Do Something!

As major concerns, challenges and a general air of contrariness rankle retailers and vendors seemingly into a standoff, how can the industry come together to overcome them? How can we collectively do something to all do better?

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The tension has been thick and tar-like, and it only seems to be getting more entrenched. The finger-pointing at who is to blame for what ails our beloved industry is barely contained, albeit mostly off the record. Flashpoints like direct-to-consumer (DTC), private label, third-party marketplaces, distribution policies, minimums, markdowns, margins, showrooming, tariffs, labor shortages, traffic declines, sourcing, consolidation…have raised the stress level to an 11. Many retailers and vendors have retreated into their separate corners, licking their wounds, vowing revenge or tapping out all together on any notions of being partners going forward.

Welcome to the fallout stage of the so-called Retail Apocalypse. While surviving that initial shock-and-awe was hard enough, it seems we’ve moved onto a new, meaner playing field, one with new rules and cutthroat conditions. Every man for himself appears to be the guiding ethos. But is that sustainable long-term? Can everyone go it alone and expect consumers to follow in a meaningful way? There are growing whispers that DTC brands can’t. Turns out customer acquisition doesn’t come cheap; they need retail distribution to generate meaningful revenue. Same can be said for retailers who think they can turn their backs on the brands that helped build their businesses. Consumers want to be able to shop brands they know and trust, as well as discover new ones.

So where do we go from here? Can we overcome our differences and work toward solutions where both sides win or, at the very least, can stomach the terms and conditions? Are we not better off working together—like we have for more than a century—than venturing into an unknown world with no guarantees of success? An informal poll of industry leaders shows that, despite our current War of the Roses state, we can and should. If we put aside petty differences, appreciate each other’s concerns and challenges, and genuinely work together on solving them, we can move forward from this fractured landscape and build a new era of growth and prosperity. A new promise land awaits, they believe.

The question begs: Are there enough believers? Can this climate of uncertainty and contention be replaced by one of compromise and cooperation? Can we behave the opposite of how Congress does, seeing that as an example in the upmost of futility? Here, we touch on a few hot-button issues and see if any solutions and/or progress can be made.

DTC Drama

On the one side, wholesalers believe they have every right to present their complete collections in one setting on their terms—especially as shelf space becomes as scarce as a progressive at a MAGA rally. Brands want to tell their own stories, connect directly with consumers and collect valuable data, and sell at higher margins. On the other side, retailers claim every DTC sale is lost revenue—it’s “direct” competition from (so-called) partner brands they’ve helped build. It’s bad enough if they are forced to compete on price with a brand’s DTC site, but it’s worse when brands pull best-sellers back in-house for their own financial gain. (Yes, it happens.)

The threat is real, according to Mark Jubelirer, owner of Reyers Shoes in Sharon, PA. “These vendors endanger our well-being, and the list of them grows longer every season,” he says. “They get more aggressive as the retail distributors dwindle in number. The vendors say they have no choice but to steal my customers and those of my friends whose doors are still open. I shall always do my best to buy as few pairs from these thieves as possible.” On the flipside, Greg Tunney, president of Hush Puppies, says while his brand sells only at full price, brands are being pushed to DTC because of “overly promotional retailers.”

Can there be a happy medium with DTC? Possibly. Some companies, like Twisted X, opt out of the channel entirely, saying they don’t want to compete with their retailers. Others, like Taos, pushes consumers to its retailers first. A banner on its site urges shoppers: “Go into your local retailer, get fit and ask for Taos!” Also, an updated dealer locater pulls Taos partner inventory feeds in real time so consumers can click to see which styles, sizes and colors are available at local retailers. “Given the choice, consumers want to support their local retailer, but if they’re making the drive, they want assurance that the style they want is there,” says Taos COO Bill Langrell, who adds customers can contact the store and put items on hold. “This avoids returns and besides, as a comfort footwear company, it’s in our interest that people go into a store to try on our shoes.”

