Basic HTML Version
investors, Doug Probst, DSW’s chief financial officer, explains
that next year a new model should help it to boost growth
further: a drop ship. “It’s a system we’ve talked about before
but we’ve not yet had the chance to implement it,” he says. “It
essentially allows us to display on our website product that is
held in the supplier’s warehouse, such that if a customer buys
it our supplier ships it from their warehouse directly to our
customer’s home. That will be another source of growth
without the space requirements to support it. It will also be a
source of growth because it will be differentiated product –
product that we wouldn’t otherwise have on our website.”
This could be seen as following the ‘Dell model’ of supply –
where the customer pays the money upfront before the stock
is ordered, minimising risk to the retailer and limiting the
problem of unsold inventory. It means DSW will provide the
virtual ‘shop window’ but won’t have the costs associated with
physically moving and displaying the stock, or have to worry
about space constraints.
Often, retailers that drop ship merchandise take measures to
hide this fact to avoid any stigma, or to keep the wholesale
source from becoming known. This can be achieved by
shipping merchandise without a return address (blind
shipping) or shipping with a return address which is that of the
retailer (private label shipping).
“We are in the process of finishing a fairly significant
expansion of our fulfilment centre in order to accommodate
growth,” says Mr Probst. DSW is spending $17 million updating
its distribution centre and headquarters in Ohio, creating 200
new jobs over the next five years. Its 60,000 square metre
distribution centre sends more than 240,000 pairs to its stores
each day. With drop shipping, the volumes on its books could
increase considerably without affecting its in-house distribution.
To make this model work, DSW will have to boost its online
capabilities. General manager of dsw.com Roger Rawlins says,
with the party line enthusiasm: “I’m so excited about the growth
of dws.com. As we grow dsw.com we are going to grow dsw.inc
and we are excited about the opportunities that creates for our
vendors.” DSW.inc is the corporate entity, and growing that
effectively means adding to the bottom line.
Online shopping looks set to be the biggest game changer
for footwear retailers in the near future. Gareth Whiley, head of
the retail and leisure team at private equity firm Silverfleet
Capital, agrees that companies will have to adapt. "The
footwear market has a number of characteristics that set it apart
from other retail categories with the retailing of shoes generally
still an area of specialism, being logistically different with a need
for high stock levels just to make one sale. Growth via the
internet is a very interesting area as it potentially solves many
of the stock issues. However, shoes are bulky and expensive to
ship so pure e-commerce models based on free delivery and
free return are unlikely to survive in the long term.”
Companies that use the drop ship technique often pocket
the difference between the retail and wholesale price, and so
free shipping might not be viable, although DSW currently
offers free shipping for orders over $35 as part of a wide-
ranging rewards programme, often for restricted periods.
“The dsw.com business is going to continue to grow and be
the fastest growing part of our business for the foreseeable
future, and we need to be able to support that,” says Mr Probst.
“We are focusing on the mechanics from a customer point of
view in terms of how they interact with the website, we’re
monitoring local traffic and trying to react accordingly.”
While it has previously offered web-exclusive products, it isn’t
a strategy it is actively pursuing. “We think there might be an
opportunity by rationalising the web-exclusive business,” adds
Mr Probst. “We’re trying to run the business as a single business
and the more different you make the assortment, the more it
fights against that objective.”
Mr Mustafa agrees with the potential of the online business.
Customers who go into the store shop through other channels
– in fact, “multichannel customers spend almost twice as much
as a single channel customer”. He adds, “It is clear that the retail
customer, especially with the advent of user-friendly
technology, is looking more and more to be able to buy
whatever they want using whatever channel they are
comfortable with.”
For him, the impact that mobile technology will have on retail
is the most interesting proposition the business will face in the
coming months. If DSW can harness that opportunity, it will be
another revenue stream pushing it closer to its objectives of
being “America’s favourite place for shoes”.
13
SEEKING THE TOOLS TO REDRAW THE LANDSCAPE
NOVEMBER/DECEMBER 2012 | www.footwearbiz.com
A DSW store interior which aims to “satisfy both the rational and
emotional shopping needs of core customers”.
One of the shoes from The Glass Slipper Collection, inspired by
Disney’s Cinderella, which DSW hopes will tap into women’s
childhood affinity with the character.