Footwear News Mentions First Insight | What Retailers and Brands Need to Do to Address Challenges in the Footwear Market
The footwear industry is facing a radically different landscape compared to just a decade ago, with evolving consumer behaviors, economic fluctuations, and new market entrants reshaping the sector.
Here, Greg Petro, chief executive officer of First Insight, shares insights into the unique challenges and opportunities currently influencing the sector, from the impact of inflation on buying patterns to the adoption of data-driven decision-making and sustainability practices. As brands strive to differentiate themselves and optimize profitability, understanding these shifts is crucial to staying competitive in today’s fast-paced market.
FN: What are some of the unique challenges and opportunities facing the footwear industry today, and how does this differ from five or 10 years ago?
Greg Petro: There are many factors facing the footwear industry today that differ from the challenges the industry faced just five or 10 years ago.
The industry continues to grow, which also means that consumers have many more brands vying for attention. Not only has it become increasingly difficult to stand apart from the crowd, but today we are seeing shoppers cutting back. Recent reports indicate that 43 percent of women and 30 percent of men are deprioritizing shoe purchases due to inflation.
The expansion of e-commerce has brought greater opportunities for many brands but has also squeezed traditional mom-and-pop stores that may have been the local go-to shoe stores just a decade ago.
FN: How can manufacturers and brands align supply and demand given the current state of inflationary pressures on the consumer?
G.P.: Manufacturers and brands need to be smarter and more data-driven today than ever before. In the current market, all consumers are bound by budgetary constraints. Inflation affects every income level, and our data shows that every income level has changed some of their behaviors, often dramatically, in terms of the products they are buying and the frequency of those purchases. When inflation increases, not only does the cost of products increase, but so does their overall penetration within the consumer’s basket. Consumers in an inflationary market scrutinize each transaction much more carefully.
For example, even Nike is experiencing weak revenues and seeing shares drop nearly 20 percent. Footwear is an expensive business due to the vast array and combinations of sizes, fabrications, lasts and heels. The best way to foster success is with customer-driven data combined with predictive analytics. For instance, using digital samples to solicit Voice of Customer data before physical samples are made reduces sample costs by as much as 30 percent. VoC data can also help brands with pricing optimization, allowing them to understand the prices consumers are willing to pay for specific skus.
Surprisingly, this data does not always indicate that consumers want lower prices — instead, they seek a value quotient. The value quotient can be defined as what customers are willing to absorb into the price of the product, considering the experience they want to have with the company and its products. The value quotient is a forward-looking metric that can indicate the financial success of a product. Industry professionals are increasingly relying on this metric to make decisions. These factors need to be considered by all retailers, brands and manufacturers.
FN: How do industry leaders differentiate themselves from the competition?
G.P: The best leaders today differentiate themselves from the competition in several ways. Retailers need to be hyper-competitive while also remaining highly agile. They must also have an ownership mentality. The corporate values of families and founders cannot be underestimated. One excellent example is Walmart, the biggest retailer in the world, where the top eight shareholders are heirs of founder Sam Walton. People who are personally invested in the company’s success — not short-term investors — are one of the secrets to retail success.
The best leaders today succeed because they make data-driven decisions. The days of using “gut instinct” and historical data to make decisions are gone.
FN: Are there any best practices the footwear industry could be tapping into to improve margins?
G.P: Integrating the customer into every decision will improve results throughout the business. For example, using predictive consumer insights to set pricing strategies will give brands a greater understanding of how to price their footwear collections for maximum sell-through. When companies must lower prices or promote products to meet their forecasts, they are essentially admitting they made a mistake in predicting demand. When brands start reacting to consumer demand data instead of guessing what consumers “might” want, we have seen success rates climb to 80 percent, with gross margin improvements of up to 10 percent.
FN: Each year in the U.S., 300 million pairs of shoes are thrown away. How can the footwear industry be more sustainable, and where should companies get started?
G.P.: Aligning supply and demand is critical. To be a sustainable company, you need to start by knowing how much to produce and how to maintain inventory levels. Understanding what the customer wants and how much they are willing to spend before production is the best way to start. Essentially, retailers and brands need to become less supply-driven and more demand-driven, engaging consumers to determine their needs and where they need to be.
Footwear is often discarded due to discomfort, which can be caused by several factors such as poor fit or bad material choices. Additionally, many components involved in making shoes are hard or impossible to recycle. The leather or cotton used in shoe production also comes with a high waste rate. Starting with sustainable materials — or even slightly more sustainable materials — and identifying components that can be upcycled or recycled will help improve overall sustainability in the footwear industry.
FN: How should footwear brands prepare for sustainability-focused regulations?
G.P.: The EU has the strictest proposed rules on sustainability, and while those regulations may or may not be adopted in the U.S., they will still affect many global companies. Focusing on improving sustainability in materials early in the design process will help dramatically. Ensuring that products are recyclable, reusable or even repairable are a few of the mandates coming from the EU.
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