Footwear Market Research & Business Solutions

The U.S. athletic footwear industry grew by 2 percent in 2017, generating $19.6 billion in sales, according to global information company The NPD Group. Unit sales also grew by 2 percent and average selling price remained flat, at $58.16.

The three key components of the $334 billion retail fashion segment, apparel, footwear, and fashion accessories, are each in different positions when it comes to the business, according to leading global information company The NPD Group. The apparel industry, which represents 65 percent of total U.S. retail fashion dollar sales and spans everything from basics to jeans, continues to enjoy the consistent growth experienced over the past few years. Conversely, the more trend-driven footwear and fashion accessories industries are now experiencing sales declines, keeping overall retail fashion sales in the 12 months ending February 2017 even with results from the prior year.

The recent decision by the Supreme Court of the United States which allows states to regulate gambling on sports will have an impact on the sports retail business.

The leagues in the U.S. are constantly searching for new revenue streams. The big cash cow, TV rights, has likely reached its peak as some leagues have seen viewership fall in favor of much less lucrative social media platforms.

The last two major unrealized revenue streams for the leagues are legalized gambling and ads on jerseys. We have seen the NBA successfully introduce ads on jerseys. No one was smote from above. Over time, I expect ads on jerseys will be an even greater thing, as the ads take over a larger amount of the jersey. Sleeves will return as that will allow more space for ads. The big money has yet to flow, but it will. Global soccer shows potential here.

My belief is that leagues will support gambling on games as long as they get a cut. I expect several states will quickly enact gambling statutes in time for the NFL season this fall. Look for one of the states that has already voted for gambling to take the lead here and create a template for others.

There will likely be great hue and cry over the morality of gambling, but states are as strapped for new sources of revenue just as leagues are. Gambling will come with fancy trappings, but it will come. (As a local wag once told me while standing in front of a New Orleans casino: “We don’t have gambling here; we have gaming.”)

Las Vegas takes a hit here as bettors will no longer have to travel there to wager. We can expect the sin in “Sin City” to expand to offset these losses.

It will be fun to watch the fantasy leagues (who have long claimed fantasy was not gambling) try to get a piece of this business.

The NBA will take the lead here as the NFL dithers about “integrity” issues. Maybe the NFL can use these proceeds to pay off the CTE claims. I love the idea that the leagues will support “integrity fees” and get their cut of the bets. Leagues will likely charge for “league sanctioned data and content” as another way to grab some revenue.

Mark Cuban, owner of the Dallas Mavericks, said “everybody who owns a top-four professional sports team just basically saw the value of their team double, at least.”

Legalized gambling may be the final lever to get the NCAA to pay its indentured servants who bring in vast amounts of income to the coaches, athletic directors, and schools.

I’m also looking forward to the time when Paddy Power Betfair is a household name.

Marginal teams and marginal players will get a lift here as they make great betting targets, much like we have seen in fantasy sports. It remains to be seen if legalized betting creates an increase in fan wear worn as streetwear.

In addition to the sports retail environment, it will be interesting to observe how this decision will impact sports ratings, which I expect will go up.

For some time now, there has been an investment approach around environmental, social and governance (ESG) standards. Studies have shown investing in companies that score highly on these characteristics outperform the market. The indexes used measure environmental uses and policies, corporate diversity, racial and gender diversification among executives and governing bodies, as well as human rights policies. Companies with a high score on sustainability and ethical performance tend to outperform those with low scores.

This concept of ESG is spilling over into consumer behavior, driven by Gen Z. Sports retailers and brands must pay attention to this critical change.

Gen Z is the most connected generation. They have never known a world without a smartphone. Consequently, they rely on social media for connection, communication, and commerce. They are likely to use social media to seek the opinions of their peers, not just on what is in fashion but to learn about the ethics of the brands and retailers they are considering.

