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What’s Going on in the Footwear Market? It’s Complicated

Now may be a relatively good time to be in the casual footwear business.

Given the economic climate and uncertain outlook, overall spending on clothing and shoes is taking a backseat to food, housing and other essentials.

Oliver Chen, Cowen & Co. luxury and retail analyst, sees beauty and wellness gobbling up wallet share left behind by waning demand for fashion softlines and footwear, which is further dampened by the school-or-no-school question plaguing educational districts and universities nationwide.

Falling temperatures come autumn and winter are likely to shore up sagging footwear sales, when demand for weather-ready boots is almost certain to pick up. And the pandemic trend pushing consumers into the great outdoors is expected to continue in the months ahead, with performance sneakers and hiking boots set to gain.

The back-to-school projection

Varied plans for the upcoming school year took a toll on footwear sales in late July into August, typically a period of strength, said Beth Goldstein, executive director and The NPD Group’s industry analyst for accessories and footwear. “We’ve already seen evidence of this in our early read on footwear data,” she said. “After a strong June, year-over-year trends softened in late July and week one of August.”

Goldstein expects last year’s trends to drive the market this year, too. “We can expect casual sneakers from both active and fashion brands to be the primary back-to-school sales driver,” she said, highlighting slippers, Crocs and sporty slides as styles that are performing well. With extracurriculars largely verboten, parents might not need to pick up extra shoes like soccer cleats and ballet slippers, though a social-distancing reversal that allows for these kinds of activities could give the footwear market a lift.

Dana Telsey, chief investment officer at Telsey Advisory Group, said Abercrombie & Fitch, American Eagle Outfitters and Urban Outfitters could be impacted by families spending less on shoes.

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The casual and outdoor front

Fortunately for footwear brand Bernardo 1946, casual footwear was the name of its game prior the coronavirus crisis. “While we service a lot of independent stores, our business is heavily driven by direct online sales and retailers with an online presence,” said Heather de Courreges, the company’s head of creative. “Customers have been buying with caution avoiding dressier footwear, but the majority of our collection is casual and serves diverse purpose to wear at home or to dress up. The market and trends were swinging more casual before Covid, so we had already been adapting our assortment adding interesting sport influenced constructions.”

Early adoption of digital commerce and dropshipping limited Bernardo’s exposure at the pandemic’s onset.

Bernardo, whose heritage is in the sandal category that forms its primary market, hasn’t seen much of a pullback on orders. “In the last few years, we also expanded into other categories like rain, booties and sport. They’re all fairly casual, so the majority of styles have been performing well,” de Courreges said. The brand showcases its heritage of handmade quality through artisanal details such as braiding, hand-stitching and unique embroideries, all of which help the collection stand out from competitors.

The brand relies on its production team and factories to improve operations. “As far as deliveries, it’s been a lot of give and take. We have a strong partnership with our factories and team in Brazil. COVID has greatly affected their workforce, so delays are expected, but not extreme,” she said. “They’ve also been very flexible in working together on how to get through this as a team. They’ve lowered minimum order quantities, and we’re really focusing our development so we’re not making too many samples. In the end, no one comes out on top unless we all get through this.”

Looking ahead, the company is already tweaking its offerings for the holiday selling season. “We’ve added more cheerful and colorful gifting items into the mix—all under $100,” she said, noting advanced planning for Black Friday and holiday promotions around wet-weather-ready products.

Addressing the budding enthusiasm around the outdoor category, VF Corp. chairman and CEO Steve Rendle said “consumer spending in core outdoor, active and athletic categories was resilient” through the end of June.

“We’re in the midst of an unprecedented change across the retail landscape, and consumer trends and behaviors are evolving faster than ever before. Participation in outdoor activities and consumer interest in outdoor exploration is increasing,” he said on a July conference call with analysts. “Health and wellness and the pursuit of a more active lifestyle is accelerating. Casualization is a trend likely to be a mainstay in post-Covid world.”

Rendle doesn’t see the momentum in outdoors slowing down when the leaves begin to change. “This is where the innovation and the newness is so critical, it’s giving consumers a reason to improve their comfort in the outdoors,” he said. “We think we’re well positioned, not just with our North Face brand, but with our outdoor portfolio and the appropriate products that we have for that outdoor experience.”

VF-owned Timberland, whose digital sales rose 63 percent in the most recent quarter, is starting to offer buy online and pick up in-store, as well as ship-from-store in the U.S., with the Europe, Middle East and Africa region to follow.

Wolverine Worldwide on Aug. 5 posted a better-than-expected second quarter earnings report, powered by nearly triple-digit owned e-commerce revenue growth.

