Shoe Carnival is on a roll, with earnings for the first half of 2022 surpassing all full year of earnings in the 44 years since its founding, except for 2021.
SGB Executive talked with Mark Worden, the family footwear chain’s CEO since 2021, about the company’s strengths in the apparel footwear category, recent success elevating margins and overall momentum.
Worden joined Shoe Carnival as EVP, chief strategy and marketing officer in September 2018 and was promoted to president in chief customer officer in 2019 before replacing Cliff Sifford, who had been CEO since 2012. Before joining Shoe Carnival, Worden worked in the consumer packaged goods space at SC Johnson and Kimberly-Clark Corp. while beginning his career in the grocery channel at Kroger and Hannaford Supermarkets.
How did you find your way to Shoe Carnival? I started in retail and loved my first years working in grocery and food but then pivoted into packaged goods for several decades. There was always something missing as I was on the packaged goods side, and that is my love for being close to the customer and having an ability to create and respond to the customer’s needs and have it come to life that same day or week or month. And so it was four years ago that the wonderful Cliff Sifford and I started talking about at some point he would retire, and they were looking for a successor down the road. I fell in love with the company, its growth prospects and knew that coming back to retail, working alongside Cliff Sifford and then eventually leading it would be a dream job for me. I’ve been CEO for a year, and I’ve been president since 2019, and I look back at how fortunate I was to have that opportunity. It’s everything I could have hoped for.
How do you find footwear retailing versus retailing in the grocery and CPG space? There are similarities in the trends, such as omnichannel or trends in seasonality. The fashion side is unique to footwear, and that has been exciting. Getting to know the world’s best brands and vendor partners is the most enjoyable part of becoming CEO, thanks to our strength at Shoe Carnival and the depth of our relationships. It’s exciting to bring that fashion-forward sense in athletics and non-athletic into my life and bring our capabilities to the customers.
What’s unique in how Shoe Carnival approaches the athletic category? The strength of our business model is that we are historically a 50 percent athletic business and approximately 50 percent non-athletic. As trends evolve, that will pivot up a few points one direction or the other, but we pride ourselves on bringing mom a total shopping experience where she can come in for her favorite athletic brand and find her favorite seasonal product, like now picking up that new furry boot or in season’s past, picking up the best sandal. And the business model parlays into having higher basket sizes and picking up high-margin overall items by having that duality of the 50/50 mix.
There has been a lot of discussion about some major athletic brands narrowing wholesale distribution. How is the company’s access to athletic footwear? We have an outstanding relationship with the world’s best athletic brands. While some competitors found themselves with fewer athletic brands to offer, we still have the same great slate of athletic brands we had five years ago and have picked up more in the last few years. Our position is one of strength where we look to grow market share in athletics in the years ahead.
What is the appeal for athletic brands selling to a Shoe Carnival? First, we have 30 million loyal customers and an in-depth customer relationship management (CRM) program with those 30 million customers. We can provide every brand, however big or small they are in America, great access to their core customer who wants and needs product for them and their family. That number is growing, I believe, faster than anyone in the family footwear category. For example, we’ve grown that 30 million membership shy of 30 percent since 2019. We’ve been growing every single year during the pandemic or not. So I think the brands see customer access as an advantage for them. Second, we’re in the process of completely modernizing our store fleet. We’ll have 400 stores at the end of this fiscal year, and we’re in the middle of a program where we’re bringing this differentiated, customer-centric user experience inside the stores. And I believe the brand partners love how they can market their new items, engage digitally with our customers in-store, and have an opportunity to bring their newness to customers in-store and online.
Shoe Carnival’s sales were down 6 percent in the second quarter due partly to supply chain issues on the athletic footwear front. How would you sum up the company’s sales performance? We look at it versus 2019. Of course, versus 2020, the pandemic disrupted things. We see 2021 as a high watermark in our category, where the stimulus funding created extensive disposable income and revenues that were wonderful but not the right benchmark. As we look at what’s sustainable market share growth and what’s the benchmark, we look at 2019 and our sales versus the first half of 2019 grew over 20 percent. Customer count was up nearly 30 percent, and profits are over double 2019. We are thrilled with the performance we’re having and see that as sustainable growth far different than you’d find at the other family footwear players if you can trace back to the 2019 perspective. The global supply chain disrupted our athletics inventory in Q2. We expected a significantly higher amount to have made it from Asia through the DCs by July, but it was still stuck. It started flowing, and we got it into Q3. But that was a surprise for us how congested the boats were getting from Asia to here.
