For independent shoe retailers, the search for margin has become one of the defining challenges of the post-pandemic era.

It isn’t necessarily because gross margins have collapsed. In many stores, initial markup remains reasonably healthy. The problem is that almost everything that comes after the gross-margin line has become more expensive.

Payroll is up. Occupancy costs are up. Insurance is up. Credit-card fees are up. Utilities are up. Freight is up. Technology costs are up. Advertising is up. Virtually every outside service a retailer purchases seems to cost more than it did five years ago.

There is a limit to how much of that inflation can simply be passed along to the consumer. The result is that independent retailers increasingly need to find additional maintained margin, measured not merely as a percentage of merchandise cost, but ultimately as a percentage of net sales revenue.

That distinction matters.

If a retailer doing $5 million in annual sales can improve maintained margin by just one percentage point, that is potentially another $50,000 available to help absorb increased operating expenses and improve profitability.
Find two points and it becomes $100,000. Suddenly, searching for margin isn’t an exercise for the accounting department. It is a strategic priority.

Where Do You Find It?

There isn’t one answer.

Some successful independent retailers have developed relationships with smaller or semi-exclusive brands, frequently discovered at European shoe shows. If a retailer can find attractive product that isn’t available everywhere else, there can be several benefits.

Margins may be better. Price comparisons become more difficult. The retailer can establish its own pricing strategy without worrying that the same shoe is being promoted online by 20 competitors.

There is also the benefit of differentiation. The store becomes a destination for merchandise the customer isn’t going to find everywhere else.

But importing or developing semi-exclusive brands isn’t free money. There are travel expenses, international freight, currency considerations, minimum orders, longer lead times and potentially more inventory risk.

There is also management distraction. Someone has to find the product, negotiate the arrangements, manage the logistics and make sure that the higher initial margin doesn’t disappear because the merchandise doesn’t sell.

A 65% initial margin on a shoe you eventually have to mark down 40% isn’t nearly as exciting as it looked on the purchase order.
There are also opportunities much closer to home. Retailers with strong vendor relationships can sometimes work with brands that have U.S. offices to identify closeouts, special make-ups, discontinued colors, special purchases and other opportunistic buys.

The key word is “opportunistic.” These deals aren’t always available when you want them. Sizes may be incomplete. Colors may not be perfect. The quantities may be too large or too small. And sometimes there is a very good reason merchandise is available at a wonderful price.

Still, for retailers who understand their customers and know their numbers, opportunistic buying can add meaningful margin.

The trick is to buy an opportunity, not somebody else’s problem.

The Margin You Already Own

Before flying to Europe or hunting through closeout lists, however, there may be a more obvious place to look for margin: Your own markdown report.

One of the most important numbers I believe an independent retailer should track is markdowns as a percentage of net sales. We tend to talk constantly about gross margin and initial markup, but markdowns are one of the places where the theoretical margin created by the buyer becomes the actual maintained margin produced by the store.

Every unnecessary markdown is margin surrendered. Consider a retailer doing $5 million in annual net sales. If markdowns represent 10% of sales, that’s $500,000.

Reduce markdowns by just one percentage point of sales and you’ve potentially protected $50,000 of revenue.
That doesn’t mean markdowns are bad. They aren’t. Markdowns are a necessary part of retail. Slow inventory has to be converted back into cash. Seasonal merchandise has a shelf life. Mistakes need to be corrected. Old inventory occupying valuable selling space can be far more expensive than taking the markdown and moving on.

The objective isn’t to eliminate markdowns. The objective is to make every markdown earn its keep.

The Vendors Aren’t Making It Easy

Controlling markdowns has become considerably more difficult because the competitive environment has changed. Many of the footwear industry’s largest brands now generate enormous direct-to-consumer sales. Their websites are no longer simply marketing vehicles supporting their retail partners. They are major stores themselves. And major stores run promotions.
The independent retailer can spend months protecting the price of a shoe, only to discover that the brand has suddenly announced 20% off, a friends-and-family promotion, free shipping, a loyalty offer or some other consumer incentive.

The customer doesn’t necessarily understand the economics behind any of this. She knows that the shoe sitting on your shelf for $150 is available somewhere else for $120.

Now the retailer faces an unpleasant choice.Match the promotion and sacrifice margin. Don’t match it and risk irritating a regular customer. Or try to explain why the independent retailer should receive full price while the company whose name is printed on the shoebox is offering a discount.

Good luck with that conversation.

This is one of the reasons maintained margin can no longer be viewed solely as an internal merchandising issue. Vendor strategy matters.

Retailers need to evaluate suppliers not only by product, sell-through and initial margin, but also by what happens to that margin after the merchandise arrives.

A brand offering a 55% initial margin but constantly promoting against its retail partners may ultimately be less profitable than a brand offering a slightly lower initial margin while protecting pricing and distribution.
The number that matters is the one you still have when the shoe is sold.

Start Measuring the Right Things

I would begin with four numbers: Initial margin percentage. Maintained margin percentage. Markdown percentage of net sales. Inventory turn.

Then look at them by department, category and vendor. The results may be surprising.

A major brand producing tremendous sales may not be producing tremendous profit after markdowns, promotions and inventory aging are considered.

Meanwhile, a smaller brand generating modest sales at a better maintained margin, with fewer markdowns and faster turns, may be quietly producing a much better return on inventory investment. That’s the analysis retailers need to perform.

Don’t fall in love with sales volume. A million dollars of sales at mediocre margins can create a lot of activity without creating enough profit. Retailers don’t pay their employees, rent or insurance with sales volume. They pay those expenses with gross-margin dollars.

One Point at a Time

There probably isn’t a magical five-point margin opportunity waiting somewhere in Milan, Dusseldorf or a warehouse in Connecticut. The answer is more likely cumulative.

Perhaps you gain half a point by reducing unnecessary markdowns. Another half point comes from opportunistic purchases. Another quarter point comes from better vendor negotiations. Another quarter comes from special make-ups. Maybe another half point comes from introducing merchandise with better margins and less online price competition.

Now you’ve found two points. For a $5 million retailer, that’s potentially $100,000.

And unlike trying to generate another $100,000 of profit through additional sales, those margin improvements don’t necessarily require more customers walking through the door, another location or a larger advertising budget. They require better buying, better analysis, better vendor relationships and better discipline.

Independent footwear retailers have spent the last several years dealing with expense inflation they largely couldn’t control.

The next challenge is figuring out what they can control.

That means looking harder at markdowns. Looking differently at vendors. Exploring special purchases and special make-ups. Considering exclusive and semi-exclusive merchandise where the economics make sense. And rewarding suppliers who recognize that a healthy independent retail channel requires enough margin for the retailer to remain healthy, too.

The search for margin isn’t really about squeezing another nickel out of a pair of shoes. It’s about protecting the economic viability of the independent shoe store.

And right now, every point counts.

Alan Miklofsky is a business consultant, speaker, and retail industry veteran with nearly 50 years of experience in footwear retailing. He founded shoes.com and owned Alan’s Shoes for four decades before successfully selling the company in 2022. Alan is a former Chairman of the National Shoe Retailers Association, recipient of the NSRA Retailer of the Year Award, the Footwear Insight Gold Medal Service Award, and a regular contributor to Footwear Insight, Shoe Retailing Today, and other industry publications. He advises footwear retailers across North America on operations, profitability, inventory management, marketing, succession planning, and strategic growth.