What a Specialty Retailer Might Learn From Genesco

I’m not really that interested in doing a full analysis of Genesco. Mostly because I doubt you’re that interested in reading it. But Journeys, owned by Genesco is 813 stores and the Journeys group of stores is over 1,000 in the U.S. and Canada so we can hardly not pay attention to what they’re up to.

 For the year ended January 29th, Genesco’s revenues were almost $1.8 billion. Of that, Journeys represented $804 million, or 45%.  Their hat retail business, Lids, is the second largest piece of their business. It has 985 stores. It and Journeys represent 80% of Genesco’s total revenue.

I did a more thorough analysis of Genesco a while ago. The approach to retail and the strategy I highlighted in that article is still very interesting to read about, and one of the reasons I don’t feel the need to go in depth here. If you want you can also view the press release on their fourth quarter and year end results. 
Genesco wants a brand leadership position for all their businesses. They want to be number one and have a reason to believe that their position is hard to duplicate. They believe they are number one in teen fashion footwear in Journeys, and number one in headwear through Lids.
In Lids, they believe that what makes their position hard to duplicate is that they will always been the competitor with the largest localized assortment. In a college town, to use their example, they will have every permutation and combination of logoed product that the college offers. 
They talked about teenagers migrating away from athletic footwear into “brown shoes” that still have an athletic base and construction. Their sense is that these kinds of cycles last years and that they are still very early in this one.
We’ve all heard about that trend before, but let’s consider the implications. First, Journeys, or other large retailers, don’t care whether the kids want skate shoes, or brown shoes, or ballet slippers as long as they can get the ones the kids want. Second, if you are in the skate shoe, or athletic shoe business you’d better be able to transition to the so called brown shoe market. That will depend on your existing market position (that is, how your customers perceive your brand) and whether you have the resources and manufacturing relationships to pull it off. I can imagine it is hard for some action sports brands to follow this brown shoe trend for either or both of those reasons.
Genesco goes right on to discuss that as Journeys is the biggest retailer in the space they have very strong relationships with vendors. One part of “very strong relationships,” of course, is that they can get better prices. Wonder if the vendors like that part of “very strong relationships.” Anything for volume I guess.
Genesco notes that these strong relationships give them access to exclusive product “on a preferred basis” and to special make up product as well. It seemed like they were talking about two different things there, but I’m not sure I understand the distinction between exclusive product and special make up.
Saying it as bluntly as anybody I’ve studied has, they note that “The economics improve with national scale.” Part of the reason that’s true is because you have to be big to afford the management and inventory systems that make local assortment management possible with a couple of thousand stores.
Genesco is refreshingly honest about rolling up the little guys in fragmented industries and using their size to compete. It was probably eight years at the Surf Summit in Cabo when I stood up and asked a panel of specialty retailers what they would do when there were 5,000 branded stores competing with them. Boy was I wrong. There are way more than 5,000. But the specialty retailers who are still standing can’t compete on price or national scale.
They can take a cue from Genesco and compete on localization by digging deep into their customers’ preferences. Resist the temptation to select product according to terms, margin, discount or because the rep’s an old friend (this is where having a strong balance sheet comes in). Buy what you know you can sell to your customer based on solid information. That’s what Genesco strives to do.