The industry takes stock of an undeniably tough ’09.
“Trying” is the word that Bob Campbell, CEO of BBC International, lands on when trying to sum up the past 12 months in the footwear business. Rialto president Matt Dragos proposes “inconsistent” or “unpredictable.” The difficulty didn’t come as a shocker to anyone not living in a cave in the fall of ’08, when the effects of the banking and housing market’s collapse collided with election uncertainty, with the resulting economic ripple sparking pronounced consumer anxiety. But as Jan. 1 approaches and a consternating year rolls to an end, many are stopping to reassess the takeaways from 2009 while looking ahead to the future.
“When you’re talking retail, every day, every year could be better,” says Gary Weiner, president of Saxon Shoes in Richmond, VA. “This was a year where the best retailers did OK if they were lucky, and anybody who wasn’t good—anybody who wasn’t on their toes—just got hammered or disappeared.”
“It’s [been] a funny year,” SportsOneSource analyst Matt Powell notes. “It started off really strong—much better than anticipated. And then it quickly died.” By March, consumers had battened down the latches of their wallets, fearing job losses, salary cuts, tanking stocks and other cataclysmic effects, and sell-throughs hit the skids. As the National Retail Federation of Washington, D.C., rattled off month after month of reports confirming “dipping,” “slowing” and “disappointing” year-over-year sales results, footwear retailers and vendors were snapped into the new reality by unprecedented market patterns. According to Mitch Kummetz, senior research analyst for R.W. Baird & Co., “These companies were working off of a playbook that didn’t really exist before. They had never seen quite this much of a deterioration in consumers and their business.”
Retailers felt the crush first, and those not in solid standing prior to ’09 bore the brunt of the fallout, with many turning to rock-bottom sales promotions to liquidate merchandise and drum up cash flow. “It was the people who really needed the money that sold at bottom [prices] and got hurt,” reports Alan Miklofsky, chairman of the National Shoe Retailers Association and owner of The Shoe House in Tucson, AZ. “Retailers who may have been in problem situations already didn’t have the ability to hold through the worst part of the year, and things just became worse.”
However, those in good standing who were nimble enough to react quickly seem to have weathered the worst. “What we’ve seen over the past 18 months is brands and retailers adjusting to the new dynamic,” says Christopher Svezia, an analyst at Susquehanna Financial Group. Most agree that the recession has set off a remarkable period of learning and market correction that puts the entire industry in better standing moving into 2010. “Everybody’s learning how to do more with less,” Powell notes. “I think that’s always healthy.”
Angel Martinez, CEO of Deckers Outdoor Corp., stresses that ’09 will definitely go down as a year for the business to remember. “It’s always important to have successfully made it through a difficult time and struggles,” he says. “It allows your organization to improve, focus on the things that matter most and get back to fundamentals.” Analysts, manufacturers and retailers say that for most companies, that meant a) increasing corporate efficiency and b) adjusting inventory levels (which had inflated right along with consumer spending). Those able to do this quickly once the recession smoke turned to fire fared best, and Kummetz notes these factors were directly responsible for profitability levels rising above the predictions made early in the year. “The tough environment gave some of these companies an excuse or a reason to get their costs in line,” he says. Once a turnaround takes hold, he adds, those that have tweaked their operations to fit the new economy will be best positioned for the future.
Getting payroll and expenses under control and smartly managing inventory has paid off for Rialto this year, Dragos reports. Although he estimates between 500 to 1,000 Rialto-carrying doors closed in ’09, the exec reports it has ultimately (and surprisingly) been a pretty good year for the company. Dragos cites a fast reaction to the recession’s challenges as the reason why.
Retailers say efficiency and inventory management is key on their end, too, and many note smartening up now will surely lead to eventual success. Just ask Weiner, who describes Saxon Shoes as the “tallest midget” in the game. “In the grand scheme of retail right now, we’re all midgets,” he stresses. “Nobody is hitting home runs out there, but we’re doing as well or better than most.”
Campbell says BBC International’s ongoing diversification across retail tiers, geographical regions and licensed brands helped buoy business this year. “It assists us when times are challenging,” he notes, explaining that any slack in one area is generally picked up by another. While BBC couldn’t match is record-setting 2008 sales this year (last year’s Hannah Montana craze was tough to repeat), it has seen international expansion of the Polo brand and recently sealed a deal to become Disney’s sole U.S. footwear licensee. The recession just validated BBC’s strategy, the exec notes, stressing that the goal is to have the best partners and brands in order to nab a share of existing business, regardless of how much there is to go around.
Making your customer happy is always a means to that end, but it became more important for both vendors and retailers this year. For brands, that meant doing everything possible to support retail partners facing their worst fears in 2009. Martinez notes Deckers leaned on its strong balance sheet and offered special programs and terms where possible to help them weather the storm. Campbell says staying on top of delivery times was also essential, as retailers aren’t forgiving—not even as lead times grow increasingly shorter.
On the retail side, pleasing consumers boils down to offering innovative, value-packed product at a price they are willing pay—not giving them more of the same. In terms of product, many brands got more conservative after noticing consumers reeling, and that wasn’t necessarily the best choice. Especially on the athletic side, Powell says, “There’s not a lot of great, fresh product out there. Those that are are selling well.”
Staying a step ahead of consumer desires also proved a boon, as any buyer who stocked up on boots this fall will tell you. “Nobody has enough boots,” Joe Ouaknine, CEO of Titan Industries, told Footwear Plus in mid-November. “That tells you, if you have the right trend, you’re going to do business.”
Whether Larry Tarica, president and COO of Jimlar Corp., parent company of Frye, presaged this season’s boot demand or not, his business confidence did not flag in the face of early media reports contesting a second-coming of the Great Depression. “We actually considered these conditions to provide an opportunity for us to increase our market share, and we continued to invest heavily in design, product development and brand management,” he says, reporting that the tactic worked; Jimlar expects to see a double-digit sales increase in 2009. Tarica does, however, acknowledge consumers’ turn to lower-priced products—or at least those holding greater value—and says he expects this sentiment to linger.
Similarly, Martinez notes Ugg Australia, which also continues to see strong sales, must continue to provide premium product while keeping prices steady to keep consumers faithful. “We don’t want to compromise [our] materials,” the CEO says. “If consumers value our product, they’ll continue to support the brand.”
Rialto’s Dragos recalls one retailer who told him “moderate” is no longer a dirty word. He says that has meant good things for his brand, which has always tried to build as much perceived value into its products as possible. “That’s always helped us, but now when customers are potentially buying because of price point, they can spot that attention to detail.”
In addition to fashion boots, analysts call out several other hits of 2009: canvas and vulcanized sneakers, performance running shoes, and wellness product, which hit the masses this year in a big way thanks to Skechers Shape-Ups and Reebok’s EasyTone line. So despite some industry bitching and moaning, “There are pockets of things happening,” Powell says. Transitioning into 2010, he adds, “I do think we’ll see retailers make some specific bets on certain categories.” Kummetz offers further encouragement for fashion merchants: “We’re hearing anecdotes that high-end consumers are coming back. People are looking for newness in fashion versus just deals.”
And should the state of retail as of Dec. 31, 2009, be the state of retail for the foreseeable future, Ouaknine offers a reminder that everything is relative: “A year ago, we were limping and [moaning in pain]. A year later, we’re still limping, but we’re used to it. When people ask how we’re doing, we answer, ‘Not bad at all.’” —Leslie Shiers