They are also the most diverse generation, meaning it’s likely that as Gen Z consumers get older, they will gravitate towards brands and retailers that are more diverse, and will be more likely to withhold their business from those that are not.

Gen Z is progressive and political. They will not sit idly and hope that circumstances change. This generation is one that will likely push for change and respond more positively to those brands and retailers that follow suit.

As a generation that is out to change the world, Gen Z demands that brands take visible stands on social issues like diversity. According to a recent Forbes article, human rights is the primary cause for Gen Z, and equality is non-negotiable. Brands can no longer claim to be apolitical, and what they stand for must be transparent. If Gen Z disagrees with a company’s values, they will take their business elsewhere.

Gen Z also seeks meaning in their work, products, and brands. They value relationships above all else. This makes them both tolerant and respectful. Gen Z will demand that same tolerance and respect from their brands and retailers.

Gen Z understands that companies have a role in improving the world. They will demand that the brands and retailers invoke that role. Those that do not will lose their attention.

One of the most difficult tasks in sports retail is managing the marketplace, especially with hot items. Brands that do this effectively have a steadier growth pattern and higher profits.

A retailer’s job is to buy what’s hot and trending in the market. Retailers want to buy as much of what’s hot as they can. If they buy too much, the retailer typically leans back on the brand for help.

Today’s retail metrics are driven as much by liquidation rates as by growth. As long as an item maintains an acceptable sell through rate, the retailer is happy. A low liquidation rate will trigger markdown optimization programs which will suggest price action. Sometimes an item is a slow seller simply because the retailer has stocked too great a quantity.

With the advent of these markdown optimization tools, too often retailers grow impatient around introducing new products and brands. Often if a new product does not immediately meet the accepted sell through, retailers abandon the new initiative. It is incumbent on the brand to manage the retailers’ expectations. Retailers need patience when evaluating the success of new items and brands.

Brands see the entire marketplace. They know how much of an item is sold in it and therefore must control the marketplace. Brands must use sales and velocity data to make sure an item does not get either overheated or oversaturated. NPD can help frame the market for new or emerging items, and help the brand to understand the market potential.

The fastest way to kill a hot item is to allow too much of it to be sold into the market. Retailers will lose their interest and push for price action. The sports industry is littered with items that died due to oversupply. Once an item is killed off due to oversaturation, it can take years to build back the credibility and demand.

It is an important lesson that the last sale is often the least profitable. Brands that try to squeeze every last sale out of an item will often be disappointed in the profitability of the late sales.

Scarcity remains an effective tool in building consumer interest and retail confidence. No one ever went broke from selling an item out too fast.

Brands that effectively manage the marketplace will attain steady growth and healthy profit.

It’s been quite some time since Nordstrom announced that they were going to be opening their first Nordstrom Rack store in Canada; and since then, there has been significant buzz around when this was going to happen. Well a few weeks ago the doors to the first location at Vaughan Mills Mall finally opened and with all the anticipation and buzz, I decided to go check it out for myself.

The first question I keep getting asked is why did it take so long and why do you think there was such a delay. As we have seen with most successful retail imports, slow and steady seems to win the race. However, it was interesting to me that Nordstrom went ahead and expanded their regular banner stores before opening their off-price banner - kind of the opposite strategy that we had seen with Saks Fifth Avenue. This is made even more interesting by the fact that the off-price channel in Canada was the fastest growing channel in 2017 and continued to outperform the market growing +12 per cent from last year.

