Future Business Model - Skechers by nienke_ijtsma@hotmail.com

Image: (SKECHERS.com, 2016)

Future Business Model Skechers Nienke IJtsma 500694684 18/08/2016

1.1 Strategy 1.2 Financial

3 3

2.1 Main Points 2.2 Direction

4 4

6.1 Semester Validations 8 1 Views from the Future 8 2 Company Analysis 8 3 Scenario & Business 12 Modelling 6.2 Report Attachment 1Balance Score & KPI’s 2 Marketing Strategy 3 Partners 4 Financial 5 Forecast 2021 6 Sources

14 14 15 15 16 17 18

s s trateg y – will help the company T hi to realize well-managed growth; it uses a forecast for the coming five years (2021), and explains how SKECHERS could improve this future. T hi s s trateg y – has three goals. The company needs to communicate a clearer brand message, to make more people feel attracted to the brand; the company needs to accelerate their supply chain and go more local; and the brand needs to increase their customer base in order to sell as much as possible, as fast as possible. T hi s s trateg y – will improve SKECHERS as a brand, because it protects the company for mistakes made in the past, and gives it new building blocks for a better establishes brand in 2021.

SKECHERS is a rapidly growing footwear brand, founded in 1992 (SKECHERS, 2016). Everything about the brand is built on growth; they want to expand globally and become the biggest footwear brand in the world (SKECHERS, 2016). That is their spirit.

T hi s s trateg y – sets three financial goals. Firstly, the company needs to improve the gross margin by expanding their revenue; secondly, the company needs to accelerate the operating cycle to become more efficient; and lastly, the company needs to improve their position on the stock market in order to keep their image successful.

1 S tru ct ura l Clarify the brand message 2 Ba ck Offic e Accelerate the supply chain 3 Fro nt O ffi ce Enlarge the popularity

1 S TR UCT URA L - The structural strategy is about working on a right message, that the brand wants to communicate to the world. The brand has had a lot of problems with their identity in the past, since they got litigations against copying ideas from other successful brands, time on time again. A clearer brand message will increase the people who have positive associations with the brand, and that’s important because SKECHERS had a lot of bad publicity in the past (Annual Report SKX, 2015). 2 BA C K O FFIC E – The back office strategy is obviously the biggest part of the over-all strategy. With operational excellence as their competitive strategy, the company has a lot of potential to improve in the back office. With the acceleration of the entire supply chain, the company can optimize their efficiency. The strategy makes it possible to reduce production and transport lead times, but also to reduce costs. The biggest changes this strategy will bring are the shift from short-term relationships with manufacturers to long-term relationships with manufacturers and the shift to more local production in a new production age (The Boston Consultant Group, 2014). 3 FRON T OFFICE – The front office strategy is actually the realization of the structural strategy. The goal is use the aggressive marketing strategy, in which SKECHERS is already very competent, to communicate there improved brand message. Thereby, the goal is to make the brand more popular by as many people as possible.

NOW Like MarketLine mentions in its ‘SWOT-Alalysis’ for SKECHERS (2016) that litigations are in abundance for the footwear brand (N ov. 2 0 14 – Lawsuit against unfair competition and use of certain names and design elements. Oct. 2 01 4 – Lawsuit against copying design elements of Converse on footwear. 2 01 3 – Lawsuit against false and misleading advertising for SKECHERS’ Shape-Up’s. 2 01 2 – Lawsuit against misleading advertising and marketing activities about the Toning footwear products). These lawsuits are very costly. At the moment, as it is mentioned in the chapter ‘Risks’ in the Annual Report SKX (p.22), it is difficult to predict the impact of the advertising claims ($50 million) related to the Toning shoe products in 2012. Though this is not the kind of publicity that the brand wants to be associated with. Another poor development is the decrease of net sales at the domestic market, that will be explained in Prescient Investment Analysis’ article ‘Underperformance, Global Acceleration’ at Seeking Alpha (2016). Domestic net sales decreased by 5,4% in 2016, compared to the previous year. To bring this percentage in perspective; international net sales increased by 20,7% in the same year. The MarketLine ‘SWOT-Analysis’ shows that SKECHERS is not conscious about this, and focuses too much at the international growth instead of keeping their brand message clear.

