CALERES, INC (CAL) Business, 2018

Caleres, Inc., originally founded as Brown Shoe Company in 1878 and incorporated in 1913, is a global footwear retailer and wholesaler with annual net sales of $2.8 billion. In May 2015, the shareholders of Brown Shoe Company, Inc. approved a rebranding initiative that changed the name of the company to Caleres, Inc. (the "Company"). Current activities include the operation of retail shoe stores and e-commerce websites as well as the design, sourcing and marketing of footwear for women and men. Our business is seasonal in nature due to consumer spending patterns, with higher back-to-school and holiday season sales. Traditionally, the third fiscal quarter accounts for a substantial portion of our earnings for the year.

Our net sales are comprised of four major categories: women's footwear, men's footwear, children's footwear and accessories. The percentage of net sales attributable to each category is as follows:

2017 2016 2015 Women's footwear 59 % 63 % 63 % Men's footwear 25 % 22 % 23 % Children's footwear 9 % 9 % 9 % Accessories 7 % 6 % 5 %

In 2016, we expanded our men's business with the acquisition of Allen Edmonds, as further discussed in the Brand Portfolio section below and Note 2 to the consolidated financial statements. Approximately 69% of footwear sales in 2017 were retail sales, including sales through our e-commerce websites, compared to 67% in 2016 and 66% in 2015, while the remaining 31%, 33% and 34% in the respective years represented wholesale sales.

We had approximately 12,000 full-time and part-time employees as of February 3, 2018. In the United States, there are no employees subject to union contracts. In Canada, we employ approximately 20 warehouse employees under a union contract, which expires in October 2019.

With many companies operating retail shoe stores and shoe departments, we compete in a highly fragmented market. In addition, the continuing consumer shift to online and mobile shopping has increased price competition and requires retailers to lower shipping costs, improve shipping speeds and optimize mobile platforms. Our competitors include local, regional and national shoe store chains, department stores, discount stores, mass merchandisers, numerous independent retail operators of various sizes and e-commerce businesses. Quality of products and services, store location, trend-right merchandise selection and availability of brands, pricing, advertising and consumer service are all factors that impact retail competition.

In addition, our wholesale customers sell shoes purchased from competing footwear suppliers. Those competing footwear suppliers own and license brands, many of which are well-known and marketed aggressively. Many retailers, who are our wholesale customers, source directly from factories or through agents. The wholesale footwear business has low barriers to entry, which further intensifies competition.

FAMOUS FOOTWEAR

Our Famous Footwear segment includes our Famous Footwear stores, Famous.com and beginning in March 2018, FamousFootwear.ca. Famous Footwear is one of America’s leading family-branded footwear retailers with 1,026 stores at the end of 2017 and net sales of $1.6 billion in 2017. Our core consumers are women who seek leading national brands of athletic, casual and fashionable footwear at a value for themselves and their families.

Famous Footwear stores feature a wide selection of brand-name athletic, casual and dress shoes for the entire family. Brands carried include, among others, Nike, Skechers, adidas, Converse, Vans, New Balance, Sperry, Asics, Under Armour, Sof Sole and Bearpaw, as well as company-owned and licensed brands including, among others, LifeStride, Dr. Scholl’s Shoes, Naturalizer, Fergie Footwear, Carlos

by Carlos Santana and Circus by Sam Edelman. Our company-owned and licensed products are sold to our Famous Footwear segment by our Brand Portfolio segment at a profit and represent approximately 7% of the Famous Footwear segment's net sales. We work closely with our vendors to provide our consumers with fresh product and, in some cases, product exclusively designed for and available only in our stores. Famous Footwear’s average retail price is approximately $42 for footwear with retail price points typically ranging from $25 for shoes up to $220 for boots.

Famous Footwear stores are located in strip shopping centers as well as outlet and regional malls in all 50 states, Canada and Guam. The breakdown by venue at the end of each of the last three fiscal years is as follows:

2017 2016 2015 Strip centers 677 699 697 Outlet malls 189 190 189 Regional malls 160 166 160 Total 1,026 1,055 1,046

We expect to open approximately 25 new stores and close approximately 70 stores in 2018, as we continue to focus on store locations with a greater penetration of high-value consumers. New stores typically experience an initial start-up period characterized by lower sales and operating earnings than what is generally achieved by more mature stores. While the duration of this start-up period may vary by type of store, economic environment and geographic location, new stores typically reach a normal level of profitability within approximately four years.

