With more signs that the U.S. economic recovery appears to be sustainable, executives across the industry appeared to be fired up about the possibility of pursing growth opportunities again. Speaking at the recent Piper Jaffray Consumer Conference in New York City, many industry executives discussed how their austere streamlining efforts to become lean and mean over the last 18-24 months fortified them to manage the recession, but they also seemed relieved to be discussing inventory-building and marketing ramp-up as well.


A few expressed concerns about the potential for the economic troubles in Southern Europe to derail the healthier consumer spending trend in the U.S., the impact of a strengthening U.S. dollar and rising sourcing costs coming out of China. But the bulk of the presenters at the two-day conference talked about how to reach the re-energized consumer. It also helps that some trends are clearly working, exemplified by the amount of time the footwear CEO’s spent talking about the toning footwear category.

 

Brown Shoe Co. Talks About the Opportunity In Toning…

Ron Fromm, chairman and CEO of Brown Shoe, believes that thinking of the toning opportunity as only around “toning” product misses the much bigger opportunity around a changing value equation toward athletic footwear and the overall concept of “wellness.” Speaking on Wednesday at the Piper Jaffray conference, Fromm said that in hindsight, the origin of the wellness movement can be traced to the UGG phenomenon, when women proved they were willing to pay more for the combination of functionality and style. He also cited Nike Free as part of the growing wellness opportunity.


Fromm said MBT provided the core toning category with the “authenticity” that has allowed other brands to come to market over the last year at premium price points. Fromm said an important shift supporting the higher price points is a change in the consumer's mindset to a “value-plus” standpoint from “value price.”

 

Brown Shoe’s Fromm Sees Toning Redefining Value…

Fromm said this means consumers are willing to pay more for performance. “It's still a value place but the definition has changed,” he said.  Fromm also said that as toning product has reached the market over the last six to nine months, “the number of markers are piling up showing that this has long-term stability.”


Those signs include the fact that supply still hasn't been able to catch up to demand; multiple-brands are driving it rather than one hot name; follow-on product coming from “tremendous amount of innovation” is arriving to support premium price points; and more and more brands are coming into the category. Beyond marketing pushes by the vendors, he pointed to the support of retailers such as Famous Footwear with its “Mind Body Soul” campaign that covers marketing, magatorials and in-store fixturing.


Overall, he likened toning's stage to the beginning of the walking movement and he believes the overall wellness concept could expand across other categories to where “you could actually be changing what women will think are the bare minimums of comfort and natural design as we go forward in the future. So I think this has long legs.” Beyond Famous Footwear, Fromm sees “terrific opportunities” for its Dr. Scholl's footwear brand as well as its Naturalizer chain around toning.


Asked about the risks of the trend, Fromm said much will depend on the “thoughtfulness of both the vendors and retailers as the opportunities come out.” But he said it's important to make sure the product is consumer-driven rather vendor-driven with the help of ongoing innovation. Said Fromm, “If we stick with authenticity and if people work toward making sure there's a great relationship between price points, channel distribution and value, then it won't get derailed.”
Regarding sourcing, Fromm said he  expects costs to rise over the next few months but also believes those increases will be limited by China's intention to remain “the low-cost provider to the world.” He added, “We don’t see that changing.”  He also said that with the consumer's penchant for paying up for functional product, that will somewhat limit any impact at retail.

 

While Collective Brands Sees Price Opportunity in Toning…

 

Not everyone is buying into the “value-plus” equation. With its Champion line priced between $24.99 and $39.99 at Payless, Collective Brands expects to make a big splash in the toning category. At the Piper Jaffray conference, Matt Rubel, president and CEO, said they sell out as soon as they get them in.  He noted that toning accounted for 1% of sales in Q1 and that's expected to increase to between 2.5% and 3% in Q2 and 3% to 4% in Q3 and Q4. With inventories finally reaching an adequate level, Payless just last week began running television ads exclaiming, according to Rubel, “Hey, we're here. And we've got it at $39.99 and $24.99. You don't have to pay $100 for that. Come see us.”


He also suspects growth will come as overall buzz around the toning category grows and word-of-mouth spreads about the cost and quality of the Champion product. Said Rubel, “People go onto Facebook and say, “Hey, my first one was the X Brand, and now I just bought yours and it's the Y and it fits just as well and feels just as good and I feel just as activated, so my butt does get smaller.” 