U.S. Moreover, the decentralized structure will help SKECHERS to get their message clear globally; “SKECHERS is an original, trend conscious and qualitative brand that offers a wide range of functional products for everyone.”

ACTIONS Trend watchers, divided into geographical divisions, keep weekly meetings to share their findings and directions of thinking to the creative team. Product categories will expand in footwear; apparel; accessories; and gadgets. Moreover, two more charity-lines need to be developed for Europe and Asia, next to BOBS for America. Therefore and always, the design department keeps away from copy-practices. Division management controls and makes the final decisions. The central management will control them.

COSTS**** The new staff will cost approximately $1,2 million in the first year. The development costs of the new product categories will be $80.000 p/y. PARTNERS

STRATEGY

For this strategy, SKECHERS will work with engineers from other industries to develop new ideas. ***

The net sales of both the domestic and the international market need to increase again. It is important to take the different global situations in account in order to keep the brand high to everybody. The company’s team needs to be strengthened with new trend watchers, who are able to find out very quickly where the possibilities for improvement lay. The optimization of the supply chain * stands directly in connection with the trend watchers’ reviews. This, in order to make the company react faster at the market and realize high quality of fast and flexible services. The message needs to become clearer through a traditional marketing approach** as the company competes with cost leadership. SKECHERS also needs to upgrade their moral strategy, because the purpose of BOBS is too much focused at the

(1) Increase the domestic sales with more than $9 billion in 2021, compared to 2015. (2) Develop an innovative product from outside the current product-base, every quarter. (3) Grow the team with 3 brand ambassadors per division in 2018.

PERFORMANCE MEASSUREMENTS

* page 6 ** page 7 *** page 15 **** page 16

NOW It is still too hard for SKECHERS to react fast enough at the direct demand of customers (Annual Report SKX (p.17), 2015). In 2015, the stock price increased by 21,3% to almost $1.38 million compared to 2014 (p.47). There are three reasons for this. Firstly, the seasonal fluctuations in demand of footwear make it hard for SKECHERS to sell all the products. Secondly, miscommunication in the supply chain cause delivery date delays, which could mean that the company introduces new styles too late. Thirdly, fluctuations in tax prices result in an insecure position, and could cause that the company must pay more tax over the stock (p.18). SKECHERS only has short-term relationships with manufacturers, which makes it difficult for the company to (1) reduce CMT prices; (2) reduce production capacity; (3) ensure good quality checks; (4) take production deadlines and (5) negotiate payment terms (p.17 and 21). These manufacturers are most currently based in China (p.68). Wages in China are increasing and the other big disadvantage of the country is the high transportation delay (p.18). It is hard to sell trendy footwear when the supply chain is simply not fast enough. SKECHERS pays a lot of rents every year. At p.22 of the Annual Report SKX, a yearly rent price of approximately $125 million is based on (1) International offices retail stores, showrooms, distribution facilities; (2) U.S. distribution centre California; (3) Europe’s distribution centre Belgium; and (4) domestic retail stores & showrooms (from high-low), roughly 4% of the net revenue. These expenditures for rents do not transform in property, so this is not a good investment because they cannot sell it after the period of usage.

STRATEGY The whole supply chain needs to accelerate with SKECHERS’ perspective of rapidly growth in the near future. Therefore, the relationships with the manufacturers need to turn from short-term relationships into long-term relationships. SKECHERS needs to develop more and more product categories *, and let them produce by different manufacturers with their own specialization. More local production will decrease distances and therewith

transport lead times. This is important to react faster at the trends. SKECHERS also needs to start building capital in real-estate, in order to increase the return on equity ratio (ROE-ratio). The strategy is based on the strategy of ‘Luen Thai Holdings Ltd.’, the ambassadors of SKECHERS in China. They want to develop an integrated supply chain, and take the inspiration of the ZARA-model. This strategy will improve the (1) trend awareness, (2) efficiency and (3) product service of the company.