Do you see a shift away from the athletic category? We see non- athletic accelerate on 2019 levels, and it makes sense. Customers are going to weddings. They’re going out on dates. They’re dressing for occasions. And so we’re seeing our non-athletic categories have strong double-digit growth and even over-indexing versus the normal 2019 periods. We see that non-athletic trend continuing right through this fall season and into holiday. Also, for us, our customers loaded up on athletic gear so much during the COVID lockdown and then the follow-on athletic boom in ’21 that they had sufficient athletic gear in their closets.
Operating profit margins reached 12.4 percent in the quarter, marking the sixth consecutive quarter in double- digits and above Q1’s margin rate of 11.1 percent. What’s driving the improvement? We have moved away from low profit and deep discounting and instead switched to personalized digital marketing. And what it’s done is it’s transformed our margin profile. Simply put, we were laggards in 2018 and 2019 in the industry. And we now find ourselves supplying all that knowledge, and we’re at the top tier now for gross margins, and we’re are at the top tier now for overall profitability.
Can you elaborate on the benefits Shoe Carnival has received from CRM, analytics and digital marketing investments? The biggest advantage we have is our multimillion-dollar investment in getting to know our customers and their shopping behaviors. Now we can talk to our 30 million members daily, and we do so. It’s helping us pinpoint the products that they have an affinity for and the times of year that we should talk to them to bring them into our stores. We’re doing event marketing with them. For example, during back-to-school, we were sharing all sorts of events with our customers to bring their kids to stores to have opportunities to win free gear for back-to-school, whether backpacks or their favorite products—little things to bring joy to the days of mom or dad shopping with their kids. From a business sense, it translates to profitability as we’ve shifted dramatically from mass promotions to a very targeted approach, and that’s what unlocked my favorite headline: our profits for the first half of this year were more than the full year profits for 43 of our last 44 years of operation. And we see it as sustainable too. CRM is such a key component to why we’ve transformed the business.
Shoe Carnival recently made its first acquisition purchasing of Shoe Station in the Southeast. How is it performing? Simply put, it has wildly exceeded our expectations. We bought it in December of last year, guided it would be $100 million business that would make about 10 percent profit. Because of our synergies and learnings, we’re now able to say that we’re going to exceed that estimate by over 10 percent on the top line and the bottom line.
We also find that Shoe Station’s new store openings far outperform our expectations. So we’re moving as fast as we can to get to over 30 stores next year from the modest 21-store chain we purchased. More importantly, we set a 100-store-plus objective in the next five years, and I think the headline is that we see no reason the business can’t grow significantly beyond 100 stores.
Where is the company with expansion for the flagship Shoe Carnival concept? We’ve grown both banners, but Shoe Station will grow faster. We aim to open at a double-digit count number annually for Shoe Station and a low single-digit count number for Shoe Carnival in the years ahead. Both have significant opportunities, but the white space on the map is for Shoe Station to grow to 100-plus stores rapidly.
How is inflation impacting your customer? The customer struggled as gas prices surpassed $5 over late spring and summer. That’s no surprise, but we could see it directly at gas exceeded $5, customer traffic directly correlated and started declining low double digits. As it reached mid-to-late summer and gas receded towards $4, traffic rebounded to just about flat and then started to show growth as gas went below $4. Our key takeaway is that the American customer is healthy, employed and shopping readily for footwear. But when gas gets beyond $5, that’s a pressure, and there’s a trade-off they have to make and it’s too much. I think you saw that trend play out across so many retailers, particularly those that have lower, middle-income demographics, this summer.
There are some inventory imbalances in the marketplace and continued inflationary pressures. What is Shoe Carnival’s outlook for the back half? We’re in a good position from an inventory perspective. We don’t find ourselves with a glut or needing to deep discount. And we are encouraged by the government’s stance to aggressively get inflation under check and guide it down towards historical levels. And we see the unemployment level being very robust. We feel that the American consumer is okay and that we will have a solid close to this year. As for 2023, we do not have a doom and gloom outlook that we will go into a deep recession. We’re optimistic about the resiliency of the American consumer because it will lead to another good footwear year, certainly for us.
