At a virtual fireside chat at Morgan Stanley Global Sporting Goods Day, John Vandemore, CFO, Skechers USA, said the footwear giant has limited exposure to Vietnam compared to the brand’s competitors but still faces many unknowns due to the overall supply chain disruption.

“This is an industry-wide effect,” said Vandemore. “It extends beyond the footwear and apparel industry. This is a situation that, in one way or another, is impacting every company, certainly every company we speak to, but it certainly sounds like every company out there. This is simply a global phenomenon.”

Beyond production issues related to factory shutdowns or restrictions in Vietnam or elsewhere, the lack of containers in getting goods from Asia to other markets sends transit rates on cargo shipments soaring. He said, ‘They are, in some instances, in a spot market quadruple what they would be on a normalized basis.”

He also agreed that Skechers is facing delays similar to Nike, which said last week that travel time has doubled from 40 days pre-pandemic to 80 days. Vandemore said, “It’s absolutely a 2x impact we’re seeing now and sometimes even beyond that. I mean the one thing that we often see is getting the product to the distribution center doesn’t end the challenges. We’re seeing a lot of issues with intermodal pickup locally, which is not our responsibility. Many of our customers have their transportation designees, but we’re seeing delays in pickup, even at that end.”

In the last mile, vessels are being staged for sometimes up to a week before being unloaded.

“What we’re seeing emerge in the marketplace and what’s having the most significant impact on our business and others is the totality of all those issues arriving at once, and it’s creating a tremendous ebb and flow in product availability but, also, probably most perniciously in this situation, a real opacity as to what’s going to happen next,” said Vandemore. “Planning in this type of environment, and planning is core to supply chain management and logistics, is almost impossible because of that unpredictability.”

Vandemore said that like other brands, Skechers is watching the situation daily, monitoring what’s occurring from production to transport, container availability and freight rates. He said, “Unfortunately, it’s probably going to continue for quite a while, at least through the balance of this year, in the first half of next, and potentially beyond that if conditions don’t normalize soon. We’re watching incredibly carefully.”

The company, nonetheless, sees significant growth due to robust demand for its products. In the second quarter ended June 30, sales jumped 127 percent (+118 percent currency-neutral) against depressed year-ago levels due to pandemic restrictions. More importantly, the revenue line surged 32 percent versus the 2019 quarter, with domestic and international businesses growing more than 30 percent.

Looking ahead, Skechers projected at the time it released second-quarter results that third-quarter sales would increase in the range of $1.6 billion and $1.65 billion, up about 25 percent from $1.3 billion a year ago.

Guidance was also raised for the full year, now seen in the range of $6.15 billion and $6.25 billion, up from guidance of $5.8 billion and $5.9 billion previously and against pandemic-impacted sales of $4.6 billion in 2020.

Said Vandemore, “Fortunately, while it’s had an impact and will continue to have an impact on our business, the one thing we take away from this is what’s not changed is consumer demand for the product that remains high. Interest remains high. Engagement remains high. That means that in the long term, this probably won’t be more than a blip in history. Unfortunately, right now, we’re living through it, and it’s quite a challenge.”

Regarding Vietnam, Vandemore said Skechers’ production is “generally fairly balanced” between Vietnam and China, with a small amount sourced from outside those two regions. Skechers’ concentration in the south Vietnam region that’s been most impacted by the factory shutdowns is less than 10 percent, which Vandemore said is “significantly less” than most footwear competitors.

For Skechers, factory shutdowns have reduced capacity in a few core styles and categories, but the impact has been less significant than competitors. Vandemore added, “Thankfully, we still see the light beginning to emerge at the end of the tunnel as many factory partners begin to receive authorization to proceed back to production. We do anticipate it will be a slow ramp-up. We understand that right now, the government’s direction is for a measured upgrade back to full capacity, which may or may not take through Q4 to achieve. That will be welcomed capacity that will come back online for us.”

Other insights from the discussion:

  • Managing cost pressures: Vandemore said Skechers faced some input cost pressures at the beginning of 2021, particularly due to currency headwinds, and now the most significant cost pressures are related to transportation and logistics. Some targeted pricing adjustments have been implemented to offset some of the higher costs but the company will ensure it’s providing strong value to consumers. The CFO said, “We do take very seriously that notion that we are here to provide our customers style, comfort and quality at a reasonable price. So that last component is important. It’s important to consumers, important to us. So we want to make sure we’re maintaining our relative pricing posture at a level that consumers appreciate because we know that that’s one of the things they look to the Skechers brand to deliver.”
  • Skecher’s demographic reach: Skechers reaches the core teen, Gen-Z demographic with some of its street footwear and its Bobs range, but the brand skews in the U.S. toward older consumers and has a major kids business, supported by its popular light-up shoes. Outside the U.S., Skechers is more fully-represented across demographics. Said Vandemore, “Where we didn’t grow up with some of the historical perspective that attaches itself with the brand, we actually skew a little bit younger, more youthful demographic. Certainly if you look at markets like China, we definitely have a more youthful demographic and brand recognition profile.”
  • Skecher’s competitive set: Skechers competes with Nike and other well-known names but also against local players depending on the market. Said Vandemore, “We actually see ourselves competing with many different players in many different markets. What holds true though is Skechers is always standing by kind of its four main consumer value proposition. We always say we’re focused on style, comfort and quality at a reasonable price. We’ll take on a different set of competitors depending on the nature of the market, but what we find is if we stick to those core characteristics, if we really focus in particular on value and comfort, we find a resonant customer base everywhere.”
  • Return To Double-Digit Growth: Skechers racked up 17 percent compounded annual growth in the five years prior to the pandemic before the streak was broken last year by disruption caused by the pandemic. Vandemore said the double-digit growth streak was driven by market share gains domestically and hyper international and direct to consumer growth and those underlying drivers are still in place. He said Skechers still believes it is well-underpenetrated in India, China, South America, Eastern Europe and still some parts of Western Europe. Vandemore said Skechers continues to see an opportunity to reach $10 billion in sales in five or six years. Said Vandemore, “Certainly the COVID situation has been a near-term disruption but what has not been disrupted, which leaves us all feeling incredibly optimistic, is consumer appreciation for the brand, for the value it delivers, and the comfort it delivers.”

Photo courtesy Skechers