The shoe carnival is on the move, with earnings for the first half of 2022 surpassing all full-year earnings in the 44 years since its founding, excluding 2021.
Executive of the SGB spoke with Mark Worden, CEO of the family-owned shoe chain since 2021, about the company’s strengths in the dress shoe category, recent success growing margins and overall momentum.
Worden joined Shoe Carnival as EVP, director of strategy and marketing in September 2018 and was promoted to president to chief customer in 2019 before replacing Cliff Sifford, who had been CEO since 2012. Prior to joining Shoe Carnival, Worden worked in the consumer packaged goods space at SC Johnson and Kimberly-Clark Corp. as he began his career in the grocery channel at Kroger and Hannaford Supermarkets.
How did you find your way to the shoe carnival? I started in retail and enjoyed the first few years working in food and grocery, but then moved into packaged goods for several decades. There was always something missing since I was on the packaged goods side, and that is my love of being close to the customer and having an ability to create and respond to the customer’s needs and make it come to life in same day or week or month. And so it was four years ago that the wonderful Cliff Sifford and I started talking that at some point he would retire, and they were looking for a successor down the road. I fell in love with the company, its growth prospects, and knew that returning to retail, working alongside Cliff Sifford and then eventually running it would be a dream job for me. I’ve been CEO for a year, and I’ve been president since 2019, and I look back at how lucky I was to have that opportunity. It’s everything I could have hoped for.
How do you find shoe retail versus retail in the grocery and CPG space? There are similarities in trends, such as omnichannel or trends in seasonality. The fashion side is unique to the shoe and that has been exciting. Getting to know the world’s best brands and vendor partners is the most enjoyable part of being CEO, thanks to our strength at Shoe Carnival and the depth of our relationships. It’s exciting to bring that athletic and non-athletic fashion sense to my life and bring our skills to customers.
What is unique about the way Shoe Carnival approaches the athletic category? The strength of our business model is that we are historically a 50 percent athletic and approximately 50 percent non-athletic business. As trends evolve, this will skew a few points in one direction or the other, but we pride ourselves on bringing mom a total shopping experience where she can go in for her favorite athletic brand and find her favorite seasonal product, like now taking it. new fur boots or in the past of the season, getting the best sandals. And the business model decides to have higher basket sizes and collect high margin generic items by having that 50/50 mix duality.
There has been a lot of talk about some major athletic brands narrowing down wholesale distribution. What is the company’s approach to athletic shoes? We have an incredible relationship with the best sports brands in the world. While some competitors found themselves with fewer athletic brands to offer, we still have the same great roster of athletic brands we had five years ago and have picked up more in recent years. Our position is one of the strengths where we aim to increase market share in athletics in the coming years.
What’s the appeal of athletic brands selling at a shoe carnival? First, we have 30 million loyal customers and an in-depth customer relationship management (CRM) program with those 30 million customers. We can provide any brand, no matter how big or small in America, great access to their core customer who wants and needs products for them and their family. That number is growing, I believe, faster than anyone in the family shoe category. For example, we’ve grown that 30 million membership by 30 percent since 2019. We’ve grown every year during the pandemic or not. So I think brands see customer access as an advantage for them. Second, we are in the process of fully modernizing our store fleet. We’ll have 400 stores at the end of this fiscal year and we’re in the middle of a program where we’re bringing this differentiated, customer-centric user experience in-store. And I believe brand partners love the way they can market their new items, engage digitally with our customers in-store and have an opportunity to bring their innovation to customers in-store and online.
Shoe Carnival’s sales fell 6 percent in the second quarter, due in part to supply chain issues on the athletic shoe front. How would you summarize the company’s sales performance? We look at it against 2019. Of course, against 2020, the pandemic disrupted things. We see 2021 as a high water point in our category, where the stimulus funding created multiple revenues and disposable incomes that were great, but not quite the benchmark. As we look at what is sustainable market share growth and what is the benchmark, we look at 2019 and our sales versus the first half of 2019 were up over 20 percent. Customer numbers grew nearly 30 percent and profits more than doubled in 2019. We’re thrilled with the performance we’re having and see this as sustained growth much unlike what you’d find in other footwear players. family, if you can trace back the outlook of 2019. The global supply chain disrupted our athletic inventory in the second quarter. We expected a significantly higher amount to have arrived from Asia via DC by July, but it was still stuck. It started flowing, and we got it into Q3. But it was a surprise to us how overloaded the boats from Asia were getting here.
