DSW Milestone: Q&A With Debbie Ferree

Debbie Ferrée loves to share what she calls “Kodak moments” that capture the essence of her 14-year journey at DSW Inc.

According to the vice chairman and chief merchandising officer of DSW, the initial picture wasn’t pretty.

Sitting in her cream-colored office in the firm’s Columbus, Ohio, headquarters this August, in a space decorated with miniature oil paintings of beach scenes by Douglas Miller and ballerina sculptures by Richard MacDonald, Ferrée reminisces: “[When I first started], I was told by vendors, ‘We don’t want anybody to know that you’re here because they’ll know we’re selling to you.’”

For someone who started out as a salon buyer at Burdines department store (which has since been absorbed into Macy’s Inc.), “going from buying beautiful luxury goods to being scurried into a back room and being treated like a leper” seemed like a step down in her career.

But Ferrée had a plan to level her playing field. When she joined DSW in October 1997 as VP of merchandising, the company was selling 80 percent close-out merchandise and turning over $135 million in annual sales. But it wanted to sell in-season shoes, too, and significantly reduce its percentage of close-out product.

So the exec started bargaining — hard.

“I said to the manufacturers, ‘Take out all the profit and expense associated with things like advertising and givebacks. Sell it to me at landed cost because, if the margin is bad, I’m not going to come back to you and ask you for a check [like] department stores do. You’ll know how much you’re making on me the minute I walk out the door,’” she said.

It wasn’t easy convincing vendors that DSW could sell trendy shoes as well as it sold dowdy ones, but Ferrée pressed on. Today, close-out merchandise makes up less than 20 percent of DSW’s total sales of $1.8 billion.

Despite DSW selling 40 million pairs of shoes a year via its 319 stores, Ferrée eschews the idea that the industry is benefiting from a footwear cycle. “Investors ask us, ‘I hear we’re in a footwear cycle, which comes, what is it, every three years or something?’ and I have to chuckle because if you’re a growth business [whose goal is] category domination, there isn’t a cycle — you’re taking market share the whole time,” she said.

How did you go about wooing brands to DSW?
DF:
The retail environment [at the time was such that] the customer was looking for something new, and the wholesalers, observing how the department store model was working, were looking for a new growth vehicle. DSW was that new growth vehicle for them.

What’s the key to making your vendor relationships work?
DF:
We proved to them how we could sell in-season product, and not at a deep discount, and they kind of got hooked. You can see from our prices that we offer value, but we’re not the cheapest guy in town. Plus, we try to be the best partners we can when working with people. Whenever I sit with a vendor, we both examine what the risks and opportunities are for both of us. You don’t [benefit] trying to get the last ounce of blood out of someone. If they go out of business, what good is that for you?

Was it harder to convince the luxury names?
DF:
The brands that were the most reluctant to get on board with us early were in the luxury space because they have big names to protect. There were plenty of times I walked out of the manufacturer’s showroom [disappointed]. But the way we got started with them was [by buying a] few of their close-outs first, and then [moving on to] some make-up product, [and eventually] some in-line product. Once we got a few of the better names to believe our story and [recognize] that we’d be a viable growth vehicle for them, others started coming on board. The key was getting the first few people to say yes. Once they did, it was like a snowball effect. Now, I go to Gucci in Florence and develop product with them.

What is your process for putting a DSW spin on fashion trends?
DF:
The key is having a very experienced and diversified merchant team [with a high] taste level and an amazing ability to edit assortments. After every trade show, we do a line review [where] we think about all the trends we want to show the customer; the brands we want to show them in; and the prices we want to offer. It usually takes at least half a day to go through each one of these categories where we literally look at thousands of shoes before editing them down to what we feel are the best must-haves of the season.

Has the DSW customer changed in the post-recession world?
DF:
Customers, in general, always want to be on trend, stylish and fashionable, but everyone wants a value now. It’s no longer cool to flaunt [the fact that] you spend full price on things. Everyone wants to know they’ve gotten a value [on something]. We benefited from the last recession. We got a lot of customers in the upper tier who stepped down a bit because they wanted great names but not at regular price, and we got people moving up from shopping true discount [who were looking for] a great brand name.

What could DSW offer the latter group of shoppers?
DF:
[In each of our stores] about 15 percent of our inventory is in the back, on clearance racks where you have a nice bell curve of sizes. You can get shoes on our clearance racks from $25 to $32, and sometimes even less. We allow people who could never afford to buy a brand to come into our store and [find something]. Whether you shop the front or the back of the store, everybody leaves happy.

