Aldo is feeling the heat as rivals and e-commerce rapidly transform the global shoe industry. To fight back, the company is spending big to overhaul its sales strategy as traffic in shopping malls retreats. But the shoe market is getting crowded and competition is fierce.

It was an unprecedented day for footwear retailer Aldo Group Inc.

On Dec. 10, the global shoe giant, whose Aldo and Call It Spring stores are a fixture in malls across the country, shut down its head office in Montreal for the day.

Its new chief executive officer, Patrik Frisk, had called a town hall “rally” for its more than 1,000 employees at headquarters. Brandishing a relay baton, he instructed them to go back to their desks and draw up their 2016 goals for the company, in what he called GPS Day: Goal Planning Strategy Day.

His own corporate goals are nothing short of transformational. With 1,655 stores in 98 countries, Aldo is feeling the effects of the changes that are rippling through the entire footwear retail sector: a drop in the number of shoppers heading to physical stores and more of them going to fast-growing, low-cost rivals as well as other fashion chains and department stores that are stocking more shoes, while e-commerce is stealing business from them all.

Mr. Frisk, a veteran of the footwear and apparel wars, has drafted his own battle plan for the privately held Aldo, whose annual sales are estimated at $2-billion. And he has the backing of Aldo Bensadoun, the 76-year-old founder and executive chairman of his eponymous retailer (everyone calls him Mr. B) and son David Bensadoun, 45, who heads its big North American arm.

“We needed to get on with it,” said Mr. Frisk, 53, clad in jeans, a sports jacket and a $180 pair of Aldo “Mr. B’s” oxford shoes. “The marketplace is evolving very rapidly. … I live by: ‘If you don’t grow, you die.’”

As a mall-based retailer, Aldo counts on a steady flow of traffic to shopping centres to keep its business humming. But fewer people are heading to malls as more shoppers browse their computers and smartphones. The sliding traffic is stalling Aldo’s sales growth in its critical North American brick-and-mortar stores and forcing it to look elsewhere for a lift.

Aldo feels the pressures in other ways. Fast-fashion players, such as Zara of Spain and H&M of Sweden, are expanding and carrying more footwear. Department stores and clothing chains are trying to draw more shoppers by bolstering their shoe departments. At the same time, e-commerce players, including shoe titan and its owner, the 800-pound gorilla Inc., are getting bigger.

“It’s not easy,” said Peter Mangione, managing director of consultancy Global Footwear Partnerships in Washington, D.C., and former president of Footwear Distributors and Retailers of America. “At the moment, the real action and most of the [North American] growth has been on the Internet, not in shoe stores where Aldo operates. They can’t grow unless they take market share from others.”

In Canada, where Aldo runs 331 stores (versus 469 in the U.S.), the problem is most acute in the bottom third of enclosed malls – so-called “C” malls with weak sales and traffic – where Aldo already is starting to get rent breaks and close or shrink underperforming stores, David Bensadoun said.

Its stores in the top third of enclosed centres – “A” malls with more traffic and sales per square foot – are the best performers and worth investing in because they “are as important as ever,” he said. But its shops in the middle third of malls, the “B” malls, are “the question the whole retail industry is waiting to see what the answer will be.”

In five years, there could be as few as 80 to 100 enclosed malls left in the country out of almost 140 today, with the remaining “C” malls featuring grocers and pharmacies and “very little fashion offering,” he said. “It’s clear there’s a major shake-up coming.”

Cadillac Fairview Corp., one of the country’s largest enclosed-mall owners, shed six of its weakest centres in the past several years and now has 20 left (such as Toronto’s Eaton Centre) with Aldo an important tenant in them, said Russell Goin, Cadillac’s executive vice-president of operations. “Aldo is one of the retailers we would call out as being very savvy and seeing the trends much earlier than most people and reacting to them,” he said. “Those are tenants we want in our malls.”

Mr. Frisk has mapped out a dramatic makeover for Aldo. In a cramped brick-and-mortar market, he is planning to close, shrink or relocate about a third of Aldo’s 800 North American stores while expanding online and overseas. And in an ironic twist, he is pushing to produce Aldo lines for a growing array of large retailers, the very ones that are nipping at Aldo’s heels.

