With Sneaker Glut at Stores Easing, Nike Is Slowly Getting Back on Its Feet
It was about this time last year that the underpinnings of the athletic shoe market came undone.
Kids, tired of paying more than a hundred bucks for what they considered over-hyped sneakers, began flirting with alternatives. Styles from hiking boots like Lugz to anti-establishment brands like Vans gained popularity, while Nike, which had a lock on hot shoes for the early part of the decade, watched as its basketball sneakers sat on retailers’ shelves.
As a result, sales at athletic shoe stores slackened. First Americans and then the world began choking on a sneaker glut that threatened to dethrone Nike as the heavyweight champion.
Now, a year later, a lot has changed.
Retailers, which normally show the first signs of trouble and are also the first to recover, have rebounded. Same-store sales at most chains have turned to gains from losses a year ago. Shares of Finish Line, Footstar and Just for Feet, all of which took a beating last year after warning of slowing athletic shoe sales, have nearly doubled this year, easily outpacing a 16% gain in the Standard & Poor’s 500.
“We’ve seen the market come back first for retailers, which are a leading indicator,” said Marcia Aaron, an analyst with BT Alex. Brown in Baltimore. “Manufacturers are a lagging indicator. By next year, they’ll show recovery.”
Shares of Beaverton, Ore.-based Nike Inc. are still far from its highs in the 70s, last seen in early 1997 before the sneaker shakeout. But shares are slowly gaining.
“Retailers have come back into the Nike fold,” said John Shanley, managing director of Genesis Merchant Group in New York. He raised his rating on the company to “buy” from “hold” last week based on improving conditions in the U.S. and Europe. He expects Asia to remain soft and contribute nothing to Nike’s earnings next year. (His firm hasn’t done underwriting for Nike.)
“I’ve talked to retailers on both sides of the Atlantic,” he said. “They say Nike’s spring ’99 line is extremely powerful. They are ready to put their dollars back into the brand and lessen their exposure to weaker players like Fila and Converse.”
While Nike isn’t ready to regain the stellar growth it boasted in the early ‘90s, the brand isn’t about to disappear either--despite naysayers who claim the once-offbeat company has turned kids off by becoming the embodiment of the establishment it once shunned. To be sure, struggles still abound for Nike, including oversupply and currency problems in Asia.
Furthermore, Nike, whose sales have tripled since 1992 to $9.5 billion, will face challenges similar to those that other maturing companies confront as they try to maintain growth.
An important piece of the athletic footwear puzzle has improved. The inventory bulge among U.S. retailers appears to have eased.
“There’s no longer any inventory glut,” said Harold Ruttenberg, chairman, president and chief executive of the 244-unit Just for Feet chain. “None of the manufacturers have excess inventory.”
Not every analyst believes the sneaker surplus has evaporated entirely. “There are still inventory problems out there,” said Steven Richter, an analyst with Tucker Anthony in Boston. “Just because the inventory is moved off manufacturers’ balance sheets doesn’t mean it’s not still in the channels.” Nevertheless, most agree that the situation is far improved over last year.
Despite lingering troubles, investors know better than to count Nike out. Said one New York hedge fund manager: “I finally understand. The stock just won’t go lower because people love to own Nike.”
“Nike is relying a bit less on the hero shoes,” Finish Line’s spokesman Steven Schneider said. While the Air Jordan line and other gear endorsed by superstars continue to be bestsellers, Nike is adding more shoes for around $70. “They’re going after the meat-and-potatoes segment.”