How do you deal with product that just won’t sell, even at a steep discount?
DF:
We liquidate almost everything in the first couple of markdowns in the clearance areas. This is perhaps the most amazing thing about our model: We do not job out at the end of the season. The things we do job off are worn and damaged, but they’re not goods that don’t sell through.

How important is the store experience to your customers?
DF:
We have a fantastic layout that satisfies two purposes: For the time-compressed customer who wants to get in and out of a store quickly, it’s very well organized and very easy to find what you need. But we have many customers who come in because shoe shopping is fun and entertaining. It could take up an entire Saturday afternoon. [In our stores], you don’t have to wait for somebody to go in the back and search for it. It’s like that movie “Night at the Museum.” That’s my dream: Stick me in the shoe store, lock all the doors, let me navigate. What better place is there to be?

Who’s your competition?
DF:
We define our direct competition as the department store — a place where the customer can find national brands and on-trend, current, in-season fashion. That’s our No. 1 competitor. But when you think of the back of the store, the clearance area, the competition reaches down into the discount channel, which could be a T.J. Maxx or a Marshalls [since] the price you’d get for a shoe at the back of our store is comparable to their prices.

Which is more important: brand names or price?
DF:
In my mind, there are certain brand names that a customer knows and loves and has a comfort level with. But having a brand isn’t good enough. It has to be the right product at the right price in that brand. Everything has to come together. You can have the best brand in the world, but if you got the product design wrong for the season, or if you used poor materials, I don’t care what name is on that shoe, I’m not going to sell it.

How is DSW’s private-label business faring?
DF:
It allows us the opportunity to put differentiated product on the floor, so what sets us apart gives us some exclusivity. Also, it’s more profitable than some of the other branded businesses we do. We have several private brands, and over the last few years, we’ve spent so much time developing [their] precise brand positioning that we now see customers coming in and asking, “Where are your Kelly & Katie shoes?” DSW owns that brand, so it’s really fun to see that it’s one of the top names they ask for. [It’s another example of how] the product and the price have to be right. That’s what earns you the right to be a legitimate brand.

What’s the growth plan for your private-label arm?
DF:
We have about 10 private labels now in women’s and one — [soon to be two] — in men’s. Private label makes up around 10 percent of DSW’s total business right now, and I wouldn’t really want that number going over 15 percent. We’re [still] a brand that sells [other] brands.

Why are you growing men’s now?
DF:
We need to ensure we’re perfect in our women’s business as it’s our biggest business at a little over 70 percent. But we have time to grow men’s now as it’s the next thing on our hit list. The men’s business is interesting [because] men take a lot more risk in their fashion [choices] today. We’re taking advantage of that, offering everything from boat shoes to cool sneakers to dress casual looks that are just hip and contemporary. We tested these items a year and a half ago and the customer responded very well. Word is catching on that DSW is a cool place to shop for contemporary men’s shoes. It’s happening all over the country. Chicago is great for the men’s contemporary product, and New York. Oh, my gosh, they eat up all the fashion we put in there.

With copyright infringement lawsuits now rife in the industry, is competition in footwear at its peak?
DF:
Competition in footwear needs to be even fiercer. I attended the Outdoor Retailer show and saw so much energy, excitement and enthusiasm there. All the outdoor brands take a lot of risk with color, design and technology, and I’d like to see some of that spill over into [fashion] footwear. We spend a great deal of time working with our vendor partners to develop relevant fashion styling that is unique in the market. Innovation at the highest level creates avenues for brands to interpret [what they see into more commercially viable options].

Is DSW recession-proof?
DF:
The two businesses that are the most recession-proof are cosmetics — because we’ll always spend the $15 on a lipstick to look good even if we can’t afford the new dress — and footwear, because people always need shoes. They either wear them out or use them to make an outfit look completely different. So to me, there should never be a reason where [footwear won’t] have nice, sustained, continued momentum, as long as prices don’t go out of control.

Speaking of prices, that’s the worry across the industry. What’s your take on the issue?
DF:
There’s a big risk to product quality with prices going up and manufacturers [trying to] keep costs low. One of the advantages DSW has right now is that, [as a growth business], we’re able to sustain those little blips on the screen better than others.

What are you looking for vendors to do to make sure the value proposition is still there for your customers?
DF:
As long as [vendors continue to] come out with newness and innovation, they will be able to put perceived value and quality into the product.

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