He’s borrowing from the playbook of VF Corp., where he was an executive for 10 years and spearheaded the revival of iconic Timberland footwear and apparel while helping bolster its North Face and Vans brands. At Aldo, he intends to use that know-how to transform its namesake, as well as its budget-priced Call It Spring, into must-have worldwide labels. Using VF as a model, he’s focusing more on wholesaling to other chains as more sales shift there, banking on bulking up on those sales even though gross margins in wholesaling can be half those in retailing.

He is looking to acquire more brands or create new ones, aiming to double annual sales to $4-billion in five years or so.

At a company known for long-serving head office staff, Aldo last year cut about 140 people among 1,200 at headquarters. It is hiring senior executives from key rivals such as Steven Madden Ltd. to introduce new branding and wholesaling skills. It now has openings for about 50 new positions.

In the next five years, Aldo will pour more than $500-million into new systems, store renovations and staff development. It’s “premiumizing” Aldo – upgrading top stores and offerings while raising prices between 5 per cent and 10 per cent to help cover the costs, Mr. Frisk said. To further bolster the bottom line, it is scaling back the number of shoe offerings by 25 per cent – and another at least 10 per cent beyond that, he said. It will focus more on global styles and less on local ones: Seventy-five per cent of offerings will be global by next year compared with closer to 65 per cent today, he added.

“It’s a complete restructure,” Mr. Frisk asserted.

“It takes about three years to go through this work and there are no shortcuts.”

Aldo’s evolution

Aldo is no stranger to change, having adapted to new players and styles over the years even as other specialty rivals floundered. Mr. B started his shoe career in 1972 by running shoe concessions at Montreal-based fashion specialist Le Chateau Inc.

By 1978, he launched his Aldo chain, generating savings by bypassing middlemen and sourcing products directly from Italian shoe makers. Today, Aldo is returning to its roots by again going directly to factories – mostly in Asia – after a period of having used more third-party go-betweens, Mr. Frisk said. “One of the things you do when you take over your own sourcing is you deal with fewer suppliers so you’re getting more power.”

Over the years, Aldo stayed flexible even while a rash of footwear specialists such as Kinney Shoes faltered amid cheap Asian imports and the rise of discounters such as Payless ShoeSource Inc. and Wal-Mart Stores Inc.

“Aldo in many ways reflects the echo of the shoe business 30 or 40 years ago in the United States when we had chains like Kinneys and Thom McAn, which were family shoe stores like Aldo which sold only their own brand,” Global Footwear consultancy’s Mr. Mangione said. “Payless just destroyed any value merchandising they could possibly do.”

Aldo was agile in operating a host of chains under various banners to cater to different tastes, changing them as new trends emerged. Over the years, it ran FeetFirst (comfort shoes), Locale (upscale offerings,) StoneRidge (hip and urban), Little Burgundy (branded products) and others. Late last year, it sold Little Burgundy to Genesco Inc. as it moved to focus on its own global brands – Aldo and Call It Spring – and drop Canada-only chains. Some industry observers suggest Aldo will look to sell its Globo chain, which also carries some non-Aldo brands and is just in Canada. “It’s something we’re evaluating,” Mr. Frisk said.

By 1993, Aldo had rolled out its first U.S. stores and, two years later, its first overseas. Aldo opened an unprecedented number of new stores in North America in the four years leading up to the 2008 recession, but “in general, you could say that retail in North America has not really ever gone back to the same kind of trajectory,” Mr. Frisk said.

Now Aldo is beginning to prune its physical-store portfolio in North America, although more so in Canada because it hadn’t expanded as much beyond the best malls south of the border. “What happens if the traffic goes down another 5, another 10, another 15 per cent?” he asked. “Because right now nobody can tell – it’s in flux. We need to just be ready.”

Changes in the marketplace

David Bensadoun, who has been with Aldo for about 20 years, started to notice shoppers scaling back their trips to North American malls a few years ago.

In 2014, shopper traffic to stores fell 7 per cent from a year earlier, with “continuing softness in 2015,” said Mark Ryski, founder of retail analytics firm HeadCount in Edmonton. It tracks a sample of a broad base of retailers across Canada.

Traffic to some “B” and “C” malls is down as much as 10 per cent, Mr. Bensadoun estimated.

“Over three years, these are big numbers and represent a strategic challenge for us.”

Mr. Frisk added: “It’s something that a lot of retailers are going through right now. … In North America, there’s probably too much retail space.”

