The following is part two of a strategic analysis of Designer Shoe Warehouse (DSW). In part one, it was discussed that the general environment provided more opportunities than threats. Part two will discuss the current strategy analysis, the framework, the governance, the organizational structure, the value chain analysis/ core competence analysis, financial analysis and finally the competitive advantage analysis.
· General Environment: Overall, the general environment provides more opportunities than threats. The most promising segments are physical and socio-cultural segments.
· Industry Trends: growing retail stores and e-commerce is on the rise
· Economic Structure and Lifecycle: The economic structure of this industry is oligopoly and the industry life cycle is at the beginning stage.
· Porter's Five Forces: threat of new entrants are the need to anticipate fashion trends, seasonal sales, and reliance on imports, high; threat of substitutes of shoes and accessories, high; bargaining power of buyers, moderate; bargaining power of suppliers, moderate; competition rivalry, high.
· Strategic Group: The three companies in the strategic group for this industry include DSW, Payless and Champion.
· Key Success Factors: The key success factors were R&D, Customer Satisfaction, Presence in Global Markets and M&A
· Competitor Analysis: DSW two main competitors are Payless and Champion (FootLocker).
· DSW's current strategy is primarily focused on customer relations. By enhancing customer experiences, the company believes this will be the driving force of the company. DSW's current strategy has proven to be effective over the past few years.
The culture of Primoris Service Corporation is one based on meritocracy. This culture is appropriate for the site preparations contractors industry.
· Roger L. Rawlins has been an effective CEO over the past years. He is confident in the direction that DSW is headed, but is not satisfied yet. He aims to Enhance the company and be the top of the industry.
· The organizational structure for DSW is divisional.
· DSW creates value for its customers by enhancing customer experience. By converting every store to an actual warehouse, it allows customers to obtain their products in a quick manner regardless if its shipping or in store pick up.
Part two of this analysis will look into more of the internal operations of Designer Shoe Warehouse. Assessing DSW's strategy will reveal the direction that is believed will enhance the company. The framework of DSW will allow the analysis to discuss the current culture, leadership and ethics of the company. With good support and background from higher-ups, the company will strive. Following, this part of the analysis will discuss the corporate governance, organizational structure, value chain, core competence, and financial analysis. Lastly, it will discuss the competitive analysis. All of these parts will enhance the reasoning why the company is striving and how DSW took old practices and enriched them into current trends.
Current Strategy Analysis
In late September of 2017, DSW released a press release regarding rebranding the company which included its current strategy. DSW's new mission, “We inspire self- expression,” is believed to benefit the company by showing expansions to the brand overall. This mission includes DSW's new saying, “Making music for your feet.” This saying is meant to show how DSW intends to enhance the customer experience on an emotional level both in store and online. In order to achieve this, DSW began #MarchonUSA and hosted in store pop up parties. (DSW SHOE ONLINE INVESTOR).
As stated, DSW wants to better its customers experiences. One of the ways they did this was to add a warehouse to all of its stores for shipping and receiving online orders and for customer returns. It is the goal of DSW to be the store that has any shoe. DSW notes that over half of the orders are fulfilled in store rather than having to look to a fulfillment center to achieve customer needs. (Investor)
DSW places an emphasis on customer experience. One of the utmost importance is convience. By allowing the customers to control their shopping experience, both in store and online, it empowers the customer allowing them to be more comfortable in their shopping experience. In store, merchandise is on display with different sizes directly under the display. Unlike competitors, this creates a stressless experience, allowing the customer to take their time without pressures of deciding on a shoe purchase. When customers are ready to complete a transaction, there are representatives walking around the floor able to assist. Each representative has mobile transaction capabilities allowing customers to complete their purchase from the floor, without having to wait on long lines. (SEC 10k)
Part of DSW's current strategy is with pricing as well. DSW prides itself by maintaining its low pricing from the time a product enters the store, until it is transferred to a clearance rack. DSW believes that this allows customers to enter the store at any time and allows customers to be confident that they are receiving the best possible price. With other stores, customers may need to wait months for a sale rather than same day service. (SEC 10K).
In past years, DSW created a rewards program which generate points for every purchase. Rewards include certificates that discount future orders. DSW has a 3 month expiration on reward certificates which create attraction to the store, online or on location, within a smaller period of lapse time. Members also receive promotional offers and gifts throughout the year to promote the DSW name, even when not making new purchases.
