Shoe price rise stopped by toughening competition

Photo: Pm

This fall, the public got all excited by an ABC King ad some saw as sexist. Whether true or not, Consumer Protection Boart is currently busy deciding. Meanwhile, the footwear biz is surely seen as sexy.

«Sure it’s sexy business. Why else do the ladies go on high heels and the guys keep pants narrow at the bottom – all in the name of showing off the nice shoe,» said Tallinna Kaubamaja footwear unit TKM King chief Edward Köster.

There’s this lure to shoe business that, despite Estonia’s smallness, has attracted many players. On the updated Ülemiste Centre opened this October, a whopping 23 shoe shops are to be found.

But that’s where the sexiness ends. Rather, the economic results reflect sweat, blood and tears.

«In Estonia, footwear market is rather fragmented. There are some big players on the market, department stores and supermarkets, a bunch of small players and a whole string of newcomers who, in addition to the tiny Estonia have shops in other Baltics,» related Mr Köster. «At the moment, all stores have major sales and campaigns.»

Loss is rule

Same was stated by Elektius owner and head Marina Murgo. «Newcomers have arrived. The market features lots of shops, so it’s very hard,» she said.

Elektius sells footwear under the trademark Bata. They have three stores and made a €2.5m turnover last year, €0.4m of that in Latvia and the rest in Estonia. Last year’s loss was close to €9,000; for comparison: in 2012, turnover was €2.6 and profits at €100,000. About this year, Ms Murgo couldn’t tell as large money went into updating the shops.

Despite the rather high margins, the major shoe sellers have spent these past few years mainly in the red.

In their own eyes, TKM King is Estonia’s biggest shoe seller with last year’s turnover near €15m. The loss was a bit under half million euros. The company came to be by merger last year ABC King and Suurtüki NK. The last time ABC King experienced profit was in the economic boom days of 2007. 

Citing parent company being listed, Mr Köster refused commenting on this year, but Tallinna Kaubamaja 3^rd quarter report says that footwear segment 9 months sales revenue was down 0.4 percent to €10.2m. The nine month loss was a staggering €1.3m.

«Also, sales income decrease is due to meteorological conditions i.e. cold weather at beginning of summer,» says the report.

Other shoe sellers are having it hard as well. As written by Postimees a month ago, Walking and Trendexpress shoe stores owner B.W.T. King had tax arrears at a bit over quarter of million euros. The company has been loss-making since 2009.

Owned by family Võll, the company has several generations actively involved. In 2013, a new investor entered. According to commercial register, since last summer 80 percent of B.W.T. King shares belong to a company called Pepko in the name of a SEB client account, a board member being Romanian inhabitant Sebastian Botan.

By now, B.W.T. King has paid its back taxes. But the commercial register is yet to include their report for 2013. 

Price rise halted

Tallinna Kaubamaja third quarter report also says that gross profit margin for footwear retail is lower than planned. According to last year’s report, said marginal – essentially the mark-up on goods – stood at 78 percent (in 2012 it was 67 percent). In 2012, B.W.T. King average mark-up was 70 percent.

«Like in many businesses, size also matters in footwear business i.e. larger buying-in volumes bring lower buying-in prices,» said Mr Köster as to explain the relatively high margins. «Hence the opportunities for large international chains to achieve better margins.»

The toughening competition has also served to stop the footwear price rise this year. While in 2013 footwear prices rose up to nine percent, this year they have stayed flat or even dropped.

A new competitor hath emerged: internet sales of footwear. According to Ms Murgo, Elektius is also using the channel.

For the time being, Internet sales is quite a fringe business, but probably not for long.

«Internet sales share in footwear is rather small today, but this is a fast growing business which is not wise to ignore,» said Mr Köster.

Turnovers and profits

TKM King (2013)

Turnover: €14.9m

Loss: €0.4m

B.W.T. King (2012)

Turnover: €9.3m

Loss: €0.5m

Weekend Eesti (2013)

Turnover: €3.3m

Profit: €57,337

Elektius (2013)

Turnover: €2.5m

Loss: €8,864

Source: the companies