Coming off a tough Q4 and reacting to a challenging economic climate, Shoe Carnival plans to reduce the number of SKUs in its stores but maintain deeper size runs in order to reduce out of stock days in key products. Given the rising prices coming out of China, the chain plans to sell fewer shoes this year but hopes adding additional features to certain private label product will raise price points.
The strategy comes after another quarter of sluggish sales due to declining customer traffic and an overall lack of fashion direction.
“After coming off two strong fashion driven years in the men's and women's dress categories of footwear, our core customers did not respond to the style and color direction this past year,” said Mark Lemond, Shoe Carnival president and CEO, on a conference call with analysts. He added that athletic wholesale companies have been unable to identify a dominant fashion trend in recent years and as a result, sales of athletic footwear styles have declined.
On the positive side, inventories as a whole ended the quarter down 4.9% on a per-door basis, helping keep gross margins flat in the period. The chain had a slight decline in conversion rate, average transaction size was up and its average price per pair was relatively flat. But every category was down during the quarter
“There truly were no fashion drivers to excite the consumer and as a result, we experienced losses in every department,” said Cliff Sifford, EVP and general merchandise manager, on the call. He said the only categories to show significant increases were women's flats, cold weather boots in all genders, fur lined boots, boat shoes, men's work, skate and performance athletic.
Sifford said pricing and manufacturing concerns on product coming out of China is affecting factory direct orders at a higher rate than branded orders, in which a vendor brings a product to the U.S. and then distributes.
“What this means in the near term and probably even in the long term is that costs are going to escalate,” said Sifford. “Our strategy for 2008 is to accept the fact that we will sell fewer pairs in 2008 than we did in 2007.”
As a result, Shoe Carnival has decided to add better materials, more comfort features and even more brands to its women's non-athletic business. The strategy will add costs to the product but is expected to realize a higher retail price out of the fewer pairs sold. The same strategy will be used for the fall season.
In its athletic departments, Shoe Carnival will be focus on brands recognized for performance and value, mentioning Nike, Asics and New Balance.
In a Q&A session, Sifford noted that the chain is stocking less white classics in athletics due to weakness in the overall category over the past few years, but is carrying “a great deal more” performance product, led by Nike. Low-profile product is also “enjoying a little resurgence in the athletic arena,” led by Skechers. Skate has shown close to triple-digit increases across women's, men's and kids. Athletics accounted for 49% of Skechers sales last year.
Shoe Carnival is also continuing to work very closely with several of its key vendors to develop product specifically for African American and Hispanic consumers.
