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Tech Bunch

Larry Schwartz, CEO of Aetrex Worldwide, on how its custom orthotics, foot scanning and footwear divisions offer meaningful points of differentiation in an increasingly homogenous comfort footwear landscape.

Similarities from one footwear wholesaler to the next can be striking. Their modus operandi is to design, manufacture and market shoes. It’s pretty much rinse and repeat, season after season. If you zero in on the comfort market, the range of silhouettes narrows even more dramatically. The category also lacks the stylistic distinctions that athletic logos and designer labels provide.

Fit, comfort and quality are the key product attributes. But many comfort brands are equally capable in those areas—and with competitive pricing, it’s easy to see how consumers might have trouble distinguishing one brand from the next. It’s a short leap to think retailers might view the category the same way and believe wholesalers can be swapped out with no negative consequences.

That’s why it’s imperative for comfort companies today to be much more than just purveyors of everyday loafers and cork footbed sandals. In an online shopping age where exclusivity is nearly impossible, they must offer more than the basics. Even the most well intentioned and policed MAP pricing policies can only go so far to protect against a price war if a brand or style is readily available. Retailers need meaningful points of differentiation
Enter, Aetrex Worldwide. Its three-pronged business model spans custom orthotics (Lynco), foot scanning technology (iStep) and footwear (Aetrex) divisions. Lynco presents a year-round add-on sales opportunity, regardless of what shoe brand the customer buys. And Aetrex’s custom foot scanning iStep experience helps generate sales storewide as customers learn which brands and specific constructions are best suited to their unique foot shapes. IStep also presents an exclusive in-store experience for retailers. Last but not least, the broad selection of Aetrex shoes caters to the sweet spot of casual styles with proven comfort features. Just how many comfort companies offer such a broad range of sales opportunities under one umbrella?

Aetrex’s uniqueness is evident at trade shows. Its booth is usually a hub of activity, where buyers can test the foot scanning devices while learning about the software’s numerous consumer-centric add-on features. Some go so far as to say that Aetrex is a technology company that also happens to make shoes. CEO Larry Schwartz doesn’t disagree. “The majority of our sales are footwear, but we don’t view ourselves as a traditional shoe company,” he explains. “We have a technology aspect that is unique in our industry and we are committed to continually finding new ways to utilize that strength and talent to help our customers.”

Case in point: Aetrex’s recently launched mobile app generator, which is available for free to all iStep partners. The app can be custom built in each store’s image and designed to meet specific business needs. Consumers can shop the store online directly from the app, find the nearest physical location, receive coupons and promotions, and stay connected via social media. And thanks to Apple’s
iBeacon technology, consumers can also receive personalized alerts when they are in the vicinity of that store. Other highlights include up to four rotating home pages and iStep consumers can retrieve past scans and learn about their feet.

Not many comfort footwear companies offer such technical capabilities to assist their retail partners. It’s difficult, expensive and time-consuming. And the rewards are not necessarily immediate or even guaranteed. Nevertheless, Schwartz sees the investment as well worth it. For starters, upgrading and adding features to its iStep software helps sell more Lynco insoles and Aetrex shoes. Beyond that, the technology allows brick-and-mortar retailers (in particular Aetrex’s primary customer base of smaller independents) to compete against national chains and e-commerce behemoths. “Offering ways to take advantage of the opportunities technology presents for engaging consumers through omnichannel retailing instead of sitting back and getting passed by is well worth the effort,” Schwartz says, adding, “That’s part of how we see our role in the industry.”

It’s one of the reasons Aetrex’s latest trade advertising campaign asks retailers, “Are you the circle or the square?” Meaning, are you still doing business the old-fashioned way (think Brannock devices and advertising in the local Sunday circular), or are you embracing foot-scanning technologies like iStep and reaching out to consumers though its customizable app? Schwartz stresses that the campaign is not completely self-serving for Aetrex. He notes that iStep and its related software can bolster a retailer’s overall health. You can even argue the technologies provide a direct benefit to other brands sold in those locations. And a better-equipped retailer is more likely to remain in business.

While it’s tougher than ever for independents to survive, Schwartz believes embracing technology and homing in on a specific customer or product niche rather than trying to be all things to all people (like e-commerce giants do), can provide a successful business formula. “It might take a few years to build a technology platform, but the business is changing fast and it’s not going to stop,” he says. “Retailers need to implement a strategy that makes these changes work to their advantage instead of technology just being the enemy.”