The situation is better in “A” malls. They suffered traffic declines of 0.4 and 3.2 per cent in 2013 and 2014, respectively, but recovered with a 1.7-per-cent gain in 2015 amid a weak loonie that curbed cross-border shopping, said John Plainos, president of A1 Counting Solutions.

In any case, fewer browsers can still yield higher sales. Consumers research online before coming to the store and make more focused purchases, said Kevin Kearns, chief revenue officer at ShopperTrak in Chicago. “Today, shoppers make fewer store visits, but because of technology, their trips are targeted and they arrive in-store prepared to buy. … Footwear retailers need to ensure that their associates [sales staff] are highly informed in order to meet customer needs.”

Michael Turner, a senior vice-president at Oxford Properties Group whose “A” malls include Toronto’s Yorkdale Shopping Centre, said Oxford wants to own malls “where the Aldos of the world” are looking to operate.

“The best assets will dominate and it will come at the expense of the other ones,” he ex-plained. “For retailers, it means they will have fewer stores, smaller footprints.”

As the market changes, so are the companies. Consolidation is beginning to come to the fragmented shoe industry as U.S. heavyweights such as Steven Madden Ltd., Caleres Inc. (Famous Shoes, Sam Edelman, and Dr. Scholl’s), Wolverine World Wide Inc. (Sperry, Hush Puppies) and VF pick up more labels.

Even the fickle tastes of consumers are shifting. Athletic styles – dubbed athleisure – are all the rage while Aldo, much like Steven Madden, specializes in high heels and loafers rather than sneakers. Nike Inc. has become such a compelling label that even David Bensadoun was wearing a pair of its Air Force 1 running shoes the day we met. The numbers bear out the trend: Last year, athletic shoe sales jumped 9.4 per cent to $1.7-billion in Canada, according to researcher NPD Group, prompting players such as Aldo and Steven Madden to add stylish running shoes to their offerings.

In contrast, overall sales gains in the North American sector are slowing.

In Canada, footwear sales grew more than 4 per cent to $6.8-billion last year, but that was down from almost a 7-per-cent increase the previous year, NPD says.

In the coming years until 2019, the compound annual growth rate is expected to be just 3 per cent, says researcher Euromonitor International. E-commerce sales are rising in the double-digits but make up just 9 per cent of the total footwear business, NPD says.

The trends are similar in the $65.6-billion (U.S.) American shoe market, although Euromonitor forecasts even slower growth at a 2-per-cent compound annual rate over the next four years.

Men’s shoe lines are another strong point, with their sales up 10 per cent to $2.8-billion (Canadian) in Canada in 2015, as men become more fashion conscious.

However, women’s footwear sales, which still make up the biggest chunk of the overall business, slipped 0.9 per cent to $3.4-billion, NPD says.

“I just think it is a challenging overall environment,” Ed Rosenfeld, CEO of Steven Madden, said in late February after the company met only the low end of its fourth-quarter profit target and released a cautious 2016 outlook.

He noted that many retailers’ holiday sales “over all were not great. A lot of folks missed their sales plan. … The good news for us is that we believe we have been an outperformer with the vast majority of our big wholesale customers.”

Amid the uncertainty, footwear retailers feel the pressure to step up their e-commerce capabilities as shoppers use their stores as “showrooms” to spot a style they like and find it cheaper online. Merchants “need to be able to be nimble,” said Nate Herman, a vice-president at the American Apparel & Footwear Association.

They face e-commerce rivals such as that are aggressively expanding.

“Everyone is probably trying to find a sweet spot and trying to get that perfect balance of Web and retail presence,” said chief exectuive officer Roger Hardy, whose company acquired the operation from Caleres (then Brown Shoe Co.) in late 2014. plans to launch five brick-and-mortar stores in 2016 to spotlight key styles, he said. Staff will serve champagne to customers at special events.

As well, shoe retailers are branching out into apparel because footwear purchases often are driven by consumers’ clothing choices, Mr. Herman said.

And wholesalers are moving into retailing to cover all bases, he said. “Everything is blending.”

But blending businesses can pinch profit margins.

For example, in its fourth quarter, Steven Madden reported a 62.3-per-cent gross margin in its retail division but just 28.2 per cent in its wholesale arm, resulting in an overall 36.1-per-cent margin (although still up 1.8 percentage points from a year earlier).

