Monika Dharia
MMS 390
Final Paper
August 10th, 2016
In early 1990, Steve Madden launched his own company with a vision of marketing designer shoes. Steve Madden started the company with only an $1100 investment and by selling shoes from the trunk of his car. Today, the company owns and operates 169 retail stores and produces an annual gross profit of $500 million (“About Us: Steve Madden”).
Information on the Company
Steve Madden is based in Queens, New York. It focuses on providing “on-trend women and men with an outlet to express their individuality.” In its description, Steve Madden describes itself as focusing on authenticity and embracing individuality (“About Us: Steve Madden”). Thus, the company values its unique, diverse and innovative designs.
Today, the Steve Madden brand is sold in over 80 countries worldwide and is a forefront of fashion in footwear, handbags and accessories.Steve Madden currently owns seventeen brands including Betsey Johnson, Dolce Vita, B. Brian Atwood, and Blondo. These brands allow Steve Madden to target a wide range of people. However, the company mainly targets men and women ages 16-45 as well as girls ages 6-12("STEVEN MADDEN LTD (SHOO:NASDAQ GS): Company Description”). Also, since it owns and operates numerous brands, the company targets a wide range of incomes. For instance, it sells more affordable brands such as Stevies in economical stores like JCPenney and more expensive brands such as ‘Superga’ and ‘Steven by Steve Madden’ inhigher-end department stores like Bloomingdales andits specialty stores (B. Riley Conference Presentation 2016).
The company operates through five outlets: wholesale footwear, wholesale accessories, retail, first cost and licensing. Its products are sold in various ways such as its own website, e-commerce websites like Zappos and Amazon, department stores, luxury retailers, specialty stores and more. Although Steve Madden mainly operates in the United States, Canada, Mexico, and South Africa, it is starting to expand into regions like Europe, India, and Australia ("Steve Madden Ltd."). The main competitors of Steve Madden include companies part of the GIII Apparel Group that sell fashion footwear such as Guess, Nine West and Jessica Simpson. In addition, footwear companies such as Skechers and Nike are also strong competitors of Steve Madden because they are competitors in sneakers and sandals (“Steve Madden Ltd.”).
Current Performance
As per its letter to shareholders and income statement, Steve Madden had a challenging 2014 due to a struggling retail business and difficulties in keeping up with fashion trends. But, it bounced back in 2015since it was successful in addressing these issues (Rosenfeld 5). The annual report states that it finished with net sales of $1.4 billion and a gross profit of $500 million, both of which were 5% higher than they were in 2014. A closer look at the income statement shows that the company’s net revenue has continuously increased from $968 million in 2011 to $1.41 billion in 2015. Its net income increased from $97.32 million to $112.94 million and its EBIDTA increased from 147.18 million to 184.2 million since 2011. The company, however, seems to have peaked in net income and EBIDTA in 2013, which were 132.01 million and 199.48 million respectively. The decrease in net income is because Steve Madden paid off its deferred domestic and international taxes in 2014 and 2015. In addition, this decrease in profits reduced the EPS (earnings per share) after 2013, reducing the EBIDTA. However, as statedpreviously, Steve Madden was successful in continuously increasing its net revenue since 2011. The success in increased revenue can be attributed to the successful creation of fashion-forward products that resonated with customers such as fashion sneakers and the expansion into new markets.
In addition, the acquirement of Dolce Vita, which has strong brand equity, has allowed Steve Madden to expand its sales. Steve Madden also acquired Blondo, a waterproof boot brand based in Canada. It then expanded Blondo’s presence in the United States, increasing Blondo’s U.S. sales by approximately 50% in 2015. Lastly, Steve Madden expanded its international presence by acquiring its former distributor in Mexico, SM Mexico. Retail sales in Mexico increased by 50% and overall international sales increased by 33% in 2015 (Rosenfeld 3-7).