According to the DSW 10K, DSW plans to reach to customers by experimenting in new markets and categories that challenge other competitors with new trends to enhance customer interests. This also includes store expansion. As of January 2016, DSW operates 468 stores in 42 states, Washington D.C. and Puerto Rico. Refer to Appendix chart 1.1. This chart breaks down the store locations around the United States and Puerto Rico.
These strategies began to apply within the past 10 years. DSW believes that it has given and continues to give a competitive strategy over other companies. Many stores have begun implementing some of DSW's strategies such as mobile transactions. However, DSW maintains the advantage of being the “One stop shop” where most online availability is available for store pick up same day.
Designer Shoe Warehouse corporate culture can be described as nurturing. The company has made it a mission to value employees and support them while they grow and develop as an employee. “A family whose core values are comprised of Passion, Accountability, Collaboration, and Humility” (DSWINC., 2016). DSW INC. wants to ensure that employees are nurtured because it is crucial to invest time into employees. The more effort and help given to workers the more is given back into the company. Listening to the workers gives a sense of appreciation and value. As a family, the employees work as a unit and learn from each other's achievements and loses. Employees feel like a family when working here and are comfortable enough to express ideas and concerns. More concepts come alive this way and helps inspire DSW to improve with customer's satisfaction. When employees are content and satisfied, they tend to put more effort into their work. Having a diverse employee demographic also allows Designer Shoe Warehouse an opportunity to reach more customers. The firm's culture is important to Designer Shoe Warehouse because the employees having to love and stand behind the products sold to the customers in order to ensure more years of success. A great advantage of being employed at Designer Shoe Warehouse is the benefits given. A full time employee receives medical, dental and vision insurance; which is a great benefit to have when insurance is extremely costly. Life insurance, retirement plans, paid time off, tuition assistance, perks and discounts, and adoption assistance are all other benefits given too. By giving these benefits to employees, it makes their personal life easier. It creates an atmosphere of caringness and love. “They give you peace of mind, help you protect you and your family financially, plus give you a few cool perks you hadn't thought of before” (DSWINC., 2016). DSW INC. wants to relive the personal stress of the employees so they can give their full attention at work, which is absolutely a smart organizational strategy.
This corporate culture developed at Designer Shoe Warehouse has definitely had a positive impact on the shoe industry and reaching the company's goals. The company has created a new mission; “We inspire self-expression” (DSWINC., 2016). In this new mission, the company encourages its customers to be just like their employees and have self love. They support self identity, being an individual, and wearing the shoes you feel the most comfortable in. The employees are able to be individualistic and creative which gives the customers more options to choose from when creating their style. More customers will be attracted to a company where they can find styles that fit them. DSW INC. mission is to make sure that customers are given the best services they can get. One way this was carried out was through the strategy plan of Making Music for Your Feet. This motion is creating an emotional and inspiring experiences for customers. Customers are able to express themselves and feel comfortable with who they are. The organization's goal is to give the ultimate experience in person and online.
We're unlocking the power of the warehouse with a synchronized and efficient infrastructure that virtually connects with the customer at every point, making DSW the place to find any shoe," explains Rawlins. "It's why we like to call our locations 'warehouses,' because more than half of our digital orders are fulfilled in-store, as opposed to in a traditional fulfillment center. (PR Newswire, 2017, para. 6)
Making Music for Your Feet is a way that customers will feel they can find any shoe they are looking for and leave satisfied. Having orders filled in store will make the experience more personable. Creating the stores to be more like a warehouse will increase the amount of inventory at each store. Shipping will be faster because items will be in closer proximity for customer for both online shopping and in person. The same information and sale items offered online will also be at stores. The sale associates will be able to give support to each customer when they walk through the store as if it was just as easy as searching online. This will make the customers feel valued and be loyal to the company; which is similar to a family connection. Another aspect that Designer Shoe Warehouse promotes is volunteering and charity. It motivates its staff to help others and it shows the communities how sincere the company is. “At DSW, communities matter; the community of shoe lovers, as well as causes and nonprofit organizations that our associates are passionate about. That's why Shoe Lovers Care is so important to us” (DSWINC., 2016). It is a way to give back to communities and those in need. People can help and nurture each other. In the end, DSW would not be anything without its customers so it is a great idea to give back to them. This organization does this by giving money to charities, donating items to needing organizations, and giving a helping hand in communities they are apart of. Leave Your Mark Campaign is one example of what DSW does for others. They allow the public to vote on eight non profit organizations whose objective is families in need to receive a major donation (PR Newswire, 2017). This data supports the corporate culture of nurturance.
