Sneakernomics: Nobody Wins a Race to the Bottom
Matt Powell, Vice President, Senior Industry Advisor ;
The U.S. sports retail business used to be aspirational and inspirational. Consumers used to believe that these products would help them perform better, which would often lead to being inspired to take up new activities. And if the products didn’t help their performance, most consumers were happy with how they looked wearing them.
Now, we have a race to the bottom; and that’s a race nobody wins.
Holiday 2017 was the most promotional on record – that is, until Holiday 2018. This season’s promotional activity was driven by the brands, which are making it ever more apparent that their growth comes at any expense, including that of their wholesale partners.
Most brands kicked off their holiday promotions before Black Friday, setting the tone for the season. One brand took 40 percent of its outlet pricing, signaling both a sales and inventory problem. Another was deeply discounting every week during the season.
The retailers were not immune to the promotions, with one taking 25 percent off the whole store (which is the surest way to sell all the good stuff at a discount and be left with the rest in need of further reductions).
We’ve trained our customers to wait for the deal. The products selling quickly are those that consumers think they can flip in resale marketplaces. And even that model is starting to show flaws. In an unprecedented event, one reseller took 15 percent off a popular “designer’s” shoe before the holidays. Resale multiples continue to sag.
What caused this to happen? Weak product lines, failed business models, and too much reliance on old thinking is my opinion.
It’s not too late to change the course here. But brands will have to be disciplined (and do less business, in the short term). Retailers will have to be restrained from chasing the last (and least profitable) sale.
It’s going to be hard to put that genie back in the bottle, but it is possible. We need to return the industry to one of aspiration and inspiration or we run the risk of just being another teen retailer, with massive discounts needed to populate the stores. This new year brings with it new opportunity for the industry to change course.
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