Finish Line had a hard time selling shoes during the fourth quarter, and its explanation of why is a concise summary of the retail industry’s crisis.
The footwear retailer’s shares were down 15% premarket on Friday after reporting earnings of $US0.50 per share, missing the forecast for $US0.70 according to Bloomberg. Sales at stores open for at least one year fell 4.5%, which was worse than analysts expected. Net sales topped expectations.
In the earnings release, CEO Sam Sato outlined problems that many traditional retailers would be able to identify with. In one sentence, consumer habits are changing and the overall retail landscape is in decline, so retailers are responding by slashing prices but that’s denting their margins.
Here’s Sato (emphasis added):
“As elements of our footwear offering did not resonate with our customers as we expected and the overall retail environment in February became increasingly difficult, we made the decision to get more aggressive on pricing to be competitive and clear slow moving product. While this allowed us to end fiscal 2017 with clean inventory levels, it put significant pressure on fourth quarter product margins.
We know we must improve the execution of our merchandise strategies to drive increased full price selling and fuel sustained comparable sales growth. At the same time, we are confident that the numerous operational improvements we made throughout the past year have created a more efficient company with a stronger foundation to support enhanced profitability and increased shareholder value over the long-term.”
Finish Line found that people did not buy the same sneakers they may have wanted in the past. The growth of athleisure, and how companies from Amazon to Under Armour are trying to cash in, serves as another illustration of how companies are adapting to changing tastes. Additionally, consumers are doing much more shopping online and less at physical stores.
Sato also described the “overall retail environment” as becoming difficult in February, although the industry had been in turmoil long before that.
Consumers are doing much more of their shopping online and less at malls, hurting brands that have traditionally relied on foot traffic. The discount-shoe retailer Payless had looked to close 1,000 stores, and could file for bankruptcy as soon as next week, Bloomberg reported.
Analysts have warned of a retail apocalypse in the US, where stores per capita are much higher than that of any other country. In January, The Limited, another apparel brand primarily based in malls, shut down all 250 of its stores and laid off 4,000 workers. Mall staples Sears and Macy’s have also announced mass closures this year, with Sears planning to close 150 namesake stores and Kmart stores in 2017.
In response to the slowdown, Finish Line used deep discounts to attract customers, which Sato describes as being “aggressive on pricing.” While that drove more sales, it hurt profit margins, like many of its peers.
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