ACTIONS The company must improve the relationships with manufacturers to make it easier to (1) reduce CMT prices; (2) buy smaller batches; (3) make sure the products get better quality controls; (4) accelerate the production process; and (5) pay later. To save extra time, labelling and pricing needs to be done when the products arrive in the stores. Thereby, SKECHERS needs to produce a part of the products at manufacture facilities in Europe and America, and build on long-term relationships with manufacturers in Asia. To improve the ROE-ratio, SKECHERS needs to put capital into real-estate.

COSTS*** Investing in real-estate of the property that the company rents now will cost the company $77 million by 2021. Production costs of production in the U.S. and Europe will increase with 5,5% p/y. PARTNERS** For SKECHERS needs to find new manufacture partners in EU and U.S.

PERFORMANCE MEASSUREMENTS (1) Reduce CMT costs with 10% by 2021; (2) ROCE of 30% in 2021; (3) Reduce production and transport lead-times with 20% in 2021; (4) Reduce the percentage of the inventory compared to the revenue with 21,7% in 2021; and (5) Increase total property with 6% in 2021. * page 5 ** page 15 *** page 16 6

NOW SKECHERS uses an aggressive marketing strategy in order to expand the publicity (SKX, 2016). Last year, advertising expenses were $43,8 million higher compared to previous year, namely almost $170 million, and were 5,4% of net sales (Annual Report SKX (p. 35), 2015). The brand uses celebrity and athlete endorsement to get positively associated by their customers. The products are communicated as comfortable, functional and trendy footwear (SKX, 2016). At p.16 of the Annual Report SKX will be explained how the value ‘trendy’ gets the most complaints by the brand since they find it hard to continually adjust themselves to shifting popularity of styles. It says that they use their broad product range as a manner to play safe; there is no style comprised over 5% of the gross wholesale sales during 2014 and 2015. However, the company keeps innovating their product lines by developing new styles and expanding new categories (p.30). At p.30 of the Annual Report SKX, the company’s target to reach a broad demographic profile of their customer base is set. Thereby, the company aims to open 55-65 more stores worldwide in 2016. The popularity of the brand needs to grow in order to keep the conversion rates and profitability high.

STRATEGY SKECHERS needs to keep innovating their products * to increase their customer base. The symbolic value of the brand conveys attractiveness, so they need to show people that they are good in being attractive. This will be done via traditional marketing, where they show their message of the back office strategy in a original and modern way.

ACTIONS Interdisciplinary collaborations with new platforms make it possible for SKECHERS to enter new industries and broad their horizon. The entire team of brand ambassadors will grow and will come up with fresh marketing campaigns. Next to this, SKECHERS will keep on using their aggressive

Image: Collaboration SKECHERS & WIRED Magazine (WIRED, Aug. 2010)

marketing strategy, through celebrity and athlete endorsement via traditional methods, and they will sponsor popular and big events.

COSTS*** Every year the budget for the new marketing campaigns will be 5,4% of net sales, which means that in 2021 the budget will be $1,1 billion. The extra sponsoring budget for new events will be $1 million a year. The budget for other collaborative projects will be $1 million in 2017. PARTNERS Collaborations with new platforms / companies **, for example: SKECHERS & WIRED Magazine; Fashion Tech. Berlin; or Tech Textile Preferences. Also the media channels are very important to lead the brand’s expanding popularity in a good way.

PERFORMANCE MEASSUREMENTS (1) Open 55-65 new stores every year; (2) Reach a better conversion rate of 10% by 2020; and (3) Increase sponsoring events with one more interdisciplinary event p/y, next to the yearly Los Angeles Marathon. * page 5 ** page 15 *** page 16

A. Future Matrix

B. Total Revenue of the Footwear Industry

SKECHERS has a global market share of $3,1 billion, or 1,3%, in 2015. To bring this in perspective, Nike has a global market share of 12,8% in the same year (Marketwatch, 2016). To continue with SKECHERS’ goal of global success, the consultants and analysts from ‘Transparency Market Research’ expect that Asia Pacific will have 41,6% of market shares in the athletic footwear industry, by 2018. Thereby, Asia Pacific will be closely followed by Europe.

