State Of The Market - Footwear

YEAR IN REVIEW: Everythingís A Blur
Less inventory, fewer stores, more interest. The footwear industry now has some bounce in its step. According to the NSGA, retail sales of athletic footwear rose 4 percent from October 1999 through March 2000; sales were $5.55 billion versus $5.35 billion for the same period the previous year. Category winners included running (up 14 percent in units and 15 percent in dollars) and tennis (up 17 percent in sales). Basketball sales sunk 10 percent.
According to First Security Van Kasper vice president and senior research analyst John Shanley, the overall athletic footwear market will hit $10.1 billion in í00 and should grow 5 to 6 percent in í01. The brown shoe business will total $8.5 billion in í00 and is expected to grow 11 to 12 percent in í01.
In the athletic realm, the top four brands dominate. However, the white shoe business is becoming difficult to track because the defining characteristics of the product itself are changing.
Many shoes now combine athletically cushioned bottoms with rugged uppers, blurring the line between white and brown. According to Shanley, this is the reason the industry is seeing concurrent growth in the athletic and brown shoe markets for the first time since 1991. ìHybridî brown/white shoes are not only forming a new category, but are becoming the fastest-growing segment of the market. The trend is making it easier for companies to expand into new niches.
For athletic companies, running shoes still rule in both performance and fashion. A few manufacturers, such as Saucony, report that more people are abandoning gym/fitness and cross training shoes in favor of running shoes imbued with stability and motion control technology.
Nevertheless, many experts believe the industry has become too dependent on running and must now introduce fresh ideas and technology to generate market growth. Nikeís Presto and Shox innovations and Reebokís expansion of DMX underscore this point.
Many smaller and mid-sized companies, such as Puma, K-Swiss and Converse, are eschewing the super-heated high-end sneaker business and instead chasing the action sports segment with value-priced product. Skate, fashion/athletic and retro/classic looks remain strong.
In outdoor, the consumer shift away from team sports continues. Here, footwear is still rugged and stable, but complemented by streamlined silhouettes and athletic styling. Salomon, Montrail and Timberlandís Mountain Athletics all encompass this ideal.
Amphibious footwear is also making waves because it offers function, fashion, convenience, and has a good price/value ratio. Look for Hi-Tec, Teva, 5.10, Timberland and Columbia to make further strides in í01.
Finally, the womenís and walking categories, which are intrinsically linked, are positioned to boom, and convenience footwear has become a financially viable category in both the outdoor and athletic segments.
COMPANIES TO WATCH: Athletic
Diadora: Should double U.S. business within five years by retaining a 10 percent share in soccer and expanding running and tennis. Appointed new U.S. division president, Bill Nuttall, in June. Invicta outdoor/lifestyle brand could arrive here in í02.
Ryka: The only athletic footwear maker to focus exclusively on women is now taking advantage of growing retailer interest in this segment. Ryka should grow 5 to 10 percent domestically and 15 to 20 percent internationally in í01.
Etonic: Licensee Kinetic, Inc. will launch a full line of Etonic athletic shoes for Spring í01. The collection is the brandís first introduction since September í99.
TAKING STOCK: Less Is More
The retail consolidation earthquake that has rocked the industry since í98 has turned into a series of aftershocks that will continue through í01. While the turmoil has resulted in cleaner product pipelines, decreased inventory and streamlined operationsóin short, a more efficient industryóit also means fewer stores are carrying less product, leaving brands to fight for shelf space that is almost half of what it was a year ago. Said First Security Van Kasper analyst John Shanley, ìFoot Locker has cut the total number of SKUs it carries by 50 percent, which makes it tough for marginal brands. Retailersí strategy now is to carry fewer products, but to always be in stock with what they carry.î While this may benefit larger manufacturers, those with less market share will find it more difficult to get onto the retail floor.