After visiting the first Nordstrom Rack store it became obvious that this was done with a very strategic approach and every detail of the opening was thought out in an effort to ensure that the Rack would be successful and the buzz would not fade. Here are a few insights I took away from my visit:

1. There was clearly a strategic decision here to use the regular Nordstrom stores as the branding vehicle. Essentially keeping the essence of the Nordstrom brand intact while offering discounted options. Nordstrom had brought a certain “cool” factor and younger energy to the Canadian landscape that had been missing and using that voice in the off-price space would fill that void that the channel has been lacking. This would also help acquire a stronger presence with the Millennial consumer as off-price is under indexed in the only generation cohort that posted In-store growth from a year ago.
2. The level of transparency in labeling was fascinating but also so needed in the off-price space. At Nordstrom Rack everything was clearly labeled without any hidden agendas, such as “Designer Shoes” and “From Our Nordstrom Stores”. To me this removed the disarray out of the hunt and created a guided shopping experience.
3. A major difference between Canada and the US is that Canada is specialty focused with over 50 per cent of apparel dollar sales traced to specialty stores vs. only 25 per cent in the US. Nordstrom Rack really played into this by merchandising by commodity not department as each key commodity was labeled and merchandised so it was very easy to shop.  This really engages the way Canadians shops.

The second question I get asked is there room for another off-price player in the Canadian landscape, isn’t this space already crowded?

If we look at the US, 12 per cent of the apparel dollar sales are traced to off-price where in Canada only it’s only 7 per cent - that’s a 3pt. gap of opportunity. And to take that further in Canada 93 per cent of the off-price channel sales are traced to 2 major players where in the US 95 per cent of the off-price channel sales are traced to 7 retailers.

So whether this increases competition, thereby driving market growth, or opens the door for the channel expansion, one thing is for certain – the Canadian market does in fact have room for more off price players.

So welcome to the Great White North, Nordstrom Rack!

A lot has been written about improving the customer “experience” in sports retail. No one would argue the importance of great customer experience. But experience can mean different things to different people, and even different things to the same person depending on circumstances. Let’s explore the different kinds of customer experience and how sports retailers can respond.

Retail must be easy. The transaction experience must be as stress-free and frictionless as possible. Once a purchase decision is made, get the product and customer out of the store as quickly and simply as possible. Lines at the register or multi-step checkouts are not conducive to a great experience.

Retail must be personal. “Brand Me” is your customer’s favorite brand. Well curated assortments are critical to serving “Brand Me.” Personalization through special offers and loyalty programs leverage the retailer’s best customers. Elevated and knowledgeable service adds to the personalization.

Retail must surprise and delight. Part of a memorable experience is discovering the unexpected. Retailers must feature newness, and the newest products must tell great stories. Today’s consumer wants unique products, made by unique brands, and sold in unique retailers. Private label, if well executed, can be a component here.

Retail must offer value. Like it or not, the price equation is firmly part of the retail experience today. Price has never been more important to the consumer. At the same time, value also means getting the most for your money. Understanding this balance is key.

Retail must be flexible. Not all of the same characteristics apply to every encounter. Sometimes consumers just want to get in and out of the store as quickly as possible, while sometimes they want to be pampered. Not every new initiative works. Astute retailers will test and respond.

The retail experience has never been more complicated, or more important. The successful retailers will be those who offer the greatest experience.

Overall for 2017, U.S. team sports equipment sales declined in the single digits, but below the surface it was a mixed bag, with notable pockets of growth.

Baseball equipment sales for the full 12 months were down in the low singles; however, a solid increase in sales during Q4, as new regulation compliant bats hit the market, was a bright spot for the category. The strength in bats carried the other baseball categories with it. This baseball boost helped the team sports equipment market as a whole for the quarter, with Q4 sales up in the low-single digits and closing the year on an optimistic note. I expect the positive baseball trend to continue through springtime, and provide a nice lift for the market as we move through 2018.

Basketball sales fared well, growing in the low single digits for the year, as participation continued to improve. Racquet sports also grew in the low singles, as Baby Boomers are looking for an easy entry and inexpensive fitness activity.

Soccer had a challenging year, with sales down in the low teens. With 2018 being a World Cup year, I expect sales to bounce back.

Sales of American football equipment were down in the low singles, as parental concerns about injury weighed on the sport.