C. Fina ncial Report SKECHERS is one of the fastest growing footwear companies in the United and expects to double their business over the next five years (Run, States 2015). Sales are growing rapidly and are expected to grow even more in the future, both on domestic and foreign markets. The aim is to become a leading source of contemporary casual and active footwear, but at the moment their biggest competitor, Nike, takes the lead (Funding Universe, 2015). The company’s revenue has grown since 2012, up to $3.1 billion at the end of 2015. The return on capital employed has also grown from just 2% in 2012 to 24% in 2015. The company makes more money now than ever; last year, the net income increased by over 67% (Durante, 2016). 2012 SKECHERS has had a higher profit margin than Nike. But in 2015 Since Nike beat SKECHERS with a 1% higher gross profit margin. The key ratios at Morningstar also show a bigger potential growth of Nike’s gross profit over the coming years. It is the other way around with the net profit margin. SKECHERS’ net profit margin increases rapidly from 0,6% in 2012 up to in 2015. While Nike’s net profit margin sticks consistently at around 7,3% 10%, at least over the past ten years (Morningstar, 2016). Nike’s net profit margin might be higher but SKECHERS is about to grow faster and should pass Nike by in 2016, if the increase continues at the same rate. Looking at the solvency of the companies, 35% of SKECHERS’ total assets are debts. For Nike this ratio is 42%. It is clear that these debts come from investments that the companies make, since the sales are doing very well. SKECHERS for instance invested in a better marketing strategy and an upgrade in distribution channels and factories (Lutz, 2015). Nike invested in backyards, key markets and manufacturing communities (Nike Corporate, The returns on these investments are 18,4% for SKECHERS and 25% 2016). for Nike (Morningstar, 2016). Currently, the investments of Nike are more efficient than SKECHERS’. Also in the broader conception of efficiency it is clear that SKECHERS has a longer operating cycle and financial period, which consists out of three parts: the receiving part, the paying part and the inventory part (figure 4). The receiving part shows that SKECHERS earns more directly in cash than Nike. This is because of their physical retail stores and through partners (wholesale) and this takes more time in the cycle. The paying part shows that SKECHERS has an average of 73 more days than Nike to pay their suppliers. The inventory part explains that SKECHERS needs an average of 10 more days to sell their inventory than Nike, which means that Nike’s inventory is converted faster into money.

Figure 4: Operating cycle and financing period, information from (Google Finance, 2015) and (Morningstar, 2016).

In brief, SKECHERS has taken the right decision to use Nike as their big inspiration, because Nike is a valuable leader in the performance shoe market. SKECHERS grew enormously in the past few years and it has a growing perspective for the future, but it will be a big challenge to overtake Nike within a certain amount of time. For now, there is enough room for improvement to come closer to their goal. SKECHERS is a lifestyle footwear brand with a high diversity of different product lines. This has positive and negative effects, while it results in a lack of focus and own aesthetic. But on the other side, it gives the company a stronger competitive position, while the wide product range makes the company less dependent on one specific product. However, SKECHERS is trying to get more market share on the athletic footwear market. Therefore, Nike is their biggest competitor. In 2015, Nike had a global market share of 12,8%, compared to 1,3% for SKECHERS. In the competition with Nike, SKECHERS has a lack of knowledge about innovation and technology. But, SKECHERS maintains a lower pricing policy and is more affordable than Nike. SKECHERS uses licensing agreements and an aggressive marketing strategy to get a lot of publicity and brand awareness. This is something that really features the brand. It is their way to show their trendy image, because they use well-defined celebrity and athlete endorsement as a marketing tool. At the moment, they mainly praise their special insoles with memory foam, which is one step in the technological direction already. The memory foam could be -‐ seen as a USP, that offers the wearer positive features. It could also help people with health problems or older people. SKECHERS is one of the fastest growing footwear companies in the United States. They are continually expanding their enormous distribution centres because they expect to double their business over the next five years.

SKECHERS is one of the fastest growing footwear companies in the United

States. They are continually expanding their enormous distribution centres The biggest disadvantages for the company, at the moment, are the increasing wages in Asia Pacific and the increasing appliance of sustainability laws. SKECHERS is not transparent.

