Background and challenge
An international footwear brand was experiencing eroding brand strength and operational difficulties, low awareness in developing regions, significant brand erosion in key major markets, product margin deterioration, and increasingly unprofitable retail stores, all leading to significant share price reduction over the last two years.
The company enlisted L.E.K. Consulting to identify the strategic path for the company to achieve meaningful profit growth in the near term and position the brand for future success. This included developing a cohesive global strategy covering brand positioning, product, channel and marketing, as well as follow-on support to effectively activate its most important commercial, operational and organizational changes.
Approach and recommendations
The first objective was to develop and validate a winning brand position globally and within key regions and major markets. This included identifying the company’s target consumer segments and developing a holistic view of their needs, purchase behaviors, brand perceptions and overall psychographics.
We then worked with the client to develop a refined product strategy based on a global product architecture that covered the target consumer’s key usage occasions with a set of products core to the brand, eliminating profit-destroying adjacent products. Clear recommendations were made around categories to be eliminated, maintained and expanded; we also worked with the client to identify specific opportunities for SG&A cost savings that could be captured as a result of the product line rationalization.
Next, we focused on optimizing the brand’s channel strategy, which encompassed retail, wholesale, direct-to-consumer (DTC) and Amazon.
- Retail: The role of the retail channel needed to be redefined, accounting for the changing behaviors of the brand’s core consumer segments. The resulting network was more focused on profitable outlet and key flagship locations; rationalized retail stores were identified by evaluating EBITDA underperformers against exit economics. Store performance across the fleet was analyzed to determine key success factors when picking a store location in each region, and opportunities to improve in-store operations were identified across dimensions, including inventory and promotions.
- Wholesale: A consistent global wholesale strategy had to be created that articulated the role of each channel (e.g., footwear specialty, sporting goods), prioritized accounts for investment within each channel, and assigned each a merchandising tier. A set of channel priorities was defined based on the client’s recent performance at a country level, and the global strategy was refined for each country accordingly. A playbook articulated the current status and go-forward plan at the strategic level for each wholesale channel, by country.
- DTC: Actionable recommendations were provided to differentiate the brand’s DTC ecommerce presence and drive growth in the long term, while fitting within the broader distribution channel environment. Given its importance, a customized Amazon strategy was also provided, including direction on selling model and specific product assortment.
In addition to developing the global strategy as outlined above, we led the implementation effort of the most important strategic initiatives. This included developing and managing action plans for major business model changes, and designing and implementing the optimal organization structure to effectively manage the new strategy.
The strategy and changes have led to a remarkable turnaround, with profit and sales consistently exceeding forecasts and the stock more than doubling since the start of our engagement. The brand has right-sized its cost structure by closing underperforming stores and exiting unprofitable markets; grown gross margins for more than three years by improving the quality of sales, exiting unprofitable products and reducing excess inventory; and is now focused on growth in product, international and its DTC online channel.