On the downside, Rubel said Payless' sales are being hampered by unemployment rates in the mid-to-high teens in the African-American and Hispanic communities. As such, Payless will be making greater efforts to reach a more “middle-end customer” through trend stories and its expanded accessory lines.

 

Collective Brands Assesses Their Brand Progress…

Asked to assess many of Collective Brand's businesses since the acquisition of Stride Rite, Rubel said Saucony has performed “well beyond” initial expectations as it took a “broader” approach to addressing the running opportunity. Saucony's sales grew north of 30% in Q1, and the brand has “taken tremendous share” in run specialty and has the potential to become the number two run brand in the sporting goods channel. Rubel cited particularly recent success with the Olympia Sports chain in New England.


In addition, Rubel said Sperry was performing below expectations due to the Boater's World bankruptcy as well as men cutting back spending in the downturn. But he said the brand has been performing ahead of expectations in the last nine months with sales up in the high-teens in Q1. Keds had “very low expectations” when acquired since it was viewed as a turnaround project but has seen “great” sell-throughs over the last nine months, particularly in establishing itself in pinnacle accounts such as Neiman Marcus and Bloomingdale's. Sales were up in the mid-teens in the first quarter. He said the one clear underperformer has been the Stride Rite Children's Group, although Rubel said the business is expected to be profitable this year.

 

Journeys Sees Favorable Fashion Trends…

 


 

Speaking at the Piper Jaffray conference, Bob Dennis, president and CEO of Genesco, elaborated on how its Journeys chain is starting to finally benefit from current trends. Over the last two years, trends have largely been around athletic product from traditional athletic vendors, he said. While this product works early on during a trend at Journeys, it eventually tends to get too widely distributed for the fashion footwear retailer. He gave the example of the expansion of the Converse Chuck Taylor product. Said Dennis, “Our distinctiveness erodes over time as others get into the business.”


On the plus side, he noted that teens are now overall “buying product that is not really athletic.” He pointed to the strength this winter seen in boots not only in women's but in men's, led by the Polo boot. Another strong category was boat shoes represented by Sperry Top-Sider. Finally, a newer trend blurs athletic platforms, some with vulcanized shoes, with cleaner and dressier uppers. With many of these models coming from many traditionally non-athletic brands, one advantage is that both the vendor structure and styles suggest that the trend isn't likely to spread to other athletic stores.


“Now we believe we have a product advantage in our future of Journeys. It's a nice and an important change for us,” said Dennis.
Regarding the Lids headwear business, which saw comp gains of 10% in the first quarter, Dennis believes the business is gaining share in the market first because many independents have faced liquidity issues in the downturn. At the same time, bigger chains have been cutting back inventory in the recession, particularly in smaller categories. Dennis believes these categories have been underperforming partly because Lids has become a stronger competitor.

 

Lids also still has room for aggressive expansion, said Dennis. With much of the buys driven by “impulse buying” rather than by a destination location, Lids stores opened in casinos have been “doing extremely well.” Lids also recently opened a store in Times Square directly across the street from another location. The new store is rivaling its two other NYC stores as its top performers for the chain while the original store is comping up.


Regarding the Lids Locker Room business, Dennis noted that the company expects to finish the acquisition of Sports Avenue, which operates 46 sports licensing stores across the U.S. and 13 ecommerce sites, by late summer.


Genesco’s acquisition of Sports Avenue follows on the November 2009 acquisition of the 37-unit Sports Fanatic chain.

 

Genesco Sees Team Dealer Opportunity from Technology Advantage…

Genesco’s Bob Dennis said that much like Lids, Lids Locker Room plans on “rolling up” the fan retail business by acquiring smaller regionals and ultimately benefiting from economies of scale.


Regarding the Lids Team Sports business that sells directly to schools, Genesco recently acquired Brand Athletics, a West Coast team dealer. Founded on the acquisition of Impact Sports in 2008 and Great Plains Sports in 2009, the team sports business now covers 41 states.  Dennis views the team dealer market as “astonishingly unsophisticated” with its system of handling orders in the “dark ages.” For instance, with few dealers able to afford the back-office technologies, athletic directors are still unable to look up orders at any time or be able to change orders up to a certain date, contends Dennis. “We can truly change the game in which team sales operate,” he said.


