WSA Planner: Vendor Strategies for 2009

BOSTON — The new economic reality may have rattled the nerves of many harried footwear executives in 2008, but manufacturers are now responding with new strategies that include taking smaller margins, extending payment grace periods and rethinking product development and marketing plans.

While the general tone of vendors interviewed by Footwear News wasn’t exactly cheerful, many firms — particularly those with strong balance sheets or a healthy sense of adventure — said they see real opportunity in the coming year.

For the majority, the dreary consumer market has forced a new focus on product and spurred creative competition.

“In a sense, it’s survival mode,” said Danny Silvera, public relations and marketing director for Seychelles and BC. “But in another sense, it’s really exciting to rebuild something.”

The Los Angeles-based company recently laid off order-processing and accounts staff so it could bulk up its design team. For fall, BC is focusing on its best styles: funky, casual sneakers and youthful flats. A new logo and packaging, unveiled for fall, support the direction. Sister brand Seychelles will debut its updated look for spring ’09.

Still, there’s no question that the bottom line will suffer. Silvera said the company had shaved its profit margins in order to hold wholesale prices.

“It’s tough terrain,” said Silvera. “If you have something inspirational, it’s still selling, but maybe not at the same velocity.”

Several vendors pointed out that with Americans rethinking how they spend, new business opportunities are opening up.

Chinese Laundry CEO Bob Goldman said he sees a new niche for contemporary looks priced under $150 — an insight born out of a successful test this past fall of shoes retailing for $110 to $130. “We’re trying to grab that customer from above us,” he said. “Bloomingdale’s, Nordstrom and even the independents selling shoes for $200 need someone else to go to.”

However, Goldman said the company is not simply dressing up existing lasts with pricier fabrics and embellishments. Instead, Chinese Laundry is spending time and money to research consumer groups and regional preferences.

“If you’re going to do better-grade footwear, you have to identify customer niches,” Goldman said. “America has become more like Europe. The girl in New York is not the same girl as in Chicago or Miami.”

The company will reach out to more customers firsthand as it expands from three to 10 U.S. stores this year.

“It’s going to be a tough run, but if you take an aggressive stance, there is great opportunity,” said Goldman.

At Wolverine World Wide, the company is exploring new sales venues outside traditional retail channels, and also is beefing up the technology in its products. “With retail so tough, we can become more competitive at providing solutions to the military,” said Wolverine Footwear Group President Ted Gedra. “We have a lot of sophisticated technology that we’ve developed for workwear and outdoor footwear that is applicable.”

Defense purchases already account for about 15 percent of Wolverine Footwear’s revenues.

The company will launch the 1,000 Mile Collection at the Outdoor Retailer show this week. The heritage-themed assortment, retailing for $200 to $350, is an updated take on boots Wolverine produced before 1920.

Recently, the Rockford, Mich.-based company completed a round of layoffs as part of a broader restructuring of sales, general and administrative costs. Gedra said those cost reductions will allow Wolverine to invest in previously planned growth initiatives, including expansion in Europe and Asia, new product launches, and extensions to its 2-year-old men’s apparel collection.

Meanwhile, Bob Campbell, chairman and CEO of BBC International, said, “Even if business is tough, there are still voids [in the market]. We don’t want to get too caught up in [worrying about] the business climate and walk away from what’s working.”

The Boca Raton, Fla.-based licensing firm racked up double-digit sales gains in 2008, selling globally in stores such as Nordstrom and Wal-Mart de Mexico, and it hopes to repeat the performance in 2009 by maintaining a diversified portfolio. The company will reintroduce skate line NNS for fall ’09 and as previously reported will work with Titan Industries to revive the Charles Jourdan label. It also aims to launch two other licenses before year-end, although those deals have not yet been finalized.

To try to shed its “stodgy” image and attract younger consumers, Weyco Group will introduce a new label in July aimed at more affluent customers. Company CEO Tom Florsheim Jr. said the timing felt right for Florsheim by Duckie Brown.

“Our intention was to do something fun and creative with the Florsheim brand,” he said. “When we met [designers] Daniel Silver and Steven Cox of Duckie Brown, there was great chemistry. … We really thought that the ‘odd couple’ pairing would be a lot of fun.”

Florsheim acknowledged that the higher price points ($195 to $545 compared with the company’s normal $100 median price) is “contrarian” in this economy, but he pointed out that the project has gotten Florsheim into doors where it’s never been before, including Barneys New York and the prestigious Odin New York. Bloomingdale’s has also written an initial order, he said.