“Strategic investments in e-commerce over the past three years are paying off (in spades), as lockdown-motivated changes in consumer behavior towards comfort with digital commerce are manifesting in improved channel dynamics,” said Steven L. Marotta, apparel and footwear analyst at CL King & Associates.

“The company, of course, is leaning into the trend” toward outdoor, he added, pointing to the company’s Merrell, Saucony, Wolverine and Caterpillar brands as well suited for working from home and for essential workers.

Telsey agrees that the Michigan footwear giant is poised to emerge from the pandemic in good shape. “Within the context of an uncertain operating and consumer purchasing behavior environment created by the COVID-19 pandemic, Wolverine Worldwide appears well-positioned from a brand portfolio and category standpoint to capture share, with the majority of its products in the outdoor, active, work and casual categories,” she said. “While the company has relatively high exposure to the wholesale channel (85% of 2019 revenue), it is important to note that under 10% of its revenue is generated by the department store channel.”

During the quarter, Wolverine’s Michigan Group, comprised of Merrell, Chaco, Cat and Wolverine brands, saw revenue fall 31.7 percent. “Merrell and Cat footwear each declined more than 30% while Wolverine was down less than 30%; Chaco performed relatively better with a mid-teens decline due to benefits from its penetration in digital. Digital growth led performance with Merrell up 140% driven by new customer acquisition, while the Wolverine and Cat brands grew their e-commerce businesses despite the challenging consumer environment and no specific innovative product driver in the quarter,” she said.

The Boston Group, which includes Saucony, Sperry and Keds brands, saw revenue fall 46.9 percent. “Revenue generated by Saucony declined just over 25%, but trends were said to have improved during the second half of the quarter. Sperry and Keds were down 60% and 50%, respectively,” she added.

Adidas is expected to see continued progress in the second half of 2020 and 2021, according to Cristina Fernández, analyst at Telsey Advisory Group, who believes the company “executed well” despite the extraordinary circumstances. Consumer interest in running and outdoor activities, coupled with a renewed concern for health and wellness, has helped revive demand for sport-appropriate footwear and apparel, she added.

“All in, we continue to view athletic apparel and footwear as a bright spot in consumer spending and expect the underlying demand drivers to remain in place over the next several years. Looking to 2021, adidas should also benefit from the resumption of sporting events, such as the Euro Cup and Olympics,” she said.

Who’s winning at retail?

UBS analyst Jay Sole spoke with a footwear retail CEO whose stores are largely clustered in the Southeastern U.S.—and sales have waned in recent weeks.

“The nuance is athletic style sales have decelerated too, but still continue to sell above last year’s levels. Dressy, work-related non-athletic styles have experienced major drop-offs versus last year during the BTS season,” Sole said. Meanwhile, the footwear executive believes lost sales “are very unlikely to be made up over the rest of August. Crocs and Skechers continue to perform well in the executive’s store, and while Nike remains strong, the pandemic has “amplified” Hoka One One’s hot growth streak in recent years, Sole said.

Among other retailers, Foot Locker pre-announced second quarter earnings, expecting a comparable store sales uptick of 18 percent. “The sharp snapback underscores FL’s dominant positioning among footwear consumers, which we expect to be fortified by pandemic-driven disruption,” said Jefferies apparel analyst Janine Stichter. She noted that continued product cycle strength drives robust same-store sales growth, while strong execution of e-commerce and omnichannel initiatives deliver greater-than-expected margin benefits.

Foot Locker said it expects to report adjusted second-quarter earnings per share at between 66 cents and 70 cents, versus 66 cents last year, above analysts’ estimates in the 60-cent range.

“Near-term, with a healthy balance sheet, in-demand brands, and a strong relationship with key suppliers, we see the company navigating well through Covid,” Stichter said.

Fernández, the Telsey equity analyst, says Foot Locker’s remarkable quarterly pre-report “speaks to the strength of the sporting goods category, driven by consumers looking for comfortable clothing and footwear as they adopt more casual looks, responding to new footwear launches from brands like Nike, Adidas, and Puma, and focusing on health & wellness and outdoor activities.” With travel, entertainment, restaurants and gyms suffering mightily amid the pandemic, consumers have been rerouting their dollars to discretionary sporting goods, she said.

After shuttering all U.S. stores during its second bankruptcy, Payless is jockeying for a comeback. The company, which kept its 750 brick-and-mortar stores in Latin America, Asia, Africa and the Middle East, emerged from bankruptcy in January, installing Jared Margolis as CEO.

Last week, Payless launched e-commerce and plans to open its first store under new management in November in Miami. Online shoppers will find private-label footwear options, like American Eagle by Payless (unrelated to the teen clothing chain), in addition to brands such as Airwalk and LA Gear. The site is highlighting athletic styles, dance and accessories and selling items from the Kendall + Kylie collection. Prices for sandals start at $7.99.