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Skechers steps lively with real estate strategy

By Jim McCartney

Usually when fashion companies want to promote themselves, they buy advertising; Skechers U.S.A., the shoe company, went a step further: It bought stores.

In 1995, Skechers officials concluded that, given the limited space department stores have to offer each vendor, their brand wasn't being fully displayed to the consumer.

So what better way to build its brand recognition, convey its lifestyle image and show off its width and depth of product offerings than to open stores that sell nothing but its own products, the Manhattan Beach, Calif.-based company decided. The stores, in short, would be its marketing vehicles as well as a way for the company to test new products and keep on top of sales trends.

"One quick trip through a Skechers store and the consumer quickly knows what we are all about,'' said Michael Greenberg, Skechers' president. "Our goal in the retail division is to present our entire line of product — men's, women's and children's shoes — to the customer in a way that accurately reflects the energetic, hip and innovative brand that is Skechers.''

Its strategy appears to be working: Sales nearly doubled from 1997 to 1998, and rose to $424.6 million last year, up 14% from 1998.

Skechers, which was founded in 1992 as a distributor of a European footwear brand, today sells only its own products. It targets a broad market with a full line of shoes for men, women and children, appropriate for work, school and play. Aiming for the 40-and-under crowd, Skechers sells Oxfords, boots, sneakers, jogging and hiking shoes, sandals and dress-casual shoes.

About $40 billion a year in shoes are sold in the United States, according to Skechers, with more than half of that coming from sales of casual and rugged shoes, boots and sandals, including hiking and working boots. Skechers officials believe that those types of shoes will outpace the overall market over the next few years, given the trend toward casual dress and away from using athletic shoes for nonathletic purposes, and the popularity of these shoes as cultural icons among teen-agers.

The stores' format has evolved from the first location in Manhattan Beach, Calif., with its black-and-yellow industrial look, to new futuristic, high-tech entertainment and shopping venues in New York City and Universal CityWalk at the Universal Studios Hollywood theme park. The new stores feature in-store entertainment areas, video monitors and an Internet station to log on to the Skechers site.

"Today, it's all about keeping the shoppers entertained and captivated while they check out the latest product,'' Greenberg said.

The company has 42 stores in freestanding and mall locations, and also is looking at power centers.

The new store in midtown Manhattan, which replaces the Times Square location given up for redevelopment, will serve as the company's flagship New York City location. The store at Universal CityWalk, it is hoped, will draw traffic from the millions of annual visitors to the theme park.

Other flagship locations — the company refers to them as "marquee" stores — are situated in famous shopping districts throughout the United States that are popular with tourists, including SoHo in New York, Newbury Street in Boston and Melrose Avenue in Los Angeles. Those units range from 1,400 square feet to 4,000 square feet, and are generally larger than the regular stores.

In selecting a specific site, Skechers said it looks at shoppers' traffic patterns, co-tenancies, average sales per square foot achieved by neighboring concept stores, lease economics and other factors.

"Over the long term, we plan to selectively open additional marquee locations in high-traffic, tourist areas," Greenberg said. The company plans to open 10 to 15 stores a year, both in its regular and marquee formats, in various locations.

Also, as a way to reach more customers and liquidate excess, discontinued or odd-sized inventory, Skechers operates factory outlets and stand-alone warehouse outlets. They range in size from 1,800 square feet to 11,000 square feet, and are typically located in factory outlet centers or, if stand-alone, far from stores that sell Skechers full-priced products. Among its factory outlet landlords are Chelsea GCA, Tanger and The Mills Corp.

While most of the company's stores are in California, it also has locations in Arizona, Nevada and Hawaii, in addition to the New York and Massachusetts sites.

Skechers said it ended the year with a healthy backlog — the margin by which orders exceed supply — of $121.7 million, up 62% over the previous year. Company officials said the higher backlog reflects continued acceptance of the brand among both retail accounts and consumers, strong response to new products at recent industry trade shows and the dramatic growth of its Skechers Sport category.

The company said its new shoe lines received a warm response at the Western Shoe Show in Las Vegas in February, with order commitments "significantly exceeding'' the previous year's orders.

"Their lines have been very well received at the trade shows," confirmed Harry Katica, a securities analyst who follows the company for Prudential Securities.

The strength of the incoming orders, given the recent difficulties in the footwear industry, are testimony to Skechers' ability to deliver products that appeal to a diverse group of consumers at very competitive price points, Greenberg said.

Skechers was recently named the No. 1 company among men's "Generation Y" footwear brands, according to an independent survey by ShoeBiz, a division of NPD Data, the Port Washington, N.Y., marketing information group. Skechers took a 39% share of the market, or about 29% of the dollars spent, selling more shoes than four other brands polled, including Tommy Hilfiger, Doc Martens, Kenneth Cole Reaction and Unlisted by Kenneth Cole.

Besides its own stores, Skechers sells its merchandise through department stores and specialty retailers, as well as through mail order and e-commerce. Indeed, the stores constitute only about 10% of total sales, said Katica, the securities analyst.

"The stores have been performing well,'' Katica said. "But they will never be the tail that wags the dog.''

But they are helping to promote the brand, which is what they were designed to do in the first place.

"Our retail strategy is simple," Greenberg said: "Provide shoes to consumers in a friendly and hip environment located in top shopping destinations.''