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Footwear Market Stumbles to the Finish Line in 2013

After several years of healthy increases in prices, spending and imports of footwear, making the category a relatively attractive one for retailers, it seems the tide has begun to turn, putting the category squarely in the middle of the same competitive and promotional environment that is plaguing apparel.

Consumer prices of footwear declined in the last two months of 2013, according to data released by the U.S. Department of Commerce, the first two consecutive monthly drop in over two and a half years. Average footwear prices fell 1% in November, and were impacted primarily by a steep drop in women’s prices, which plunged 2.6%, their biggest monthly decline in three years. Men’s footwear prices were flat, while children’s increased by almost 2%.

Increased competition and promotions have put tremendous pressure on prices. Online retailers like Amazon’s Zappos and DFS continue to raise the bar in terms of service and assortment selection. Many department stores report an increase in showrooming, or consumers checking their smartphones for lower prices online for styles they see and try on in stores.

Spending growth on footwear has also continued to slide. In November and December, personal consumption expenditures on footwear increased by only 2%, much lower than the increases that were seen earlier in the year and in the latter part of 2012, which were running at about three times that rate.

There are bright spots in the category, however. In late 2013, retailers reported that both boots and athletic footwear were performing very well. UGGS, called “the warmest boots on the planet” by Chicagoan Oprah Winfrey, had a strong season, helped by frigid weather in the Midwest and elsewhere in the country,  and by new style variants that resonated with consumers. VF Corporation has reported strong sales growth at its recently-acquired Timberland division. Nike, Foot Locker and other athletic footwear sellers have told analysts that lightweight running show sales have been spectacular, with products appealing to both serious runners seeking performance and non-runners who need a packable, easy-to-wear shoes to change into and out of quickly. Some of the bright colored models sell out as soon as they hit the stores.

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Footwear business in mid-tier markets has been challenged, however, with many large companies in the space finding it difficult to grow sales and earnings in the difficult environment. Pay Less Holdings, parent of Pay Less Shoe Source and other retail nameplates, was acquired in late 2012 by Wolverine Worldwide, maker of the famous Hush Puppies brand. Jones Group, parent of Nine West Shoe Group, will be acquired by Sycamore Partners.

Footwear sourcing turned sluggish in late 2013. Imports have been growing at a declining rate since March, on a 12-month smoothed basis, and remained flat in November.  Year-to-date footwear imports through November were $22.3 billion, a 3.9% increase compared to the same period in 2012, according to the most current import data released by the Office of Textiles and Apparel (OTEXA). Footwear imports from China have dropped from 72% of the total to 69% so far this year, while those from Vietnam have grown from 10% to 11.6%. Vietnam’s footwear exports to the U.S. grew by 21% in the first eleven months of 2013 compared to the same period last year. Imports from Indonesia, Portugal and Cambodia also saw double-digit increases, though remain a much smaller portion of total footwear imports.

Footwear imports from Italy, which comprises most of the luxury sector, have grown by over 8% so far this year, more than double the industry average. Part of the increase was due to a more than 2% rise in cost per pair of Italian shoe imports.