Dennis also said Lids Team Sports has been partnering “very closely” with Nike in pursuing the team dealer business. Although Nike has high penetration among the top 100 college teams, it has “shockingly low” single digit penetration among smaller to mid-tier colleges and is aggressively pursuing that opportunity with select dealers. He also said the Team Sports business complements its other Lids' businesses.
“What we like about it is it provides us with a compelling offer from colleges in particular,” said Dennis. “We can go to an athletic director and say, “We can outfit your teams throughout your team sport business. We can then take that merchandise and operate your stadium store for you, and then also have that merchandise available at our Lids branded stores.' So it's a one-stop shop on a B-to-B basis in terms of schools and we're the only ones that can offer that.”

 

Wolverine World Wide Expects to Pass on Sourcing Cost Hikes…

With product costs expected to rise in the low-single to mid-single digit percentages over the next year, Wolverine World Wide has been forced to increase prices but has not found much resistance yet from retail.
“In general, we took some price increases last year of select brands, select collections within the brand,” said Blake Krueger, chairman, president and CEO, at Piper Jaffray's conference.  “We have already taken some price increases this year. We'll probably take some more price increases this year and next year. So far, frankly, we haven't seen a lot of pushback from the retailers. They read the same newspapers we all do and they know that labor prices are going up in China. They know commodity prices are going up. They know freight costs are up. So in general, we have not seen a significant pushback from our retailers right now.”


Krueger said Wolverine will remain focused on product design and innovation. “If it is a good value proposition for the ultimate consumer, another $5 or $10 in retail price, we don't believe it is going to have any significant impact on the business,” said Krueger.


Krueger said that with 87% of shoes coming from Southeast China last year, Wolverine is limited in its ability to move to other regions for cheaper sourcing.  “There may be some factories in new countries like Bangladesh. But you are not going to go from 87% to 50% overnight or even in a period of years.


Management also said it hasn’t felt any impact yet from problems in Southern Europe. Europe accounts for about 22% of its business with much centered in the U.K., France and Germany. Greece, Italy, Portugal and Spain represents less than 10% of its European business.


On the plus side, Krueger noted that footwear has proven once again to be one of the leading product categories coming out of the recessionary environment. In addition to growth from recently-acquired brands-Chaco and Cushe- the company is seeing success with its flagship Wolverine brand, especially in fashion product, and the Hush Puppies brand, with its 1958 collection reaching all Nordstrom doors this fall. But the biggest growth driver continues to be Merrell, with the further development of Merrell apparel – still only a $30 million business – seen as key to its goal of becoming Wolverine's first billion dollar brand.


“We need Merrell apparel to be significant in that retail channel as well, as well as our own Merrell concept stores that are opening around the world. So we are focused on being relevant and competitive in that distribution channel,” said Krueger.

 

Deckers Outdoor Looking to Manage Cost Increases

 

Deckers Outdoor Corp. indicated it would be difficult to escape rising costs anywhere in China as the government raises minimum wages and revalues the Renminbi. Deckers COO Zohar Ziv, at the Piper Jaffray Conference, added that its biggest manufacturer moved production to Northern China two years ago to secure tax benefits and lower wages and other factories are now starting to migrate to central China to get away from wage pressures in the south.

 

But DECK and its partners are now scouting manufacturing sites in Vietnam and talking about how to change shoe construction to improve the supply chain. Besides rising costs in China, Ziv ranked the risk that the euro’s problems might drag the world into a double-dip recession as his top concern going forward.


In terms of distribution, DECK plans to open 60 more UGG shop-in-shops in independent retailers this year, bringing the total to 200. That number does not include department stores. The format involves selling fixtures that typically increase UGG sales by 35-50% once they are installed on store walls.  DECK continues to view Tsubo, Ahnu and Simple brands as “incubator” brands. DECK needs just one of those brands to be successful for there to be a meaningful contribution to the bottom line, he noted.


Ziv said the company will continue to push into apparel and accessories, primarily through licensing of the UGG brand. It recently canceled a license for handbags when it did not like the product, but has licensees producing gloves and hats and is now looking at sweaters.

