Profile of
Steven
Madden, Ltd.
By Francine Falcon
ESSENTIAL FIRM DATA
History of the Firm
Steven Madden, founded in 1990 by its namesake, designs, produces, and sells footwear
and other leather goods such as handbags and accessories (belts, sunglasses, small
leather goods, etc.). The company is headquartered in Long Island City, New York. Steve
Madden, the man, continues as the company’s creative director. The company primarily
sells its goods through department stores and other large shoe retailers. According to
the firm’s website Steve Madden once described his creative process this way, “What
inspires me is what I see people wearing on the streets of the world from New York to
London and beyond. I get my ideas from pounding the pavement all over the world”
(“About Steve Madden”).
Costs, Revenues, and Profit
Like all other firms, Steve Madden purchases land, labor, capital, and entrepreneurial
ability from households in the factor market (see Figure 1 below—INSERT CIRCULAR
FLOW DIAGRAM HERE).
Figure 1
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For example, Steve Madden hires labor in the factor market. Steve Madden employs
approximately 1900 full-time workers at various wages. Steve Madden’s labor costs are
highest for its executives who presumably provide not only labor, but also
entrepreneurship skills. The CEO, Edward Rosenfeld earns more than $800,000 according
to Yahoo Finance.
It is safe to assume that Steven Madden must also purchase land, such as leather,
plastics, and synthetic materials, as well as physical capital, sewing machines and plants
for production, in order to make shoes and its other goods available to the market.
According to Crain’s Business News Steven Madden operates at least one factory at its
headquarters in New York, which allows it to get new products to market quickly.
Like most firms, Steven Madden incurs both fixed and variable costs. In the short run,
rent and licensing fees would be classified as fixed costs, whereas hourly labor and
materials would be classified as variable costs.
Financial statements identify Steven Madden’s total costs for the last quarter (the most
recent data is available for the quarter ending September 30, 2014) were just short of
$256 million. The company brought in revenue of $392 million over the same period,
netting the company a gross profit of $136 million. The third quarter of 2014 was the
company’s most profitable quarter in a year.
Recent news about the company complements the profit numbers, indicating the firm is
in relatively good shape compared to its competitors in the industry. Steven Madden
recently acquired Dolce Vita, a fashionable brand aimed at young women. Steve
Madden has cash reserves necessary to make acquisitions and experiment in the market,
both in the U.S. and overseas.
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MARKET STRUCTURE
Steve Madden operates in the market structure known as monopolistic competition. In
this market structure “many companies compete in an open market to sell products that
are similar but not identical” (O’Sullivan 166). Low barriers to entry and a small degree
of market power also characterize monopolistic competition.
Steve Madden has many competitors including Guess, Kenneth Cole, Sketchers, Crocs,
Brown Shoe Company, The Jones Group, and many others. Shoes are not like
commodities sold in perfect competition in that they are clearly a differentiated product.
One quick visit to a shoe retailer will reveal a tremendous variety – sandals, heels, boots,
wedges, athletic shoes, flats, platforms, etc. The website for Designer Shoe Warehouse
which offers Steve Madden shoes, for example, lists more than two hundred different
brands of women’s shoes from which to choose. Shoes come in so many different
shapes and materials that shoe firms can exercise some control over the price by arguing
their products are better quality or more fashionable than the competitors’ shoes.
Additionally, the existence of a firm logo and the firm’s emphasis on the significance
and meaning of the brand – the firm’s website includes a section called “What Makes the
Brand Unique” (“About Steve Madden”) – further indicates the structure of monopolistic
competition.
For Steven Madden, operating in a monopolistically competitive market structure offers
the ability to charge a slightly higher price than perfect competition. On the downside,
the company has many competitors and new competitors can join the market relatively
easily. The relatively high level of competition also means the firm cannot, however,
charge the even higher prices of an oligopoly or monopoly firm.
For the consumers of shoes, this market structure offers tremendous variety! However,
customers will pay a higher price for products sold in this market structure than in
perfect competition. It could be worse, though, if shoes were sold by a monopoly.
MARKET STRUCTURE
RECENT TRENDS
According to the most recent data on personal income in the United States, Americans
are bringing home larger paychecks. The Bureau of Economic Analysis reports that,
“Personal income increased by $41.3 billion, or 0.3 percent” in the month of December.