There has been an increase in the amount of employees working at DSW. “In FY2016, DSW employed total 11,900 employees as compared to 11,800 employees in FY2015, in the US. The employee base of DSW increased 0.85% in FY2016, over the previous year” (Canadean, 2016, p. 19). DSW INC. is developing new store locations and growing online, which is causing the increase in the employee total. It is noted that there is only 2.9% of employee turnover at DSW INC. (Canadean, 2016, p.22). For an organization of DSW INC. size, that percentage is considerably low indicating that it is a great company to work for. There is no reports noted indicating employee absenteeism. There was a major lawsuit settled in 2014 brought on by U.S. Equal Employment Opportunity Commission (EEOC) because of an age discrimination case. DSW INC. paid $900,000 for firing employees over the age of forty and discriminating seven former management employees in the Midwest Region (EEOC, 2014). The organization chose to settle as fast as possible to clear this issue up. Doing this will ensure employees that the company does not tolerate discrimination and they will compensate for the wrong doing. This firm is a great place to work at. There is no unresolved staff comments indicating that DSW INC. does its best to resolve all employee issues. (Form 10-K). Designer Shoe Warehouse has succeeded in making a positive corporate culture for its employees and customers.
The firm leadership is welcoming to ideas of other staff members and customers. It is open to communication to strengthen sales and keep loyal customers. Roger L. Rawlins is the Chief Executive Officer and Director of Designer Shoe Warehouse since 2016. He has been with the company since 2006 in other various roles giving him over ten years experience with the company. Other roles that he partook in was Chief Innovation Officer and Executive Vice President of the company and general manager. A great attribute of Rawlins is that was the Vice President, Finance and Controller of the ecommerce division (Canadean, 2016, p.8). Rawlins has experience at both divisions which gave him knowledge how to improve both. He has a reputable track record at DSW INC, Express INC., and L. Brands INC. Once Rawlins came on board he felt the need to restructure DSW INC. and get more in touch with customers. He wanted to bring the company back to its roots of being a warehouse. This is when Music for Your feet was introduced and allowed for a better experience for customers. To find out what the customers wanted, reward program members were asked what changes and wants were desired and now the company is working on making them a reality (Boardroom Insiders, Inc., 2017). The Chief Executive Officer made it his mission to inspire self-expression and give loyal customers an emotional connecting experience. He wanted the online experience to be an easily transaction and offer an abundance of sale items at each location. Rawlins realizes that the organization has to keep up with changing times and have the latest technology. There are new tools going to be used by sale associates to help narrow sale items according to each customer and also aiding with easier check out times (Boardroom Insiders, Inc., 2017). This leader is the right one for the time and he is definitely effective. Sales have continue to increase since he has been in office (10-K, 2016).This shows that since he has taken rein, the company continues to be successful and his plan was positive to the company. If the strategic direction of the firm was changed, Roger L. Rawlins would still be effective. His extensive background in retail, accounting, financing, managing, and history in various divisions of the company will make sure that he can adapt to changes in the company's future.
DSW INC. has put in a great deal of effort to ensure that all practices are ethical. The Chief Compliance Officer of Designer Shoe Warehouse is William L Jordan since 2015 (Canadean, 2016, p.9). He oversees all ethical issues and sets up policies to follow. Jordan also manages DSW Sustainability Committee, which deals with environmental and ethical concerns. From a letter given by the CEO; “At DSW, we're passionate about shoes—and we're passionate about selling them the right way. Responsibly, and with the bigger picture in mind. So we're focused on making ethical business decisions, caring about the environment, and acting sustainably as an organization” (Sustainability and Responsibility, 2018, para.1). The firm's values of Passion, Accountability, Humility, and Collaboration are supported by the ethical practices performed. One ethical priority of the company is energy use. The company is trying hard to use energy conscious and conserving lights and methods to limit environmental footprints. Heating, ventilation, and air conditioners are locations are monitored and controlled to conserve energy as well. DSW INC. also focuses on decreasing the carbon dioxide impacting by controlling the travel of products. They have set up smart systems or traveling so large shipments are sent out at once. Waste are another ethical issue monitored by DSW INC. The organization has set up a recycle program to ensure materials that can be recycled are places in the proper bins. Also the company uses reusable rubber bands in the shipments to limit the amount of waste. Payroll stubs are paperless to limit the amount of paper waste which will benefit the environment. Many material used in stores and warehouses are made from recyclable items or are environmentally conscious. DSW INC. also does not sell items that contains real fur (Sustainability and Responsibility, 2018). Clearly, this organization cares for the environment and has ethical codes in place to ensure it. There is also a code of conduct set up for vendors and suppliers that the company deals with and for the company itself. The code of conduct helps make sure there is fair business practices occurring and ethics are taken into consideration. In the code of conducts it mentions that there is no child labor, a limit on maximum working hours, and an insurance of benefits and minimum wages. The work environment has to be sanitary and safe for all employees as well (Code of Conduct, 2018). Designer Shoe Warehouse monitors the workplace environments well and makes sure that ethical values are followed through. If the organization was not involved in ethics as much as it is, then the stakeholders would be negatively affected. Stakeholders are not going to invest in a company that has poor ethical performance. Stakeholders can also experience a financial loss if the company worth decreases due to ethical concerns.