D. Organization Chart

E. Corporate Strategy

F. Staff

G. Porter’s Competitive Rivalry

H. SWOT Analysis

SKECHERS is one of the fastest growing footwear companies in the United States. They are continually expanding their enormous distribution centers because they expect to double their business over the next five years. The biggest disadvantages for the company, at the moment, are the increasing wages in Asia Pacific and the increasing appliance of sustainability laws. SKECHERS is not transparent and need to work on the creation of more brand value in order to prevent themselves for the future.

I. Future Scenario’s . # 1 – LEFT ABOVE - TECHNOLOGY EXPERIENCE # 2 – RIGHT ABOVE - BIGGEST DISCOUNTER # 3 – LEFT BENEATH - EMPATHY SENSITIVE # 4 – RIGHT BENEATH - DO IT YOURSELF EFFICIENCY

J. Future Business Mode l

.The Future Business Model of SKECHERS takes place in a situation of “Large-Scale Manufacturers” and “Low Pricing becomes the Main Customer Driver”. The customer-scale is wide because SKECHERS offers shoes in many disciplines for affordable prices. The products are known about their excellent comfort and their functional and trending designs with good quality. The company is competent in fast services and great reactions. They have a big capacity to deliver worldwide through their massive distribution centers. They are using independent Chinese manufacturers as their production facility. The cloud is their communication platform worldwide, but every different continent works with sophisticated circumstances and different design overviews. The company uses big data analysts to keep up with the trends.

OBJECTIVE

MEASSURE

INITIATIVES

2018 2020

NOTES

BRAND MESSAGE

14%

INCREASE DOMESTIC NET SALES BY 14%

ROCE

IMPROVE RELATIONSHIPS WITHIN THE SUPPLY CHAIN

10% IMPROVEMENT OF ROCE IN 2021

% STORE CLOSSURES

CLOSE UNPROFITABLE RETAIL STORES

(6%)

(18%)

STORE CLOSSURES

REDUCE UNSOLD ITEMS

% INVENTORY

ACCELERATE THE SUPPLY CHAIN

(9%)

(17%)

LOWER INVENTORY % COMPARED TO SALES

REDUCE DISCOUNTS

AVERAGE SELLING PRICE

ACCELERATE THE SUPPLY CHAIN

14%

HIGHER AVERAGE SELLING PRICE

# NEW PRODUCT CATEGORIES

10%

% BETTER CONVERSION RATE

INCREASE DOMESTIC SALES INCREASE PROFITABILITY “

NET SALES (DOMESTIC)

INCREASE CUSTOMER SEGMENTATION

# PRODUCT CATEGORIES

EXPAND CUSTOMER BASE

CONVERSION RATE

SPONSORING BIG EVENTS

PROPERTY

LESS RENTS

1,5%

% COMPLAINTS

IMPROVE RELATIONSHIPS WITHIN THE SUPPLY CHAIN

(20%)

(30%)

REDUCE CMT COSTS

CMT COSTS

“

(5%)

(9%)

FASTER SUPPLY CHAIN

LEAD TIMES

“

(9%)

(18%)

INCREASE PROPERTY BETTER QUALITY CONTROL

ENSTRONG THE FASHION MANAGEMENT TEAM IMPROVE POPULARITY

IMPROVE THE BRAND POSITION OPENING NEW RETAIL STORES

EXTENDING PRODUCT CATEGORIES

FINANCIAL

CUSTOMER

% GROW PROPERTY

CMT COST REDUCTION LEAD TIME REDUCTION LESS COMPLAINTS

# BRAND AMBASSADORS

BRAND MESSAGE

BRAND AMBASSADORS PER DIVISION

% VISITORS SPONSORED EVENTS

SPONSORING BIG EVENTS

20%

40%

% BIGGER EVENTS

TOTAL REVENUE

IMPROVING THE TECHNICAL POSITION OF ATHLETHIC SHOE SEGMENT

7,4B

13,1B

% GROW RETAIL STORES

GROW THE SKECHERS BUSINESS

11%

22%

INCREASE THE TOTAL REVENUE UP TO $17,5 BILLION IN 2021 COMPARED TO 2016. % GROW INTERNAT. RETAIL STORES

INTERNAL BUSINESS EARNING & GROWTH

Glue V alue I I SKECHERS focuses their marketing strategy on the product Cost Leadership; Traditional Marketing

AD HOC

P LA CE AMERICA, EUROPE AND ASIA; DOMESTIC AND INTERNATIONAL WHOLESALE; RETAIL WHICH INCLUDES ECOMMERCE.

