"Give a girl the right shoes and she can conquer the world."
—Marilyn Monroe
That is if she can find them. Current inventories are not able to keep up with the pent-up demand that is driving the desire for the latest shoe fashion as consumers return to work, shopping in stores, and to social activities such as concerts, parties, and travel.
Year-to-date through April, footwear store sales are up 62.4% according to data from the US Census Bureau. However, compared to 2019, sales are up only 0.2% and up 3.5% from 2018.
The big unknown right now is how long will consumer demand continue. The National Retail Federation (NRF) recently revised its 2021 total retail sales forecast. The latest forecast projects that retail sales will grow between 10.5% and 13.5% to between $4.44 trillion to $4.56 trillion this year. In February, NRF projected that retail sales would grow 6.5%.
Delays
Delays throughout the supply chain continue to be an issue for shoe retailers. “All retailers, not just the footwear segment are having issues getting product from factories, and then once the product is through the factories, there are significant delays at all ports,” Clifton E. Sifford, CEO of shoe retailer, Shoe Carnival, told investors during the company’s May 19 earnings call for the quarter ending May 1.
The impact of the delays was described as a domino effect in one footwear company’s earlier earnings call. “You don't know really when you're going to catch up and it's gone a little bit back and forth. One week you might feel you've caught up, the next week you are maybe a little further behind,” said Diane Sullivan, CEO of footwear company, Caleres during the company’s investor call in March. Caleres owns retailer Famous Footwear and brands such as Naturalizer, Vionic, and Dr. Scholl’s Shoes.
Low inventory levels
Despite the domino effect and supply chain issues, shoe retailers are benefiting from lower inventory levels. In fact, it appears that low inventories are here to stay for many of the retailers. Caleres, for example, noted that it learned to turn inventory faster than it had in the past.
As a result of lower inventories and increased demand, Shoe Carnival shifted away from its Buy One Free, Get One Free (BOGO) promotions over a year ago and is focusing on more “focused promotions” to further increase margins.
Shoe Carnival ended their recent quarter for the period ending May 1 with inventory down 8.6% on a per door basis. On a per-dollar basis to 2019, at the end of Q1 2021, 2019 was down 2.7%.
But, perhaps, more importantly, Shoe Carnival’s Sifford credits the company’s strong financial performance on the fact that it did not cancel orders at the beginning of the COVID-19 pandemic. Sifford told participants at last week’s Jefferies 2021 Virtual Consumer Conference that the company reached out to key vendors and assured them that Shoe Carnival would continue paying invoices during the pandemic.
“I think we’re faring better than most as we’ve stayed focused on the vendors that the customers are focused on, and we’re focused on a very tight selection of vendors,” said Sifford. “We also place our orders and our backups early.”
How much longer?
Asked about how long the supply chain challenges will last, Sifford said Shoe Carnival previously expected the flow of goods to “get closer to normal” by the end of the third quarter but now believes it may not stabilize until the end of the year. “The entire supply chain is difficult from getting the product at the factory to their ports, from their ports to our ports and from our ports to our back door,” he said.
Caleres CFO, Kenneth Hannah also believes supply chain improvements will likely occur later in the year. “I think with everything that we've seen, the delays will not get resolved in the second quarter. They likely will go into the third quarter,” he said. (Note: Caleres’ financial quarters are not based on the calendar year. Instead, the second quarter ends August 1 and the third quarter ends November 1.)
Imports
According to the Footwear Distributors and Retailers America Association, 99% of all footwear sold in the US are imported. In 2020, 1.9 billion pairs of shoes were imported into the US. The top three exporters to the US were China, 61.2%, Vietnam, 24.3%, and Indonesia, 5.2%.
The majority of the imports are by way of ocean freight. However, to get a true picture of the footwear supply chain, one must not discount air freight.
Year-to-date through April, ocean imports of footwear increased 11.7% from the same period in 2020. However, compared to the same periods in 2019 and 2018, volumes are down 3.3% and 5.6% respectively.
The declines compared to 2019 and 2018 could possibly be attributed to the current port congestion that is resulting in the “domino effect” noted in earnings commentaries.
As 2021 progresses, volumes will likely swing upward turning the current 2019 and 2018 negatives into positive growth due to anticipated continued strong sales.
The percentage of footwear imports via air is much lower than ocean for various reasons depending on individual retailers’ supply chain strategies. Historically, air is a more expensive option but is used when time is critical.
Global air capacity has not fully rebounded since the beginning of the COVID-19 pandemic when 50% of the capacity was grounded. What capacity that was available has been used to transport PPE and other COVID-19 related goods. But, as capacity slowly returns, some shippers are turning to it to move inventories quicker.
Year-to-date through April, footwear air import volumes are down only 11.1%. I say ‘only’ 11.1% because it is quite likely that some footwear shippers are expediting certain shipments such as seasonal footwear because of the current environment.
In comparison to the same period in 2019, volumes are down 40.8% and down 25.4% from 2018.
As long as the current environment continues, more shippers will probably turn to air to ensure inventory is available for such retail sales events as back-to-school and the end of the year Thanksgiving/Christmas holiday period.
Expediting goods is expensive. In a recent survey from the Footwear Distributors and Retailers America Association, 61% of respondents have seen an increase in operating costs during the first half of this year and 73% of respondents expect costs to rise further in the second half of the year.
To mitigate these costs, 59% plan to increase footwear prices. We’re already experiencing some of these increases. According to the Bureau of Labor Statistics’ latest consumer price index (CPI) for footwear, April to May footwear CPI increased 1.4% on a seasonally adjusted basis. However, on an unadjusted basis compared to May 2020, footwear CPI increased 7.1%. I may need to rethink tossing all the shoes I have in the closet!
That’s about it for now. Thanks for reading. While I aim for a weekly story, sometimes life gets in the way, so think about subscribing (free) so that you don’t miss anything.
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- Cathy