Rack Room Shoes

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Consolidating two brands under one roof can create hurdles and uncertainty, but Rack Room Shoes and Off Broadway Shoe Warehouse have successfully shared resources while leveraging a larger imprint in the shoe industry to demand more consideration from the major footwear brands.

For the most part, the transition has gone smoothly because of the operational overlap between the two stores, despite catering to different customer bases. “They both have an intersection where they have similar products,” explains President and CEO Mark Lardie. “The best shoes are the best shoes.”

The two retail brands have nearly 500 stores across 30 states between them – 407 for family shoe store Rack Room Shoes and 80 for Off Broadway Shoe Warehouse, which offers more than 30,000 pairs of shoes from 400 different brands. Both brands are part of The Deichmann Group, a Germany-based company that is one of the largest privately owned footwear retailers in the world and operates in 22 European countries with more than 4,500 stores.

Rack Room Shoes was founded in 1922 in Salisbury, N.C. In 1984, The Deichmann Group purchased the then 22-store company. By 1990, under the ownership of The Deichmann Group, Rack Room Shoes expanded to 100 stores and doubled again by the mid-1990s. As part of its expansion strategy, Rack Room Shoes plans to open more than 20 new retail locations during 2015 in new and existing markets.

Off Broadway Shoe Warehouse’s history is not as lengthy, as the company was started in 1989 in Nashville, Tenn. The shoe warehouse grew to 20 locations along the East Coast, but like Rack Room Shoes, activity accelerated after The Deichmann Group acquired it in 2002. 

Through its charitable efforts, the company connects with customers beyond its stores. Rack Room Shoes has created a number of programs that support fundraising initiatives, which all fall under the banner of Rack Room Gives. The company provides grants in the form of footwear donations, sponsorships, gift cards and silent auction items to support the charities its customers and associates are involved with. In addition, Rack Room Shoes has supplied more than 126,000 pairs of shoes to Shoes That Fit, a national non-profit organization that strives to ensure disadvantaged children have comfortable new shoes for school. 

The charitable spirit extends to Off Broadway Shoe Warehouse, also. Through the Deichmann US Foundation, both retail brands help raise funds for Word and Deed, a Christian aid organization that provides medical care for skin diseases, food, clothing and other services to people in India, Africa, Moldavia and Greece.

Customer Base

Women make up 70 percent of Rack Room Shoes and Off Broadway Shoe Warehouse sales, so it’s no surprise both companies focus on mothers who make the primary purchasing decisions in their families. Rack Room Shoes is positioned as a family shoe store with a value proposition. The typical store is about 6,000 square feet in size and can be found in outlet malls, regional malls and strip centers. Rack Room Shoes is designed to appeal to working moms, whether they work in or outside the home.  They offer tried and true shoes that have been thoroughly tested in the marketplace. Lardie stated that the brand aims for an easy and efficient shopping experience built for customers interested in the “art of the find.”

Off Broadway Shoe Warehouse, on the other hand, is all about the “art of the hunt,” Lardie says. The brand is a warehouse shoe store concept geared toward patrons who want to browse to find a gem. The shoes sold at Off Broadway Shoe Warehouse are more fashionable affairs that are quicker to market with smaller production runs.

When evaluating both brands, Lardie states, “Having the shoes and styles customers want is the key to success.” Both Rack Room Shoes and Off Broadway Shoe Warehouse offer popular footwear from companies such as Nike, Skechers and Steve Madden, and the stores sell an assortment of exclusive private brands commissioned from top manufacturers, as well. “We’re a house of brands,” Lardie adds. “Our brands survive when our vendors are very strong.”

Consolidation Process

For many years, Off Broadway Shoe Warehouse was headquartered in Atlanta and mostly operated independent of the Rack Room Shoes’ corporate structure. Due to the overlap between products and vendors, Lardie and Rick Brown, executive vice president and COO, developed a plan to combine some of the operations to reduce cost and improve the operations of both store brands. “We never thought we were getting the full synergy of having two separate brands,” Lardie explains.

In 2013, Off Broadway Shoe Warehouse’s offices moved from Atlanta to a temporary facility in Charlotte, N.C. just down the street from Rack Room Shoes’ corporate headquarters. Rack Room Shoes soon began a $20 million construction project to double the size of its existing building to 144,000 square feet to create a permanent space for the Off Broadway Shoe Warehouse team. The Off Broadway Shoe Warehouse team began moving into the expanded building in April. As a benefit of the combined operations, the building expansion is expected to help the company grow its store count and annual sales with the addition of new employees for both brands. 