On the other hand, heightened safety concerns have been a boon for protective gear sales, which grew in the mid-teens for 2017. Parents are spending more on ways to keep their kids safe from injuries and concussions while playing sports, and this will continue to be a growth opportunity for the equipment market. Protective gear should be a major thrust for every sports retailer. There are three protective gear makers in the winners column for 2017: Shock Doctor, McDavid, and Battle.

In terms of brand highlights, Rawlings had a good year, even in the face of the changeover due to the baseball bat regulation. Easton could not quite overcome the switch in bat regulations, but I expect it will have a better 2018. Everlast grew on interest in mixed martial arts.

Overall, I expect the team sports equipment business will remain challenged for 2018 as participation continues to slide in a number of sports, but leveraging the growth areas and unlocking new opportunities in the activities that can use fresh attention, will likely boost sales in the months ahead.

I really wish I came up with that simple yet clever term, but the credit goes to a New York Times columnist, writing about the fourth snowstorm to hit the Northeast in March, which arrived after the official start of spring. Now of course no one is under any illusion that come March 20 it will, all of a sudden, be sandal weather, but 12 to 18 inches of snow post-vernal equinox does seem a bit excessive. 

A week or so ago, on the day of the third Nor’easter of the month, I noted the number of promotional emails related to spring in my inbox: “Spring is just one week away!”  “New season, new styles!”  “Warmer days ahead!”  It was like someone clearly missed the memo.  A few days before that (just after the second storm in March), I walked by a prominent independent shoe store in my neighborhood and saw a letter paper-sized printed sign in the window that read “WE HAVE BOOTS!” The window was full of sandals, so the sign was needed, or else someone looking for boots might have just kept walking.  

Clearly the footwear (and broader retail) industry is still challenged to adapt the flow of product.  Industry players have talked at length about the fact that the retail calendar does not align with the actual seasons, nor with the mindsets of consumers as they look to “buy now, wear now.”  Since I’m on the topic of snow, it’s worth pointing out that dollar and unit sales of winter/snow boots have declined by 10-15 percent during each of the past two boot seasons*.  But, while we don’t have March 2018 results yet (as it is still more than a week away from month-end as I write this), looking back at March dollar and unit sales for 2016 and 2017 reveals small dollar volume, but double-digit growth each year. This suggests that consumers have an increasing appetite for this type of product in March, whether it be out of actual need or just acting opportunistically, taking advantage of post-season clearance sales (which are apparent given the rapid deterioration of price points versus earlier in the season).  Not surprisingly, the top growth designated market areas (DMAs) for winter/snow boots in March for the past two years combined are New York, Philadelphia, Chicago, and Boston.**

So you know the saying “March comes in like a lion and goes out like a lamb?” Well, that lion seems to be hanging around a bit longer these days, so perhaps there is some opportunity for brands and retailers to take advantage.  In addition to the spring email marketing I received on the day of a snowstorm, I have been pleased to see a few other messages over the last week that recognize the fact that it is still cold and snowy in the Northeast, promoting the appropriate products. But, what if we took it one step further? With seasons blurring together and late winter/early spring seemingly colder and snowier than ever, February/March could be a good time to release a limited quantity of new snow boot styles scheduled for full launch during the upcoming fall/winter. This newness and limited supply could potentially entice consumers who have not yet bought a new pair to do so, and/or create demand for the full launch later in the year.

*The NPD Group/ Retail Tracking Service, 6 months ending February 2018 and 2017
**The NPD Group/ Retail Tracking Service, March 2017 and 2016

Of the 20+ industries NPD tracks, one of the fastest growing in 2017 was the beauty industry. Sales in the U.S. were up a robust 6 percent compared the tepid, low single-digit growth in the sports industry.

I asked my colleague Larissa Jensen, NPD’s beauty industry analyst, for some thoughts on why beauty has done so well, in hopes of learning some lessons that may be applied to improving the sports business.

