Dr. Martens ‘rethinking’ its digital stragegy after titanic missteps in new LA distribution center
The bootmaker has been dealing with a massive bottleneck in Los Angeles and weaker direct-to-consumer sales in the U.S.
Dr Martens PLC said it has cut its revenue and underlying earnings estimates for full-year 2023 (FY23) on a bottleneck at its new Los Angeles distribution centre and weaker-than-anticipated US trading.
The group said it has been reviewing the strategic and economic benefits of continuing to sell into pure play wholesale eCommerce accounts, particularly in EMEA.
Missed expectations were due to a combination of “significant operational issues creating a bottleneck” at its distribution center in Los Angeles and weaker-than-expected direct-to-consumer (D2C) sales, caused in part by “unseasonably warm weather.”
The company said it has been reviewing the benefits of selling into “pure-play wholesale eCommerce accounts”, especially in Europe, Africa and the Middle East, and have decided to scale back the volume of those sales.
CEO Kenny Wilson said that while demand for the brand’s famous eight-eyelet boots remained resilient, its third-quarter revenue fell short of the British company’s expectations, leading it to rethink its digital strategy.
While trends come and go, there's one shoe brand that's reigned supreme among A-listers and regular shoppers alike for more than 60 years: Dr. Martens.
Dr. Martens was tripped up by bottlenecks in its Los Angeles distribution center and fell hard in the stock market as a consequence.
Shares of the bootmaker fell 30.7 percent to 144.90 pence after the company revealed the distribution backups — caused by “a combination of people and process issues” — would reduce wholesale revenues by 15 million to 25 million pounds this year and cut annual earnings before interest, taxes, depreciation and amortization by 16 million to 25 million pounds.
The company also said its third-quarter revenues rose 9 percent to 335.9 million pounds, a 3 percent gain in constant currencies. But given the back-end troubles and weaker-than-expected direct-to-consumer sales in the U.S. in December, Dr. Martens is now looking for revenues this fiscal year to grow by 11 to 13 percent (up 4 to 6 percent in constant currencies) while EBITDA ranges from 250 million to 260 million pounds.
“Over time, the benefit will be to underpin DTC [Direct-to-Consumer] mix expansion but in FY24, revenue growth will be impacted. These factors together lead us to believe FY24 revenue growth will be mid to high single digits on a constant currency basis,” the FTSE 250-listed company said.
The distribution center snafu is a blow to Dr. Martens, which has traded publicly on the London Stock Exchange for nearly two years and is subject to the constant scrutiny of investors.
Chief executive officer Kenny Wilson stepped up and confronted the issue head-on in a call with investors, which was scheduled at the last minute.
“This is something that I am extremely disappointed about,” Wilson said. “This disappointment is even greater because a large part of our miss should have been within our control, and it is a people and process failure.”
The CEO explained that the firm’s Los Angeles distribution center opened in July and was flooded with inventory — from a Portland, Oregon, center that closed; from key customers who were allowed to redirect orders to manage their own capacity, and because some shipments came in early.
“The three factors individually, we could have coped with any of these factors, but not all three together,” Wilson said.
To cope, the company has secured overflow distribution and is adding a third shift to the Los Angeles facility.
“You may ask yourselves ‘Why are they not dealing with this faster?’” Wilson said to analysts. “That’s because we have to purchase forklifts, we have to find supervisors and the people to run this additional shift, but this will increase our throughput….We expect the situation will improve month by month, but it will be during the second quarter of [fiscal year 2024] before these issues are fully resolved. I want to be clear that this is about having too much of the right product at the L.A. [distribution center], and it is not a seasonal markdown problem.”
And so Dr. Martens is something of a microcosm of the fashion industry headed into 2023 — sales are starting to slow and the supply chain still has the potential to vex as inventory flows through the system, or doesn’t.