Department stores are stocking more footwear. Hudson’s Bay boosted its space for women’s shoes by more than 50 per cent a few years ago in its downtown Toronto flagship store. Its sister Saks Fifth Avenue store, which opened next door in February, displays 1,000 pairs of women’s shoes and keeps 15,000 pairs in its backroom. At U.S.-based Nordstrom Inc., which is expanding in Canada, 23 per cent of its overall sales are footwear.

Specialty rivals aren’t standing still. U.S. discounter DSW Inc. arrived in Canada a few years ago after buying 40 per cent of Town Shoes Ltd., which also owns the no-frills Shoe Company and Shoe Warehouse.

With 55 mainstream Town Shoes and about 125 discount outlets, the company is pushing even more into low-cost retailing while closing some of its Town Shoes stores, CEO Bruce Dinan said.

“If the marketplace is going to slow down, we’re going to continue to try to steal market share from others.”

Aldo’s reboot

A marathon runner, biker and skier, Mr. Frisk is following a similar path at Aldo that he took with Timberland. Its customer research found that rather than focus on a utilitarian outdoor shopper, Timberland could reach a wider following among consumers looking for stylish outdoor fashions.

At Aldo, Mr. Frisk’s team gathered data on its key customers, whom he calls Style Seekers. They want trendy, but not necessarily cutting-edge, fashion. They buy one in six pairs of their shoes at Aldo but “we weren’t selling them enough,” he said. He aims to double that to two pairs in six.

His research found that consumers expect to find Aldo products not just in its own stores but online and in other retailers where rival labels, such as Franco Sarto and Sam Edelman, are sold.

Already, Aldo supplies Nordstrom, Hudson’s Bay, Zappos, Amazon and others. Early feedback is encouraging. Camille Ewing, a shoe buyer at Zappos, said the Aldo line “is one of our most competitive contemporary fashion brands.”

But Aldo’s research also found that its shoppers are confused by too many shoe offerings. Mr. Frisk is moving to cut the number of products but add more men’s shoes because those sales are robust.

He’s paring down the number of suppliers Aldo uses, gaining better terms and clout. And he’s embarking on a major information technology project, rolling out a SAP system. He is restructuring the company internally according to geography – North America and international – rather than type of retail (corporately owned and franchised). The North American business, which now makes up about two-thirds of overall sales, will represent just 50 per cent of sales in five years, he predicts. The international business, which is almost all franchised and makes up about one-third of sales today, will represent about half. In the process, wholesaling sales are targeted to jump to 35 per cent of overall revenue from just 15 per cent. And e-commerce, which makes up about 10 per cent of North American sales, is aimed to grow 15 per cent annually in the next five years.

In North America, even though fewer shoppers are coming to stores, Aldo is focused on getting each of them to purchase more. Mall stores’ rate of converting browsers to buyers is generally between 10 and 20 per cent and “ours was at the low end,” Mr. Bensadoun said.

In a bid to clinch a sale rather than lose it to a rival, Aldo is designing its store of the future with digital screens and tablets to provide shoppers with ideas of matching up clothing with shoe styles, he said. As well, Aldo staff digitally order out-of-stock shoes for shoppers in the store. And the retailer is training sales staff to bring a second pair of shoes to shoppers when they ask to try on another pair – fetching, for instance, a best-selling flat sandal that matches the style of the pump they picked.

On the international front, sales are growing fast, although 2015 was challenging in some markets, especially the Middle East, because of foreign exchange swings, the drop in oil prices and political unrest, Mr. Frisk said. The company will look at entering new markets such as Brazil and Japan.

As for succession, Mr. B still comes into the office most days but David seems to be the leader-in-waiting. Douglas Bensadoun, his younger brother and chief creative officer, took a one-year sabbatical late last year and is reconsidering his career path while launching a startup, David said.

Rumours of a sale of Aldo or initial public offering keep emerging. The retailer “is absolutely not for sale,” David asserted. “And we’re never going public.”

Would he entertain the idea of taking the CEO job once Mr. Frisk has set down a solid foundation?

“Sure, if the time is right for the business and for the family, why not?” But first he needs to learn the part from Mr. Frisk, who needs to reinvent the company for the changing times.

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Last updated: Monday, Mar. 14, 2016 7:25AM EDT