DSW Slows Growth, Yet Accelerates Marketing

(MoneyWatch)  Advertising firms rejoice! At least one retailer out there cutting back on new-store openings is beefing up its marketing plans.

Discount-shoe retailer DSW only plans to open 10 new stores this year (even though it just crossed the 300-store milestone), down from 41. But it's also boosting its marketing budget by $15 million, a significant jump from what the retailer was spending in the past. According to an SEC filing last year, marketing expenses for all of 2007 were $28.9 million, and that figure was down $100,000 from the previous year.

Of the new increase, 70 percent will focus on its television advertisements. This is happening when DSW's sales are sliding. Revenue at stores open at least a year dropped 7.2 percent during its fourth quarter.

Those plans had one analyst, John Zolidis of Buckingham Research, scratching his head during the company's fourth-quarter conference call:

Why care about market share? Is that really important when customers are spending less? Can you tell us why that's is a good place to spend your dollars when customers are being less responsive and spending less?

Deborah Ferrée, vice chairman and chief merchandising officer defended the company's initiative, saying the timing is right for a discount-oriented retailer to strike. "We think we have the right value business model and it plays very well into what the customers' needs are right now."

I'm not sure I'd bet my dwindling retirement fund on this strategy, but it makes sense in a way. Consumers are obviously out there looking for deals and publicity on network and national cable channels where DSW has stores could bring in some shoppers.

We'll see what the new company's leader thinks of the strategy. DSW just hired Michael McDonald as its new president and chief executive officer, who is leaving Shopko Stores, where he held the same position.