With nearly 100 percent of stores in China now back in business, the footwear maker is “starting to see encouraging signs in the physical retail space,” chief financial officer John Vandemore said Thursday during a fireside chat with Morgan Stanley softlines analyst Kimberly Greenberger.
Skechers, which has both company-owned and franchised stores in China, monitors retail sell-through in both channels to gauge the Chinese consumer’s appetite to shop and spend. Noting the “green shoots” starting to crop up in several markets, Vandemore said Skechers is beginning to reopen stores in the U.S. and in some European markets, where it is also seeing “encouraging signs about consumer demand.”
Representing one-quarter of the market’s total base, most reopened stores are either freestanding warehouse or outlet locations as the bulk of Skechers’ concept stores remain closed. Stores back in operation have all the requisite new protocols in place, including personal protective wear for staff and shoppers, signage reminding customers to maintain a six-foot distance from others, hygiene stations and floor markings instructing consumers on where and how to queue.
“There’s more to be learned in how we operate stores in this new environment,” Vandemore said.
The coronavirus outbreak around Lunar New Year in China spurred Skechers to act quickly and stem the bleeding in one of its most important growth markets.
“The team took swift action in an attempt to mitigate the challenges,” Vandemore said. As the Chinese market ground to a halt during coronavirus lockdowns, Skechers implemented drastic cash controls and reworked production planning and inventory levels in concert with suppliers and partners.
Skechers managed to limit inventory returns from key franchise partners, a strategy it’s not likely to repeat in other countries and markets, however, where the shoe seller lacks similar franchise models. While that tactic resulted in the franchisees owning all the returns, Vandemore said it was a necessary part of the company’s strategy to ensure it was offering the freshest and newest products when consumers returned to browse and buy in stores again.
Lessons learned in China will help to “move the brand forward,” Vandemore added.
For now, liquidity isn’t one of Skechers’ near-term concerns. Though the company regularly checks in on alternate financing options as a precautionary measure, the finance chief doesn’t “expect that to be necessary.”
Global growth will be central to Skechers’ future trajectory. Sixty percent of revenues last year were generated in overseas markets, which combined with direct-to-consumer sales will power the brand’s near-term growth. Skechers has boosted gross margins by testing pricing power on select items, and the company is reviewing the year’s planned capital expenditures to see determine cost-saving opportunities.
And while it could be one of the few firms in fashion still looking to add new stores after COVID-19, Vandemore said Skechers will be methodical about the process. Wholesale, on the other hand, is another matter entirely. Vandemore skirted questions about his views on what retail bankruptcies mean for whole business in light of recent filings by Stage Stores, Modell’s Sporting Goods and an expected J.C. Penney petition.
Retail stress in the domestic market is nothing new, Vandemore said, adding that Skechers manages its wholesale inventory with an eye on the financially distressed. For those accounts, the company “actively manages credit levels” long before a filing occurs, he added. But had Skechers elected to do without its Penney’s account when the mass merchant’s debt troubles emerged, the company would have “missed out on an opportunity” for the past several years, he said.
Skechers ended 2019 with more than $5 billion in revenue and kicked off the year with a market capitalization topping $4 billion, which has dipped to $3.9 billion, thanks to stock-market volatility.