By Craig Patterson

Large-format American footwear and accessory retailer DSW Designer Shoe Warehouse says that it has finally turned a first quarter profit with its Canadian operations for the first time after entering the market about five years ago. DSW has also announced that it is launching a new loyalty program to further gain market share.

The company says that Canadian consumers are embracing the large-format retail chain that is seeing incredible growth particularly from its enhanced online channel, as well as growth in its physical stores.

DSW entered the Canadian market in 2014 by acquiring an initial 49.2% stake in Canadian footwear chain Town Shoes (which operated Town Shoes, The Shoe Company and Shoe Warehouse nameplates) and has since opened 27 large-format DSW stores located coast-to-coast. DSW also launched its Canadian e-commerce site in 2014 which recently saw an overhaul to optimize the customer experience.

Mary Turner, DSW’s Canadian President, explained that the company’s newfound profitability in Canada is partly a result of selling more ‘clean inventory’, which means more regular-priced shoes in its stores rather than clearance-priced discounted merchandise. The resulting higher margins ultimately helped DSW’s bottom line as the retailer further establishes its operations in Canada and gains market share, with plans to further optimize sales by selling more higher-margin product. Furthermore, the company’s Canadian e-commerce site, which relaunched this spring with a streamlined checkout process, is more user-friendly and features a vast array of footwear styles including some not found in its physical stores. Substantial growth in DSW’s online channel further contributed to the retailer’s spike in revenue that led to a profit being reported on May 30th of this year for the first time.

“Customers are buying more new product at a higher markup,” explained Ms. Turner, who went on to say that DSW Canada expects to continue to remain profitable as it continues to see increased sales from the retailer’s ‘clean’ inventory. Prior challenges to DSW included carrying excess aged inventory which resulted in the company not optimizing its sales opportunities, she said.

Sales over the past year in DSW’s Canadian stores increased by about 8%, she explained, with the retailer’s digital sales in this country seeing an impressive 33% increase. DSW has continued to gain market share despite heated competition from a wide range of retailers such as mono-brand stores, off-price retailers, department stores, and even Amazon. As a result, DSW is now the third largest footwear retailer in Canada in terms of volume (Walmart is said to be number one) and in the women’s shoe category, DSW is now the top retailer in Canada in terms of overall sales.

DSW Canada is part of a multi-brand conglomerate called Designer Brands Inc., which was formerly known as DSW Inc. until it changed its name in March of this year. Designer Brands Inc. also operates DSW stores in the United States as well as The Shoe Company and Shoe Warehouse in Canada. Earlier this year the company shuttered all 38 of its Town Shoes stores due to lack of profitability.

DSW’s Canadian sales are expected to further increase with the introduction of its new VIP loyalty program in Canada, which is similar to wildly successful program in the United States. Ms. Turner explained that Canada is home to more than 1.1 million loyalty program members who will be able to take advantage of the program’s personalized experience that also offers compelling rewards.

Included in the VIP program is free shipping as well as the ability to earn rewards earlier and more often, as well as the ability to donate shoes for points.

The new loyalty program introduces three member tiers. That includes the VIP Club (which is free to join), VIP Gold (requiring a minimum $200 annual spend), and VIP Elite (those spending in excess of $500 annually with the retailer). All tiers receive an accelerated reward of $5 for every 100 points earned, while Club and Gold members earn 1 point for every $1 spent. The programs’s Elite members earn 2 points for every $1 spent, which means spending more can lead to drastically more points. Additional member benefits include a $10 welcome gift upon enrolment for their next purchase in-store, birthday rewards, early access to offers, and extra points for shoe donations.

The shoe donation program is part of DSW’s philanthropy in partnership with Soles4Souls, which creates sustainable jobs and provides relief through the distribution of shoes and clothing in Canada, the US, and around the world. Some materials from donated shoes are also recycled.

Points from the loyalty programs can be redeemed online, with DSW’s Canadian website offering a wider range of sizes and some styles not in stores. In the United States, DSW’s website is said to have about twice the selection as what’s available in physical stores. In Canada, DSW is looking to expand its drop shipping capabilities in order to serve its customers, Ms. Turner noted.

The Company has also launched the DSW Canada app where members can access their DSW VIP rewards anytime in one easy-to-redeem location.

DSW expanded rapidly over the past five years as it opened 27 stores spanning from British Columbia to Nova Scotia. Ms. Turner said that the company will not be opening anymore DSW stores in Canada this year, though the parent company will open six more The Shoe company locations as the company expands its smaller-format stores that target smaller markets as well as areas where finding space for a ~20,000 square foot DSW store may be challenging.

In March of this year, we reported that the newly renamed Designer Brands Inc. had initiated a three-year plan for its Canadian operations. Included will be the eventual introduction of in-store experiences such as nail bars, custom insoles, shoe repair, a ‘shoe concierge’ and other initiatives. Customers in US stores have been receptive to the enhanced store experiences and sales have continued to grow as a result. Nail bars have brought more Millennial shoppers to DSW’s US stores, Ms. Turner explained, and the company now has an ‘innovation team’ that is looking to further enhance the overall store experience

Designer Brands Inc. plans to open approximately 50 more stores in Canada over the next three years, which could include about 20 large-format DSW Designer Shoes stores and 30 or so locations under the company’s Shoe Warehouse and The Shoe Company banners. Real estate strategies will be different for the larger-format and smaller store concepts.

Large-format DSW stores target markets with a population exceeding 400,000 people in storefronts that often exceed 20,000 square feet. The optimal size for The Shoe Company and Shoe Warehouse stores will be approximately 4,000 square feet each, as a comparison.

While the company has expanded coast-to-coast, Designer Brands Inc. has yet to enter the Quebec market. That will change as the retailer plans to make a move into Quebec as it upgrades its business systems including POS systems and its digital platforms. “We now have a roadmap for Quebec,” after entering Canada almost five years ago, Ms. Turner said in an earlier interview.

The Quebec market is also being targeted for Shoe Warehouse and The Shoe Company nameplates, which Designer Brands Inc. will look to open in secondary markets with less than 50,000 residents. The same strategy will be rolled out Canada-wide as the company strategically opens stores to further penetrate the Canadian market with the smaller-format stores. Shoe Warehouse and The Shoe company units act as a “last mile solution” for the company, Ms. Turner explained, by acting as distribution points for click-and-collect and online orders while serving markets that might not otherwise support a larger DSW storefront. Designer Brands Inc. currently operates 112 locations for The Shoe Company and Shoe Warehouse in Canada.

British Columbia is also a target for more stores under Designer Brands Inc.’s multiple banners — the province currently has just three large-format DSW stores, with two of those being in the Vancouver/Lower Mainland and one on Vancouver Island in Victoria. The Toronto market is also a target for more stores, with the potential in Quebec being “huge” according to Ms. Turner. Quebec has more than 8.4-million residents with a population known to appreciate value-priced footwear.

We’ll continue to report on Designer Brand Inc.’s continued expansion into the Canadian market at a time when an unprecedented number of international brands enter the market, which off-price retail continues to grow rapidly. We’ve been tracking a considerable number of brands that will be launching their first Canadian stores over the next couple of years, while those that entered the market are now expanding their operations into new secondary markets. Off-price retailers, many of which offer similar brands as those found in DSW, The Shoe Company and Shoe Warehouse, also continue to grow their operations. TJX banners Winners and Marshalls are opening stores at a rapid pace, with both retailers carrying a range of footwear for women, men and children. As well, Hudson’s Bay-owned Saks OFF 5TH has expanded into Canada with 18 stores to date, while Nordstrom Rack looks to grow from its current six Canadian stores after entering the market for the first time last year.