Will Deckers’ UGG survive the decline of the department store and the mall by growing its direct to consumer revenue?
Report Available:April 12, 2017
Blueshift’s initial research shows DECK pivoting to emphasize its direct-to-consumer channel after another poor performance in the wholesale channel as department stores and malls continue their steady decline. DECK’s ecommerce site has seen a notable uptick in traffic and it is beginning to sell through AMZN to meet customers where they shop. But success on AMZN is no guarantee as the online retailer is known to squeeze margins, control price, and looks out for itself before its brands.
- DECK missed Q3 earnings and revenue expectations and offered weak guidance. Revenue dropped 4.5% and is expected to fall 5% to 6% in Q4. DECK’s UGG sales in department stores like Macy’s resulted in a weaker-than-expected wholesale channel and poor re-orders, diluting the brand and necessitating more discounts. The company had a stronger-than-expected direct-to-consumer channel with a 4.7% year-to-year sales increase. This has DECK increasing its focus on direct channels and online sales with less emphasis on distribution to underperforming accounts.
- DECK noted a 35% jump in traffic on its e-commerce site and said it experienced significantly more success with its Classic II boot online where it was positioned side-by-side with the Classic I, giving the company confidence that consumers are reacting well to the marketing and the direct-to-consumer medium. It also serves as a more advantageous platform for off-price inventory as opposed to wholesalers who may hold the inventory longer. DECK’s strategy falls in line with the belief that the future of retail is the end of wholesale, where one estimate has 30% or more of the total retail economy will be transacted online by 2025 with physical stores repurposed into a form of media offering the experience that cannot be duplicated online.
- DECK is selling through AMZN for the first time, gaining control of distribution and taking advantage of customer migration away from department stores and malls. DECK CEO Dave Powers said nearly half of all searches online start on Amazon.com, detailing the need for UGG to be where the shoppers are. With other department store brands like Calvin Klein and Levi Strauss partnering with AMZN, and Gap considering it, DECK’s move should not come as a surprise.
- What’s concerning for DECK in its relationship with AMZN is the online retailer’s penchant for getting promotional when sales suffer, and not being a great advocate for the brands they carry given the sheer number of companies selling on AMZN’s platform. Also, our Feb. 16 report showed that CRI’s move to a first-party relationship with AMZN will not result in immediate sales success as AMZN will take time to ensure proper pricing and inventory for its CRI merchandise. AMZN is known to squeeze margins, control price, and look out for itself rather than the brands it represents.
What are current trends in share of sales between department stores and online? What will this share look like in 12 months? Where are brands spending their resources and how is that changing? What are the keys to UGG’s success in the direct-to-consumer channel? How fast can the brand pivot to DTC? What will be the effect on UGG in department stores and malls? What type of success can UGG expect on AMZN? To answer these and other questions, Blueshift will gather data and issue a market research report from independent sources in the following areas: Department store product suppliers, Online-only retailers, Onlinemarketplaces, Digitally-focused marketing and ad agencies, and Industry specialists.
Companies: Deckers (DECK), Columbia (COLM), Nike (NKE), VF Corp (VFC), Wolverine World Wide (WWW)
Research Begins: March 27, 2017