Speaking at the Deutsche Bank Global Consumer Conference, John Vandemore, CFO of Skechers USA, said the U.S. wholesale business is “probably our single most challenged marketplace” due to ongoing elevated inventory levels with the pressures expected to continue for a few more quarters.
Vandemore said of its domestic wholesale business, “Although it has grown handsomely since 2019, the year before COVID, from a financial perspective for us, it’s still experiencing the ramifications, particularly of some of the acute inventory arrivals of last summer.”
He noted that last summer, inventory across the marketplace accumulated “at a rate that we have never before seen in our industry” due to COVID-related supply chain disruption.
“We chose to approach that rather aggressively,” said Vandemore. “As you know, we spent a lot last year dealing with that inventory and getting it moving through the system in a productive way. And I think some of that is still an effect being felt in the domestic wholesale marketplace.”
He noted that some of Skechers’ retail partners are faring better and others worse in handling the inventory imbalances.
“Our expectation right now is that some form of those challenges and headwinds will continue for at least the balance of the year,” said Vandemore. “We’re eager to see that get resolved. We think there is good demand and in our own stores, we’re seeing excellent demand for our product. But it’s a situation we have to overcome collectively as a market before we can start seeing a return to more normalized ordering patterns.”
On April 28, Skechers reported domestic wholesale sales tumbled 18 percent in the first quarter due to elevated inventories across the U.S. marketplace and difficult year-ago comparisons. However, strong growth in U.S. DTC (direct-to-consumer) and across international regions helped overall results handily top guidance.
The quarter marked the first $2 billion quarter for the company.
Asked about Skechers’ ambitions to reach $10 billion in sales by 2026, up from nearly $7.5 billion in 2022, Vandemore said the focus will continue to be on growing internationally and expanding DTC across stores and e-commerce.
“Collectively, we think both of those give us an opportunity to grow in the high- single, low-double digit teens, even in some instances as high as 20 percent,” said Vandemore. “Last quarter, we grew direct-to-consumer 25 percent both domestically and internationally. And that’s really the foundation of our opportunity that comes from bringing new categories to market. It comes from bringing new doors to market. It comes from growing nascent businesses for us, like apparel. And so that’s really going to be the propellant behind our growth. But it’s also important to recognize that we have a very stable position in the domestic wholesale marketplace, the U.S. marketplace. It’s certainly one of the more turbulent markets at the moment, but if you actually look back the last couple of years, it’s also been a propellant for growth.”
On other topics, Vandemore discussed how Skechers’ extensive investments in building its distribution infrastructure provide agility. He said, “As I sit here, we probably have five or six distribution center-related projects underway to either add or enhance the distribution capacity we have. But what that then affords us is the opportunity to attack a market with flexibility and quite frankly pricing that resonates in that marketplace.”
On pricing, he stated that Skechers’ moves to lower prices last year, as a more promotional climate arrived, has paid off in improved traffic, conversion, units per transaction, and average transaction values. He said, “While we may sacrifice a little bit on the gross margin side of things, we’re definitely making up for it on gross profit, gross profit dollars. And as one of my colleagues says, ‘You can’t take a margin to the bank, you can only take dollars to the bank.’ We’ll take the dollars.”
He’s confident downward pressure on AURs (average unit retail) will stabilize with no “extreme discounting going on.” He said, “We’re going to continue to watch it in concert with where the consumer goes and where inventory position sits.”
Vandemore said China’s growth of 3 percent in the first quarter came in better than Skechers’ expectations. He observed, “From my perspective, I’m relatively pleased we grew 3 percent in China. I would not normally be ecstatic about 3 percent. But in this instance, I was ecstatic about 3 percent because it argued for improvement continuing over the course of the year in that marketplace.”
He said that while some have lamented China’s slow recovery pace, he’s optimistic that steady improvement will build in coming quarters. He said, “It’s a market that has to build back in retail, dining, entertainment – all those activities that surround kind of normal shopping and consumption patterns. And we’re starting to see that, which is really encouraging. Long term, as we get through some of the prime selling seasons of 618, 1111, and 1212, I think we’ll have a better sense of where things will go next year. But our supposition is that this will put us in good stead for 2024 and beyond.”
On Europe, he said Skechers continues to see “robust consumer demand at least in our doors and for our product” despite the extensive challenges across the marketplace. European DTC grew about 25 percent in the first quarter, similar to the U.S. He said, “We’re going to continue to watch Europe as a whole because we know that there are inflationary pressures similar to the U.S. We’ve seen some disturbance in kind of the supply chain, similar to the U.S., but on a much, much smaller level. So, we’re watching that carefully.”
He said Skechers still has “very aggressive hopes for Europe longer term because in many instances, the brand’s still building. There’s still categories available to us. There’s still opportunity in terms of partners available to us. There’s a lot of green space in terms of opening our own stores.”
Overall, Vandemore said Skechers continues to benefit from scale as the third largest footwear provider in the world as well as its reach versus competitors due to its sizeable international operations.
The brand stands out by embracing four qualities in “style, comfort, and quality at a reasonable price.” He said the focus on comfort particularly pays off.
“We think that’s an area where we win competitively,” said Vandemore on comfort. “We think that’s an area that – despite the propensity for females everywhere to have to put on high heels – we win across genders because everybody wants to be comfortable in their footwear.”
Finally, a differentiator for Skechers is the company’s willingness to experiment in new areas.
“We’re not shy about trying things that are new,” said Vandemore. “Some brands are somewhat beholden to the categories that they play in. But at Skechers, we are perfectly willing to try new and try and develop new. It’s how we developed the walking category, which didn’t exist before Skechers. But it’s also led us to areas like work footwear, and quite honestly, golf and a lot of other categories.”