Here are the top five trends Larissa identified as driving the beauty industry’s successes today, and where I see the applications for sports retail:

Natural/Wellness – Natural brands are outpacing the growth of all beauty categories in the U.S. (makeup, skincare, and fragrance). In skincare specifically, natural brands are the largest brand type and made up half of the category’s dollar volume gains in 2017. In fragrance, natural brands make up only 1 percent of sales, but grew 8X faster than the category.

The sports industry has always had a strong connection to sustainability. Perhaps a renewed focus on this goal and a greater understanding of Gen Z’s interest in “clean living” could benefit sales. Brands that share the values of their consumers will win in 2018.

Indie Brands – Legacy brands are looking for ways to remain relevant in today’s market. In skincare, brands outside the top 20 make up the majority share of dollars; they are growing the fastest and gaining the most share points. But more generally, smaller brands are winning in beauty because:

• They are nimble and able to react to trends more quickly.
• They look to consumers, not other brands, for inspiration on what to launch.
• They have a clear focus and a targeted market.

I’ve written on several occasions that “small is the new big” in sports. Today’s consumer wants unique products, sold by unique retailers, made by unique brands. Mega brands must come up with ways to “act small.” Brands and retailers that try to be all things to all people will struggle. Curated assortments, clearly defined muses or niches, and fresh retail approaches will be the keys to success in 2018. No brand or retailer has gone out of business by listening more closely to their consumers.

Social Media – This is the biggest driver in makeup as it provides the biggest impact via social sharing; it’s easy to see a ‘before and after’ effect. The top 10 brands in makeup are often the most buzzed about brands on social platforms. Influencers play a big role here, and we have seen in our data how influencer collaborations typically generate more sales than the more traditional celebrity collaborations. 

“Rent-a-celebrity” is starting to play itself out of sports. Athletic endorsers no longer produce significant retail results. Paid celebrities are viewed by the consumer as phony, but honest, unpaid influencers continue to have sway in the market. Peers remain the most important influencers. Brands that can harness this trend will win.

Experiential Retail – Brick-and-mortar still holds the largest share of sales, and brands need to win here to win overall. Strong online sales alone will not drive growth. Specialty stores are where consumers shop more often, enticing consumers with unique brand and product offerings in a fun retail environment. Also, we have seen an influx of pop-up and pop-in stores in high volume cities including NY, LA, and San Francisco, which allow manufacturers to immerse the consumer in their brand experience, and provide Instagrammable photo ops for consumers to share on social media.

Retailers need to “surprise and delight” their customers. Retail stores that look the same, visit over visit, are uninspiring. Products, brands, and retailers must tell exciting and provocative stories to attract consumers and get them returning to their stores.

Beauty specialty stores are particularly hot right now. Some feature a “mass to class” product lineup, and offer sampling add-ons, and hair and nail services. Consumers can spend hours in these stores and share that experience with their friends. Sports retailers must think about how they can replicate this kind of experience.

Dotcom – This area of the beauty market has seen double-digit growth since NPD began tracking it. At the highest level it’s about convenience across all categories, but the dynamics of online differ by category. In fragrance, where penetration is the lowest, it’s about replenishment. In skincare, where online penetration is highest, it’s about easy access to online reviews, providing consumers the confidence to purchase this more complicated and higher price-point category. In makeup, replenishment and experimentation (new launches) play a role in the gains. Online only brands (like Kylie Cosmetics and ColourPop – before it went into Sephora) draw lots of excitement through social media and their limited edition strategy, leveraging the “fear of missing out” (FOMO) trend.

Footwear is one of the highest e-commerce penetrated categories. Yet, it seems that the sports industry’s online approach is purely transactional, rather than relationship building as we see in beauty. The big challenge is how to get customers to visit websites often, not just to shop but to build a relationship with the retailer or brand, as the beauty industry has done.

There are many important teachings for the sports industry to learn from beauty. In today’s retail landscape, industries cannot live strictly in their silos, but must see the bigger pictures and learn from each other. Retailers and brands that take a more progressive approach can expect success in the future.

