Dansko Business Update: 04.30.2020

On behalf of Jim Fox:

Given that we are at the end of April and nearly seven weeks into Pennsylvania’s stay at home order, I want to provide a brief business update. In previous updates, I have referenced the “unprecedented level of economic uncertainty”, how all of Dansko’s stakeholders are “under severe stress”, and how the pandemic has “wreaked havoc on everyone’s ability to do business.” Unfortunately, these conditions remain unchanged.

The overall impact from the last seven weeks has been a historic level of order cancellations, holds, and delays, leaving open orders for the rest of 2020 well below (34%) last year’s level. While we will work hard to turn the tide, we expect Dansko to fall substantially short of 2019’s performance and our 2020 budget expectations. The level of uncertainty remains high, and retail may not be close to “normal” until Fall 2021. Whenever the new normal occurs, we expect it to look substantially different with a continued shift of business to online retailers.

Consumers – High rates of unemployment and reduced consumer confidence have had a significant impact on consumer spending. People are not buying as many shoes under the circumstances, and when they do, they can generally find discounted product. While pent up demand may eventually drive an increase in consumer spending, the timing and level of increase is uncertain.

Retail store performance – With the vast majority of brick-and-mortar retail stores closed throughout the country and millions of citizens subject to stay-at-home orders, retailers that are dependent on retail store sales have seen sales decline since mid-March 75 – 90% compared to the prior year. As several states begin to loosen restrictions, many retailers are planning to reopen doors. Even so, there is still a high degree of uncertainty regarding consumer willingness to visit retail locations and spend. Furthermore, some percentage of retail doors will not reopen and those that do are sitting on unsold inventory from two months ago.

Online performance – Online retailers have performed much better than brick-and-mortar, but overall sales are still down from last year. Dansko.com, however, has experienced significant increases over last year, picking up consumers who are unable to shop at brick-and-mortar stores. While this increase is not enough to offset declines in other channels, Dansko.com’s performance and Five Star’s ability to ship product are welcome highlights.

Product performance – In all channels, the professional silhouette (Stapled Professional, XP 2.0, Pro LT) has outperformed other product categories since the middle of March. This is almost certainly attributable to increased demand from health care workers who rely on the critical features and benefits (all-day comfort, support, easy on and off, etc.) of Dansko’s flagship product.

We want to be evenhanded in balancing the severe impact of the pandemic on our business with recognition of certain highlights from the last seven weeks; in being clear regarding the high level of future uncertainty along with the reasons to be hopeful. We need to understand the hard truths of the current situation, in order to manage Dansko as effectively as we can through the uncertainty.

We will continue to provide regular updates and appreciate your understanding and support as we address the changing and turbulent economic environment.

Jim