UPFRONT 1997: Athletic Shoes

High-flying, high-profile Nike may be slowing down a step; upstart fashion brands like Hilfiger and DKNY target teens

Wall Street’s long-standing love affair with the top athletic footwear brands is not as hot and heavy as it used to be. Some leading analysts are warning of sluggish sales at retail outlets, a bearish indicator. One prominent analyst downgraded her rating on category leader Nike after learning that the company was ordering its principal factories to slow production. When the news hit the street, Nike’s stock dipped more than $4 in heavy trading. Concern multiplied when Footstar informed Wall Street that demand was slowing at its 485-store Footaction chain.

So the $64,000 question remains: Is a slowdown imminent for the $7.4 billion athletic shoe market in the U.S. after years of healthy growth? And if so, why? With a 44 percent share, Nike is a big and easy target to lob darts at. Even analysts who have been downgrading the swoosh acknowledge that Nike’s burgeoning apparel business may replace any earnings shortfall caused by a slowdown in shoe sales. But if softening demand is a long-term trend, then there is reason for worry.

“Athletic shoes just aren’t checking out at the rate they were last year,” says Tim Cincotta, marketing vice president at Footaction, which targets the male teen demo, the heaviest buyers of athletic shoes. “It’s a general slowdown.” While no other major shoe retailers have made Wall Street cognizant of a slump, the prospect of a slowdown is a legitimate concern for an industry that seemed slump-proof. Has a point of oversaturation been reached? Are there too many brands with too little differentiation? Or, even more worrisome, is the young consumer making a right turn away from shoes?

“You have to remember that while this category is based in sports, it’s fashion-driven, and the target is the teen consumer,” says Cincotta. “If you don’t think that is a fickle group, you don’t know them very well.”

Despite the warning flags, the industry remains divided as to its future.

“I’m seeing a lot more interest in boots as an alternative for teens,” says Bruce Blanke, a partner in six Athlete’s Foot stores in the New York metro area. “The hero (signature) shoes from Nike are still moving well. But under $100, they have not been as strong as past years. That’s scaring some people, but I still see Nike competing mainly with itself.”

Because eight of every 10 shoes purchased are not intended for athletic use, fashion brands like Tommy Hilfiger and DKNY have pushed out their own offerings. They’ll have to win distribution battles to compete effectively, but their very presence has made some retailers nervous about the fate of fashion-rooted Fila.

Despite ditching Leo Burnett, No. 2 Reebok is better focused than in past years. Signature sneakers from NBA Rookie of the Year Alan Iverson, its most recent prime-time endorser, and running shoes based on its new DMX cushioning technology both have sold well. Reebok will port DMX into its other premium shoes, but must also shore up its sub-$100 stable of shoes, if it is to challenge Nike. -Terry Lefton


* Is Nike demand slowing, or is waiting for the swoosh to fall just another spectator sport?

* Incursion of fashion brands could hurt performance-based category leaders

* Teens eye boots as “alternative” to hero shoes

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