Steven Madden has just announced an exclusive long-term deal for the large potential Indian market with Reliance Brands, the arm of the big Indian Reliance Industries group that recently sealed other exclusive deals with other Western brands Diesel, Paul & Shark, Zegna, Timberland and Quiksilver.
Responding to strong demand for fashionable women's shoes and accessories in the country, Reliance will market the U.S. company's Steve Madden and Madden Girl collections of shoes and accessories through stand-alone single-brand stores and premium department stores in all the major Indian cities.
Meanwhile, the American group, named after its creative director, plans to enter the European market again early this year by launching its business in the Benelux region through the Macintosh Retail Group. The Dutch group, which owns big shoe retail chains such as Brantano, Dolcis, Invito, Manfield and Scapino, recently signed an exclusive licensing deal for the region, covering the Steve Madden brand and others. It plans to open the first four Steve Madden shops this coming spring and to sell the shoes also through its own stores and to third parties.
We could not determine whether the deal will also cover the U.K. market at some stage, where Macintosh has a big and growing presence, too (see the previous issue of Shoe Intelligence). The licensing model adopted with Macintosh is expected to ensure better results than the formulas previously tried by Steven Madden in Europe. The U.S footwear company had previously tried to enter the European market through the big French Royer Group and through a small company established by a former British footwear trading executive, Tim Cooper.
The new move is part of the group's efforts to expand its international activity, which amounted to nearly $35 million in 2010, representing about 5 percent of overall revenues. Last year, the company entered Saudi Arabia, Australia, Russia and Central America, boosting international sales by 58 percent. The company was already present in some Asian countries, Canada and. Mexico.
Madden plans to expand in the United Arab Emirates and India as well in 2011. International expansion is one of the group's growth drivers: Its annual sales outside the U.S. are expected to reach $100 million in the next three to four years.
In 2010, Madden booked a record year, with total sales up by 26.2 percent to $635.4 million, beating market expectations of around $632 million. In the fourth quarter alone, revenues rose by 15.4 percent to $161.0 million. Quarterly wholesale revenues increased by 17.7 percent to $115.8 million underpinned by double-digit gains in both footwear and accessories. Footwear turnover was up by 18.7 percent to $92.4 million boosted by international sales and the Madden Girl line. Sales were also lifted by the contribution of new businesses, including Madden, Material Girl and Big Buddha, and by a shift in the group's private-label business with Wal-Mart and Target from a purchase agency model to a wholesale activity. The transition added $4.7 million in wholesale revenues. Wholesale turnover for accessories grew by 13.7 percent to 23.4 million lifted by the Big Buddha line.
The retail division boosted quarterly sales by 10.1 percent to $45.3 million despite five net store closings compared with the last quarter of 2009. At the end of December, Madden had 84 company-run retail locations, including its online store. Comparable store sales increased by 14.1 percent thanks to higher revenues per product and improved conversion. Boots and booties were the best-selling products.
In the full financial year, the group increased average retail sales to $742 per square foot from $640 a year earlier. During the quarter, the company opened its first outlet store at the Tanger Outlet Center in Riverhead, New York. The company has signed leases to open five more outlet stores in 2011. Madden anticipated that growth in comparable store sales could reach a “mid-single digit” figure in the first quarter of 2011.
Madden's gross margin slipped to 43.2 percent in the fourth quarter from 44.1 percent a year earlier due to a decline in the wholesale margin to 35.7 percent from 37.9 percent, due to the change in the relationships with Wal-Mart and Target, international expansion and lower margins at the Steven division. The retail division bolstered the gross margin to 62.5 percent from 58.7 percent thanks to increased full-price selling and reduced discounting.
Leveraged by the higher turnover, the operating margin increased to 17.0 percent of sales from 15.0 percent. Net income went up by 30.0 percent to $17.6 million. The company had $193.8 million in cash and no debt at the end of the year. Inventories stood at $39.6 million, up from $30.5 million at the end of 2009, due in part to a stock replenishment scheme for men's products which commands high-margin sales.
Madden forecasts a 20-22 percent increase in total revenues this year, but they should go up by only 10-12 percent if changes in business models and accounting are eliminated. The gross margin is expected to decline by 2.0-3.0 percentage points for the same reasons. Diluted earnings per share are expected to rise to $3.0-3.1 in 2011 from $2.68 in 2010. Capital expenditure is due to rise to about $10 million in 2011 from $3.4 million in 2010 and the company plans to open six to eight stores and close five to seven locations.
The group will continue to support growth for its core brands Steve Madden, Steven and Madden Girl footwear. It will pursue the development of its new brands, which contributed $50 million to sales in 2010 and are expected to reach $150 million over in three years. Big Buddha's foray into footwear is forecast to create at least €10 million in revenues this year compared with less than $3 million in 2010.
The launch of Betsey Johnson footwear is expected to generate sales of $10 million in the first year and double the figure in a couple of years. Madden bought the brand last October. The first shipments of Betsey Johnson footwear to Nordstrom in early February enjoyed very strong sell-through, according to Madden's chairman and chief executive, Edward Rosenfeld. Men's products, which represented slightly more than 11 percent of sales in the fourth quarter, are going to be another growth engine.
Interested in widening its portfolio, the American group is keen to obtain ownership of another mid-tier or mass market brand. It may buy a couple of distributors in the markets where it has had the longest presence, but overall would prefer to develop its international development through license agreements. Madden could announce a takeover as soon as the second quarter of 2011.
Madden expects to be able to continue improving profitability at the retail level. The business generated an operating margin of 6.8 percent in 2010 and the company aims to increase it to 10 percent by 2012. Online sales have the potential of reaching $100 million a year in the future. E-commerce revenues surged by 38 percent in 2010 to $51 million, with $23 million stemming from Stevemadden.com and $28 million coming from wholesale sales to online retailers.
The group will continue diversifying outside the footwear sector through its own accessories business and licenses. It is close to signing a deal for a new children's apparel line for the Betsey Johnson brand.
To mitigate rising manufacturing expenses, Madden continues to transfer production outside southern China toward the north of the country, where costs are 10-15 percent lower, and to other countries such as Mexico. Between 25-30 percent of the group's Chinese production is now carried out in the north of the country and the target is to take it up to about 50 percent. Madden has also implemented price increases company on some products, without meeting any resistance from clients so far.