Competitive Intelligence Project

Competitive Intelligence and Benchmarking

Skechers and Footwear Industry

Yingtu Huang

Rutgers Business School

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I choose to look at Skechers because their stock prices are not increasing by a lot in the last 5 years and the market was still dominated by other big names such as Nike and Adidas. The growth of their stock price is only 4% while Nike had a 78% growth for their stock price in the last 5 years. By doing this analysis, I want to see what Skechers could do to match their stock price to that of Nike or at least make some major growth improvement in stock price in the future.

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Industry Analysis

Industry Trend

Concentration and Competition Intensity

Value Chain Analysis

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Industrial Trend - Industry Total Size

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Industrial Trend - Profitability

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The footwear industry has been stable in recent years, because it is a daily products that is purchased on a regular basis. Unlike energy or IT industry, footwear and shoes is a necessity and does not grant consumers much choice. For energy industry, you could choose to go electric or gas.Median Net Margin and Median Operating Margin for this industry took a hit in 2016. It has also been plummeting ever since.

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Concentration and Competition Intensity

Footwear industry has been dominated by Nike in 205 and starts accepting new entrants in 2016. Skechers has been the second largest company in terms of market share. The competition is fierce because there are more companies entering this industry each year. It has become less concentrated and less monopolistic.

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Concentration and Competition Intensity - Total Revenue

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Concentration and Competition Intensity - Total Revenue

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Concentration and Competition Intensity - Total Revenue

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Concentration and Competition Intensity - Total Revenue

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Concentration and Competition Intensity - Four-firm Concentration Ratio

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Value Chain Analysis

There are more upstream parties in a typical footwear industry. Chemicals are made from materials excavated and textiles are use to make fabric for the shoes. These shoes then got passed on from these manufacturers to distributor and retail stores where consumers would usually see these products.

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Competition Positioning Analysis

Profit Frontier

Enterprise Ranking

Key Performance Indictor Examination

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Revenue vs. Cost

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Profit vs. Cost - Operating Income

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Profit vs. Total Assets - Operating Income

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Operating Margin vs. Revenue

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Return on Assets vs. Liability Asset Ratio

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Skechers has only reaches 20% of the revenues Nike made but in the meantime more revenues than other companies such as Crocs. Skechers’s operating income is on the same level as Crocs and Deckers. But Skechers’ total cost more than doubled Crocs’. This is a potential root cause for Skechers. Nike, as the dominant company in the industry, leads the industry by a huge portion in terms of operating income. Similarly, Skechers also has more total assets. Skechers is below the profit frontier and is clustered around other companies except Nike which also leads in this category. Skechers’ return on asset rate in average in the industry. Their liability exceeds assets which should raise some concern. Unexpectedly, Nike records the highest ROA among all.

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Enterprise Ranking - Total Revenue

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Enterprise Ranking - Net Margin

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KPI Examination

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Although Skechers ranked second on total revenue, it dropped to 4th on net margin. Skechers have a normal status for profitability and financial health. Total revenue growth rate is normal but they have a low free cash flow growth rate. But they do have a high net income growth rate and operating income growth rate. Their operational efficiency is normal.

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Enterprise Diagnosis

Strengths and Weaknesses

Value Driver Analysis

Breakdown Analysis

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Enterprise Comparison - Size

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Enterprise Comparison - Profitability

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By comparing them to other enterprises, Skechers had a higher total revenue and gross profit compared to most other companies except Nike. Their net income and operating income is subpar compared to many companies. However, Skechers performs poorly in other metrics on the profitability chart. Their operating margin is ranked 5th out of the 8 companies. Their return on assets is also ranked in the lower half of all the companies. This could explain their poor performance on the stock market. Gross margin and net margin is decent.

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Enterprise Trend - Size

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Enterprise Trend - Financial Health

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Value Driver Analysis

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Skechers’ total revenue is not able to grow a lot in the last 5 years, whereas Nike is able to grow exponentially. Other companies are able to maintain their operating income during the pandemic while Skechers experienced a major plummet. But it is able to recover in 2021. Likewise, Nike is able to lead the industry in both categories by a tremendous margin. Although Skechers’ short term financial health is average, its long term financial health does not look optimistic. There is not a strong negative correlation between ROA and liability asset ratio as the coefficient is -0.02.

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Enterprise Breakdown - Revenue

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Enterprise Breakdown - Assets

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Enterprise Breakdown - Detailed Assets

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Skechers has a lower COGS than the industry average. Other costs are mostly on the same level as industry average except a slightly higher SG&A expense. Crocs has a higher SG&A expense but one of the lowest COGS. Nike has the highest COGS but relatively lower SG&A expense.

Skechers has the highest PPE among all and appears to be much higher than the industry average. This can be interpreted as low utilization and higher other costs. It is also lower on the cash & cash equivalent. Interestingly, Skechers is the only one that has a portion for long term investments. Unlike others, Skechers has no Goodwill or intangible assets. Nike is able to squeeze their PPE after COVID however Skechers even increased by nearly 2%.

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Summary

Cut down PPE, Net receivables and SG&A expenses.
Improve Liability Asset Ratio and Long Term Debt Ratio
Open more stores to take up market share
Put more innovation into their products like Nike

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Competitive Intelligence Project

Primary Modal