The fact that Aetrex has experienced growth in 19 of the past 20 years (the only blip was the recession-induced 2009), gives credence to Schwartz’s business philosophy. The company’s approach has been consistent, innovative and relentless. As a third generation, privately owned family entity, retailers have come to rely on Aetrex. There are no dramatic swings in sales from one year to the next, no desperate attempts to meet a quarterly number and, no leadership changes that might alter the direction of the company. Schwartz and his brothers—Evan, president, and Matt, executive vice president—are the day-to-day faces of Aetrex and have been with the company 23 years, 20 years and 10 years, respectively. None of them plan to quit their day jobs any time soon.

“My brothers and I are all relatively young and we are in no rush to leave the industry, so you’ll be seeing us at these shoe shows for the foreseeable future,” he assures. In fact, Schwartz believes Aetrex is just getting started, particularly on the footwear side. In that sense, it’s like many other comfort wholesalers. But when packaged with its Lynco and iStep divisions Aetrex becomes much more. “Our technology aspects are how we came into the market and what makes us truly unique,” Schwartz explains. “And we are committed to building on all aspects of our business to continually get better at what we do. It’s something that my brothers and I are relentless in pursuing.”

Are there times when you feel it might be a whole lot easier just to focus on making shoes?
Actually, it can feel the opposite sometimes. While we love making and selling shoes, and it represents the majority of our sales, I think the projects coming out of our technology side are really exciting and inspiring.

Like the just-launched mobile app. How’s the reception been to that latest technological endeavor?
It helps that iStep has become such a proven winner. Our retailers are more receptive to updates to its software programs. In this particular case, most of our customers know that they need to get there with regards to mobile e-commerce, but they don’t understand it fully. We are upfront with everyone: This app isn’t something that is going to revolutionize your business overnight. But you have to dip your toe in the water with mobile e-commerce. We are tying to educate our customers that when, for example, they upgrade or build a new website, they make it mobile e-commerce compatible. We also try to educate them about the marketing opportunities our software presents that can be so much more effective for their business than traditional methods. For example, our latest software package features cloud marketing capabilities, e-mail capture and education on foot health. It doesn’t mean retailers will use all the features, but they’re there for the taking. Overall, we are trying to help our retail partners see further down the line. There are many factors [as to why] smaller retailers have gone out of business over the past few years, but I believe a big reason is being passed by technology-wise. It’s important—even if retailers are late in the game—to get active in this area.

What other factors have contributed to Aetrex’s success over the years?
I think we’ve been in the right spot with a lot of good product, especially when we focus on the comfort and health aspects. We continue to get better at making shoes each season and have improved on appealing to a younger consumer without sacrificing health and comfort benefits. The footwear we have made of late is particularly strong. There’s a wow factor that was missing in our earlier days. It’s been generating strong turns at retail. If you can do that, then you can do a lot of business.

Anything else?
We have a lot of solid relationships with our retail partners, and I believe we’ve earned that friendship and support. I believe that, more than ever, retailers have to work with vendors they can trust and that are retailer-friendly. It’s more important than ever for them to find brands that will help them grow and really partner with them long-term. As a private company, we don’t feel pressure to meet a certain number every quarter, and we are in this for the long term. Our goal is to build a great brand, and we are committed to working with retailers—not against them.

Everybody echoes that sentiment. What’s the secret to really making it happen?
It lies in the actions. Look at how a wholesaler opens stores, for example. We all need outlets to clear inventory, but it’s how you do it—where, how much and who you might partner with. Similarly, are you coming out with programs that are designed to truly benefit the retailer? There are some great wholesalers that are really retailer-friendly. New Balance, for example. It’s a a world-class brand that cares about the independent retailer, like we do. The proof is ultimately in a company’s actions and the way it conducts business.

What are some of those actions?
Our Internet sales and MAP policy, overall, are very positive for retailers. Again, everyone needs a way to sell online, but it’s the way that you go about it that matters. For example, we don’t sell our primary products to e-commerce-only dealers. That’s another strong indicator. Plus, we work so hard on developing in-store technologies. We are constantly coming out with innovations that enhance the in-store experience. That’s something “that we’ve done more than any other company.