While it is strategically loosening its image, Weyco, like many other shoe companies, is also tightening up internally.

“We started in the second half of 2008 to watch our expenses very closely, but not in a way that would hurt our long-term objectives,” Florsheim said.

Watching costs while trying to maintain and, in some cases, improve upon quality is a challenge. Terry Schalow, product marketing manager for Asics’ performance running division, said that grappling with rising labor costs amid tightened spending has been daunting, though there are solutions.

“We’ve responded by building more efficiencies into our development and production processes,” said Schalow. “The one thing we will not consider is downgrading our product by using less-expensive materials or leaving off key components.”

Schalow said the company approached the cost dilemma by looking at high-end components it could add to lower cost models to create value. For example, the $85 Gel-Pulse, a fall shoe with an updated cushioning system, is one of those new models getting a strong initial reaction from retailers.

While many companies are scaling back on the amount they spend on advertising for 2009, some brands will actually become more visible in print and on television during the coming year, thanks to cut-rate advertising deals.

“Cash is king,” said Barry Specht, director of marketing for Harbor Footwear, adding that he is being “inundated” with sales calls from consumer publications. “If you’ve got a strong balance sheet, you’re pretty much in a position to negotiate with anyone. Magazines have been hurting, so there are deals to be made. We’re hoping to stand out more in a quiet marketplace.”

Specht said the company would also begin advertising on social networking sites, a new avenue for the firm.

Asics has grown its advertising and marketing budgets over the past few years and hopes to move more heavily into television in 2009, said Jim Monahan, Asics’ VP of footwear.

Chinese Laundry is also angling to increase its exposure in the coming year. “Marketing is what is spurring fashion right now,” said Goldman. However, the company’s dollars will go to hiring entertainers as brand ambassadors rather than to traditional media outlets. “It’s the product placement and the associations with entertainers that are really getting the attention.”

For Seychelles, preserving its in-house PR team ­— the company has four employees full-time — was a no-brainer. “It’s a big team for the size of our company,” acknowledged Silvera. “But there are so many people out there with similar products. We feel our communication and the connection we can make with retailers and shoppers is a key differentiator.”

On the retail front, manufacturers said they are altering their policies to make life easier for struggling retailers. Many are breaking case packs — something retailers have long lobbied for — extending payment terms, and developing special promotional products — all while lowering prices.

Incentives such as these can add cost and complexity to doing business, but vendors told FN without such sweeteners, the wholesale business would be even tougher.

New York-based JSSI, maker of British Knights, is among the firms breaking cases and increasing pick-and-pack replenishments.

“A couple of pairs of this and a couple of pairs of that — it’s more labor-intensive and costly for us,” said company COO Ray Ricci, describing a growing trend in reorders.

But rather than fret over it, Ricci said the company had embraced it, taking on inventory in replenishment styles and touting a quick-response capability to retailers. JSSI also has created promotional-priced products for key customers, though it’s not the company’s favorite kind of work.

“The magic number seems to be $39.99,” said Ricci. “That’s about 20 to 30 percent under our regular retail, and for that, it’s difficult to use leather.”

Seychelles’ Silvera said retailers are asking to push payments out further. “One guy told me the other day that 120 days is the new ‘net 60’ on payment,” he said. “People are looking at all different ways to finance their [business]. We’re not a huge company, so we’re not in a position to float their money.”

Chinese Laundry’s Goldman said his firm would break cases for reorders and will guarantee margin upfront, but he added that goodwill is a two-way street.

“We’ve beefed up enforcement of [purchase] terms, but we want to make sure [the retailers] are not [discounting] hot product. If they are, we’re not shipping the goods,” he said.

According to Goldman, he had declined reorders from at least one offending retailer, though he declined to name the merchant.

Rather than focus on financial incentives, New Balance has invested in education to help specialty stores sell more units — part of the Boston-based company’s long-range goal of rebuilding its performance running business.

The company recently hired merchandising agencies to visit stores, network with associates and distribute product reference tools. New Balance also will roll out a training initiative called 3point5, a Web-based, gaming-style program for sales associates that rewards product knowledge, said a company spokeswoman.

Still, one of the biggest challenges vendors may face for fall is the unknown. With sensational news stories breaking almost daily and rocking the financial markets — such as the alleged $50 billion Ponzi scheme perpetrated by financier Bernard Madoff — many footwear execs said it’s nearly impossible to predict the mood at retail come fall. “Our forecasting ability is nil,” said Wolverine’s Gedra. “Basically, you’re only as confident as last week.”

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