Surprise Gain for DSW in Weakened Footwear Market

Seeking an emotional connection to stave off rivals

Author: Andria Cheng

August 22, 2017

Roger Rawlins, CEO of off-price shoe retailer DSW Inc., still remembers the time when he was in the seventh grade being the 12th man on the school’s 12-person basketball team, and how a pair of Converse leather sneakers changed how he felt about himself.

“I remember the first day when I strapped those on, I felt invincible,” Rawlins said on a conference call Tuesday, when DSW reported a surprise 0.6% Q2 comparable sales increase, its first rise in six quarters. “I remember how the right pair of shoes can let a kid from the middle of Ohio feel like an NBA All-Star. Those shoes certainly inspired me to express myself.”

And Rawlins wants to recreate that kind of same “emotional connection” with its customers, in his opinion a must-have to be “one of the few (retail) survivors” at a time when many apparel and shoe retailers are hurting from changing consumer spending priorities and where online retailers led by Amazon are increasingly stealing share.

US shoe industry sales dropped 1% to $65 billion in the 12 months ended February, hurt by declines at physical locations, according to market research firm NPD Group. Declines in categories such as shoes, where consumers use to build their wardrobe, indicates a decline in fashion as a priority, NPD has said. 

DSW, for its part, saw comparable sales decline last year for the first time in at least five years. Sales per square foot had been dropping for years.  (See complete data for DSW in eMarketer's Retail & Ecommerce database.)

“In an environment where we spend on healthcare, technology and durable goods, that has squeezed discretionary spending,” Rawlins said on the call. “Customers are more product and experience focused. Operators who compete solely on price and transaction and offer no differentiated experience or customer connection have lost relevancy and competitive appeal as we’ve already seen across multiple retail segments—in office supplies, electronics and sporting goods.”

To set itself apart, DSW is revamping its reward program, which has 25 million members and represents about 90% of its namesake chain’s sales. In addition to allowing its loyalty members to earn rewards faster, Rawlins said the new updated plan will also offer services like shoe repair. DSW is also testing a new layout at a store in its home market in Columbus, Ohio to feature more products—50,000 units versus 30,000 previously—to give consumers “an immediate access” despite a “vast assortment” it already added online, he said. The new format has driven traffic and converted more visits to purchases, Rawlins said.

DSW also is co-developing a proprietary software tool that not only would free up more time for store employees to engage with customers but also provide them with data such as a customer’s past purchase history, wish list and personalized offers so they can better interact with shoppers.

Online, where sales rose 27% in Q2, the company has redesigned its site. Echoing many other brick-and-mortar retailers, Rawlins also touted DSW’s 500-plus physical stores—within 20 miles of 70% of its target population—as a competitive advantage that allows it to offer such services as allowing shoppers to pick up online orders or return them in stores. DSW last year also bought online off-price shoe and accessories retailer Ebuys, which operates ShoeMetro and ApparelSave ecommerce platforms, to help it expand in online marketplaces.

(DSW also has a unit that operates leased shoe departments at retailers such as Stein Mart, but its namesake chain represents the overwhelming majority of its business.)

On the merchandise front, DSW also is expanding in kids’ assortment and adding kids’ section in more stores to keep parents inside its locations for a one-stop shop.

DSW said it’s is also adding more athletic styles, an area where it said it’s historically “underpenetrated,” to capitalize on the so-called athleisure trend. The category still outperforms with growth in both performance and athletic-inspired fashions, and DSW has continued to grab share there, executives said on the call.

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Like Foot Locker, DSW is also working with its shoe vendors to speed the time it takes from product design to landing on store shelves, a key to success “where changes move at warp speed,” Rawlins said.

“It’s not about price and not about competing on every day you can get the best price from us,” he said.

Rawlins will have to work hard and fast to convince skeptics that the company will come out ahead. After all, gross margin for the year is still projected to be down, partly as the company plans to “invest in market share.”