Isack Fadlon, founder of Sportie LA, sees a silver lining for retailers in the DTC debate in the form of tighter brand relationships with ones who are not as DTC-focused. “That still focus on brick and mortar are seeing more shelf space and more storytelling that’s ultimately resonating with customers,” he says. “We’re bringing in brands that we can partner with in-store to elevate the customer experience.”

One way for retailers to respond to DTC has been to ramp up their private label efforts, offering both exclusivity and increased margins. Take DNA Footwear, a seven-store chain in New York. The stores used to carry 150 brands, but that has since been whacked to 40, while it aggressively grows its own brands. “In addition to being the sole distributor of Verbenas, an espadrille line out of Spain, we launched a sustainable DNA sneaker line, and with 75 percent margin, we have more wiggle room when we need to put things on sale,” says CEO Daniel Kahalani. What’s more, DNA is now offering the brands wholesale. “We understand the pain retailers are going through,” he says. “We’re able to test our brands in our stores, and we can give our retail partners the product data they need to be successful with them.”

Gary Weiner, owner of Saxon Shoes in Richmond, VA, says he has “no issue” with vendors selling DTC—they’ll learn soon enough about the headaches of returns. But, in the meantime, he has a big issue with how they go about it, namely the unpredictability of the pricing. “Some vendors are using DTC to promote at a price without letting us know what’s coming and then forcing us to match or not,” he says. “That’s not good because if we match, we’re giving up margins.” What’s more, Weiner says a handful of vendors are sending emails five times a week with different promotions—sometimes large, site-wide discounts—that he had no idea were coming. Those are the brands Saxon Shoes is looking to not buy from in the future. “We’re looking to do away with any brands that are not maintaining their brand integrity,” he says, adding, “Those brands that want to do business at wholesale prices at the expense of those who built their business…that’s not an equation we want to be part of.”

NPD’s Senior Industry Advisor Matt Powell sees no let-up on the athletic footwear front when it comes to expanding DTC efforts. He expects the channel will continue to “bleed sales and margin” from retailers. The results, he predicts, are no real winners as DTC will be very promotional and not result in organic growth. It’s a “share grab” from retailers, Powell says. “More generally speaking, athletic footwear brands will find mid-tier department stores and shoe chains to be a fertile area for growth, as there is a much more equitable brand scenario here,” he adds. “I also wouldn’t be surprised if some brands expand their product offerings within the mass merchants.”

Tariff Troubles

The hot tariff war between China and the U.S. cooled with the countries coming to an agreement last month and rolling back some of the increases. However, some argue the damage has already been done—consumers have been paying for increases, wholesalers are scrambling for alternative sourcing partners and there are still footwear tariffs, on average of 12.2 percent, and up to 67.5 percent on select kids’ shoes. “Tariffs raise costs on consumers and shoe tariffs hurt working families the most, which is why FDRA has argued against shoe tariffs being used as a weapon in the continuing trade war,” says Matt Priest, president of the Footwear Distributors and Retailers of America.

Increasingly, brands have moving manufacturing out of China to, in part, mitigate future uncertainty. Earth Shoes, for example, moved about 40 percent of its China manufacturing to Vietnam, Portugal, Brazil and India. “We’re not saving money by moving to these countries, but we had to tariff-proof our company from future hikes,” says CEO Phil Meynard.

With 436 different classifications on footwear, designing products into lower tariff buckets, or “tariff engineering,” is another tactic, Priest suggests. “This is totally legal, and we’ve been guiding our members on this for decades,” he says. “We host an event in California each year where we encourage brands to bring in shoes and we look at their construction and make suggestions. There is incentive—if the designers think it will work within the brand DNA.”

Another potential solution is increasing sales in countries that haven’t levied tariffs on Chinese imports. “Some shoemakers only focus on the U.S. market, but America is only 10 percent of the world GDP,” says Hush Puppies President Greg Tunney, noting 95 percent of the brand’s sales are done outside the U.S. “Hush Puppies is the number-one brand in 13 countries, and it’s because we started pushing globally way back in 1959,” he adds.

