Dr Martens PLC (LSE:DOCS) is an iconic piece of British culture.
Associated with skinheads, punks, musicians and youths, the black boots are easily recognised and if you don’t own a pair, you almost certainly know someone who does.
The market, however, is struggling to rely on its cultural importance to justify increasing the overall company's valuation.
Shares in the company tumbled more than 25% on Thursday after it warned of weaker full-year profits and subdued wholesale orders in the US.
Dr Martens has been interwoven in UK culture Source: FT
This has left investors wondering whether the boots can ever become a mainstay brand.
Why the US issues?
Russ Mould at AJ Bell believes the weakness Stateside is heavily influenced by a drop in disposable income.
He said: “The US consumer spending boom fuelled by stimulus cheques and high levels of savings amassed during the pandemic looks to be on its last legs.
“That cash has now been spent and more people are turning to credit cards and buy now pay later, implying that consumers are still addicted to spending but the momentum is unsustainable.”
Footlocker, the sports shoe retailer, has seen its shares fall by a similar percentage in 2023 and even received a downgrade from Citi analysts on Monday due to fears about it over-discounting its stock.
Luckily for the US group, its impressive third-quarter financials and outlook overshadowed the downgrade and shares are up by more than 20% in the last five days.
Even everyday retail chains like Best Buy and Home Depot have struggled.
Still a hit with US celebs Source: Vogue
Dr Martens have been sold in the US for quite some time now and were closely linked to music genres like grunge rock.
Yet, the influence of the shoes in the US was mere ripples compared to the waves it created in the UK, leaving investors holding their breath regarding the success of the Stateside market.
Trouble in LA
One argument for the weakness in the US is that its operational headwinds have been amplified by the tough trading conditions.
Earlier this year, the shoe manufacturer revealed it had been suffering a 'bottleneck' at its Los Angeles distribution centre after stock was transferred to the site faster than expected.
Dr Martens initially opened three temporary warehouses to help with the problems but warned that the costs could reduce core profits by as much as £25 million.
Clive Black at Shore Capital spoke to Proactive and said: “[Dr Martens] put quite a big investment into its distribution structure, hence the impact of the Los Angeles centre, which has had costs overrun and left a big impact on full-year margins.”
Supply chain issues are disruptive and can wreck guidance, but does this justify the group’s complete share price collapse or is there more to it?
“If the issues were just about short-term, distribution centre problems, and short-term trading, then I don't think investors would be pulling the hair out,” Clive Black said.
Poor fit?
Weak trading filtered through multiple industries in the US over the autumn, just look at luxury brands like LVMH, which also cites poor demand in North America as the cause for slowing sales.
So, the same can be said for Dr Martens, right?
“I guess the worry is that the brand may not be as robust and resonating in America as management thought,” Black explained.
Too much of a culture shift for the US? Source: One Block Down
The issues involving the distribution centre have been dealt with, and while they may have weakened sales this year, the steep falls indicate the US could be a problem – even if the damp consumer outlook shifts.
“Only time will tell if this is just a bit of a short-term issue here or whether it’s more strategic and structural.”
The main question is whether Dr Martens is well-positioned to access the US market in the mid-term.
Black concluded: “If it is, it could be a buying opportunity. If it isn't though, then it’ll have to do some serious thinking about where it allocates resources and strategy.”