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Volume 21 No. 26
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Has sneaker market lost its tread?

Cultural shift to casual hurts athletic shoe sales

Convincing millennials to buy shoes instead of a cellphone or game console is a new challenge.
Running and basketball sneakers have forever carried the U.S. athletic footwear market. Top performance models for runners and hoopsters have always been built with the latest technology from the likes of Nike and Adidas, and supported the highest retail prices and margins.

Lately, that’s changing.

Top-selling athletic footwear in the U.S. over the past 18-24 months has been either retro-inspired, designed for the fashion consumer, or both. As a result, athletic footwear in the $50 to $70 range has been the biggest seller for top footwear brands.

With that, the athletic footwear market in the U.S. will be down between a percentage point or two when 2017 ends — or the worst sales year domestically for sneakers since 2000.

Nike is losing share for the first time in more than 15 years, down 3.7 percent in sales for the year through September. For the undisputed market leader, that’s unfamiliar ground.

The larger change is that with bellwether categories like running and basketball in their most prolonged slump, some in the industry are now suggesting that “performance” footwear may no longer be the foundation of the athletic footwear market.

First Look podcast, with in-depth discussion of the footwear industry:

Adidas' 46-year-old Stan Smith shoes are again popular with young consumers.
“I’m wondering if the bubble has burst,” said Gene McCarthy, president of Asics America, who also has worked for Nike, Reebok and Under Armour during his 30-plus years in the industry.

“We’re still very much dedicated to performance and getting people moving,” McCarthy added, “because sports participation is declining everywhere. But in five years, will a kid that’s a real sneaker head have 20 pairs or 10? I think it will be 10. So being part of those 10 is going to be very important.”

Softness in the higher-priced performance-shoe market is a trend first noted during the 2015 back-to-school sales period. Since then, “there isn’t a single performance-footwear category that’s trending positively, and there’s always been at least one,” said Matt Powell, a longtime industry analyst with the NPD Group, who added that of the top-10 U.S. athletic footwear brands, only Adidas and Puma are growing.

“What’s selling is retro, retro inspired or lifestyle/athletic, both in footwear and apparel. And I see nothing on the horizon telling me that performance [athletic footwear] will come back soon. If you look at sales of dress/casual shoes, the declines are even steeper.”

Reshaping an industry?

If that’s true, it would be industry redefining. So naturally, not everyone in the business concurs.

Three years ago, when Mark King was named president of Adidas North America, one of the tenets for a comeback was that Adidas needed to become more relevant on and off the field of play. As “athleisure” looks have become acceptable, even as work attire, “we’re in a unique position as the world goes more casual. The products that will succeed will have the ability to cross over,” King said recently, pointing to Adidas’ $180 Ultraboost running shoes as an example. “Our market share isn’t as big as our biggest competitors, but we are growing in every category, including performance. I just don’t think the performance side will ever go away.”

Adidas’ turnaround from near irrelevance is one of the few positive stories for athletic footwear brands in North America.

“We're in a unique position as the world goes more casual. The products that will succeed will have the ability to cross over," Adidas North America President Mark King.
In its most recently completed quarter, Adidas reported a heady 23 percent sales jump for the combined Adidas and Reebok brands in North America. However, with much of its resurgence based on the popularity of retro or retro-inspired sneakers, there are questions across the industry about how sustainable Adidas’ growth will be.

If retro and sport/leisure models continue to set the standard, Adidas is in the right place, even as fashion brands, like Tory Burch, try to extend into sports.

“Casual, fashion and the retro looks have this huge market position now,” said Ed Lussier, whose 30-plus years as an athletic-footwear marketer include stints with Adidas and Reebok. Lussier, now an independent consultant based in Portland, described the domestic sneaker market as “in a lull” — one of the most extended he could recall.

“Even Nike seems stagnant,” he said. “But I’m not ready to say performance is over. We’re just in the lull, which happens when there’s no innovation driving the market.”

Patrick O’Malley, Saucony senior vice president of product, added, “Flat is a good way to describe the [performance] market now. You just hope it cycles back [to performance], like it always has. There will still be a significant amount of performance running shoes that will be sold.”

For now, shifting consumer tastes in footwear have produced peculiar market dynamics: Reebok’s top-selling shoe is the $70 “Classic Leather,” which debuted in 1983. Meanwhile, Adidas’ 46-year-old Stan Smith shoes are again popular kicks on high school and college campuses.

“There’s been a nice surge on the retro side of the business, but there’s still demand for performance product,” said John Lynch, Reebok vice president and head of U.S. marketing. “There’s this space in the middle, where fashion and performance meet — that’s where we’re aiming.”

Roiling retail

Another principal change affecting athletic footwear sales is a dramatic shift in distribution. Athletic footwear consumers have abandoned brick-and-mortar retail in greater numbers than anyone this side of those selling computer equipment or music.

“There’s a tectonic shift toward digital and e-comm in our world right now, which is a primary concern,” Lynch said. Added King: “If you look at the market through a traditional lens, which is traditional retail — that’s just not a good lens anymore, because the impact of e-comm is big and getting bigger.”

Adjusting to that change has been challenging for every brand.

“Consumer shopping habits have changed drastically,” said Saucony’s O’Malley.”Most of us are going to direct-to-consumer and using other online channels, but we still believe in brick-and-mortar retail, especially specialty running stores. … Consumers are looking for experiences as much as a great price. That’s why things like Color Runs and Tough Mudder have become so popular. So we’re putting money behind that at brick-and-mortar.”

Still, the more nettlesome question is whether there’s been a change in 12- to 25-year-olds’ consumer psychology, where now a $150 pair of sneakers can’t keep pace with the need for a new cellphone or game system, both of which cost far more.

The issue of how important premium sneakers will be for millennials and Gen-Z behind them will be one that will reshape the industry. Some say that’s already happened.

“I don’t know if they [millennials] are ever going to accumulate things like boomers did,” said the NPD Group’s Powell. “This is a much more frugal generation.”

“This industry has always catered to elite sports, elite athletes and wealthy markets,” said Asics’ McCarthy. “Now, because of the shift to e-commerce, the masses are adopting brands and aspiring up, versus ‘Let’s talk to the elite and hope that it trickles down.’ That’s a big pivot. … Twenty years ago, kids chased sneaker brands. Today, sneaker brands are chasing kids.”