Do you see a departure from the athletic category? We see non-athletic acceleration at 2019 levels and it makes sense. Customers go to weddings. They will go out on dates. They dress for occasions. And so we’re seeing our non-athletic categories have strong double-digit growth and even over-indexing versus normal periods in 2019. We see the non-athletic trend continuing this fall and holiday season. Also, for us, our customers loaded up on so much athletic gear during the COVID lockdown and then the subsequent athletic boom in ’21 that they had enough athletic gear in their closets.
Operating profit margins came in at 12.4 percent in the quarter, marking the sixth consecutive quarter in double digits and above the first quarter margin rate of 11.1 percent. What drives improvement? We’ve moved away from the low profit and deep discount and into personalized digital marketing instead. And what it has done is it has transformed our margin profile. Simply put, we have been a laggard in 2018 and 2019 in the industry. And we now find ourselves supplying all that knowledge, and we’re at the highest level now for gross margins, and we’re at the highest level now for overall profitability.
Can you elaborate on the benefits Shoe Carnival has received from CRM, analytics and digital marketing investments? The biggest advantage we have is our multi-million dollar investment in getting to know our customers and their shopping behaviors. Now we can talk to our 30 million members every day, and we do. It’s helping us determine the products they’re gravitating towards and the times of the year we need to talk to them about bringing them into our stores. We are doing event marketing with them. For example, during back-to-school, we were sharing all kinds of events with our customers to bring their kids into stores for a chance to win free back-to-school gear, whether it’s backpacks or products. their favorite – little things about him. bring joy to mom or dad’s days by shopping with their kids. From a business sense, it translates into profitability, as we’ve moved dramatically from mass promotions to a very targeted approach, and that’s what opened up my favorite headline: our profits for the first half of this year were more than full year earnings for 43 of the last 44 years of our operation. And we also see it as sustainable. CRM is such a key component of why we’ve transformed the business.
Shoe Carnival recently made the first acquisition of Shoe Station in the Southeast. How is it performing? Simply put, it exceeded our expectations. We bought it in December of last year, thinking it would be a $100 million business that would make about 10 percent profit. Because of our synergies and learnings, we are now able to say we will exceed that estimate by over 10 percent on the top line and bottom line.
We also find that Shoe Station’s new store openings far exceed our expectations. So we are moving as fast as we can to get to over 30 stores next year from the modest chain of 21 stores that we have acquired. Most importantly, we set a target of over 100 stores in the next five years, and I think the bottom line is that we see no reason why the business can’t grow significantly beyond 100 stores.
Where is the expansion company for the main concept of carnival shoes? We have grown both banners, but Shoe Station will grow faster. We aim to open double digits annually for Shoe Station and low single digits for Shoe Carnivals in the years to come. Both have significant potential, but the white space on the map is for Shoe Station to grow rapidly to over 100 stores.
How is inflation affecting your customer? The customer struggled as gas prices topped $5 in the late spring and summer. This is not surprising, but we could see it directly with gas going over $5, customer traffic directly connected and started to drop in the low double digits. As it reached mid-to-late summer and gas pulled back toward $4, traffic returned to almost flat and then began to show growth as gas went below $4. Our main reason is that the American customer is healthy, employed and ready to shop for shoes. But when gas goes beyond $5, that’s a pressure, and there’s a trade-off they have to make, and it’s a lot. I think you’ve seen this trend pop up at a lot of retailers, especially those in the lower, middle-income demographic, this summer.
There are some inventory imbalances in the market and persistent inflationary pressures. What is the shoe carnival’s outlook for the rear? We are in a good position from an inventory standpoint. We do not find ourselves with an excess or need for deep discounts. And we are encouraged by the government’s stance to aggressively control inflation and steer it towards historic levels. And we see that the unemployment rate is very strong. We think the US consumer is OK and that we will have a solid close this year. As for 2023, we don’t have a grim and bleak prospect of going into a deep recession. We’re optimistic about the resilience of the US consumer because that will lead to another good year for footwear, certainly for us.
