replaced by a Foot Locker store or a Herald Square Party Shop. "If the cash register rings, you've got a success. If the cash register doesn't ring, you've got to redeploy it," Lavin says.

He explains the biggest capital investment in a retail store is not the hard dollars paid out; it's the lease commitment--in most cases a 10-year obligation. "Most of our stores are roughly between 2,000 and 3,000 square feet so, from a real estate view, they're interchangeable," he explains. "It enables us to monitor closely, but also to experiment. If you don't experiment in retailing, you're not going to grow."

Experimenting has proved to be a distinct advantage and this year's annual report highlights the concept. The cover is an artist's rendering of a mall made up of Herald Square, Foot Locker, Woolworth Express, Lady Foot Locker, Kinney Shoes, Champs Sports, Anderson-Little, Afterthoughts, Northern Reflections and Susie's. Lavin quips, "We say this is how we think a mall should look."

Actually, the rendering isn't far from reality. In the West Edmonton Mall in Alberta, Canada, the world's largest mall, Woolworth Corp. has 14 stores. In Torrence, California, at the Delamo shopping center, the company has 12 stores. As Lavin puts it: "Where the opportunity is, we are."

Lavin also admits having so many stores in a given mall means added leverage when it's time to renegotiate leases and "it always helps to have a little leverage."


Of course, managing some 43 different specialty formats is no easy task. Lavin says it all come down to management style. "We're highly decentralized when it comes to the merchandising, but highly centralized for support." For example, one payroll system pays all its U.S. employees, and there is one management information system operating for all U.S. stores.

"But," he adds, "from a merchandise point of view, we want the store managers to be entrepreneurs so we try to make it as easy as possible for them. When they come into the stores, they just have to worry about merchandise and employees. Everything else we've done for them."

Lavin also has overseen centralization of accounting, reporting and inventory monitoring. "When I came here in 1981, there were seven almost autocratic companies that were part of the corporation," he recalls. "You could see there was an awful lot of unnecessary overhead."

In 1981, Woolworth had 11 accounting centers in North America; today the basic accounting is done in just three regional offices. "When we started to centralize reporting and accounting," Lavin comments, "it made dramatic improvements in the bottom line."


Obviously, there is a lot more to overseeing the finances of a corporate giant than minding the books. Lavin says he always keeps an eye on social trends. For instance, given the rising interest in physical fitness in the last decade, it's no surprise the hottest growth areas for Woolworth are its Foot Locker (athletic footwear) and Champs Sports (athletic equipment and apparel) stores.

Foot Locker, which was started in 1974, now has over 1,300 stores, "and probably the potential for another 1,300 on top of that," says Lavin. He calls it "the retailing success of the 1980s." Champs, with 199 stores, also has proved its appeal to customers across all age brackets.

"Fitness is becoming a way of life in America," Lavin observers. The phenomenon ranges from the elderly out walking--and wearing athletic footwear and clothing--to equipment for kids playing baseball and basketball.

Another example of stores capitalizing on changes in society is Woolworth's Rx Place, a deep discount, off-price drugstore, which Lavin says addresses the graying of America. "Our marketing so far has been aimed at communities with an above average number of retired people and the approach seems to be working."

Marketing for older Americans will be increasingly important for expanding companies, Lavin asserts. "As retailers looking into the 1990s, we have to address this growing segment of our population. And, with most people living well into their eighties now, the question is, what have they been doing since they were 65?"


The economic integration of Europe is another area Lavin sees as rife with opportunities. "In the 1990s, we're going to globalize more and more every day," he declares. "It's a matter of being in position to go forward into the 21st century," he adds, "because we're already looking at the year 2000--and beyond."

Beginning in 1992, the countries of the European Community will eliminate interborder tariffs, which is expected to be a boon for international retailers. "Right now, we have Foot Locker stores in West Germany, the Netherlands and Belgium," Lavin explains. "If I want to bring a container load into Hamburg, but want it to get to Belgium, I've got to go from Germany to the Netherlands, from the Netherlands to Belgium. And I wind up paying three separate tariffs.

"After 1992, I'll be able to bring that same container in and ship it right out to my stores with no tariffs. So the economies of big buying come into play. In buying athletic footware, the bigger the order, the better the price. And if you can buy 10 container loads versus one container load, think of the advantages!"

Woolworth also has not been remiss in taking advantage of opportunities in Asia. "In the Far East," Lavin says, "we have a company called Woolworth Overseas Corp. (WOC), headquartered in Hong Kong. It's basically a foreign trading company set up to replace the agents we had to deal with when buying direct in the Far East. By replacing the agents, we've saved ourselves their commissions plus other costs inherent in getting deals done in the Far East." The result is, "We've been able to improve our margins, maintain our price competitiveness and really enhance the globalization of the company."


On the domestic front, Lavin thinks that, overall, the Financial Accounting Standards Board has done "a very credible job" setting accounting standards. Still, he would like to see CPAs in industry becoming more involved in the process, "so their voices are heard in Norwalk, Connecticut." He asserts, "Accounting standards are valid only if they make economic sense. If they don't, then the rules should be changed."

As for CPAs who are considering industry positions, he advises they first decide which business they're interested in and then research the major companies in that area. "The research should be both financial and interpersonal," he points out. "Working for the best company in the world is good but, in the final analysis, it's personal interactions that make a job rewarding."

Finally, Lavin advises CPAs entering industry to become "professional merchants," aware of all aspects of company operations. "Once you know the business," he says somewhat modestly, "finance is easy."
COPYRIGHT 1990 American Institute of CPA's
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Article Details
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Author:Miller, Stephen H.
Publication:Journal of Accountancy
Article Type:Interview
Date:Aug 1, 1990
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