SGB Footwear Stock Index
Exch./Co./Sym./Close Price*/52 Wk. High/52 Wk. Low/PE Ratio
NASDAQ/Columbia/COLM/41.5/48/14.46/25.00
NASDAQ/Deckers/DECK/4.5/6.5/2.5/8.00
NYSE/Fila/FLH/8.37/14.37/6.18/N/A
NASDAQ/K-Swiss/KSWS/25.5/31.5/10/11.00
NYSE/Nike/NKE/36.37/59.25/25.81/17.00
NYSE/Reebok/RBK/16.75/21.93/6.93/12.00
NASDAQ/Saucony/SCNYA/10.81/19.75/8.87/7.00
NYSE/Skechers/SKX/15/19.93/3.25/16.00
NYSE/Timberland/TBL/43.93/44.5/18.12/16.00
NASDAQ/Vans/VANS/13.81/17.87/9.93/13.00
NYSE/Wolverine/WWW/10.5/13.5/8.56/24.00
* As of 10/23/00
FUTURE WATCH: Young At Heart
As Americaís population gets younger, the major playersóReebok, adidas and even Nikeóare repositioning themselves to combat fashion interlopers and gain the loyalty of Gen Y consumers. This mission is made more urgent by the increasing overlap of sports and lifestyle influences and by a trend away from team sports.
Vans, Skechers and Airwalk are already well-established in this respect, and are using their brand equity and credibility to expand beyond the action sports market. Athletic brands such as Saucony, Brooks, Puma and And 1 are succeeding by mixing strong technology with fashion, and by offering performance footwear as well as a broad line of classic/retro styles.
Because the industry is concerned with catering to the fickle youth market, reducing product timelines and increasing speed-to-market will be a huge issue in the year ahead. adidas, for example, plans to reduce its 18-month footwear supply chain cycle by 50 percent by í03; it now spends 12 months on product creation and six on procurement.
Speedy manufacture of customized product is another trend worth watching. Companies such as imakit.com are developing systems that allow manufacturers to design small quantities of custom collections for specific retailers that can be easily replenished if the demand exists.
imakit.com also works with Dunk.net, which offers individual product customization via the Internet; consumers can design a single shoe with 480 possible variations. Nikeís ìmake-to-orderî NIKEiD program caters to the individual as well.
BRICK & MORTAR REPORT
Now that there are fewer stores, competition for shelf spaceóparticularly in the athletic sectoróhas never been fiercer. A promotional atmosphere prevails, making retail life even more difficult. Remarked one buyers, ìIf you look at the numbers in the marketplace, outside of Nike, Iím not sure that any consumers are brand-loyal. Most people buy according to price.î
In response, many athletic and outdoor manufacturers are opening their own retail stores and are expanding concept shop roll-outs. This strategy allows the vendors to portray their brands in the best possible light and to speak directly to the consumer.
COMPANIES TO WATCH: Casual
Gravis
Gravis has gained a foothold in the action sports realm and is no longer just a Burton offshoot. Introducing bags and womenís-specific shoes for Spring/Summer í01.
Birkenstock
Steady growth in sandals is augmented by focus on closed-shoe outdoor/hiking category (which had amid-double-digit increase this year). Now offers technical socks that complement contoured footbeds.
Mephisto.
A comfort and adventure travel leader, particularly among the 35-and-up set. Womenís business accounts for half of sales, and the company expects to double in size within four years.
COMPANIES TO WATCH: Rugged
5-10
Innovation is staggering. The first to put cushioning in climbing shoe heels (with Ascent and Waco models), is succeeding with impact casual line, and has just received a swim fin patent. In í01, will ìstealthilyî roll into bike segment; Orbit snowboard binding biz projected to grow 30%.
Salomon
Sales are up 35 percent from last year due to ultra-light (adventure racing-inspired) and convenience footwear. New winter line marries performance and style. Will re-address action sport-influenced ìRoad Tripî category in Spring í02.
Rugged Shark
Steady growth is leading to greater recognition. Launched womenís amphibious line for Spring í01, and clinched a global licensing deal with The National Geographic Society to produce an outdoor performance collection.
Top 12 Athletic Footwear Companies:
Company/Proj í00 sales*/% chg
Nike/$3.26 billion/-1%
New Presto and Shox technologies, as well as a renewed focus on the womenís segment, should make for increased sales in í01.
Reebok/$965 million/+5%
A new management team is bent on improving and leveraging technology as well as unifying brand image. DMX sales are up 78 percent from a year ago and the company has gradually increased its market share (mostly at the expense of adidas). Viva ìSurvivor.î
Adidas/$806.4 million/-4%
Six months of streamlining and cost-cutting, a new adidas America president, global brand repositioning, and a three-divisional strategy should bring improvement in the second half of í01. Company seeks 20 percent domestic market share by í03.
New Balance/$730 million/+25%
Steady growth comes from current accountsóthe company is working more closely with retailers to strengthen relationships. Outdoor and trail product is still hot. Will move into new corporate HQ this month.