Jay Schottenstein owns 15,010,139 common shares of DSW. Schottenstein is a large investor of DSW. His family founded DSWinc. He owns a majority of the public shares. Roger L. Rawlins is the Chief Executive Officer of DSW since January 2016. Roger Rawlins is also on the board of directors. The Board of Directors is seperate from the Chief Executive Officer. The Board of Directors believe with the two seperate that the company will have an appropriate leadership structure. The Chairman of the Board is Jay L. Schottenstein. There are six independent directors; Elaine J. Eisenman, Joanna T. Lau, Carolee Lee, Harvey L. Sonnenberg, Allan J. Tanenbaum, Joanne Zaiac. Jay L Schottenstein served previously as Chief Executive Officer from March 2005 till April 2009. Currently he serves as CEO of American Eagle Outfitters, Inc. Roger L. Rawlins previously served a Executive Vice President and Chief Innovation Officer since 2015. Rawlins joined DSW in 2006 as Vice President, Finance and Controller of DSW. The balance of power favors both the Board of Directors and the Chief Executive Officer. This is due to the separation of powers between both. The Chief Executive Officer can focus on the company's administrative and operating functions. The Board of Directors can focus on their own responsibilities. If the same person was to be the Chief Executive Officer and Chairman of the Board, it would be too much for one person. If the Chairman and the Chief Executive Officer were the same person, it would be more difficult to remove the Chief Executive Officer if the company was in turmoil. (Schedule 14a).
The structure of any company is important to keeping a company ethical and profiting. DSW separates the Chairman and Chief Executive Officer. This ensures the leadership of the company is appropriate. Separating the two is beneficial to everyone and helps them focus on their main responsibilities. Chairman of the Board is Jay Schottenstein and the Chief Executive Officer is Roger Rawlins. Deborah L Ferree is the Vice Chairman and Chief Merchandising Officer. Jared Poff is the Senior Vice President and Chief Financial Officer (Appendix 1.6). Having this structure is appropriate for this company. The separation of power helps keep the Chairman unbiased. Schottenstein has a family relationship to the founders of DSW. The structure is effective to the leadership of the company. This structure only became like this in 2009. The organization structure of DSW is a divisional structure. The company focuses on the trends of the different locations, markets and service groups. DSW changes their products based on their locations. Different areas of the world and country need different items. They also change their products based on what is in season and style. They need to change with the seasons and with the styles to keep customers coming back and buying more. For example, if a new trend of sneakers, boots or sandals comes out, DSW will switch to that style of products. For this type of industry, this organizational structure is appropriate. With the styles and trends changing, the company needs to be up to date to their customers wants and the geographical locations.
Value Chain/ Core Competency Analysis
DSW strives to create experiences unlike other companies. As discussed, DSW is about creating a convenient customer experience. When entering a DSW, not only is a customer entering a store, but also a supply warehouse. One of DSW's goals was to ensure that every store had a plethora of every shoe advertised. With 21,500 pairs of shoes in each store, the commitment is obvious. This makes DSW reliable increasing the value of the store.
Over the years, DSW has looked into different markets and have researched and developed ways to enhance a shopping experience. Adding accessories to the store for women, men and children enhanced the value of each shopping experience at DSW. By adding additional products besides shoes, this eliminates the need to go to other stores to find some of the products that DSW already offers.
Other conveniences that highlight the store unlike others is the open design of the store. Every shoe displayed has multiple sizes stacked under the shoes so customers can try on and experience the shoe as they please. Easy customer check out with every associate being a virtual cash register allows customers to pay for their shoes from anywhere in the store.