OPERATIONAL

P RO DUCT

PERFORMANCE; WORK; KIDS; WALK; CASUAL; SANDALS; SAFETY

AD HOC

P RO M O TIO N BILL BOARDS; PHOTO CAMPAIGNS; TV / RADIO / MAGAZINE PUBLICITIES; SPONSORING BIG (SPORT + TECHNICAL) EVENTS

ACCELERATION

P ERS ON NEL MORE FASHION MANAGERS FOR THE BACK OFFICE; MORE TREND SPECIALISTS; TECHNICI; INTERDICIPLINAIR COLLABORATIONS FOR BETTER TECHNICAL APPROACH

AD HOC STRATEGIC

PARTNER 1 U.S. MANUFACURERS -CONTENT: LOCAL PRODUCTION -FREQUENCY: DAILY

EXPANDING DIVERSITY OF PRODUCT CATEGORIES; TREND CONSCIOUS COLLECTIONS; EXPANDING APPAREL DIVISION;

ONGOING

STRATEGIC

ONGOING

PARTNER 2 COLLABORATIVE PLATFORMS -CONTENT: POPULARITY / PUBLICITY -FREQUENCY: MONTHLY

ONGOING

AD HOC

STRATEGIC

OPERATIONAL

ONGOING

PARTNER 3 BRAND AMBASSADORS (ENGINEERS) -CONTENT: DEVELOPMENT -FREQUENCY: WEEKLY

PARTNER 4 LOS ANGELES MARATHON -CONTENT: POPULARITY/ IDENTITY -FREQUENCY: YEARLY (ORGANIZATIONAL: MORE)

MUT UAL DE PEN DEN C Y The two strategic partners are the L.A. Marathon and U.S. manufacturers. The mutual dependency with the L.A. Marathon alternative exchange possibilities, because SKECHERS gets the publicity and the marathon gets the money. The mutual dependency with the U.S. manufacturers is transaction specific investment, because the manufacturers get paid by SKECHERS to get the transaction of production done. 15

GOAL The three financial goals for the financial year of 2021 are (1) to improve the gross margin by a revenue over $20,9 billion; (2) accelerate the operating cycle; and (3) improve the brand’s position on the market. INVESTMENTS Sta ff N ew The average yearly wage of the brand ambassadors is roughly $33.000, based on the average wages of designers, marketing specialists and trend watchers who are already active for four years (Loonwijzer, 2016). Every division gets three more brand ambassadors. There are twelve divisions in total (Annual Report SKX (p.11), so it will cost the company around $1,2 million in 2017. 2015) Dev elop me nt c osts Pauline van Dongen, owner of a small-scale technological fashion brand, explained the value of product development. A prototype can cost around the $10.000 and for her small-scale brand, she needed around 250 engineers working on it. SKECHERS doesn’t need to pay more for it, because the engineer team will share bring findings into the entire company. Development will cost the company around $80.000 p/y, for four innovative product categories. Ma rketi ng C am pa igns In 2015, SKECHERS increased the marketing budget with 5,4% or $43,8 million, to $170 million (Annual Report SKX (p.32), 2015). This investment will keep in proportion with the revenue, every year, and will be $1,1 billion in 2021. In ve sting in Rea l-Est ate This table from the Annual Report SKX, 2015 shows the property, plant and equipment of SKECHERS in the end of the years 2014 and 2015 (in thousands). In 2015, the property of buildings and improvements increased with $23,3 million, which is 13%, compared to the previous year. The property of buildings and improvements were 6,4% of the revenue in 2015. It is the aim to increase this percentage to 10,4% of the revenue, or almost $2,2 billion, in 2021. The property of buildings and improvements will be $448 million in 2017, which is $77 million more than without this strategy.