The Steve Madden stock is currently valued at around $35. In the past 5 years, the stock has been steadily increasing since August 2009, peaking in July 2015 ("STEVEN MADDEN LTD (SHOO:NASDAQ GS): Company Description”). This increase since August 2009 is because the stock dropped significantly in 2008 due to the financial crisis, but Steve Madden managed to overcome the market volatility by having a strong credit risk policy. In addition, the stock has dropped slightly in 2016. This drop is because Steve Madden relies on the California port the most, and unfavorable weather in the area has caused a slowdown in the last half of 2015 and early 2016 (Rosenfeld 16-22). Since March 2016, however, the stock has been increasing. Investors strongly recommend buying the Steve Madden stock since it is forecasted to grow 6.76% by the end of 2016 and an additional 12.32% by the end of 2017 ("Steven Madden, Ltd. (SHOO) Forecast Earnings Growth"). On August 2nd, 2016, second quarter earnings were in line with expectation. Steve Madden is expecting the EPS to increase to $2.03 by the end of 2016 (it was $2.04 in 2013) and sales to grow by approximately 0-1% (“Steven Madden Earnings Match Estimates”). Therefore, it is likely that Steve Madden will come close to and possibly exceed the EBIDTA and net income of 2013.
In terms of market share, Steve Madden currently has an 8% share of U.S. women’s fashion footwear market; this is the #1 share. It has expanded to sell accessories as well such as belts and handbags. In the first quarter of 2016, Steve Madden was ranked #1 for market share with key customersin Nordstrom, Macy’s, DSW and Zappos; it was ranked second in Lord & Taylor and Dillards (B. Riley Conference Presentation 2016). In addition, in another presentation, Steve Madden describes it was ranked first for junior fashion footwear in terms of market share and share of mind. Clearly, Steve Madden has been successful in footwear for fashion-oriented females(Integrated Corporate Relations XCHANGE Presentation).
However, on an international scale, Steve Madden can improve. Only 10% of its total sales come from outside of the United States (B. Riley Conference Presentation 2016). This percentage is lagging behind competitors. Skechers, for instance, gets 41% of its annual sales through the international market and has a total annual gross profit of over $1.4 billion – almost triple what Steve Madden makes("SKECHERS Announces Fourth Quarter and Fiscal Year 2015 Financial Results”).
Strategy & Execution
In its 2016 first-quarter presentation, Steve Madden states that its priorities are to grow its retail sales, expand with online customers, and to produce trendy product assortments. Steve Madden also hopes to further expand by continuing to build its brand portfolio, diversifying its business model and capitalizing on meaningful growth opportunities.
Strong Brand Portfolio and Diversified Business Model
One strategy Steve Madden uses to help expand its markets is acquiring different trademarks rapidly. Last year, Steve Madden acquired Blondo and Dolce Vita, companies with high brand equity. It also acquired Brian Atwood, a company known for luxury shoes produced in Italy. Therefore, Brian Atwood couldhelp with international sales, especially in the European market. A highlighted acquisition was that of Betsey Johnson. In 2010, Steve Madden saved Betsey Johnson, a shoe company very popular with women, from bankruptcy. This acquisition allowed Steve Madden to eventually earn more profit and expand its sales to appeal to the mass population (Rosenfeld 15-16).
The addition of newtrademarks has allowed Steve Madden to diversify its business model further. For instance, by owning many brands, Steve Madden has expanded into and succeeded in the accessory industry. It nowmarkets and sells items from bedding to jewelry and handbags. In 2005, 100% of Steve Madden’s wholesales came from U.S. footwear. However, in wholesale in 2016, 21% of sales came from U.S. accessories, and 9% came from international sales (B. Riley Conference Presentation 2016). Clearly, by incorporating new brands and expanding into accessories, Steve Madden has diversified its business model.
In addition, since the fashion industry has a lot of competition due to low barriers to entry, it is advantageous for Steve Madden to have a lot of companies under its control to reduce the competition it faces. It is important to note, that by owning many strong brands, Steve Madden has given itself a strong safety net in case if one market such as purses does poorly one year. It also gives Steve Madden the opportunity to allocate funds accordingly to keep up with vacillating trends. Since the fashion industry is so volatile and cutthroat, this safety net is very important to have (Rosenfeld 21).