Famous Footwear relies on merchandise allocation systems and processes that use allocation criteria, consumer segmentation and inventory data in an effort to ensure stores are adequately stocked with product and to differentiate the needs of each store based on location, consumer segmentation and other factors. Famous Footwear’s distribution systems allow for merchandise to be delivered to each store weekly, or on a more frequent basis, as needed. Famous Footwear also uses regional third-party pooled distribution sites across the country.

Famous Footwear’s marketing programs include digital marketing and social media, e-commerce advertising, print, national television and in-store advertisements, all of which are designed to further develop and reinforce the Famous Footwear concept and strengthen our connection with consumers. We believe the success of our campaigns is attributable to highlighting key categories and tailoring the timing of such messaging to adapt to seasonal shopping patterns. In 2017, we spent approximately $48.4 million to advertise and market Famous Footwear to our target consumers, a portion of which was recovered from suppliers. In 2016, we integrated our high-value consumer strategy and our digital marketing efforts to include new experiences both in-store and online to drive cohesive messaging. Famous Footwear has an extensive loyalty program (“Rewards”), which informs and rewards frequent consumers with product previews, earned incentives based upon purchase continuity and other periodic promotional offers. In 2017, approximately 75% of our Famous Footwear net sales were generated by our Rewards members. In 2017, we continued to test and optimize media tactics to acquire new high-value consumers, driving an increase in Rewards members for the year. For those already engaged with Famous Footwear, we leveraged insights to improve the consumer's journey, driving stronger engagement. In 2018, we will continue to focus our efforts and investments on driving acquisition, retention and share of wallet with highly valuable consumers.

As part of our omni-channel approach to reach consumers, we also operate Famous.com and FamousFootwear.ca, which offer an expanded product assortment beyond what is sold in Famous Footwear stores. Accessible via desktop, tablet and mobile devices, Famous.com helps consumers explore product assortments, including items available in local stores, and make purchases. Famous.com also allows Rewards members to view their points status and purchase history, manage profile settings and engage further with the brand. Famous Footwear’s mobile app further serves as a hub for Rewards members to shop, find local stores, redeem Rewards certificates and learn about the newest products, latest trends and hottest deals. In 2015, we expanded our in-store fulfillment initiative to increase product selection and reduce the average delivery time for direct-to-consumer purchases, which we believe contributed to the significant increase in Famous.com sales in 2016. During 2017, we leveraged our in-store fulfillment initiative from 2015 to successfully implement our buy online, pick up in store initiative, allowing consumers who are engaging with us on Famous.com to utilize their local store as a quick and convenient fulfillment destination. We also invested in a new content management system in 2017 to evolve our personalization capabilities on Famous.com, and evolved our fulfillment logic to drive more efficient shipping with multiple pair purchases. In March 2018, we launched FamousFootwear.ca, our new e-commerce site in Canada where we are implementing the same omni-channel capabilities for the Canadian consumer already utilized in the United States such as home delivery and buy online, pick up in store.

The expansion and modernization projects at our distribution centers in Lebanon, Tennessee and Lebec, California, which were completed in the second half of 2016, are providing additional shipping flexibility, operational efficiencies and an expansion of our logistics

infrastructure capacity. We continue to meet omni-channel demands of today with minor operational changes, including faster order processing and delivery to our consumers. In 2018, we plan to pursue ongoing growth in shipping flexibility, operational efficiencies and our logistics infrastructure capacity.

BRAND PORTFOLIO

Our Brand Portfolio segment offers retailers and consumers a portfolio of leading brands by designing, sourcing and marketing branded footwear for women and men at a variety of price points. Certain of our branded footwear products are sold under brand names that are owned by the Company and others are developed pursuant to licensing agreements. Our Brand Portfolio segment sells footwear on a wholesale basis to retailers. The segment also sells footwear through our branded retail stores and e-commerce businesses. In 2016, we expanded our men's business with the acquisition of Allen Edmonds, as further discussed in the Portfolio of Brands section below and Note 2 to the consolidated financial statements.

