Footwear Market Research & Business Solutions

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 U.S. athletic footwear industry grew by 8 percent in 2015*, generating $17.2 billion and marking one of the best performances the industry has had in a number of years, according to global information company The NPD Group. Unit sales grew by 3 percent and average selling price by 5 percent, to $61.15.

Sneakers! Mules! Over the Knee Boots! Ankle Booties! Over the past few years it seems that every fashion conversation starts and ends with footwear. Today we build our wardrobe around what we have on our feet so it’s no surprise that specialty apparel retailers have taken note and have added footwear to their assortment.

Footwear in Canada is outperforming and growing 3X faster than the apparel industry. So when growth is being sought out, it seems like a natural approach to expand into footwear.

The thing is, the footwear market is evolving faster than the apparel Industry and the growth is being driven by consumer demand and a growing tendency to “see now, buy now”. Footwear is now about how fast can you produce the must have shoe that was just seen on the runways or on the top coveted influencer.  A movement that was coined “fast fashion” in the apparel industry has hit the footwear industry. This “fast fashion” is the outcome of consumer demand and is driven by the expectation of having what they want when they want it.

In today’s footwear market, if you missed the shoe of the season you might have missed the season, and catching the trend at the tail end of the cycle can result in big markdowns, or the dreaded look of being stale and passé.

This past August I walked the FN PLATRFORM show in Las Vegas, scouting what the brands had to offer and what occurred was every brand had the same 4 styles: the minimalist sneaker, the slide, the mule and the open toe ankle bootie.

And for those stand out brands that were showing something new and were keeping up with what the “influencers” were wearing…I wanted it right now! Traditionally the footwear that was being shown in August at Platform would only hit the stores in the spring. So how fast does fast footwear need to be to keep up with consumer demand? And why is the industry working on a cycle that is behind the cycle demanded by the consumer?

If these traditional footwear manufacturers cannot keep up with demand, then the apparel specialty stores might just be able to steal some of the share.

In one of Aesop’s Fables, “The Goose that Laid the Golden Eggs,” a farmer owns a goose that lays a golden egg every day. The farmer assumes that the goose must have a huge amount of gold inside it. The farmer kills the goose, and finds it to be no different than an ordinary goose, but in doing so also kills off the supply of golden eggs. Greed won out over easy wealth.

This parable provides some interesting insight into the sneaker business. Unrequited demand has been one of the key growth drivers in athletic footwear. Consumers who could not get a limited shoe came back for the next release (and the next), in hopes of acquiring a rare product.

Many brands have benefitted from this strategy, but now the industry seems to be chasing after the easy short-term sale rather than longer term sustainable growth.

Instead of seeing the release business as an annuity, some brands are trying to drive big sales increases on the back of release product. Product that was previously viewed as rare and special is on the way to becoming a commodity.

New shoe releases are sitting on shelves for weeks, as opposed to selling out in hours. Feedback from the sneaker community is that release shoes that don’t sell out are not as “cool” as they used to be. In many cases, release shoes have to be marked down to move. Previously, we rarely saw release shoes on clearance.

There is collateral damage in abandoning the scarcity model. Tangential styles that served as a substitute for sold out release product have also slowed.

Some of the recent market share shifts are likely tied to consumers’ changing perception.

The lesson for the sneaker industry is that selling out of a shoe quickly is very good for business. As one of my Twitter followers said, “The last sale is the most expensive.”

Unrequited demand is one business practice that has held up well over the years. Oversupply will “kill the goose.”

Given this current malaise in the U.S. sports business, it is important for the industry to look across the retail landscape for ideas on how to improve its current condition. The world of fast fashion may offer some clues. While the social costs of fast fashion are great, I believe we can avoid those issues while improving the trajectory of the sports business.

The Spanish fashion retailer Zara is a great example of a successful fast fashion retailer. The average Zara shopper visits a Zara store every three weeks. This is because Zara puts up an entirely new assortment of goods, on average, every two weeks. By contrast, data from The NPD Group shows that the average customer visits the average store about four times a year.

The sports world can improve its visit rate by taking some important lessons from fast fashion. Fast fashion has dramatically reduced production lead times so that products get to the market much quicker. For the most part, their products are seasonless and therefore avoid the vagaries of weather. The average customer has shifted her mindset to “buy now, wear now,” but the fashion customer is focused on “see now, wear now.”

Sports apparel and footwear are excellent examples of “see now, wear now” products. However, by leaking photos of sneakers months before their release, the element of surprise is lost. I have Twitter followers commenting, “I’m already sick of that shoe, and it hasn’t even hit retail yet.” Returning to the days before “influencers” ruled the world could help bring the sports business back.

