PM Jay Kaplan makes his case for footwear stocks and details a quality holding.
Q2 hedge fund letters, conference, scoops etc
Footwear is a really interesting investment, almost all the time, especially now though. Historically, women buy more shoes than men, in good times and bad times, so it tends to be very recession resistant. It’s a low-cost way to improve a wardrobe. But the shoe business right now is under a cloud, and I think it’s under a cloud because of tariffs.
The good companies, I believe, over the next year or two have a number of ways to offset that. They’re going to get concessions from their overseas manufacturers, they’re going to move production away from China to other countries, and they’re going to raise prices. I think the companies are very adaptable. I think the market really doesn’t appreciate that, and that’s part of why you’re getting great companies at a discount right now.
One example would be Designer Brands. It used to be called DSW for their DSW stores, but they did a large acquisition that’s going to help them source their own private label product, which is very important in the shoe business and should really help them improve their profitability. Some of the other great things they’ve done: they’ve put kids shoes in all their stores, so that mom can now buy shoes for the kids, and they’re experimenting with nail bars. They want to make themselves more relevant, so they can’t be disintermediated by Amazon.
Article by The Royce Funds
