footwear

Athletic Footwear

Industry Insight

Date May 2016

Approximate net recovery on cost

Synopsis

Current trends

  • Total U.S. footwear sales in March 2016 fell 2 percent to $2.9 billion from $3 billion during the same month the previous year
  • Athletic footwear is bucking the trend, driving growth for top brands
     

Key statistics

  • Industry revenues: $17.2 billion (U.S. retail sales of athletic footwear)
  • Major product categories: Men’s footwear (50%), women’s footwear (20%), athletic/other (30%)
  • Significant companies: Nike, Sketchers USA, Timberland, Adidas, Asics, Puma, Reebok
  • Market share of top: The top 50 footwear manufacturers account for more than 95 percent of U.S. sales
  • Recent sales trends: More active lifestyles, a desire for comfort and celebrity endorsements are among some of the reasons that athletic footwear outperformed the rest of the industry during 2015
     

Classics driving industry growth: As reported by The NPD Group, U.S. retail sales of athletic footwear grew by 8 percent in 2015 over 2014 to $17.2 billion, led by strong growth from classic shoes. The $3.5 billion classics category, including retro basketball and retro running shoes, grew by 30 percent in 2015 over the prior year. The classics trend showed substantial sales increases across all consumer groups, including women (69 percent growth), children (29 percent), and men (26 percent). Consumers may see athletic footwear companies in the U.S. modify product development strategies to take advantage of the continued interest in classic styles.
 

Other strong-performing athletic categories include shoes for hiking, walking and cross-training. Conversely, growth slowed in the running, basketball, and casual/athletic categories. First Research notes that the average U.S. selling price for a pair of athletic shoes in 2015 grew five percent to $61.15, indicating that consumers will pay more for a style they want.
 

First quarter off to strong start: Athletic footwear sales grew in the mid-single digits during the first quarter, according to The NPD Group. As further evidence of the category’s strength, Sketchers USA Inc. posted record first quarter 2016 profits. Under Armour Inc. exceeded analyst expectations yet again, posting its 24th consecutive quarter of more than 20 percent sales growth year over year. And Adidas reported a 22 percent increase in revenues, marking the highest quarterly revenue in the group’s history. The NPD Group expects athletic footwear will continue to be a primary growth driver for the industry during 2016.
 

Athletic footwear is typically a higher than average gross recovery category for men, women and kids. As sales continue to be strong in this category, recovery rates should also maintain to the extent that retailers’ mix of branded goods and stock availability remains strong.
 

Store closures on the horizon: In January, Finish Line, a major athletic shoe retailer, announced it will shrink its footprint by about 25 percent, closing 150 stores during the next four years. But it wasn’t lack of industry growth driving the changes. Rather, weak retail store location performance, problems with inventory management, and a lack of exclusive products were cited as challenges. While most don’t think this was a bellwether for the industry, it is an indicator that the major retailer has become less relevant and underscores the importance of brand partnerships and the in-store experience.
 

Distribution channels changing: Footwear manufacturers including Nike and Under Armour continue to pursue “direct to consumer” strategies, in which buyers are encouraged to shop at brand and factory house stores as well as manufacturer websites. In 2015, 30 percent of Under Armour’s sales and 23 percent of Nike’s brand revenue was generated though the higher margin direct to consumer channel. Nonetheless, wholesale remains the largest channel for the companies. Foot Locker and Dick’s Sporting Goods remain Under Armour and Nike’s largest wholesale partners.
 

This blurring of business lines means that lenders more than ever must seek out appraisers with broad skill sets. Look for teams experienced with wholesale, retail and ecommerce platforms to ensure realistic exit strategies and accurate inventory valuations.
 

Brand is valuable: For the fifth consecutive year, Nike was chosen as the top brand for teens across the country, according to a fall 2015 study released by Piper Jaffray. Nike ranked first among teens’ favorite footwear and clothing brands and was also the number two ranked shopping website for the demographic, with Amazon at number one. While Nike was the favorite shoe brand of half of the teens surveyed, Vans (9 percent), Converse (7 percent), Sperry (4 percent), and Steve Madden (3 percent) rounded out the top five. Lending credibility to the ongoing casual-athletic trend, the report said teens’ preferences have transitioned from preppy to West Coast lifestyle to action sports to pure-play performance brands.
 

Partnerships with sports and entertainment celebrities have given these well-known brands a further boost. Nike recently launched the Chuck Taylor All Star II as an upgrade of its classic Converse brand with added cushioning, arch support, and other features designed to improve comfort. Stephen Curry’s basketball shoes helped lift Under Armour’s footwear sales 64 percent during the first quarter of 2016. Another classic shoe company, Keds, introduced its Taylor Swift-driven brand campaign for 2015 focused on female empowerment. Adidas also launched limited-edition shoes featuring exclusive designs from artists including musician Pharrell Williams and photographer-director Cass Bird.
 

Appraisers can value these licensing agreements and help lenders understand strategies for liquidating licensed inventory.