The following is a listing of our principal brands and licensed products:

Naturalizer: Naturalizer was born in 1927 when we realized women deserved a shoe with a beautiful fit. Our Naturalizer brand is sold throughout the United States and Canada, primarily at Naturalizer retail stores, national chains, online retailers, department stores and independent retailers. At the end of 2017, we operated 145 Naturalizer stores in Canada, the United States and Guam. Naturalizer footwear is also distributed through approximately 50 retail and wholesale partners in 47 countries around the world. Suggested retail price points range from $69 for shoes to $220 for boots.

Sam Edelman: Designer Sam Edelman’s lifestyle brand is inspired by timeless American elegance that bridges the gap between aspiration and attainability to define modern luxury. At the end of 2017, we operated 13 Sam Edelman stores in the United States. Sam Edelman footwear is sold primarily at national chains, online retailers, department stores, Sam Edelman retail stores, catalogs and specialty retailers at suggested retail price points of $40 for shoes to $250 for boots.

Allen Edmonds: In December 2016, we acquired Allen Edmonds to increase our exposure in men’s footwear, solidifying a new revenue stream to drive overall growth. Allen Edmonds, founded in 1922, is a U.S.-based direct-to-consumer and wholesaler of premium men’s footwear, apparel, leather goods and accessories with a strong manufacturing heritage. Allen Edmonds products are available at premier stores worldwide and select retailers, including our 78 stores in the United States and Italy, and online at AllenEdmonds.com at suggested retail price points from $295 to $445 for shoes and boots.

Dr. Scholl’s Shoes: Inspired by its founder Dr. William Scholl, Dr. Scholl’s Shoes remains forever passionate about creating iconic, effortless footwear for a healthy life. This footwear reaches consumers at a wide range of distribution channels: national chains, mass merchandisers, online, our Famous Footwear retail stores and specialty retailers. Suggested price points range from $50 for shoes to $175 for boots. We have a long-term license agreement with Bayer HealthCare, LLC to sell Dr. Scholl’s Shoes, which is renewable through December 2026 for sales in the United States and Canada.

LifeStride: For more than 70 years, LifeStride has created quality footwear for women who value both style and all-day comfort. The brand is sold in national chains, our Famous Footwear retail stores, online and department stores at suggested retail price points ranging from $40 for shoes to $100 for boots.

Franco Sarto: The Franco Sarto brand embodies timeless, wearable style inspired by the craft and design of Italian footwear. The brand is sold in major national chains, online, department stores, catalogs, our Famous Footwear stores and independent retailers at suggested retail price points from $79 for shoes to $259 for boots.

Vince: The Vince women's shoe collection launched in 2012 and was expanded in 2014 to include the Vince men's footwear collection. The brand is primarily sold in premier department stores, online, national chains and specialty retailers at suggested price points ranging from $195 for shoes to $395 for boots. We have a license agreement with Vince, LLC to sell Vince footwear that expires in December 2018.

Rykä: For over 25 years, Rykä has been innovating athletic footwear exclusively for women. The brand is distributed through national chains, online retailers, independent retailers, department stores and our Famous Footwear retail stores at suggested retail price points from $50 to $90.

Fergie Footwear by Fergie: We have created a namesake footwear line in collaboration with Grammy Award-winning artist Fergie (Fergie Duhamel, formerly Stacy Ferguson). Fergie Footwear is currently being sold at national chains, our Famous Footwear retail stores, online and at department stores at suggested retail price points of $40 for shoes to $199 for boots. We have a license agreement with Krystal Ball Productions, Inc. to sell Fergie/Fergalicious footwear that expires in December 2018.

Bzees: Bzees is the brand of women’s sporty footwear that energizes the mind and body from the feet up. The brand is distributed through national chains, department stores, specialty retailers, independent retailers, our retail stores and online retailers at suggested retail price points from $59 for shoes to $140 for boots.