Even though a diverse brand portfolio has been very successful for companies like P&G, there are some risks involved with employing many different trademarks. For example, since it is expanding very quickly, Steve Madden faces a higher risk of losing some of its intellectual property.Inadequate trademark protections, especially when expanding into international markets, can cause an adverse result on the business.Also, by getting involved in more businesses, Steve Madden is subject to more litigation, which can cause more potential penalties. Therefore, as it expands it is critical that Steve Madden also expands employment to keep its finances and intellectual property secure (Rosenfeld 22-24).
Capitalizing on Opportunities for Growth
Since Steve Madden has done well in the U.S. wholesale market, it is now working on its own retail stores. Retail stores are critical for Steve Madden as it can “enhance the company’s overall sales and profitability while increasing recognition for our brands” (Rosenfeld 17).In 2015, Steve Madden opened 7 retail stores, but had to close 6 old stores because they were in locations that did not produce profits. Therefore, Steve Madden is working to put its stores in locations that will maximize profits and plans to be more efficient when opening its stores. To do this, it has been working on its ability to negotiate favorable lease terms, train and retain competent store personnel and anticipate preferences of customers (Rosenfeld 23). In 2016, Steve Madden has also introduced a new loyalty program and expanded its units in outlets. These initiatives have allowed for a strong performance in retail sales with a revenue growth of over 10% in both 2015 and the first quarter of 2016 (B. Riley Conference Presentation 2016).
One priority of Steve Madden is to increase online sales. It has done so by increasing the number of its online websites. Steve Madden owns and operates four websites: Steve Madden, Superga, Betsey Johnson and Dolce Vita. It has also promoted its websites by having select styles of shoes and accessories available only online. Steve Madden has published exclusive content, held contests, and set up ‘live chats,’ on its websites to attract customers. It has also increased its social media presence through Twitter, Facebook and Instagram (Rosenfeld 15). The e-commerce market for Steve Madden has therefore been increasing. Sales have increased by 16% in 2015 and 30% in the first quarter of 2016. E-commerce now makes up for 18% of Steve Madden’s retail sales as opposed to only 4% in 2005 (B. Riley Conference Presentation 2016).
Steve Madden has also been working to expand its international business. In 2015, 10% of its sales came from international sales as opposed to 0% in 2005. Its strategy for continuing to expand internationally is to acquire and use international distributors and joint ventures (B. Riley Conference Presentation 2016). Thistakes out a lot of the costs and potential risks for Steve Madden since it reduces the impact of cultural differences when operating inmarkets in different countries. It also allows Steve Madden to expand quickly abroad. This strategy has worked in Mexico; when Steve Madden acquired SM Mexico last year, it expanded its sales in Mexico by 50% (Rosenfeld 7). Recently, the company has expanded into India. So far, it has been successful and the Steve Madden India business head is planning to add 10 stores there this year. However, a problem is that Steve Madden products in India are imported globally from different manufacturing bases, making the import duty on the shoe between 60 and 90 percent. This issue has put a large cost pressure on the brand in India. To mitigate this effect, Steve Madden currently plans to gain a sizeable portion of the market and then work to manufacture some of the shoes in India. It has also created a Steve Madden India website, which accounts for 10% of the shoe sales there. By focusing on sales despite a high import duty, Steve Madden can also gauge how it will perform in India before moving manufacturing there. Since India is a very large market, if successful, Steve Madden can increase its international sales dramatically ("Reliance Brands Plans Expanding Global Shoe Brand Steve Madden Stores).