DSW's rewards program itself provides value to the store. By advertising promotions throughout the year, and discount certificates from previous purchases, it creates customer retention and will attract customers over time.
DSW offers another way to generate points to the loyalty program. In 2014, DSW created a Visa credit card that allowed card owners to earn more points to their DSW membership on not only DSW store purchases but with any retailer that allows Visa purchases.
These values enhance the core competency of the company. In today's commerce, customer satisfaction is key. It is noted in the 10K that in 2015, there were 23 million members of the rewards program. In 2016, there were 24 million members who have made at least one purchase at either a DSW store or online in the past 2 years. Members of the DSW rewards program makes up approximately 90% of segment sales.
Refer to image 1.2, DSW's logo. The logo portrays 3 large letters with the company name located under. By highlighting “DSW,” the firm was able to create a link between those three letters together and the company. By writing out the name of the company under, the logo clearly portrayed its marketing message. DSW and its stores are warehouses. In meaning that each store carries approximately 21,500 pairs of shoes that provides options of shoe and sizes. Even though the logo enhances the warehouse experience, it doesn't fully enhance the overall shopping experience of DSW. (10K)
The logo portrays the company as solely a shoe warehouse. However, in 2013, DSW added accessories to their line which is not highlighted in the logo. (Canadean, 2016, p.13). DSW is primarily shoes but should attempt to incorporate the accessory line. Another image the logo does not portray is the conveniences of shopping at DSW.
On the other hand, DSW releases marketing videos on their website that enhances the company. Last summer, DSW released the #MarchonUSA campaign. These video's primarily featured camera focus on the shoes in different environments. This campaign showed the different variety of shoes that DSW offers. (DSW Investor)
Refer to appendix 1.3 which is DSW's operation statements from 2015 until 2017. Overall net sales have been increasing since 2015 by $179,546. But overall net income decreased by $68,730. The cost of sales and operating expenses have increased. Much of that is expected since DSW expanded many stores over the past 2 years. However, with the opening of new stores, the income will continue to rise as long as the stores remain successful. Chart 1.4 shows the cash flow from investments of DSW. With the expansion of DSW both in store and ECommerce, investments increased. From 2016 to 2017, DSW spent approximately $37,248 more for pre- sale investment from to $95,905 to $133,153. These pre-sale investments proved to be beneficial overall. (SEC 10K)
One of DSW's main competitors is Foot Locker. Appendix 1.5 shows part of the financial report. Foot Locker itself is a bigger company with 1,800 stores in 23 countries around the world. Like DSW, Foot Locker is showing an increase of net income and sales. However, DSW is a growing company and therefore shows larger increases from year to year with the multiple expansions of locations. (Foot Locker 10K)
Overall the shoe industry continues to be on the rise. Although Payless has been on the downfall, other shoe companies all show an increase. DSW being one of the top with Foot Locker.
Competitive Advantage Analysis
When evaluating to determine if DSW has a competitive advantage, it is important to look into the different factors. It is concluded that DSW has value compared to other shoe stores. From every store being a warehouse to customer convenience, there are not many other stores, especially in the shoe industry that can compete. When looking at other stores, many shoes only go up to certain sizes while at DSW, since every store is also a warehouse, every size is in store- unless completely sold out. To other stores, this practice could be costly. By ensuring that every location has every shoe, approximately 21,500 pairs, larger locations are needed and more investments are needed to maintain.
DSW is not in a rare industry, but they have rare qualities. Being that every store is a warehouse, this makes the company unique. Also by having other qualities such as the mobile checkout, and keeping all shoe sizes under the display, this creates a different experience for the customer that other companies don't have. Although all of these traits are great, they are not necessary for the industry. This unfortunately opens the gap for other companies to enhance their businesses.
DSW's ROA, ROI and ROIC is all positive. DSW has made investments over the past years that have enhanced the company. From expansion of real estate, to ecommerce, to in store customer experiences, DSW continues to grow showing positive net incomes overall keeping DSW in black.
Overall, DSW's internal operations is looked in a positive manner. As of this moment, the current strategies of DSW seem to return positive results. Customer service is one of the keys to the company's success. By enhancing customer experiences, this creates relations to help retain past customers and will attract new customers. However, none of this can be possible without the powerful leadership that DSW's higher ups provide the company. It is essential for the decisions made to remain in sync with what DSW has stood for. If DSW continues to operate in the fashion that it has over the past years, the company will continue to rise in the shoe industry which could lead the company to the top.
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