Carlos by Carlos Santana: The Carlos by Carlos Santana collection of women’s footwear is sold at national chains, major department stores, our Famous Footwear stores and online. Suggested retail price points range from $59 for shoes to $179 for boots. We have a license agreement with Santana Tesoro, LLC to sell Carlos by Carlos Santana footwear that expires in December 2018, with extension options through December 2022.

Via Spiga: Established in 1985, Via Spiga is named after the main street in one of the most famed shopping districts in Milan, Italy. The brand is primarily sold in national chains, premier department stores and online at suggested retail price points from $175 for shoes to $495 for boots.

Diane von Furstenberg: The Diane von Furstenberg (DVF) brand is a staple of American luxury design that exemplifies feminine, effortless and classic styles. The brand is distributed through online retailers, specialty retailers, national chains and department stores at suggested price points ranging from $198 for shoes to $598 for boots. In December 2014, we entered into a license agreement with DVF Studio, LLC to produce and distribute the DVF women's shoe collection, which expires in December 2020, with an extension option through December 2023.

Within our Brand Portfolio segment, our brands are distributed on a wholesale basis to over 2,400 retailers, including national chains, online retailers, department stores, mass merchandisers, independent retailers and catalogs throughout the United States and Canada, as well as approximately 57 other countries (including sales to our retail operations). Our most significant wholesale customers include Famous Footwear and many of the nation’s largest retailers, including national chains such as DSW, TJX Corporation (including TJ Maxx and Marshalls), Nordstrom Rack and Burlington; online retailers such as Nordstrom.com, Zappos.com and Amazon.com; department stores such as Nordstrom, Macy’s, and Dillard's; mass merchandisers such as Walmart; and independent retailers such as Qurate Retail Group, which includes both QVC and Home Shopping Network. We also sell product to a variety of international retail customers and distributors. The loss of any one or more of our significant customers could have a material negative impact on our Brand Portfolio segment and the Company.

Our Brand Portfolio segment sold approximately 46 million pairs of shoes on a wholesale basis during 2017. We sell footwear to wholesale customers on both a landed and a first-cost basis. Landed sales are those in which we obtain title to the footwear from our overseas suppliers and maintain title until the footwear clears United States customs and is shipped to our wholesale customers. Landed sales generally carry a higher profit rate than first-cost sales as a result of the brand equity associated with the product along with the additional customs, warehousing and logistics services provided to customers and the risks associated with inventory ownership. To allow for the prompt shipment on reorders, we carry inventories of certain styles. First-cost sales are those in which we obtain title to footwear from our overseas suppliers and typically relinquish title to customers at a designated overseas port. Many of these customers then import this product into the United States.

Products sold under license agreements accounted for approximately 23% of the sales of the Brand Portfolio segment in 2017, 26% of the segment's sales in 2016 and 27% of the segment's sales in 2015. Caleres also receives royalty revenues for licensing owned brands, including certain brands listed above, to third parties.

Our Brand Portfolio segment also includes retail stores for certain brands, including Naturalizer, Allen Edmonds and Sam Edelman. The number of our Brand Portfolio retail stores at the end of the last three fiscal years was as follows:

2017 2016 2015 Naturalizer 145 153 159 Allen Edmonds 78 69 N/A Sam Edelman 13 12 6 Total 236 234 165

At the end of 2017, we operated 84 Naturalizer stores in Canada, 60 Naturalizer stores in the United States and one Naturalizer store in Guam. Of the 145 Naturalizer stores, approximately 50% are located in regional malls and average approximately 1,300 square feet in size. The other 50% of stores are located in outlet malls and average approximately 2,300 square feet in size. Total Naturalizer store square footage at the end of 2017 was approximately 259,000, compared to 272,000 in 2016. During 2017, we operated 77 Allen Edmonds stores in the United States and one store in Italy, each averaging approximately 1,600 square feet. We operated 13 Sam Edelman stores at the end of 2017. During 2018, we expect to open four Naturalizer stores, one Allen Edmonds store and two Sam Edelman stores and close 13 Naturalizer stores and three Allen Edmonds stores.

