When you’re the world’s most valuable apparel brand, small decisions can have big impacts.
When Nike reported its yearly earnings at the end of March, it also announced that it would be pursuing a strategy that focused on sub-$100 footwear in order to bring more distinction to its core-level products.
Christopher Svezia, a financial analyst at Wedbush Securities, says this is good news for Nike’s upside and could even have the added effect of boosting profits at its mid-tier retailer partners.
“Nike’s (NKE) innovative product pipeline and bullishness over the North American mid-tier or core footwear channel warranted a deeper look into its comp impact for Caleres’ (CAL) Famous Footwear and Shoe Carnival (SCVL) as the merchandise itself supports upside opportunity for Nike (FY20) and its retail partners (FY19) in our view,” Svezia wrote in an email to Sourcing Journal.
Wedbush estimates that Nike represented around 20 percent of the total sales at Famous Footwear and close to 27 percent of sales at Shoe Carnival in FY18. With the added impetus on innovation and marketing in their price range, Wedbush analysts believe Nike’s decision could end up impacting comparable sales by 140 to 175 basis points over the next year.
In Wedbush models that adjusted for Nike’s new strategy, Famous Footwear notched an estimated 3.4 percent growth in sales, compared to Wall Street expectations of 1.4 percent, and Shoe Carnival grew by 3.1 percent, exceeding the average growth estimate of 2.7 percent.
“In terms of Nike’s merchandise hitting the channel, excitement expressed by NKE, CAL, and SCVL’s management appears warranted with the Air Max Axis, Motion, Oketo, Torch and more (with the key refresh noted for back-to-school) likely to receive a strong consumer response and help create upside to Nike’s FY20 and further comp momentum for CAL and SCVL moving forward,” Svezia continued.
To support this point, Wedbush analysts noted that the sub-$100 price tier has been driving strong growth for both Adidas and Puma, while also supporting the swift rise of Vans. In fact, Nike’s focus on the tier is likely a “strategic offense” against its competitors, analysts argued.
However, the firm also points out that these gains will not be occurring in a vacuum and should be supported by recent actions both retailers have taken to improve their businesses.
At Caleres, a poor Q4 pushed the group to make several changes, including allocating more resources toward both Famous Footwear’s marketing budget and product assortment.
Although Shoe Carnival had the opposite experience in Q4, beating expectations for both sales and earnings—earning a double-digit stock bump, it also announced that it would be investing more into its supply chain and infrastructure.
Wedbush was bullish on Nike’s prospects, too, saying the move was likely to help its stock outperform expectations, although it is not yet clear by how much.
