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The $10 Million Omnichannel Bet

Branded footwear and accessories retailer DSW Inc. is in the early stages of a broad omnichannel initiative that will include the launch of the company’s first mobile app later this year, company executives said this week. The anticipated $10 million investment in omnichannel also includes changes in inventory and fulfillment.

On Wednesday (Aug. 26), DSW, which during the second quarter partnered with eBay Inc. to offer customers online ordering with in-store pickup, reported a 4.5 percent increase in sales for the period, to $587.1 million from $562.1 million during the same quarter last year.

Same-store sales rose 0.8 percent, down from a 4.4 percent increase during the same 13-week period a year earlier. Net income rose just 1.8 percent, to $34.3 million from $33.7 million, partially affected but the company’s omnichannel investment.

“We continued to make progress in our omnichannel initiative,” Mike MacDonald, DSW president and CEO, said in the company’s earnings release. “The changes we are making are fundamental to the way we serve our customers. They will enable DSW to respond to the rapidly changing customer shopping patterns and maintain our position of strength in the footwear industry.”

Later, during a call with analysts to discuss the quarter’s performance, MacDonald laid out a list of various “important actions” the company is taking that “give us optimism for improved performance in the back half of the year.”

Among the actions included rolling out its charge-send program chainwide last November. MacDonald said the system, which allows DSW to fulfill online orders out of stores to satisfy unmet store demand from stock held in other stores, is receiving increased customer acceptance and utilization.

“The charge-send program is helping our overall customer conversion rates,” he said.

Other actions, besides the upcoming wallet rollout, include upgrading the company’s website this fall; making it easier for customers to get free shipping; partnering with a new creative agency to develop a new advertising campaign; improving customer data capture; piloting a new assortment-planning tool to localize store assortments to better cater to market preferences; and testing mechanisms to increase customer engagement in our stores.

In 2015, the company has several new capabilities on deck, including buy online pick up in store and buy online ship to store, MacDonald said, not mentioning the eBay agreement.

“Many of these new capabilities are the direct result of our omni initiative,” he said. “I've often described omni as a project to conform our business processes to the way the customer now wants to shop. While that's an accurate statement, it's also a bit incomplete. Our omnichannel endeavor is really much more than just a project or an initiative. It's a fundamental change in how DSW conducts business.”

The initiative, MacDonald said, is causing the company to view everything it does through the lens of the customer.

“I tell you this because it’s becoming increasingly difficult to isolate the costs and the benefits of omni from our base business,” he said. “At the outset of this year we estimated the cost of omni in 2014 would be $10 million, and we projected that it will be earnings accretive after 2014. We still believe that. However, because of the pervasive impact of omni, we’ve concluded there is no longer utility in isolating the impact of omni. So going forward, we are just going to incorporate the impact of omni within our overall earnings guidance.”

Also during the call, Mary Meixelsperger, DSW chief financial officer, noted that transactions for the DSW segment increased 5 percent, illustrating the underlying dynamics of the company’s business. Store traffic declined in “the low single-digit range” but improved substantially from Q1, she said.

“Traffic to our website and mobile site increased by a healthy rate as more customers engaged with DSW online,” she said. “We expect full-year comparable sales to be flattish and full-year total sales to increase in the mid single-digit range.”

Shares of DSW stock were up 1.69 percent, selling at about $31.51 in late-day trading on Thursday (Aug. 27). The price closed at $30.99 a day earlier.

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