Fast fashion’s model is based on scarcity and newness to drive traffic. The sports business used to embrace these techniques, but now seems more in tune with squeezing every last dollar out of an item, even at the risk of killing it off for years. An item that sells out can always be brought back; however, an item that is run into the ground is lost for years, and maybe forever.

Fast sellouts mean high turns, which equate to low markdowns. While fast sellouts mean some missed business, the profit gain is enormous. Stuffing the market only results in lower margins.

At the same time, releases must be commercial. In an industry that sells hundreds of millions of pairs of shoes each year, collaborations of 10,000 pairs are just noise. While scarcity is the goal, the pairs made must be in commercial quantities. Any celebrity can sell 10,000 pairs of a shoe, which is less than a teardrop in the ocean. While marketing departments may get excited about mentions in social media, these tiny releases are a massive waste of limited resources. When I wrote that “small is the new big,” I did not mean “microcosmic.”

As I read “Shoe Dog,” a memoir by Phil Knight on how he built the Nike business, it occurred to me that the model we are using for bringing products to market today is exactly the same as it was 40 years ago when Knight created it. I’m sure we all agree that the market is a tad different today than it was 40 years ago.

In order to bring the sports business back to its greatness, it must embrace new ideas and approaches. Fast fashion can offer some clues to a new path. Fresh, timely, and scarce must be the driving principles of the sports business. Premium, unique, new, and young are critical pathways to success.

In the end, these issues in the industry are not strategic, but executional. Strategy does not drive our business; execution does.

In a recent blog post, The Future Looks PUNY, I outlined that many of the success stories amidst today’s retail malaise have centered on the ideas of Premium, Unique, New and Young (PUNY). These niche concepts fall under a broader, overarching theme: in the words of Seth Godin, “Small is the New Big.”

Across the retail landscape, from food to fashion, we see examples of PUNY. Small craft brewers, in their aggregate, are taking considerable share from the mass mega-brands. NPD published news recently on the growth of micro-restaurant chains and their impact to the future of the restaurant business.

In outerwear, we see that smaller brands are taking chunks of share from the larger established brands. Consumers are still buying fleece and puffer jackets; they just want a “unique” logo on the front.

We could even argue that some of Adidas’ recent U.S. success was due to the fact that Adidas was in many ways a “new” and “small” brand in the U.S. In 2015, at the low point of their history, Adidas had only 4 percent share of the footwear market; since then, Adidas has nearly tripled its share.

In his book Microtrends, author Mark Penn explained that if 1 percent of the population does something, this equates to 3.3 million people and is therefore a trend. Chris Anderson posed in The Long Tail that the future of business is selling “less of more.”

All of this adds up to trouble for the mega-brands that try to be all things to all people. Large brands are clearly under threat from small upstart brands that capture the essence of PUNY. This raises the question, “Can big be small?”

My gut is yes, but big brands will have to make adjustments.

Brands and retailers need to think globally, but act locally. While the world is clearly flat today, brands must exploit the local nuances and differences in every market. By being hyper-aware of local needs, large brands can effectively exist.

Large brands must exploit the “markets of one” and offer many options for customization and personalization. Mega-brands must offer broad and varied assortments. Narrow assortments create sameness and boring products. Offering a program in 15 colors is not the solution.

Mega-brands must constantly be updating and changing assortments, even at the risk of killing off an item ahead of its time. Items that are terminated prematurely can always be brought back. Items that are run into the ground are dead a long time.

At the same time, mega-brands must move away from the proliferation of tiny collaborations with artists and celebrities. These collaborations are a major waste of resources that do little to drive sales or traffic. Rather, they merely provide self-gratification for marketing departments.

With the emphasis on PUNY, the concept of unrequited demand becomes even more important. Not having enough product to meet demand makes those products more unique.

All in all, the shift to PUNY and to “small” presents many challenges for mega-brands. The consumer is in more control today than ever before. How brands respond to this change will have great bearing on their future.

A lot has been written about the “pilot program” that Nike agreed to sell direct to Amazon, much of it filled with misconceptions and errors. Let’s try to set the record straight.

Probably the greatest false impression is that this deal will be incremental to both businesses. Nothing could be further from the truth. The NPD Group’s Consumer Tracking Service shows that Nike was already Amazon’s largest sneaker brand with hundreds of millions in sales, all through Marketplace.