In connection with our omni-channel approach to reach consumers, we also operate AllenEdmonds.com, Naturalizer.com, Naturalizer.ca, SamEdelman.com, DrSchollsShoes.com, Ryka.com, FrancoSarto.com, LifeStride.com, Bzees.com, ViaSpiga.com, FergieShoes.com and CarlosShoes.com, which offer substantially the same product selection to consumers as we sell to our retail partners. Vince.com and DVF.com complement our distribution of those brands.

References to our website addresses do not constitute incorporation by reference of the information contained on the websites and the information contained on the websites is not part of this report.

We continue to build on the recognition of our portfolio of brands to create differentiation and consumer loyalty. Our marketing teams are responsible for the development and implementation of innovative marketing programs that serve the consumer facing needs of our portfolio of brands as well as that of our retail partners. In 2017, we spent approximately $33.9 million in advertising and marketing support for our Brand Portfolio segment, including digital marketing and social media, print, consumer media advertising, trade shows, production, in-store displays and fixtures and public relations. The marketing teams are also responsible for driving the development of branding and content for our brand websites. We continually focus on enhancing the effectiveness of these marketing efforts through market research, product development and marketing communications that collectively address the ever-changing lives and needs of our consumers. Our marketing teams are instrumental in continuing to drive growth in e-commerce sales, producing relevant and purpose-driven brand positioning and creating meaningful connections with consumers that have increased awareness and loyalty across our portfolio. We continue to leverage consumer insights and data to inform marketing initiatives to capture a greater share of our target consumers’ spend as well as reach new audiences with a high propensity to purchase our products.

Our sourcing and product development operations source and develop footwear for our Brand Portfolio segment and also a portion of the footwear sold by our Famous Footwear segment. We have sourcing and product development offices in Clayton, Missouri; Putian, China; New York, New York; Port Washington, Wisconsin; Florence, Italy; Macau; Ho Chi Minh City, Vietnam; Hong Kong and Addis Ababa, Ethiopia.

Sourcing Operations

In 2017, the sourcing operations sourced approximately 45 million pairs of shoes through a global network of third-party independent footwear manufacturers. The majority of our footwear sourced is provided by approximately 51 manufacturers operating approximately 78 manufacturing facilities. In certain countries, we use agents to facilitate and manage the development, production and shipment of product. We attribute our ability to achieve consistent quality, competitive prices and on-time delivery to the breadth of these established relationships. While we generally do not have significant contractual commitments with our suppliers, we do enter into sourcing agreements with certain independent sourcing agents. Prior to production, we monitor the quality of all of our footwear components and also inspect the prototypes of each footwear style.

In 2017, approximately 68% of the footwear we sourced was from manufacturing facilities in China. The following table provides an overview of our sourcing in 2017:

Country Millions of Pairs China 30.8 Vietnam 11.5 Ethiopia 1.6 Other 1.1 Total 45.0

Product Development Operations

We maintain design and product development teams for our brands in Clayton, Missouri; Putian, China; New York, New York and Port Washington, Wisconsin as well as other select fashion locations, including Florence, Italy. These teams, which include independent designers, are responsible for the creation and development of new product styles. Our designers monitor trends in fashion footwear and apparel and work closely with retailers to identify consumer footwear preferences. Our design teams create collections of footwear, and our product development and sourcing offices convert those designs into new footwear styles. In our Dongguan, China office, we operate a sample-making facility that allows us to have greater control over our product development in terms of accuracy, execution and speed-to-market.

Our long-range plans include further expansion into new markets outside of China, developing more progressive processes to improve factory capacity and material planning, and continuing to drive excellence in product value and execution in a continually evolving manufacturing landscape.

At February 3, 2018, our Brand Portfolio segment had a backlog of unfilled wholesale orders of approximately $262.1 million, compared to $263.1 million on January 28, 2017. Most orders are for delivery within the next 90 to 120 days, and although orders are subject to cancellation, we have not experienced significant cancellations in the past. The backlog at any particular time is affected by a number of factors, including seasonality, the continuing trend among customers to reduce the lead time on their orders, capacity shifts at foreign manufacturers and the volume of e-commerce drop ship orders that are received immediately rather than in advance. Accordingly, a comparison of backlog from period to period may not be indicative of eventual actual shipments or the growth rate of sales from one period to the next.

