DSW 2012 Annual Report Download - page 8

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styles and styles that may become popular in the upcoming season. We track store performance and sales trends on a weekly
basis and have a flexible buying process that allows us to reorder successful styles and cancel underperforming styles
throughout the seasons. To keep our product mix fresh and on target, we test new fashions and actively monitor sell-through
rates. We also aim to improve the quality and breadth of existing vendor offerings and identify new vendor and category
opportunities. We will continue investments in planning, allocation and distribution systems to improve our inventory and
markdown management.
Investment in Our Infrastructure
As we grow our business, we believe we will improve our profitability and operating performance by leveraging our
support functions and cost structure across all overhead functions. Most significantly, we believe continued investment in
systems will enhance our operating efficiency in areas such as supply chain (merchandise planning and allocation, inventory
management and distribution), labor management and point of sale functions.
We plan to continue to expand our system investments in our supply chain to support size replenishment and size
optimization initiatives as well as assortment planning to enhance our markdown management. Size replenishment focuses on
replenishing core styles at a size level; size optimization allows us to allocate sizes by store; and assortment planning will allow
us to further localize assortments. Also, we are developing a charge-send system to enable us to fulfill unmet demand
originating from either dsw.com or DSW stores from inventory that is located in other stores rather than only from our
inventory in the fulfillment center or the customer's home store.
Our primary distribution center is located in an approximately 700,000 square foot facility in Columbus, Ohio that we
leased prior to our purchase of the facility in fiscal 2012. The design of the distribution center facilitates the prompt delivery of
priority purchases and fast-selling footwear so we can take full advantage of each selling season. In fiscal 2012, we completed
the reconfiguration of the Columbus distribution center to expand capacity and improve efficiency. To further ensure prompt
delivery, we engage a third party logistics service provider to receive orders originating from suppliers on the West Coast and
some imports entering at a West Coast port of entry through our West Coast bypass center. Merchandise is transported either
from our West Coast bypass center or our primary distribution center to our pool points and on to stores. We also expanded our
dsw.com fulfillment center in fiscal 2012 and are planning to complete a similar reconfiguration project in fiscal 2013 to further
expand that facility's capacity. Our dsw.com fulfillment center processes orders for dsw.com, which are shipped directly to
customers using a third party logistics provider.
Utilizing Our Financial Strength
Our operating model is focused on assortment, convenience and value. We believe that the growth we have achieved is
attributable to our operating model and management’s focus on store-level profitability and economic payback. Over the five
fiscal years ended February 2, 2013, our net sales have grown at a compounded annual growth rate of 10%. In addition, we
have consistently generated positive operating cash flows and profitable operating results. We intend to continue our focus on
net sales, operating cash flows and operating profit as we pursue our growth strategy. We believe cash generated from DSW
operations, together with our cash and investments of approximately $410 million as of February 2, 2013, should be sufficient
to maintain our ongoing operations, support seasonal working capital requirements, fund capital expenditures related to
projected business growth and continue payments of dividends to our shareholders.
Additional Information
Affiliated Business Group
We operate shoe departments for three retailers. We have renewable supply agreements to merchandise the shoe
departments in Stein Mart, Inc., Gordmans Stores, Inc., and Frugal Fannie’s Fashion Warehouse stores through December 2014,
January 2016 and April 2017, respectively. We own the merchandise and the fixtures, record sales of merchandise net of
returns and provide management oversight. Our affiliated business partners provide the sales associates and retail space. We
pay a percentage of net sales as rent. As of February 2, 2013, we supplied merchandise to 260 Stein Mart stores, 83 Gordmans
stores and one Frugal Fannie’s store.
Competition
We view our primary competitors to be department stores and brand-oriented discounters. However, the fragmented shoe
market means we face competition from many sources. We also compete with mall-based shoe stores, national chains,
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