Amazon Marketplace is a challenging business for brands. Since the sales are done by so many individual sellers, the brand has no control over their image, pricing or quality. Brands across the spectrum are trying to find a way to rein in marketplace.

Reports are that Nike’s deal calls for sellers on Marketplace to only be Nike authorized resellers, in exchange for Nike selling directly to Amazon. Cleaning up Marketplace is a huge win for Nike.

In exchange for this victory, Nike has given up price control and brand image to Amazon. Given how promotional Nike has become at retail, this could be a potential problem. How this plays out remains to be seen. It could cause a whole other set of challenges for Nike.

Given that this arrangement is a “pilot program” I expect that Nike will actually do less business through Amazon in year one than they did in their last year in Marketplace. Over time, assuming the program is successful, sales will grow but I do not think sales will be materially more than they were prior.

Another popular misconception is that somehow this deal is a negative for premium retailers like Footlocker and Dick’s Sporting Goods.  I do not believe these retailers will be affected by the deal. I expect the small “pilot” assortment to be very moderate, much like what Nike’s gives Zappos now. The products sold on marketplace were much more premium, so this deal should actually be for a benefit to the upscale retailers. I doubt if there will be much duplication in styles between Amazon and Nike premium wholesale partners.

Some of Nike’s smaller retailers could be casualties here. Likely much of the product on Marketplace came from small local retailers, which now may see this channel eliminated.

Of course, some of Nike’s decision to sell Amazon directly had to be driven by their stated strategy to grow their own direct to consumer business. While Nike grows its direct to consumer business aggressively, their sales to wholesale have suffered (as indicated by Nike’s reported results), holding back their overall outcome.

Nike, in published reports, has called out inventory issues, so a well-defined sales program like to Amazon will help relieve that pressure.

To truly be a force in athletic footwear, Amazon must improve its experience and convince brands to give them better product. Until this happens I do not see a major threat to Nike’s current major wholesale partners.

With the disappointing quarterly results from some of the major sports retailers, there has been a renewed cry that the athleisure trend is over. While recent results for athleisure have been challenged, the rest of the apparel and footwear markets have actually been much worse.  The gap in trend between athletic and fashion has remained about the same. There is no indication that the athleisure customer is spending their money on other footwear and apparel.

There is no question that we are in a cycle of brick & mortar retail malaise in the U.S., with many of the industries that NPD measures experiencing a slowing down of sales. Retail traffic continues to slide downward, and we are on track to close a record number of stores this year. It appears that retail is killing retail.

We cited a year ago that many fashion brands were rushing into athleisure to tap into the positive growth the category was experiencing at the time. This has created a glut of brands that are making performance apparel when they have no history of making (or marketing) “performance apparel.” We predicted a bubble, and that bubble is bursting. In the meantime, the glut of inventory is hurting the core performance brands and retailers.

In an effort to reverse their sagging wholesale sales, several brands have ramped up their direct-to-consumer efforts. The branded athletic outlet business is robust, as is online discounting. But this devalues the regular product sold in core retail.

We are in a sportswear-as-fashion cycle right now. There is not a single performance category that is trending positively. Brands have been unable or unwilling to create more sportswear to feed this market, instead making more performance products that have to be reduced to clear.

Much of the product at retail is uninspiring and tired. Brands have not done a good job of creating compelling new products to ignite the market.

At the same time, in an effort to drive sales, brands have loosened restrictions on retailer promotions. This combination of too much weak off-trend product, and more permissive rules have made this back-to-school period the most promotional in more than two decades. When price is the sole motivator for purchase, retail is in trouble. Shopping in sports has never felt more joyless

As we have noted previously, there has been a slowdown in sneaker purchases by Hispanics. This has also had a major dampening impact on the industry.

So Athleisure is not dead by any means, but like much of retail it is very sick.

The sports industry is at a critical crossroad. Will the industry go the way of the rest of teen retail, chasing the deepest discounts in a race to the bottom, or will the industry do the right thing and return to the days of full-price sales, focusing on the aspiration and inspiration that made the industry great? 

Time will tell which course wins out.

The calendar was kinder to the second quarter than the first, but challenges still remain in the athletic footwear and activewear space.

While the overall Q2 sales trend (April-June) in athletic footwear was actually better than Q1, it had more to do with calendar shifts than an actual improvement. The late Easter benefited April sales, which were up in the high single-digits. Both May and June sales declined, which is setting the stage for potentially poor back-to-school results.

