How DSW Is Staying Ahead of Digital Disruption

Finding success as a footwear retailer isn’t easy. Not only do you have to go up against your traditional competitors, but you also must contend with clothing and department stores, discount retailers, sporting goods stores, and online-only players.

Today’s shoppers have more options than ever when it comes to choosing where to buy. As a result, the proportion of consumers purchasing shoes from specialty footwear retailers has fallen by 6.1 percentage points over the past five years. For some of these retailers, like Payless ShoeSource and Aerosoles, this shift has been sufficient to push them into bankruptcy.

For others, it has provided the opportunity to take a more innovative approach, adapting value propositions and operations to compete more effectively. DSW is a perfect example of this and provides a case study in how evolving your business model can ensure survival in a challenging retail market.

Stores as fulfillment centers

With each style of shoe available in a variety of colors and sizes, footwear retailers require a lot of space for stocking inventory – especially since shoes (and the boxes they come in) are far bulkier than most types of apparel. In premium locations, like cities and big malls, this storage space is expensive.

For the economics of the business to work, shoe stores need to maintain high inventory turnover rates. However, as footwear sales have largely migrated online, and as overall competition in the sector has increased, moving product quickly has proven difficult.

DSW has always had a slight advantage over its competitors when it comes to stocking inventory, as it uses its shop floors to both display and store its product. This more efficient use of space helps boost store productivity and means valuable real estate is rarely wasted. Even so, as online sales have started to take a bite out of spending at physical locations, DSW has had to rethink the workings of its business.

This has involved using stores to fulfill online orders and handle returns – a strategy in which DSW was an early pioneer. Today, well over half of the retailer’s digital orders are fulfilled by its stores. As a result, DSW has maintained store productivity at a time when sales densities across the sector have declined. In fact, online sales supported by stores boosted DSW’s sales densities by just over 11% last year.

Using stores as fulfillment centers is also more cost-effective than driving everything through centralized distribution hubs – something that has been beneficial to DSW’s margins and profits.

Focus on in-store experience

As much as turning stores into fulfillment centers helps DSW remain relevant in the digital era, to be economically viable they still have to generate sales directly from shoppers in its stores.

With an explosion of choice across the footwear sector, DSW has had to work hard to differentiate itself and to pull in customers who can now easily go elsewhere to purchase shoes. This necessitated change in both what the company sells and how it sells it.

In terms of what is sold, DSW has taken the unusual step of increasing the number of products and brands it stocks. As much as this runs counter to the prevailing retail logic of “less is more,” DSW argues that to compete with online footwear retailers and their extensive array of choice, it too has to offer an extended selection.

The expansion hasn’t just meant an increased selection from big-name designers – it has also involved an expanded range of niche brands, which makes the retailer’s offerings more exciting and exclusive. This strategy has paid dividends, especially among younger shoppers, who now rate DSW more highly than ever for the relevance of its range.

Increasing selection is all well and good, but it inevitably increases the amount of work the customer must do to find the shoe that is right for them. Conscious of this, DSW has also changed the way in which it sells.

At its most basic, this shift involves making physical displays more flexible so that stores can quickly and easily showcase the latest footwear trends. Although DSW shops retain a warehouse-like feel, these merchandising improvements mean stores are easier and more enjoyable to shop, even with an increased amount of product.

DSW has also improved the in-store experience by integrating more digital technology. DSW staff can now use tablets or other devices to retrieve customer profiles and preferences on the spot, which helps them make better recommendations and find customers the best shoes. This allows a customer’s online activity to power decision-making and customer service in stores.

Value-added services

Evolving its in-store experience and product range has helped DSW survive in an era of heightened competition. However, online continues to take an increasing share of sales and, as such, the threat from some of the online-only footwear retailers, such as Zappos, has not been entirely neutralized.

Conscious of this fact, DSW has looked beyond product and has started to integrate services into its offerings, including shoe repair and rental, shoe storage and resale, and even pedicures.

This push into services is advantageous in three ways:

  • It helps keep stores relevant and gives consumers more reasons to visit.
  • It highlights the DSW brand as a specialist in the footwear sector.
  • It allows DSW to increase both the loyalty and spend of its customers.

Lessons learned

DSW’s continued success in a challenging market holds many lessons for other retailers. Moving beyond product to value-added services is one. Using stores as part of the supply chain is another. Making efficient use of customer data across all channels is a third.

Individual lessons aside, the most important point is that DSW has fully embraced digital. Rather than seeing online as a threat to its stores, it has approached digital as an opportunity to improve customer service, to change the way stores operate, and to enhance its presence in the market. This omnichannel thinking has created integrated offerings for the customer, which is allowing DSW to stand out, even in a crowded and competitive market.

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