H igher prod uc tion cost s ( Europ e + U.S. )

Image: The difference between China and the U.S. was only 4% in 2014; European country Spain has opportunity. (The Boston Consulting Group, 2014.) When 50% of the production will be in the U.S; 25% of the production will be in Spain; and 25% of the production stays in China, the COGS will increase with 5,5% p/y. COGS 2017 = $3.147.652.000 / COGS 2021 = $ 11.000.000.000 (0,5 x 1,04 U.S.) + (0,25 x 1,13 Spain) + (0,25 x 1 China) x COGS = $3,3 billion (0,5 x 1,04 U.S.) + (0,25 x 1,13 Spain) + (0,25 x 1 China) x COGS = $11,6 billion The strategy increases the COGS with $152 million or 5,5% (2017). The strategy increases the COGS with $577 million or 5,5% (2021). Ext ra Sp onsorin g Bu dge t a nd Ot her Colla b orativ e Projec ts The sponsoring budget will increase with $1 million p/y. The budget for other collaborative projects will be $1 million p/y. TOTAL I nv estm en ts New Staff Developments Marketing Campaigns Property Local Production Sponsoring and collaborations

$ 1.200.000,$ 80.000,$ 312.000.000,$ 77.000.000,$ 152.000.000,$ 2.000.000,-

TOTAL Stra te gy (2017)

$ 544.280.000,-

THE STRATEGY WILL YIELD (2021) The new strategy focuses on both the profitability and the efficiency of the company. The forecast shows SKECHERS’ financial situation with the ingredients of the operating cycle formula. Simply explained, if the revenue and the COGS increase faster than the accounts receivable and the inventory, both the operating and the gross margin will improve. cycle (1) Gross M argin I mprov em en t > 14% less discounts and 17% less unsold items, because the strategy focuses acceleration of the supply chain, so products are less often too late in store. at the > An increase of domestic sales with more than $9 billion, because the company will work on a clearer brand message, that keeps the value of the California roots high. > A growth slowdown of the rents to pay with 21%, because the company will buy more buildings. Every year 10,4% of the net sales will be invested in this. (2) Opt imize the Op era ting Cy cle production costs will decrease more than the expenses of the local >The production investment. This investment in local production will increase the production costs with 5,5%, while the production costs will decrease with 9%, due to better relationships with manufactures. >17% lower inventory costs, compared to net sales, because the efficiency of the faster sales, caused by a faster supply chain system.

FORECAST Every financial statement: revenue; accounts receivable; cost of goods sold; and inventory, has two columns. The first column shows the grow percentages compared to the previous year, from 2013-2015. The second column shows the change of the growth percentages, from 2013-2015. The percentages in the years 2016-2021 are the forecast; it continues the previous growth movements.

Year

Revenue

Change

2013 2014 2015 x 2016 2017 2018 2019 2020 2021

18,8 28,7 32,4 x 34,7 36,2 37,1 37,7 38,1 38,3

x 9,9 3,7 x 2,3 1,5 0,9 0,6 0,4 0,2

Accounts Receivable 5,7 20,4 26,4 x 30 32,1 33,3 34 34,4 34,7

Change

COGS

Change

Inventory

Change

x 14,7 6 x 3,6 2,1 1,2 0,7 0,4 0,3

17 27 32 x 34,5 35,8 36,4 36,7 36,9 37

x 10 5 x 2,5 1,3 0,6 0,3 0,2 0,1

5,6 26,7 36,7 x 40,5 41,9 42,4 42,6 42,7 42,7

x 16,1 10 x 3,8 1,4 0,5 0,2 0,1 0

These are the forecast results for 2021: revenue: $20,9 billion; accounts receivable: $1,9 billion; cost of goods sold: $11 billion; and inventory: $5 billion.

1. Adoch-Moro, B. (2016, Jul 13). Skechers UK Affiliate Program. Opgeroepen op August 26, 2016, van Web Gains: http://us.webgains.com/front/publisher/program/view/programID/5851

15. Morningstar. (2016, April 21). Nike Inc B NKE . Opgeroepen op April 21, 2016, van Morningstar: http://financials.morningstar.com/ratios/r.html?t=NKE&region=USA&culture=en_US

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