Deckers Outdoor Corp., whose portfolio of footwear brands includes Ugg, Teva and Deckers, has shifted its Ugg wholesale strategy, ending contracts with some 400 smaller accounts while expanding its contracts with Macy’s and Amazon, Deckers executives told analysts last week, according to a transcript from Seeking Alpha.
Deckers CEO Dave Powers and other executives said their tests in 35 Macy’s stores, beginning with the Herald Square flagship in New York, went well, so Ugg concessions will expand to 200 Macy’s stores. They deemed a national brand presence across several demographics superior to distribution through smaller channels.
Wall Street analysts balked at the move, however, due to Macy’s penchant for discounts, which has led Coach and others to pull back on Macy’s and other department stores in order to protect margins. Susquehanna Financial Group analysts called the plan “dangerous,” according to a note cited by MarketWatch, though others were more sanguine about the plan.
Last week, Powers told analysts that the company’s plan to correct Ugg’s downward momentum involves diversifying its designs to increase men’s styles and the women’s spring and summer business, as well as its direct-to-consumer business via e-commerce. The selection of Macy’s and Amazon as outlets for the sales came from the company's new focus on e-commerce because each has strong digital distribution, he said.
“We've cleaned up some of the smaller disruptive accounts, we've strengthened the relationship with our top key accounts and we've opened new accounts that we think represent the brand in a positive way and also allow us to do more e-commerce business across the board in those channels,” he said.
UGG brand net sales for the most recent quarter fell 1.1% to $243 million compared to $245.6 million in the year-ago quarter, mostly due to a decrease in domestic wholesale sales, (partially offset by an increase in international wholesale and DTC sales), the company said last week. For fiscal 2017, UGG brand sales fell 4.8% to $1.451 billion.
“We are invested in the long-term health of the UGG brand,” Powers told analysts. “We think a little bit of scarcity across some of the core Classics business over time is the right thing to do. And we’re focused on improving ASPs and a tighter control on inventory in the marketplace. So you will see this fall that we’re going to less closeouts in the market, that’s the plan. More full price business and try to control the inventory through the process.”
But Susquehanna analysts said Macy’s isn’t the place to execute that plan. “History has taught us that Macy’s has and will promote heavily in order to drive sales while demanding markdown money,” according to a note released Friday and cited by MarketWatch.
Brands interested in protecting against such markdowns have scaled back their wholesale distribution in department stores, including at Macy’s. Last year, Coach said it would exit some 250 North American department stores, reserving its distribution to luxury department store players — a strategy that has since proven successful. Coach in January reported second quarter fiscal 2017 net sales rose 3.8% to $1.32 billion from $1.27 billion in the year-ago period. Coach's total North American brick-and-mortar same-store store sales rose approximately 4%, while aggregate North American same-store sales increased approximately 3%, including the negative impact of e-commerce. Sales at North American department stores declined some 30% on both a POS and net sales basis.