Shoe industry needs kick start

There are too many shoe shops in the UK. The country is packed with retailers chasing sales in a static market, whose profitability is marginal and has been for several years.

Giant shoe retailer Sears has begun to rationalise the portfolio of shops in its British Shoe Corporation division, partly through closure and partly through its ill-fated sale to Facia of 400 stores from chains such as Freeman Hardy Willis, Truform, Saxone and Curtess.

But other companies have been extending their networks, and a whole new crop of small – but growing – operators are taking on the big stores.

The market’s problems eased in 1993 and 1994 as sales value and volume experienced a brief resurgence, but a static 1995 has reversed manufacturers’ fortunes.

A strong and growing trend away from the purchase of formal footwear has not helped the situation. The brogue is no longer de rigueur for the office, and many younger people tend to wear either trainers or boots. Trainers have become a high-fashion item and are now sold primarily by sports shops, while clothing retailers are an increasingly important source of footwear for younger people. Sports shops have been quick to capitalise on this trend, but the majority of footwear retailers have done little to alter their merchandise ranges.

With the rise in imports and the standardisation of products, footwear has been a commodity market for a number of years. This has resulted in stores being unable to offer any point of difference and left them struggling to maintain margins.

Margin maintenance has been achieved largely through buying from ever-cheaper, low-cost manufacturers either in eastern Europe or the Pacific Rim. In such a market, adopting a marketing strategy and making a reasonable profit becomes difficult.

On the basis that no-one wants to surrender stores if it means that their competitors benefit, most footwear retailers have stubbornly refused to begin the closure process. Sears has begun rationalising, but the number of stores in question is not significant in the context of the market as a whole.

Sears would probably like to dispose of further stores, but has found that the current retail climate is not conducive to finding willing buyers.

It is difficult to see a way out of the current difficulties in the specialist footwear market. While Facia’s demise may remove about 400 stores temporarily, there is no reason why someone will not buy them as a going concern in the hope that they can be run profitably.

There are, however, some possible scenarios for the short to medium-term development of the market.

A booming retail market would provide a short-term solution to a long-term problem. But as in many boom periods it could alter the dynamics of a market and produce a series of acquisitions, resulting in further store closures.

This is an unlikely scenario, however, because the recent improvement in retail sales appears at best fragile and at worst illusory. Given the uncertainty brought by the prospect of a general election within the next year, the prospects for strong retail sales growth appear slight.

Stagnating sectors have been rescued in the past by one company taking a completely fresh approach and revolutionising the whole market. Next Directory revolutionised mail order, while the concept of Mars ice cream confectionery changed the whole structure of the UK ice cream sector.

The footwear market is crying out for an injection of new life and it is possible that a revolutionary concept will appear. However, reliance on some kind of miracle is not to be recommended in any area of business.

It is highly likely that some companies will depart footwear retail altogether, particularly if the market is hit by inertia in the run-up to an election.

Given the ever-increasing share of total footwear being taken by non-specialists, the specialists are left fighting for a share of a decreasing market. Some fallout would appear inevitable. Reliance on natural selection appears slightly out-dated, but it may prove the only solution in the long term.

There is an increasing preponderance of small-to-medium-sized companies, particularly at the upper end of the scale. These include Hobbs, Shellys and Pied Terre, all of which have come to prominence in the past few years.

While domination of footwear by upmarket chains is clearly unfeasible, it should be noted that companies achieving the best net margins tend to be upmarket companies operating through both concessions and standalone stores.

In 1994 to 1995, the Scottish-based fashion footwear chain Schuh, along with Kurt Geiger and Russell & Bromley, were the leading footwear retailers in terms of net margin.

For the whole market it may prove to be unfortunate that none of the major players has gone into receivership since Lennards in 1992. The main protagonists struggle on and it may take one of the leaders to leave the fray, either voluntarily or at the end of the receiver’s boot, for matters to reach a satisfactory conclusion.