Looking at the quarter overall, men’s and kids’ athletic footwear sales were down in the mid-single digits, while women's grew in the low singles. Looming over is the slowdown in sneaker purchases by Hispanics, which is impacting sales this year. In terms of channel performance, shoe chains and department stores both grew their sales. Athletic specialty/sporting goods declined, as a result of what I’ve said will be the last quarter where we feel the heat of The Sports Authority comparison.

In terms of category performance, classics, which had been growing at a stifling pace, slowed to a low teens increase. Adidas classics were essentially flat as key franchises are now post-peak. Nike grew by more than one-third in this category, and Puma increased sales in the mid-single digits. Casual athletic has become the hot category these last few months, leading the pack in Q2 with sales up nearly 50 percent. Market share leader Adidas is clearly exploiting this strong fashion trend. Other categories that experienced growth include outdoor/water sandals and sport slides.

Basketball footwear has not rebounded, with sales down in the high teens for Q2. All the major brands in this space took a hit. The struggle in running continues, with Q2 sales down in the high singles. All the major technical running brands continue to see a decline in sales. Nike running was soft, as new initiatives have not had much impact. Adidas was a bright spot for the category, as its running sales more than doubled. Other categories that saw sales decline were cleated products and hiking/light hiking footwear.  

By brand, Adidas and Puma were among the top gainers in Q2, while Nike, Brand Jordan, Converse, and Under Armour saw sales decline. Nevertheless, the Nike brands continue to dominate the top-selling list. The top-selling styles of Q2 were Nike Air Huarache, Nike Tanjun, Jordan XI Low, Converse All Star OX Low, and Adidas Superstar.

Activewear sales for the quarter were also down, in the low single-digits. The men’s market declined in the low singles, while women’s was flat and kids’ grew in the low singles. Sales grew at department stores and national chains, while the athletic specialty/sporting goods channel declined.

Looking at some of the bigger categories in the market, knit shirts, active bottoms, socks, and sport bras all experienced a sales decrease. One of the biggest gainers was sweatshirts, with sales up over 20 percent.

Private label remains a hot story, as retailers are trying to escape the extreme promotional environment caused by changes in brands’ ad policies. Sales of private label activewear grew during the second quarter.

In terms of major brand performance, Adidas, Fruit of the Loom, and Hanes experienced sales increases while Nike and Under Armour sales were soft.

Two important seasons – back-to-school and holiday—close out the year and sway overall annual sales. I expect this back-to-school to be the most promotional one in 20 years, and for sales to be soft. Holiday will likely also be challenged, but hopefully not to the same degree.

The overall state of the U.S. outdoor business has not been very good. According to data from NPD’s Retail Tracking Service, dollar sales are down year-to-date through May 2017 compared to the same period one year ago, across the men’s, women’s, and kids’ markets.

Some of the reasons are well-known. The closing of The Sports Authority and Sport Chalet created a void that has not been filled. Outdoor products sold through the athletic specialty/sporting goods channel have declined in the high single-digits. At the same time, little of these lost sales have been picked up in the outdoor specialty channel, where sale are down in the low single-digits for the year so far. Even sales in outdoor e-commerce have declined.

The ongoing retail rationalization has had an impact on the entire retail business. Retail sales in general are slowing. Consumers are spending more money on travel and experiences, and less on things like shoes and shirts. The cold and wet spring in much of the nation did not help. All these are part of the problems in outdoor retail.

The sports specialty business remains under siege as well. As we look across that landscape, sales are tough for specialty categories like cycling and running. Outdoor specialty is not immune to these forces. There is likely a “silent” rationalization happening in the specialty businesses where small stores and chains are shuttering as well.

Looking at specific categories, the outdoor accessories business declined in the high single-digits for the year so far. The luggage business did trend positively, a reflection of the robust travel business. Travel remains a great opportunity for the outdoor industry to exploit. The bag business is down in the mid-singles, with only sports equipment bags trending up. Sunglass sales are down in the mid-teens.

Outdoor apparel declined in the mid-singles. The cool spring no doubt helped certain categories as headwear, handwear, cold weather undergarments, and outerwear all posted gains. This, however, was offset by declines in sportswear and sweats/active bottoms.

Outdoor equipment sales were down in the low-teens. Equipment accessories also declined in the low-teens as a sharp drop in cookware and instruments business offset growth in coolers, where the soft-sided business is surging.

The camping business, a bright spot a few years ago, posted a high single-digit decline year-to-date. The hot climbing business was also down, dropping in the low single-digits.

Footwear sales were also soft, down in the high single-digits, as very weak running shoe sales tempered low single-digit growth in outdoor footwear.