Twisted X is also focusing on growing its global presence from its current 10 percent to a 25-30 percent share, and just hired former Minnetonka president Scott Sessa, as senior vice president of business development with a focus on global markets. Still, the Texas company has opted to keep 80 percent of its production in China, preferring known factory relationships and quality control over the headache and uncertainty of new ones in new countries. Such tight relationships also help existing factories absorb some of the tariff costs, notes Twisted X CEO Prasad Reddy. “Our factories are definitely helping us offset some costs, which will help in not passing costs on to retailers,” he says.

If there’s a silver lining to the dark clouds of this trade war, perhaps it’s a more educated consumer. “Where before you might have gone five years and not heard the “T” word at all, just look at how often tariffs have been talked about in the news,” says Priest. “At least consumers understand that brands or retailers are increasing prices because they have to, not for their own selfish profits.”

Pricing Pressures

MAP policing, markdowns policies, maintaining and/or increasing margins…the price is never really right for all parties. Coming to terms on what works best is like herding feral cats—you can’t. But you can at least try to hold the line where stated.

Take MAP pricing, for example. Oris Intelligence states the typical consumer brand has more than 77 domains selling its products, with 23 percent of products in pricing violations and the average discount is 17 percent below MAP. The company advises weeding out small rogue sellers before the big guys, stating, “If you think keeping track of the major online sites and marketplaces is sufficient to monitor MAP policy, know that sites like Amazon are nearly always price-matching a lower price found elsewhere.”

Indeed, the internet opened a Pandora’s box on how prices can be compared instantly. If a consumer finds an item priced lower, many retailers (rightfully) feel obligated to match, eroding their margin and possibly violating the MAP, which can lead to brand erosion. And while many brands claim to vigorously enforce MAP policies, the violators pop up like mushrooms. Steve Lax, CEO of Naot, describes policing its MAP policy like the arcade game, Whack-o-Mole. Dave Astobiza, co-owner of the Sole Desire chain in Northern California, says pricing online is like the Wild Wild West—it can’t be tamed. Taos Footwear went so far as to hire private investigators to root out MAP policy violators. “We’re finding that a lot of brands don’t have a strong MAP policy or say they have one, but don’t enforce it,” says Taos President Glen Barad. “And it’s just killing the retailer.” Barad adds that MAP policing is just a cost of doing business today—one he’d rather invest back into the shoes and/or co-op programs. “While we could sell more shoes by breaking price early, we choose to allow our retailers to get a large return on their investment with us,” he says. “We’ve been grabbing more market share on retailers’ shelves thanks to partner-friendly efforts like these.”

Traffic builders

Amazon is the (massive) elephant in the room. The online behemoth, if left unchecked, is projected to garner 50 percent of all retail ecommerce globally by 2021. The shift to online shopping overall has triggered a huge decline in brick-and-mortar traffic. But physical retailers can still compete, starting with the human touch—personalized service. For example, Philadelphia’s Bus Stop Boutique calls customers when new styles come in that they might like, and encourages consumers to bring in items they’re wearing to a special event so salespeople can help pick perfect shoes for them. “Customers love our styling tips,” says Elena Brennan, owner. “They DM us on Instagram to ask what shoes to wear, then send us photos of how happy they are with their purchases.”