New Markets, Int’l Sales to Look to Propel Crocs in to 2011…

An innovative new marketing plan and expansion opportunities within China, South America and Europe highlighted initiatives for Crocs, Inc.’s presentation at the Piper Jaffray Consumer Conference. CFO Russ Hammer said a recently-launched advertising campaign which targets women aged 25 to 45, has had an optimal result on sales thus far.


The campaign, which launched during the company’s first quarter, diverts the company’s marketing focus from sponsorship event-type advertising to cater to billboards and buses more aligned with its “new” crowd. Hammer credited the new campaign with comps that were up 4% and 5% in April and May, respectively; and up 14% for the first nine days of June. Likewise, Hammer said Crocs will take aim at the back-to-school crowd for the first time ever, focusing on several new products that will be allowed in schools. In the past, he said, traditional Crocs shoe designs were prohibited in many schools.


Hammer also pointed to the importance of continuing to establish Crocs as a profitable brand outside of the U.S., which accounted for 65% of the company’s first quarter business. Along with Asia-which Hammer said represents the most sustainable growth and was up 40% in the first quarter-Crocs is expanding retail operations within its U.K., France, Spain and Germany markets starting in the second half of 2010. Hammer also called Brazil and China two “phenomenal” markets, adding that the company was ramping up efforts to combat knock-off factories in China.


Hammer added that so far in 2010, Crocs has seen better-than-expected results from its new products, assuring that replenishment product was “on the way” to accounts. Management for Crocs noted at the recent ICR Conferences that it had adopted a strategy of slowly raising prices as new products were introduced. Now, said Hammer, the company is “kicking [itself]” because it realizes it could have boosted brand value even higher.


Hammer also said that Crocs has made significant headway in remedying its inventory issues, trimming inventory levels from about $274 million since the start of 2008 when he started with the company to about $107 million as of the end of Q1. Hammer said Crocs was streamlining operations by implementing new global management systems, which will be in all markets by the end of 2010.

 

Zumiez Touches on Four Main Objectives…

Rick Brooks, CEO of Zumiez, Inc. stated on more than one occasion that he wasn’t at the Piper Jaffray conference to discuss specific future activity, but to lead by example.  “Our view is we don't want to talk about what we are going to do. We want to actually be able to show you, go do it, show you what the unit economics are, and then talk about potential for rolling it out,” Brooks said at the conference.  However, what he did discuss shed a lot of light on the direction the company is headed.  Currently, Zumiez is observing four main objectives at which the company hopes will boost its expansion into the impending future.  


According to Brooks, the main priority for the retailer is to increase comp store sales to supplement a planned 6% growth in new stores for the fiscal year.  The second objective is to develop a higher concentration on unit growth while maintaining solid inventories, all in an effort to capitalize on an improving economy. Third, the retailer wants to expand its e-commerce position. The final objective is boosting its cross channel retail opportunities to a wider range of consumers, driving sales in every available channel.

Cabela’s Points to Retail, eCommerce for Growth; Credit Cards Rebounding

At the Piper Jaffray Consumer Conference, management for Cabela’s Inc. elaborated on many of the initiatives established in the company’s recent mid-May meeting with shareholders.


Addressing concerns about tough comparisons against year-ago numbers that benefitted from a politically-driven guns & ammo boom, CEO Tommy Milner said that slowly rebounding sales from high-ticket items like boats and ATV’s would help offset a “soft landing” from guns & ammo. Likewise, Milner pointed to the fact that Cabela’s is in the midst of streamlining its retail operations, an initiative that has included eradicating “obsolete” inventory, streamlining backroom labor and introducing smaller, more efficient stores.


Milner also stressed the emphasis Cabela’s has placed on building storefronts in high-traffic locations. Currently, CAB has announced three new stores for 2011. 


Milner added that for the financial services segment, which has experienced an expected uptick of charge-offs from its customers amidst the recession, expectations remain high as market the recovers.
While Milner confirmed that charge-offs have finally started to “flatten-out,” he added that there will be a “new normal” for charge-offs in the near future, and it’s unlikely to be around the 2.5% mark that Cabela’s historically reported before the recession.


In other channels, management said Cabela’s remains “very, very focused on continuing to grow the e-commerce business,” with Milner confirming that Cabela’s has invested $10 million in the re-launch of Cabelas.com in the last 18 months. Management said they were confident e-commerce would continue to grow despite the fact that it has been offset by a significant decline in traditional phone orders.