When we look at the outdoor business by brands, we see that those including Patagonia, Marmot, SmartWool, Arc’teryx, Osprey, Kuhl, and Keen all had increases. The North Face, Columbia, Merrell, and YETI all experienced declines for the year so far. 

All in all, it has been a tough year for the outdoor industry. While there are opportunities like travel to exploit, the industry must respond to the ever-changing retail business.

There has certainly been a lot of bad news for the U.S. sports industry recently. We cited the dramatic slowdown in the sneaker purchases by Hispanics, as well as a pessimistic prediction for back-to-school.  The short term prospects for the industry are not very bright.

Nevertheless, there are some bright spots for the industry which may help reverse its fortunes. I describe those opportunities as PUNY: Premium, Unique, New, and Young. Let’s explore these ideas.

The athletic shoe business in the U.S. has always been built on aspiration and inspiration, with emphasis on better price points. Conspicuous consumption has been a hallmark of the industry. While today’s highly charged promotional environment would seem to argue against this trend, we are still seeing strength at the top price points.

In every channel, much of the growth is coming from the high end of each channel’s pricing. The top seller list is dominated by higher priced items.

There is bifurcation in pricing where the growth is split between better prices and opening prices. Premium products can serve as an effective strategy to build the business.

When asked to describe themselves in one word, Gen Z most frequently called out “unique.” Gen Z has indicated a willingness to spend more for unique products that help this generation define themselves. This cohort wants to buy unique products from unique brands, sold through unique retailers.

However, this uniqueness must not stray too far from the core. I describe this attitude as, “I want to be different, just like my friends.” This opportunity should bolster smaller brands and retailers. Exclusive styles and colors are one way for brands and retailers to leverage this trend. Personalization and customization are also effective strategies.

Millennials and Gen Z are both attracted to the new. They are early adopters of everything from tech to fashion. Technology and innovation are driving their attraction to the new. New products are often unique as well as premium.

Combined, Millennials and Gen Z now represent more than half of the U.S. population. The share of each cohort to the total grows every day. On top of that, Gen Z is now old enough to enter the workforce and become an even stronger economic force.

On the other hand, the Boomer rank has declined by about one million per year – a rate that will only accelerate. Chasing a declining Boomer population is not a recipe for success in this industry.

The one issue with these PUNY opportunities is that not all of them are at scale to offset the weaknesses elsewhere. Brands and retailers must seize these opportunities to reverse the declines the industry faces.

I am more pessimistic today than I was in December about the short-term prospects for the U.S. athletic footwear and apparel markets.

Late last year, my expectation was that 2017 would be an average year, with a weak first half offsetting a strong second half. The anticipated soft sales in February occurred, but the rebound has not materialized.

Then I discovered the Hispanic spending slowdown, as I wrote about recently. Athletic footwear sales to Hispanics have been quite soft, after several years of good growth. As Hispanics represent more than 20 percent of the U.S. athletic footwear market, this slowdown has had a significant impact on the business, and I expect that it will contribute to a soft back-to-school performance for athletic footwear. All brands and channels are affected by this Hispanic slowdown, but Nike, Brand Jordan, Vans, and Skechers are hurt the most.

Classics, lifestyle running, and casual athletic will remain the strongest growth categories. Performance footwear will remain soft for back-to-school, although the declines in basketball will moderate with easier comparisons. In line with this, technical running brands will continue to struggle.  Nike has had soft sales results in the U.S. and there is nothing to suggest that this trend will get better for the back-to-school season. Representing about half of the total athletic footwear market share in the U.S., Nike sales impact the entire industry. My expectation is that Under Armour footwear sales will struggle for back-to-school, even with the expanded distribution. 

All in all, I expect that athletic footwear will post a low to mid-single digit decline for the back-to-school season. Given the changes to advertised pricing policies, we can expect this to be the most promotional back-to-school in the 17 years I’ve been doing research.

I also expect that the U.S. activewear market will be challenged, but for different reasons. Since the beginning of the activewear movement, hundreds of fashion brands have rushed into the category to try and grab some of the gold. Retailers are now filled to the rafters with sweatshirts and yoga pants, most of which are made by brands that don’t know how to make performance apparel, and sold to retailers who don’t know how to sell performance apparel.

This push has caused a glut in the market that will take time to flush out. The core activewear brands and retailers are getting crushed under the increased and inferior competition.

Both Nike and Under Armour apparel will most likely struggle for back-to-school, while Adidas will thrive. The more mass brands should also fare well this season.

I expect that activewear sales during back-to-school 2017 will decline in the low single-digits.

As in athletic footwear, this will be one of the most heavily promotional environments seen in decades.