Internet dealers have forced brick-and-mortar retailers to take a long look at their niche. “You have to stand for something, and make your place a destination,” says Lester Wasserman, co-owner of Tip Top Shoes, Tip Top Kids and sneaker boutique West NYC in Manhattan. “In store, we have the opportunity to interface and fit customers and sell them multiple pairs, if not now then later.” Wasserman contrasts this with Amazon, where shoppers have a pointed purchase trajectory, buying two or more pairs of shoes only to keep one and return the rest. Retailers who build community will also be frequented more often, Wasserman adds. Tip Top amped up its events both inside and outside the store—from an Octoberfest party with Birkenstock (bratwurst and polka band included) to a weekly Wednesday night running club in Central Park. Throw in philanthropy for that feel-good factor, too, like Wisconsin retailer ShoShoo. “We work with several non-profits in the area, with multiple shopping events during the year, giving a percentage of sales back to the non-profit,” says Manager/Buyer Angela Carlson. 

Treating staff like family with exceptional perks also goes a long way to keeping employees happy, which then trickles down to happier and more fruitful customer interactions. “I used to offer my staff shoes with a discount, but now I gift them several pairs of free shoes throughout the year as a thank you,” says Brennan. “We also regularly do fun events together where I treat the staff to facials, dinners at swanky restaurants, cocktails, the theater, concerts, etc. They really appreciate it.”

If all else fails to maintain or increase foot traffic, changing location might be the way to go. It’s not an easy decision, nor cheap. But sometimes the handwriting is on the wall—even if it’s after decades in the same town, like Reyers Shoes. “Downtown Youngstown (20 minutes west) is booming compared to downtown Sharon,” Jubelirer says, noting the store’s demographic continues to age and it’s difficult to draw younger consumers to the area. So, Reyers is considering a change in venue. “We’re full of due diligence in this regard, even though it will mean that all of us have to work harder to make it happen, and it requires large expenditures into the unknowable,” he says. “It’ll be another gamble—and a much bigger bet than we ever laid down. It’ll be exhilarating if we do it, but we shall be holding our breath all along the way.” In the meantime, Jubelirer remains ever the retailer: eternally optimistic. “We’ve changed our calendar of promotions for 2020 and have also employed a senior citizen discount as a way to bolster weekday business,” he says. “We have other new ideas as well—one of which is so good, that it shall remain nameless. It’s proprietary and fabulous.”

Constructive Conversations 

Every industry has its share of challenging issues. The challenge is how to overcome them. It starts with open lines of communication. If each side knows what the other side is complaining about, it opens the door to a possible solution.

Leslie Gallin, President, Footwear for Informa Markets, operators of FN Platform and Sole Commerce, believes shows are ideal settings to get those conversations started. “People like to do business with those they like and trust, and nothing replaces someone walking a new customer over to meet you in your booth or over drinks—you make a business contact that never would have happened if you stayed in your showroom,” she says. “Shows enable you to mingle with other retailers, as well as see what the common thread is in the industry for the season. Each side of the aisle benefits from having the opportunity to share ideas and build strategies.” Beyond that, Gallin believes the shoe industry, historically, works together and she is optimistic that the current slate of challenges and discord can be overcome. “It’s important to remember that the footwear industry has always had each other’s backs,” she says. “We need to keep camaraderie top-of-mind and at the top of our to-do list.”

Kevin Bosco, president of Bos. & Co. Footwear (Bos. & Co., Fly London, Asportuguese, Softinos), is a firm believer in extending a helping hand to its (primarily) independent retailer customer base. For example, this fall the company rolled out a program to help retailers promote its weekend trunk shows. “For 15 days leading up to the event, we provide the retailer with creative for a Facebook campaign within a 15-mile radius of the store,” Bosco says, noting social media programs are involved processes and for some it’s a new road. “This is one of the ways we are trying to partner with our retailers, because these people are the ones who built our business and we refuse to walk away from them.”

Hush Puppies’ Tunney also advises the industry to look outside itself for a fresh perspective and potential solutions. “Wolverine is over 100 years old and we’re great shoe manufacturers, but we’re learning new things,” he says. “Our Google search is up 11 percent because we’re bringing in talent from the packaged goods industry. The old Shoe Dogs with their ‘have a hunch and buy a bunch’ motto just won’t cut it anymore—not at retail nor wholesale.”

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