K-Swiss/$195 million/-26%
Classics business is off and futures are down; company shipped fewer pairs overall this year. Nonetheless, K-Swiss still managed to make a profit.
Saucony/ $160.2 million/+29%
Sold Merlin and Quintana Roo bike businesses in June í00. Technical footwear line should surpass the still-growing Originals business in í01. Launching Hyde Authentics dress/casual collection.
Asics/$152 million/+9%
Asics is on a roll with footwear logging 7 to 9 percent annual growth.
Converse/$132 million/0%
Staggering debt could be the companyís undoing, but for now, most consumers are blissfully unaware of problems, futures are up, and key retailers are still placing orders.
Fila/$108.3 million/-5%
Has improved product but market share is still declining. Making an effort to get back on athletic retail shelves.
And 1/$76 million/+48%
Basketball-only brand has both performance and style. Moderate prices also attract consumers. Slip-on footwear line is booming. Who said that using Sprewell and Knight as endorsers would lead to no good?
Brooks/$70.15 million/+15%
Is growing the business via the running market. In í01, will offer fewer cross training and hoops models; high-end running product should boost sales and further endear the brand to specialty retailers.
Puma/$60 million/+27%
Initiated ìBlue Mountainî strategy to segment footwear and apparel. Still targets soccer, running and classics, but will mix in sports, lifestyle and fashion influences as well. Five-year total U.S. revenue objective is $500 million.
* Projected í00 U.S. Athletic Footwear Sales. All sales figure are based on industry sources.
Top 6 Casual Footwear Companies:
Company/Proj í00 sales*/% chg
Skechers/$540 million/+24%
Energy collection is helping to drive business at retail. Company will boost ad budget to between $60 million and $80 million (8 to 10 percent of sales) in second half of ë00/first half of í01.
Stride-Rite/$350 million/0%
Tommy Hilfiger is down. Sperry is flat and Keds is up. In this instance, brand diversity has proven a good hedge against fickle market trends.
Vans (1)/$212.3 million/+30%
Continues to increase equity and credibility by investing in the action sports market. Skateparks, Triple Crown competitions and the annual Warped Tour all connect the brand to the lifestyle.
Lugz (2)/$165 million/+7%
Is expanding into suburbia by broadening product and marketing, but without losing touch with urban consumers. In í01, sneaker biz should account for 25 to 27 percent of sales, and will grow with retro and classic looks.
Deckers Outdoor/$113.1 million/+3%
Teva, which accounts for about three-quarters of the companyís revenues, has expanded beyond sandals into hiking, and will leverage Wraptor technology in both. Simple now has a dedicated sales force and Ugg is expanding its casual offering.
Airwalk/$70 million/-3%
A new CEO (Bruce Pettet), new ownership and a new corporate headquarters should help the company improve its position in the industry. A primary goal is to work more closely with retailers to improve time-to-market.
* Projected í00 U.S. Casual Footwear Sales. All sales figures are based on industry sources.
(1) For fiscal year December 1999 through November 2000.
(2) Figures are for North America
Top 6 Rugged Footwear Companies:
Company/Proj í00 sales*/% chg
Timberland/$639.4 million/+15%
Intro of Trek Travel was successful and Mountain Athletics is thriving. Third quarter results for the period ended September 29, 2000 represented the 17th straight quarter of record earnings.
Rockport/$417 million/-5%
Making a concerted effort to get consumers emotionally involved with the brandówill double media budget in Spring í01. New Italian-made ìcircle rî line to hit retail in February í01.
Wolverine World Wide (1)/$360 million/+25%
Merrell is on fireóit helped reinvent the after-sport category and now accounts for about $100 million in sales, all of which is allowing Wolverine to extend the distribution if its other businesses.
Nike ACG/$202 million/0%
Nike seeks a connection with ìalternativeî youth via ACG. Plans to spend $32 millionó9 to 10 percent of sales, up from the usual 1 percentóon marketing in the coming year. Still looking to replace departed president Gordon McFadden.
Hi-Tec/$50 million/+20%
Having huge success with amphibious footwear due to merging market trends of function, fashion and convenience. European-based company will soon become private.
Columbia/$38 million/+40%
Most of the growth is coming from existing retail accounts that are buying more; footwear is now about 10 percent of the companyís total U.S. business. Bought Sorel brand in September and will relaunch it in Fall í01.
* Projected í00 U.S. Rugged Footwear Sales. All sales figures are based on industry sources.