Kurt Salmon: 50 percent margins on luxury ladies' shoes

19 October 2012 Consultancy.uk

The luxury segments of shoes for women are booming worldwide. Because the footwear has become so lucrative, with the highest sales per square foot and profit margins in the market, global retailers are rapidly expanding and enhancing shoe departments.

To anticipate on this trend, the luxury retailer Macy’s announced it will soon open the world’s largest women’s shoe department in New York, selling approximately 300,000 pairs of shoes. This trend is also visible in the Netherlands, both Jimmy Choo and Shoebaloo recently opened a shoe store in the PC Hooftstraat in Amsterdam. Luxury shoes from top brands can range from €400 to €2,500 per pair.

The start of the trend

The trend was born in the late 1990s and early 2000s, when the serie "Sex and the City" made designers Louboutin, Manolo Blahnik and Jimmy Choo household names. Blahnik's open-toed Sedaraby d'Orsay pumps and the red soles on Louboutin's covered platform shoes became icons beyond the New York fashion world. "It became visually apparent from a long distance that someone was wearing Louboutin of Jimmy Choo" said Robert Burke, partner at a luxury-goods consulting firm in New York.

Woman shoe store

Gross margin of 50% percent

From a recent report by Kurt Salmon, a consulting firm specialized in retail, it can be concluded that luxury shoes have gross margins as wide as 50% at luxury department stores. In comparison, the next most profitable items are handbags and apparel, both with a maximum of 40% - 45%. Muriel Gonzalez, Executive Vice President at Macy's, acknowledges the finding: "There is no question that luxury shoes are the most productive in terms of sales per square foot".

Research also shows that they are becoming increasingly season less and ageless. And especially in the luxury segment, shoes are so prominent now that women increasingly are buying outfits to go with their shoes, rather than vice versa. As a result of these upcoming trends, customers are much more willing to pay a high premium on shoes. 

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Lack of high street openings sees UK retail in precarious state

11 March 2019 Consultancy.uk

Changes in consumer behaviour, particularly in favour of online shopping, are starting to take their toll on shop-fronts in the UK, while stagnant wages are hitting peoples’ willingness to go out for food and drink. As a result, the rate of closures is more than four times that for the same period in 2017, although largely reflecting of a lack of new openings.

The retail market has fallen under a cloud of uncertainty in the UK; consumer confidence has dipped, while wages have continued to malinger in negative territory. Retailers are also under pressure from disruptive technology, as consumer sentiment shifts to more online shopping and at-home leisure. While retailers have been able to weather the storm for the past years, transformations, low consumer spending and technology have begun to take their toll.

New analysis from PwC explores the current market conditions in the UK for retail shops, focused on net openings and closings. The market changes in the UK have seen the net closures to date hit 1,123 in H1 2018 across the UK’s top 500 high-streets. The rate of closures was considerably above openings for the first half of 2018, at 1,569 openings and 2,692 closures. Compared to H1 2017, more than four times as many shops closed than opened.

Openings and closures for retail industry

The study considered the most prominent areas to see a reduction in openings and net closures across the retail landscape. Overall, fashion stores were the hardest hit in absolute terms, with a total of 104 closures for H1 2018, followed by public houses and inns, which saw 99 closures in the same period. Electrical goods stores saw a net -44 decline, with a total of 8 openings for the period. Meanwhile charity shops were in a state of relative flux, with 80 openings to 117 closures. The firm notes that service sector shops, including estate agent, banks, recruitment agencies and travel agents, among others, too have begun the process of moving online.

Not all areas of retail saw closures, with coffee and ice cream shops seeing a small net increase in openings over all. Book stores – predictions of their total obliteration appear to have waned – saw a net 18 openings, while supermarkets drew the highest overall growth relative to closures, at 18 opened and 6 closed.

Regional figures for the UK

Not all areas have seen the same level of closures, with the Greater London area and the South East the hardest hit by the current wave of closures, at -268 and -197 net change, respectively, compared to -23 and -25 closures for the same period in 2017. The middle of England too saw considerable closures, with the West Midlands clocking a net -89, and Yorkshire and the Humber down -117 stores overall.

Commenting on the figures, Lisa Hooker, consumer markets leader at PwC, said, “Openings simply aren’t replacing closures at a fast-enough rate. Specifically, the openings across ‘experiential’ chains, such as ice cream parlours, beauty salons and vape shops, haven’t been enough to offset closures in the more traditional categories. Looking ahead, the turmoil facing the sector is unlikely to abate. Store closures already announced in the second half of the year due to administrations and CVAs already will further intensify the situation.”

Related: Artificial Intelligence offers $340 billion opportunity to retail sector.