Toning was again the hot topic at the latest round of investor conferences last week. At the Jefferies & Co. Consumer Conference, Mark Lemond, Shoe Carnival's president and CEO, was particularly excited that Nike Free product will be reaching the mid-tier channel for the holiday selling season. The collection is essentially “their answer to the toning or the wellness product,” although it's being positioned as a fitness solution.
“That product starts selling in the fourth quarter,” said Lemond. “So not only do we have the opportunity to continue with the toning product, but our largest vendor is now going to come out with some product specifically aimed at that customer that's wearing the toning product right now. And we're pretty excited about that and I believe that's going to be nationally advertised as well. So we're excited about the opportunities there.”
He noted that toning continues to gain momentum. SCVL's comps grew 10.2% in Q309, 8.8% in Q409, and 13.1% in Q110. Of those gains, toning represented about 2% of the increase in Q309, about 4% of the increase in Q409, and about 6% of the increase in Q110.
“The toning product or the wellness product has definitely accelerated but we really don't start to wrap that product comparison until the October/November time frame of this coming year,” said Lemond. “So we think there's not only tremendous opportunity in the toning industry itself, [but] we think there's tremendous opportunity in the third quarter, and even the fourth quarter of this coming year from a toning standpoint, because we don't really become comparable until October/November time period.”
Shoe Carnival will limit its toning assortments to four brands: Skechers, Reebok, Avia and New Balance.
“We will expand it from a SKU standpoint but not from a brand standpoint and the reason is we really see the impact of advertising in the toning business in a big way,” said Lemond. “So when, particularly Skechers and Reebok, advertise the product sales jump. We can see a direct correlation, so what we're focused on is maintaining that relationship with the two companies that are expanding their advertising, increasing their advertising and expanding their product lines [in toning].”
But Lemond said the family footwear chain is also seeing “real strength” this year in junior casual product. Following a 35% jump in boots last year, the category is expected to rise high-single digits this year, led by over-the-knee boots for women as well as sweater booties and fleece-and-fur lined boots. In men's boots, Polo, Timberland and Skechers are expected to see strong demand. Lemond described vulcanized canvas as “solid,” particularly with Converse Chucks. He also singled out strength in lightweight running from Nike as well as well as Nike's Air Max product. Said Lemond, “They're continuing to make better and better product for the mid-tier channel. We expect that effort to not only continue but accelerate as we go into 2011.”
Lemond noted that Shoe Carnival has started selling Crocs and it's been performing “very nicely.” DC Shoes will also be added. Lemond said, “Even though the skate category has kind of plateaued and is starting to trend down somewhat, we expect that our business is going to be greatly benefited by that particular skate brand.”
Also speaking at the same conference, Ron Fromm, chairman and CEO of Brown Shoe, said Famous Footwear will have 150 Mind Body Sole in-store shops in place by the end of the year to support the toning opportunity. That's up from 50 currently. Equally enthusiastic about the opportunity, Fromm said that with consumers looking to feel and look good, the value equation has changed and “quality and utility are more important than price.” He also likened the opportunity to how UGG provided the industry with a product that “was not about the price; it was about having the right product, right time.” For toning, he believes the arrival of MBT set the stage for others to follow.
“The quantity and the quality of the toning products and what the consumer is telling us about it has been really unparalleled in the last 20 years or so,” said Fromm.
Marketing costs will increase 30% this year in support of Famous' Make Today Famous campaign. A new twist is a web-driven “Favorite Celebrity for a Day” effort. The Philadelphia Phillies Ryan Howard and singers Jordin Sparks and Kellie Pickler are among those involved.
Regarding rising sourcing costs, Fromm said the China’s decision to allow fluctuation of the Renminbi/yuan currency value “will help take some confusion out of where pricing and costs are going,” but he expects price increases over the next few years. “As we continue to see the deflationary 30 years' existence in footwear shift to one of mild inflationary pressures, we actually believe that will be good for the business,” said Fromm. He believes a new “flexibility” from consumers will help pass through those price increases. About 50% of Brown Shoe's production stems from the Far East.
Both executives also touched on the lack of development at strip centers. Lemond said Shoe Carnival is seeing plans for more strip center development beginning in 2012 but is also looking at alternative sites, such as pad sites alongside a Wal-Mart or a Target supercenter as well as entering B-malls that may be re-tenanted. Shoe Carnival is looking to open 25 to 30 stores in 2011, up from about 10 set for this year. Said Lemond, “What we have done is slowed our growth up to this point in time and focused on generating cash flow, improving the health of our stores internally by closing under-performing units and cleaning up the chain. We'll continue that strategy in 2010 and 2011 and strip center development should accelerate in 2012.”
Fromm likewise said Famous Footwear is closing underproductive stores while “increasing hurdle rates on the new stores” in the current climate. It is now targeting new stores at a $200/sf average, up from $161.
