FN Poll: Eroding Sales Forecast Raises Anxiety

NEW YORK — Call it the sour hour.

Footwear executives, already facing steep sales declines, are worried consumer spending will continue to deteriorate. Sixty-two percent of respondents to an exclusive Footwear News online survey predicted that shoppers won’t start buying again until next year — while a quarter said they won’t return to stores until 2010.

The gloomy forecast comes amid a sharp economic downturn that has left few companies unscathed. Sixty-six percent of the 296 retail and wholesale executives who participated in the survey, conducted July 29-Aug. 7, said their opinion of the economy had worsened in the last six months. The reason: slumping sales. An overwhelming 81 percent of execs said shoppers are buying less now than they did last winter.

“The biggest impact is psychological at this point,” Rick Paterno, president of wholesale better footwear at Nine West, told FN at WSA. “People aren’t spending as aggressively, even the upper-level customer.”

According to survey respondents, the main source of concern regarding the economy was gas prices. Runners up were jobs, the housing crunch and inflation.

“There’s a lot of uncertainty now for consumers,” Barry Specht, director of marketing at Harbor Footwear Group, said at WSA. “Oil prices are going up and down, an election is pending and food prices are going through the roof. There are a lot of reasons for concern, and footwear is not a prime driver for consumers.”

“Families today are dealing with increasing gas and food prices, which is putting a pinch on discretionary spending,” added Matt Rubel, chairman and CEO of Collective Brands Inc., owner of Payless ShoeSource.

For Melissa Kline, owner of Altai Leather Designs in Jerome, Ariz., and Moonshine Leather Co. in Nashville, Ind., her stores are seeing the effects of high gas prices — both good and bad.

“The store in Indiana tends to get busier when the economy is bad because people travel less [and will buy at local shops],” she said. “But then in Arizona, you feel it more because that is more of a flight destination.”

But it’s not all gloom and doom.

The majority of footwear players said they were only “somewhat worried” about the current economy. And most predicted the economy could begin to improve within one to two years. In fact, 36 percent said consumers are likely to start buying more heavily by fall ’09.

“It will improve next year,” said Don Carroll, president and CEO of Heelys Inc., at WSA. “The economy hates uncertainty — foreclosures, gas prices, the election. The election [decision] will help. Then people will know the tax situation for the next four years. And consumers will adjust to the new environment.”

Ron Martin, president and CEO of Mephisto, agreed. “A lot of it will have to do with the election. If people are feeling good about the country, they will feel better about getting out to the stores.”

Sales Trends

Offering another sliver of hope in the current sales environment is the luxury women’s market. According to footwear players, high-end women’s product has performed the best of all the major categories.

And Roberto Antiolucci, president of Claudia Ciuti, told FN at WSA that the category could even get stronger in the next year. “When the euro goes down and the U.S. economy comes back, the difference between the made-in-Italy product and the made-in-China product is only going to be about $100, and that’s when made-in-Italy will [gain strength again].”

Jim Issler, president and CEO of H.H. Brown, suggested that for the luxury market to continue its dominance, it can’t lose sight of its audience. “The most important commodity for fall will be the full-price customer, because they love the retailer for who they are. We have to pay attention to them.”

Other well-performing categories, according to the survey, were children’s and comfort.

Meanwhile mainstream women’s and mainstream men’s, two of the largest drivers of the footwear business, were picked as the worst-performing categories, according to current sales.

Though every region in the U.S. appeared to be suffering from the economy, the majority of survey respondents said the Northeast has been affected the most, followed by the Midwest and West.

Also feeling the effects is the department store segment. Forty-seven percent of respondents said department stores have been hurt the most by the weak economy, followed by independent stores, with 37 percent of votes, and footwear specialty chains, with 12 percent.

David Ben-Zikry, president of Pompano Beach, Fla.-based Spring Step, told FN that independents who aren’t in a strong financial position are finding themselves out of the game. “The crisis in the credit market is affecting companies that need outside financing,” he said. “We’re seeing consolidations and changes in the marketplace.”

Other retail segments are prospering, however. Overwhelmingly, survey respondents said that discount stores, such as DSW and Payless ShoeSource, are capitalizing on the weak economy. The segment received 57 percent of the votes, while online sellers received the next highest score, with 23 percent of votes.

As a result of the sales drought, the retail environment has become more promotional than it was a year ago, according to 63 percent of footwear players. The most popular promotion among retailers was “50 percent off.” Other common tools were “buy 1 get 1 half off” and “20 percent off.” By comparison, in April, the majority of retailers told FN they were not using any promotions.

Buying Strategies

The economy also loomed over retailers’ buying strategies for spring ’09. Sixty-one percent of retailers said they were buying less for the coming spring compared with the same time last year. Thirty-three percent are maintaining the same buying levels, while only 7 percent said they were buying more.

“I bought less this round,” said Phil Wright, chairman of Vernon Powell Shoes, at WSA. “We were heavy for spring ’08. With what we need to achieve in sales, we need to back down by 10 percent.”

Retailers are also less willing to take chances with new brands. Fifty percent said they were buying fewer new and untested brands for spring ’09.

Liz Elliott, owner of Shoes ‘n’ More, with seven locations in the Northeast, said she played it safe at WSA.

“Everyone’s sticking to open-to-buy plans and [being] less risky,” she said. “It’s about partnering with your vendors and sticking with the partnerships we have. That’s most important.”

Blake Krueger, president and CEO of Wolverine World Wide, expressed similar sentiments. “It’s time to turn to the old standby. Retailers are looking for the reliable, bigger brands and the right product assortment.”

That’s grim news for brands such as Velvet Angels, which launched for fall ’08. “It’s never a good time to launch a [brand],” Joe Ponce, Velvet Angels’ president and designer, said at WSA. “But right now it’s incredibly tough. We’re lucky because retailers have been willing to try our product, but they’re not ordering deep on anything.”

However, 20 percent of survey respondents said they were planning to stock more new brands as a sales incentive for customers who might be tired of the same old fare.

Howard Tubin, director of equity research at RBC Capital Markets, told FN after WSA that consumers will spend if vendors and retailers can give them something unique to buy. “The consumer shopping for fashion always has room in their closet for another pair of shoes,” he said. “But they’re not going to just buy for the sake of it; it has to be [for] something different.”

Liz Amideneau, a shoe buyer for McReg Industries in Farmingdale, N.Y., was looking for newness and variety at FFANY, although she provided herself with a buffer in case the marketplace changed. “We can always cancel [orders],” she said. “We have time before a February delivery.”

A conservative buying strategy is already seeing an effect. When FN asked retailers in April for their mid-year inventory projections, the majority said they would end up flat. Now, those levels are predicted to fall by the end of 2008. Forty-three percent of retailers polled said inventories would be negative by year-end.

“It’s OK to be leaner [on inventories],” said Tubin, “but how that relates to the manufacturers and vendors, that’s not a good sign.” It’s likely to pressure vendors’ business performance, he added.

— With contributions from Jocelyn Anderson


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