Payless is going out of business and will close all of its 2,100 US stores. DSW had a miserable holiday season, but it has developed a strategy to avoid Payless’ fate.
DSW’s (DSW) strong sales during November, December and January came at the expense of profit, the company reported Tuesday. DSW posted its fifth straight quarter of comparable sales growth, but the company lost nearly $46 million over the holiday period, because it had to run promotions to clear out its merchandise. DSW’s (DSW) stock tumbled 15% after the company posted a surprise loss during the quarter.
Despite the rocky holiday, the shoe chain has tried to adapt to disruptive changes in the industry and learn new tricks to stay relevant with shoppers. Nail salons in stores, a revamped loyalty program and kids’ shoe sections are boosting DSW.
DSW has looked for different ways to expand its brand with its core women customers. Women’s shoes make up 69% of DSW’s more than $3 billion in sales.
“They’ve done a very good job over the past couple of years of really honing in on their customer,” said Sam Poser, analyst at Susquehanna Financial Group. “They have a designer customer that wants a good price on some fancy shoes.”
DSW has tried to add experiences to stores beyond self-serve shoe racks.
In 2017, DSW began testing out nail salons at two stores in Columbus, Ohio. DSW hoped that women would come in for a manicure or pedicure and stick around after to buy a pair of heels or sandals.
The nail salons have increased sales and driven customers, including highly-coveted Millennial shoppers, to make repeat trips to stores. So DSW plans to expand nail salons to five more stores in Austin, Washington, and Dublin, Ohio.
DSW’s other strategies have resonated with shoppers, too. It launched a new loyalty program, DSW VIP, that gives members exclusive access to promotions and special events. DSW VIP has 25 million members, and customers in its rewards program make up 90% of its sales.
The rewards program is important because it gives DSW better insights into customers. The company discovered that more than half of rewards members have at least one kid, so it decided to add kids’ shoes to all of its stores.
“The reason we entered kids was not to sell kids’ shoes. It was to sell more adult footwear,” DSW President Bill Jordan told investors during a presentation Tuesday.
That plan has worked. Moving into kids’ shoes has helped the company attract more frequent visits from existing customers and reach new shoppers. Customers who buy from DSW’s kids’ section spend $75 more per year than other shoppers, according to the company.
DSW has plans to innovate, such as adding shoe repairs to stores and developing its own private-label brands. It has also jumped into the booming CBD market and recently announced it will sell CBD lotions and balms at nearly 100 stores.
But the company will face big challenges, including increased pressure from discount chains TJMaxx and Marshalls. They are adding new stores.
Macy’s (M)and Nordstrom (JWN) are also gunning for DSW’s core customers with their own discount stores. Nordstrom (JWN) is building off-price Rack stores, while Macy’s (M)is expanding Backstage within Macy’s (M)stores. Macy’s (M)says Backstage is attracting new customers, which could be coming at the expense of DSW.
On Tuesday, DSW, which also owns the Camuto Group brand portfolio and Canadian stores The Shoe Company and Shoe Warehouse, announced plans to change its corporate name to Designer Brands. Its stock ticker will switch from DSW to DBI. The stores will keep the DSW name.