In expanding its website, retail stores, and international sales, Steve Madden will also face some challenges. One of which includes exposing itself to foreign currency fluctuations, which will affect profits and relative prices. In addition, expanding its online sales while also expanding the number of stores can be disadvantageous. This is because if more people purchase products on websites, there will likely be less of a demand for retail stores,especially since manyAmerican consumers are gravitating toward online shopping.Although costs can be minimized by focusing only on online sales, retail stores increase brand presence and therefore brand equity. So, the challenge for Steve Madden will be to find a balance between its reliance on retail stores and e-commerce. Another challenge is that since Steve Madden manufactures mostly in China, it is subject to import duties abroad and domestically. Therefore, if the custom duties were to suddenly increase, especially in the United States, Steve Madden will be highly impacted. Lastly, since Steve Madden is expanding into online sales, the impact of a cybersecurity attack will increase. Although these challenges are inevitable when expanding, to protect itself from these risks, Steve Madden should also expand its efforts to protect its own information as well as consumer data and should employ more people to handle risk management (Rosenfeld 22-27).
Steve Madden and its Competition
As stated earlier, Steve Madden is the leader in women’s footwear. In terms of competitor responses, Steve Madden has been subject to many lawsuits. Skechers, for instance, has been trying to get rid of Steve Madden through lawsuits. On June 10th, 2015 Skechers sued Steve Madden for patent infringement, claiming that the Madden Setta shoe infringes on its own Go Walk style. In addition, in 2011 Skechers sued Madden because its Stevies brand allegedly copied Skechers and its Twinkle Toes patented design of bejeweled kids shoes ("Skechers Tells Steve Madden to Take a Hike”). Furthermore, between 2007 and 2009, Steve Madden faced lawsuits from Balenciaga and Alexander McQueen for copying their shoe designs. Steve Madden himself admitted that this imitation “was stupid,” but also stated that “no one is copied more than Steve Madden” (Indvik).Since imitation and similar designs are a problem and inevitable in the fashion industry, litigation is naturally part of the business. However, it is interesting to note that unlike other companies such as Skechers, Steve Madden does not have a special budget for lawsuits (“Skechers Tells Steve Madden to Take a Hike”). This lack of a budget puts Steve Madden at risk, especially if it faces a severe lawsuit in the future. The litigation against Steve Madden from competitors will likely increase as it continues to expand. Thus, the company should look into protecting itself from these lawsuits and avoid patent infringement.
To keep its competitive edge and gain more consumers, a strategy Steve Madden has been using is to use pop-culture figures such as Iggy Azalea ("About Us: STEVE MADDEN”). Another possible strategy Steve Madden could use to increase its competitiveness is to acquire trademarks that target men’s footwear and accessories. Although the male market is much smaller compared to the women’s market, if Steve Madden can acquire a popular dress shoe brand or perhaps an athletic sneaker brand, it can be the leader in overall footwear.
Weaknesses of Steve Madden and its Strategy
One weakness of Steve Madden and its overall strategy is that it is reliant on senior executives, including Steve Madden himself. Since most of the senior executives have been with the company from the start, they are starting to reach the age of retirement. If they retire at the same time, it could be dangerous for the company. To minimize this risk, the company should start training younger executivesto fulfill the future roles. It could do this by having an extra executive such as an assistant CFO (Rosenfeld 23). Another weakness of Steve Madden is that in June 2000, Steve Madden was arrested for stock manipulation involving several IPOs underwritten by Stratton Oakmont ("Steve Madden Biography"). This corruption that Steve Madden was involved in was featured in the major motion picture, The Wolf of Wall Street. This movie further damagedthe image of Steve Madden and possibly even the image of the brand as a whole. Although, consumers seem to not care, it may hurt Steve Madden when trying to acquire new brands. In addition, since Steve Madden still plays a large role in the company, investors may be hesitant (Holson). A third weakness is that Steve Madden is reliant on ocean freights to keep costs and prices of its items down. At the end of 2015 the California port, which Steve Madden relies the most on, faced severe weather which disrupted imports. Since Steve Madden cannot hold inventory since styles are constantly changing, it was forced to use more expensive means such as aircrafts to import the shoes; these additional costs reduced profits significantly and hurt quarter one 2016 sales (Rosenfeld 18). Although Steve Madden cannot do much to improve this weakness, it can possibly use more ports, so that it is not so reliant on the California port.