Given that that most goods and services are classified as normal as opposed to inferior
goods, one can speculate that the demand for products sold by Steve Madden will
increase (see Figure 2 below). An increase in demand would, assuming perfect
competition, lead to an increase in the market price for shoes and an increase in the
quantity of shoes produced and sold.
Alternatively, if wages are on the rise that means employers are paying higher labor
costs. An increase in the costs of production causes supply to decrease (see Figure 3
below), which in turn leads to higher prices and a smaller quantity of shoes produced
and sold.
If supply decreases at the same time that demand increases, the price of shoes will
certainly rise, but the quantity of shoes produced and sold will be indeterminate.
(DRAW IN SUPPLY AND DEMAND GRAPHS HERE
Figure 2
Figure 3
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According The Dallas Morning News, Southwest Airlines has, at least temporarily, become
a supplier of leather. The airline is replacing its seat covers and using the old leather
covers to make small leather goods including shoes. Some of the “upcycled” leather is
being used in Africa, but the firm will be also be looking for leather projects here in the
U.S. as well.
Southwest’s actions have effectively increased the number of suppliers of leather. When
supply for a product increases, the supply curve will shift to the right causing the price to
decrease and the quantity produced and sold will increase (see Figure 4 below).
Because the price of leather is falling, the supply of shoes will increase. Cost and
availability of inputs is a determinant of supply. Southwest’s actions mean that leather is
both more available and less costly. This means Steven Madden and other shoe firms
can make a larger profit on each pair of shoes produced and sold, so they are willing to
supply a larger quantity of shoes at every market price. The supply curve for shoes shifts
to the right (see Figure 5 below) leading to a lower price for shoes and a larger quantity
produced and sold.
(Insert Supply and Demand Graphs Here)
Figure 4
Figure 5
RECENT TRENDS
WORK CITED
Sources of Data
“About Steve Madden.” SteveMadden.com. Steve Madden, n.d. Web. 15 Feb. 2015.
<http:// stevemadden.com/custserv/custserv.jsp?pageName=AboutUs>
Jean, Sheryl. “Southwest ‘Upcycles’ Old Airplane Seat Leather Into Bags, Balls, Shoes.”
The Dallas Morning News. Dallas Morning News, Inc., 11 Feb. 2015. Web. 13
Feb. 2015. <http://www.dallasnews.com/business/airline-industry/20150210southwest-upcycles-old-airplane-seat-leather-into-bags-balls-shoes.ece>
O’Sullivan, Arthur, and Steven M. Sheffrin. Economics: Principles in Action. Boston:
Prentice Hall,
2007. Print.
Pasquarelli, Adrianne. “Steve Madden Has Bigger Shoes to Fill with Latest Buy.” Crain’s
New York Business. Crain Communications, 2 Sept. 2014. Web. 15 Feb. 2015.
<http://www.crainsnewyork.com/article/20140902/RETAIL_APPAREL/308319985/stevemadden-has-bigger-shoes-to-fill-with-latest-buy>
“Personal Income and Outlays, December 2014.” The Bureau of Economic Analysis. U.S.
Commerce Department, 2 Feb. 2015. Web. 9 Feb. 2015.
<http://www. bea.gov/newsreleases/national/pi/pinewsrelease.htm>
“Steven Madden Ltd.” Google Finance. Google, 13 Feb. 2015. Web. 15 Feb. 2015.
<https://www.google.com/finance?q=NASDAQ%3ASHOO&ei=srbgVIGmHYO5iwL4hoD
4Cw>
“Steven Madden, Ltd.” Yahoo! Finance. Yahoo!, 13 Feb. 2015. Web. 15, Feb. 2015.
<http://finance.yahoo.com/q/pr?s=SHOO+Profile>
“Women.” DSW: Designer Shoe Warehouse. DSW, Inc., 2015. Web. 15 Feb. 2015.
<http://www.dsw.com/shoe-brands/women/>
Image Sources
“Circular Flow.” Online Image. Your Daily Drink of Macroeconomics. WordPress.com,
n.d. Web. 10
Feb. 2014. <https://oliveramesmacrog. wordpress.com/table-of-contents/basiceconomicconcepts/measurement-of-economics-performance/circular-flow/>
“Steve Madden.” Online Image. Wikipedia. Wikimedia Foundation, 30 Jan. 2015. Web. 9
Feb. 2015. <http://en.wikipedia.org/wiki/Steve_Madden>