AVAILABLE INFORMATION

Our Internet address is www.caleres.com. Our Internet address is included in this annual report on Form 10-K as an inactive textual reference only. The information contained on our website is not incorporated by reference into this annual report on Form 10-K and should not be considered part of this report. We file annual, quarterly and current reports, proxy statements and other information with the SEC. We make available free of charge our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished, as required by Section 13(a) or 15(d) of the Securities Exchange Act of 1934, through our Internet website as soon as reasonably practicable after we electronically file such material with or furnish it to the SEC. You may access these SEC filings via the hyperlink to a third-party SEC filings website that we provide on our website.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following is a list of the names and ages of the executive officers of the Company and of the offices held by each person. There is no family relationship between any of the named persons. The terms of the following executive officers will expire in May 2018 or upon their respective successors being chosen and qualified.

Name Age Current Position Diane M. Sullivan 62 Chief Executive Officer, President and Chairman of the Board of Directors Richard M. Ausick 64 Division President – Famous Footwear Daniel R. Friedman 57 Division President – Global Supply Chain Kenneth H. Hannah 49 Senior Vice President, Chief Financial Officer Douglas W. Koch 66 Senior Vice President, Chief Human Resources Officer Malcolm W. Robinson III 57 Division President – Allen Edmonds and International John W. Schmidt 57 Division President – Brand Portfolio Mark A. Schmitt 54 Senior Vice President, Chief Information Officer and Logistics

The period of service of each officer in the positions listed and other business experience are set forth below.

Diane M. Sullivan, Chairman of the Board of Directors since February 2014. Chief Executive Officer and President since May 2011. President and Chief Operating Officer from March 2006 to May 2011. President from January 2004 to March 2006.

Richard M. Ausick, Division President – Famous Footwear since January 2010. Division President, Caleres Wholesale from July 2006 to January 2010. Senior Vice President and Chief Merchandising Officer of Famous Footwear from January 2002 to July 2006. Mr. Ausick has announced that he will retire in 2018. As of the date of this filing, his successor has not yet been named.

Daniel R. Friedman, Division President – Global Supply Chain since January 2010. Senior Vice President, Product Development and Sourcing from July 2006 to January 2010. Managing Director at Camuto Group, Inc. from 2002 to July 2006.

Kenneth H. Hannah, Senior Vice President, Chief Financial Officer since February 2015. Executive Vice President and Chief Financial Officer of JC Penney Company, Inc. from May 2012 to March 2014. Executive Vice President and President–Solar Energy of MEMC Electronic Materials, Inc. and had previously served as Executive Vice President and President–Solar Materials from 2009 to 2012. Senior Vice President and Chief Financial Officer of MEMC Electronic Materials, Inc. from 2006 to 2009.

Douglas W. Koch, Senior Vice President, Chief Human Resources Officer since January 2016. Senior Vice President and Chief Talent and Strategy Officer from January 2011 to January 2016. Senior Vice President and Chief Talent Officer from May 2005 to January 2011. Senior Vice President, Human Resources from March 2002 to May 2005.

Malcolm W. Robinson III, Division President – Allen Edmonds and International since July 2017. Executive Vice President, One Jeanswear Group - William Rast Division from November 2016 to February 2017. Chief Executive Officer and board member, Tommie Copper from July 2013 to August 2014. President, Maidenform Brands from November 2011 to February 2013. Group President of Wholesale Sportswear, Phillips-Van Heusen Corporation from 2002 to November 2011.

John W. Schmidt, Division President - Brand Portfolio since October 2015. Division President – Contemporary Fashion Brands from January 2011 to September 2015. Senior Vice President, Better and Image Brands from January 2010 to January 2011. Senior Vice President and General Manager, Better and Image Brands from March 2008 until January 2010. Various positions, including Vice President, President, Group President of Wholesale Footwear for Nine West Group from September 1998 to February 2008.

Mark A. Schmitt, Senior Vice President, Chief Information Officer and Logistics since February 2013. Senior Vice President and Chief Information Officer from January 2012 through February 2013. Senior Director of Management Information Systems for Express Scripts from 2010 through 2011. Various management information systems positions including Group Director with Anheuser-Busch InBev from 1996 to 2009.