To offset the cost of the expansion, North Carolina’s Economic Investment Committee in 2013 awarded a Job Development Investment Grant (JDIG) to Rack Room Shoes, which allows new or expanding businesses and industrial projects to receive up to seven annual grants equal to 40 percent of state personal income tax withholdings from new jobs created by the project. The expansion is expected to create 87 new jobs by the end of 2017 with an average compensation exceeding $70,000, creating a boost for the local economy.

Those grants could be worth up to $663,000 over the seven-year period, according to the North Carolina Governor’s Office. In addition, another $221,000 from the JDIG award will directly impact North Carolina, as those funds will go toward the state’s Utility Fund for infrastructure improvements in economically distressed counties to encourage economic development – another example of how the Rack Room Shoes expansion is creating benefits in its community.

With the relocation phase over, the company has shifted its focus to refurbishing the older parts of the building and reorganizing some staff and departments to better take advantage of the consolidation. Further, Lardie says the new headquarters building was designed to accommodate additional staff as the company continues to grow.

Consolidating Rack Room Shoes and Off Broadway Shoe Warehouse under one roof has allowed the stores to better share resources and move talent between each brand. Rack Room Shoes has now combined payroll, human resources, information technology, logistics and the construction group. “We function with a shared platform,” Lardie says. Additionally, there is more power in the perception of a single large retail company than two smaller brands. 

Despite the shared operations, Off Broadway Shoe Warehouse and Rack Room Shoes still enjoy some autonomy. Marketing and sales remain separate for each brand, allowing the stores to cater to distinct customer bases and buying experiences while still plugging into the shared model.

Building a New Team

Although the transition itself has been successful, the process posed some challenges. All of the Off Broadway Shoe Warehouse corporate employees were offered a chance to be part of the relocation, but many employees were rooted firmly in Georgia and requiring a move inevitably meant some staff would not follow. The company lost about half of the Off Broadway Shoe Warehouse group in the consolidation, Lardie says. “It’s always difficult. You never want to go through that process.”

About 30 people were hired to replace staff lost during the relocation, but most of the core of Off Broadway Shoe Warehouse’s leadership remained intact. Lardie explains there was some trials as the new employees joined the company, but believes it has resulted in a better team in the end. “We were able to infuse some great talent into the group,” he adds.

As the new staff has come together, Rack Room Shoes and Off Broadway Shoe Warehouse have begun to realize the benefits of the consolidation. In addition to sharing some operations, the brands are better served by the vendor community because representatives need only make one trip to North Carolina instead of separate visits to individual headquarters in different states. Being under one roof has enabled the retailer to project itself as larger than before, leading to more attention from vendors and visits from senior personnel with major shoe companies. “People understand what you’re trying to accomplish better,” Lardie says of that improved communication. “They’re a little more supportive.”

Online Footprint

Lardie has worked to ensure improved product access is realized online as well as in stores. Although Off Broadway Shoe Warehouse and Rack Room Shoes had websites, both were focused on the pre-shopping experience for customers looking to narrow down their shoe options before stepping foot in a store. The company began investing in its online presence and launched an e-commerce platform for Off Broadway Shoe Warehouse in fall 2013 and for Rack Room Shoes in 2014.

This year, the company created an omni-channel department to manage e-commerce, customer relations management and research to provide customers with consistent service whether they shop online or at physical retail locations. “As we’ve converted to e-commerce, we’ve had nothing but positive feedback,” Lardie explains.

Since the consolidation, both brands are growing at a 10 percent per-unit rate annually, according to Lardie. The company wants to build on that success by adding more retail brands in the future, similar to how The Deichmann Group has multiple brands throughout Europe. Lardie and his team are studying the marketplace to determine what kind of new retail store concept would best fit consumer interest. 

Further, Rack Room Shoes is considering acquiring other shoe retailers to expand its market and customer base. But as the company mulls how best to grow and increase revenue, Lardie pledges that Rack Room Shoes and its subsidiaries will remain rooted in the footwear retail world. “We continue to be vigilant on what could be next,” he says. 

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