In my previous blog, I wrote about the ways in which retailers can revolutionize the in-store environment to survive the internet age. Shopping must be an experience for today’s consumer, but each consumer has a different definition of “experience.” So, how do retailers strike the right chord? 

Retailers must develop their own “muse,” or an iconic customer that represents the core of their business. In creating their muse, retailers must target and tailor the experience to their core customer. Brands and products that do not line up with this muse must be exorcised. Retailers must challenge their thinking periodically on their muse, but they must always have a “north star” to lead them.

Once the muse has been created, retailers must curate their assortments to be focused on this muse and its tangents. Their brands must illustrate a clear point of view in their product assortments.

Not every brand will survive this contraction. Retailers must pick the brands they think will be winners and elevate them. Brands that are predicted to win in the future must be nurtured and over emphasized. This does not necessarily mean dropping brands not designated as winners, but retailers must wean themselves off these brands. Remember, brands and retailers no longer create trends; the consumer is in charge now. Brands and retailers must feed these trends.

In addition, consumers want to know where a retailer stands on key social issues, and this must be reflected. Retailers must take positions on social issues that are important to their core customer, even if it risks alienating others.

Loyalty programs are also beneficial, but then again must be tailored to the muse. Retailers should not waste consumers’ time with meaningless features and too many communications.

To tie everything together, retail must be omnipresent – available to consumers whenever, wherever, and however they want. Retailers must have one common pricing, one common inventory, and one common message. Anything short of that is failure.

By blending the experience with core values, retailers can improve every aspect of the physical store, which is a must if they are to survive the internet age.

In 2017, growth in the U.S. athletic footwear and activewear markets meagerly improved. While sales in physical stores declined, online sales grew in the high single-digits. We can expect this pattern of online sales driving industry growth to continue.

At retail, a record number of physical stores closed in 2017 and it’s expected that even more will close over the next two years. Some have predicted that there will be 25 percent fewer malls in the U.S. Sports retailers are facing a very challenging time, especially in the brick-and-mortar channel.

Of course brick-and-mortar sports retail will continue to exist, but the industry must accept the fact that there will be fewer physical stores in the future, physical stores will contribute a smaller portion of total sales, and that profits in physical stores will get squeezed.

In this downsizing, which doors will close? Retailers must look towards building models that predict which stores are the likely closure candidates and move swiftly to get those units behind them. Stores that just break even today are never going to make money again. Stores that are in malls with vulnerable anchors will likely not survive. We cannot expect stores that are not growing now to return to growth. Closing marginally profitable or unprofitable doors improves the health and profitability of the remaining smaller companies. Retailers must be ruthless in their rationalization strategies.

Retailers must respond to this new normal. To compete in this new world order and hold onto their territory, they must elevate the shopping experience.

Today we have the ability to make the shopping experience more personal than ever before. With contextual marketing, retailers can know what their shoppers bought and can find ways to add on to or enhance that purchase. Consumers want to shop at retailers that know their needs and desires, sometimes even before they know themselves.

Shopping must also be easy and frictionless. Too many steps and too much time wasted are all negatives for today’s consumer. In addition, all shopping is social today. A consumer’s most important influencers are his/her peers. Retailers must make it easy for shopping to be more social.

Part of making shopping easier is to bring the internet into the store. Physical and virtual shelves need to be more fluidly intertwined. Retailers should arm sales associates with devices that can easily access inventory. These devices can also be great training tools for the sales associates.

Physical retail also needs to elevate the quality of their sales associates. With a tight labor market and increasing minimum wages, we can now demand more from our sales associates. If we pay peanuts, we get a different level of quality than if we pay top dollar and can demand the best.

Not all of these suggestions are easy. Many are complicated and expensive, but retailers must transform shopping into a unique and cohesive experience if they are to survive in the age of the internet.