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Improved Inventory Management Credited with DSW Gains

DSW credits inventory management and better sourcing with delivering its first full-year earnings growth since 2013. Energized by the opportunities it sees as the market contracts, the shoe retailer is focused on delivering products and experiences that resonate with its customers.

The company reported a 6.7% increase in sales during the fourth quarter with same-store sales up 1.3%. Footwear, in particular, achieved its third consecutive quarter of positive comps, according to the company.

On a square foot basis, DSW’s inventory declined by 2 percent compared to two years ago. Burdened with less stock, the retailer said it was better able to react to the market—a position that created a positive ripple effect throughout the business.

The flexibility allowed the retailer to funnel dollars into athleisure based on consumer demand earlier in the quarter before the weather turned frosty. As temps dropped and shoppers began looking for cold-weather product, DSW was then able to satisfy that need.

“Our conservative inventory positioning at the start of the year enabled us to chase demand for seasonal boots and end the season with relatively flat goods available for sale,” Jared Poff, senior vice president and chief financial officer, said. “As a result, full-price sales posted a net single-digit increase with a higher penetration than last year.”

Fewer markdowns contributed to a 240-basis point increase in gross margin rate over the previous year specifically for the DSW segment of the business, the company reported.

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CEO Roger Rawlins said DSW plans to continue its focus on inventory management going forward. In addition to investing in its employees, it’s a chief initiative for 2018. Through tests in its Power 35, a select group of locations that the company has revitalized and improved merchandising-wise, Rawlins said it’s clear that having a fresh assortment of key brands that speak to that local consumer has made the difference. “We believe we can produce similar results in the rest of the chain with the right inventory in an improved ability to respond to emerging consumer trends,” he said.

Going forward, DSW will focus on elevating its brands, reducing underperforming vendors and paring back on over-distributed labels.

DSW’s merchandise mix will include kids’ product as the retailer rolls this category into the balance of its stores following a strong performance in its initial doors. Athleisure shoes will also remain a focus for the chain, which still sees strong sales in the category.

In addition to enticing shoppers through merchandise, DSW is testing services, too. It debuted a nail bar in its Polaris store in Columbus, Ohio, through a joint venture with The W Nail Bar. Based on the positive reception it has received thus far, DSW is currently determining how it might scale the concept. That location, which the company uses to test new concepts, also includes a shoe repair area that will debut in additional doors during Q1. DSW plans to use the Polaris facelift as a model for four additional locations to determine if the results it saw there are repeatable throughout the chain.

“That store was trending in the double-digit negative comp range, and in the nine months since we put in nails, repairs, other services, it is now double-digit [demand] comp,” Rawlins said. “I think all of us that have been around retail for a while know that’s not a story you hear very often, when you come to re-modeling and a store or introducing new services.”