Tods Group, Italian manufacturer of luxury goods (mainly shoes) listed in Milan (TOD:IM) reported on March 8th earnings for 2017: Revenue declined by 4,1% and profits declined by 17% vs 2016. Here we look at how alternative data on product pricing and markdown anticipated the difficulties the brand was having in 2017: low growth in product lines other than footwear, high level of promotions on products and brand value dilution due to vast presence in off-price channels.
Among the hundreds of brands in the luxury shoes space (Tod’s core segments of flat shoes and sneakers) Tod’s and Hogan (both part of Tod’s group) are clearly among the leaders.
Part of the risk connected to Tod’s brands is that they are heavily exposed in one product line only: Shoes. Product mix of top 45 brands shows that almost half of them have their core product line not in shoes (clothing and bags namely) and a more balanced mix.
Hogan is almost exclusively a shoe company (with timid signs of accessories and bags), while Tod’s weight of footwear is still more than 70%, despite a tentative of differentiation towards bags. It is very difficult to grow in the market if the brands are focused only where they are already leaders.
A great way to look at how consumers perceive a brand is to look at how wholesalers set promotions: If consumers like the product, there is no need to discount it. In addition, if a manufacturer has a weak control over pricing and promotion discipline of its wholesalers, margins are at risk. Higher discounts on wholesalers (even on-line) make it more difficult to sustain full-price sales on their websites and on physical retail stores. Here we have the promotions applied to Tod’s and Saint Laurent (part of Kering, KER:EPA), used as a healthier benchmark, on the fastest growing on-line marketplace Farfetch.
See our deep dive in Farfetch markdown structure for further understanding.
Off-price websites (where you can find older collections of luxury products at a bargain) can be dangerous to full-price sales, if not properly monitored. Brands that don’t pay attention to these lower-margin distribution channels put their higher-margin channels at risk. Higher volumes of SKU on off-price websites with huge price gap tend to erode margin from retail sales. Tod’s has a significant volume of products on Yoox (45% more than on Farfetch) where price for their products is at an average of 48% lower. Saint Laurent looks quite the opposite: limited SKU on Yoox (81% less than other primary websites as Farfetch) with reduced price gap (18% less) between in-season and off price.