Has Aetrex reached a level of notoriety where consumers go into stores asking for the brand by name?
Every year we chip away at that. Our research shows that it’s building. But we still have a long way to go. We’re doing everything we can to get there. We are still at the early stages of building this brand. That said, we definitely have products that have a loyal following—the most extreme case being our Lynco brand, where we’ve sold millions of orthotics over the years and there’s a sort of cult following now. Some of those people associate that with Aetrex, and that’s helped us build our shoe brand. We also know we are making gains based on how often we are searched for on search engines. We constantly study those stats, be it search engines, our website or display marketing.

Just how hard is it to achieve such brand recognition?
It’s incredibly hard even with the opportunities technology presents for companies to grow today. As a private company in today’s environment, there are a lot of challenges. It’s not easy out there. We definitely feel a wind in our face, and I think most of our competitors would agree.

What, exactly, is causing the wind in your face—increased competition, consolidation, a weak economy…?
The primary wind in our face has been the fact that a lot of our retail customers have gone out of business. Our primary customer is the smaller independent. I’ve heard reports from the NSRA (National Shoe Retailers Association) that more than 40 percent have gone out of business since the recession started. That presents a really big challenge. We continue to find new customers, and we have grown within our existing customer base. I also think the economy continues to present significant challenges. Consumers are still cautious about spending.

A figure of 40 percent is downright scary.
It is, but there are a lot of good retailers left, which means there are still plenty of opportunities. We just have to focus and execute, and our customers have to do the same. A lot of those sales, for example, went elsewhere and those represent new opportunities for us. We have evolved into new customers and markets as well. We actually have a lot of momentum in the specialty running market, for example, especially on our iStep and Lynco sides. And, really, our strongest growing market the last five years has been in shoe stores. Our product offering has gotten much better, so there’s more demand for us. That’s also partly due to the fact that we have fewer competitors on the wholesale side. Without mentioning names, some of our competitors have been really innovative and some of them not so much. That has opened some doors. And consumers, overall, are still buying plenty of shoes and orthotics. So I believe there’s still tons of business out there to be had.

The spate of same-day delivery services being introduced is the latest assault on brick-and-mortar retailers. Immediate gratification was one of their few remaining points of differentiation, no?
There are some really tough e-commerce dealers in the footwear space, and they’re continually trying to get better. I don’t know if there are going to be drones delivering shoes any time soon, but even traditional means of same-day delivery is pretty impressive if they are able to do it well. That’s why retailers need to specialize. For example, focus on merchandise that is not easily available online or offer services that can’t be replicated remotely. Retailers have to find ways to differentiate their business and provide experiences people can’t get online.

Has retail gotten so dull, inconvenient and exasperating that consumers would really prefer to shop remotely?
There are always going to be plenty of customers who love to go shopping. That’s never going to end. But you have to provide something that creates an emotional connection that brings them into your store. If you walk through a mall today, you’ll see that few stores utilize technology in an enticing way. Retailers need to raise their game to compete with e-commerce.

A good example has been the rebirth of the running specialty channel through a combination of service, community outreach, introducing new brands, in-store events, etc.
It’s a great example. We have customers in that space who are such strong retailers and so innovative. You are starting to see it in the comfort space, but not as much. The key is finding a specialty and really owning it. You can’t just carry the big brands and hope for the best, not with the way rents are in high-traffic areas. That business model is not what it used to be.

Speaking of retail formats, how are your concept stores doing?
They are all doing well. We now have three stores in the U.S., two that we own in New Jersey and one near San Francisco, which is owned by Takken’s Shoes. We also have five stores in Israel, where our technology division is based. We’ll probably open maybe five to 10 more stores over the next few years, but it’s not our plan to become a retailer. It helps us in terms of being a product outlet, discovering which styles appeal to consumers and learning some of the issues that our retailers face—like the challenge of staffing. It’s hard to find and keep good people.

Despite the myriad challenges this industry presents on a daily basis, would you label yourself an optimist?
I’ve always been an optimist, for sure. There’s plenty of opportunity out there, particularly in our company’s case as well as for retailers. I also believe you have to maintain a good attitude in general. Of course, you have to be a realist and not keep your head in the sand.

At the very least, people don’t look like they’re going barefoot any time soon.
Yes, there is always going to be a market for shoes (laughs).

Even if drones start delivering shoes right to people’s doorsteps?
The amount of shoes being bought online will continue to grow in the foreseeable future, but there are plenty of reasons for shoe stores to remain in existence. I don’t think we’re anywhere near the independent book retailer space.

The April/May 2024 Issue

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