A Post-Sneaker World: How 'Small' Footwear Brands Are Beating The Giants

If you follow the footwear industry, among the three footwear giants, the sentiment has become pretty clear: adidas AG (ADR) ADDYY is growing, Nike Inc NKE is in turnaround mode and Under Armour Inc UAA is under serious pressure.

This story has been crystallized for sometime now, but as a whole the industry is undergoing a massive shift. With footwear retailers rethinking themselves and sporting goods retailers pushing out big discounts, there isn't much growth from the largest brands.

An industry that was once built on aspiration and inspiration is now largely a function of price, and that’s bad for the industry, said NPD Group analyst Matt Powell.

“It feels like we are not going to see performance as fashion come back soon. Not running. Not training,” Powell told Benzinga.

Performance footwear trends are what Nike and Under Armour have specialized in and exploited for years. If consumers want a shoe to run in, they will buy a less expensive mid-market shoe — hence why the Nike Tanjun is the No. 1-selling shoe this year, Powell said.

“We are sort of in the post-sneaker world in this point, meaning that we are in year three of not having a single performance trending positively. What’s working [are] great-looking, comfortable sneakers, retro and the general category of modern running."

Related Link: How Changing Trends Resurrected FILA As A Fashion Brand

Vans 'On Fire'

Consumer moves toward comfort and style and away from performance have lent momentum to VF Corp VFC Vans brand.  In a new note from Baird Equity Research, analyst Jonathan Komp said Van's footwear line is "seemingly on fire." 

NPD Group's Powell said Vans is begninning to "heat up" again.

"It's retro, but it isn’t. It’s clearly not a performance shoe, reinforcing my grand theory [that] the consumer really doesn't want a performance shoe,” Powell said.

The company has reinvigorated sales by moving away from the basic classics of the past with a more updated look, most notably the sidestripe style, which debuted four decades ago but appears new, leading the company to join with new retailers it hadn't previously worked with. 

Adidas Gets It

Aside from adidas, there isn't much foreseeable growth in the North American footwear industry at this point, Powell said. 

“Adidas stayed hot because they get this lifestyle modern running idea. I think the short term future is still really bright. It’s not new news by any means, but this story is not over. In terms of retail sales, we are not anywhere done with growth in adidas," the analyst said.

The brand has been the one major footwear name that has been able to adapt to trends quickly and move its sport heritage to the forefront of fashion.

The industry trend is rapid change, Adidas North America President Mark King recently told Benzinga. 

"Consumers want something different, new and exciting. The companies that are able to build their organizations to be able to react to that market change — those are the ones that are going to win,” King said. 

'You Must At Least Appear Smaller'

Big brands have struggled, similar to how Anheuser-Busch InBev SA/NV BUD's Budweiser and The Coca-Cola Co KO have seen sales fall as consumers opt for smaller craft brands. Footwear brands are experiencing the same trend. 

For Nike and Under Armour, appearing small can be prove very difficult.

Nike has had an "iron grip" on footwear market share for quite some time. The company is making an atttempt to appear slimmer after stating it was looking to move away from undifferentiated retailers at their investor day, moving from 30,000 to just 40.

Amid this massive shift, Powell says they will probably lose some business in the shuffle.

“During Nike’s transition, they are probably going to lose some business. They will probably have to shut down some retailers that have been a source of income and will take a step back there before they move forward,” he said.

As for Under Armour’s woes, the problem is simple, Powell said: They're not telling a fashion story.

“They aren't playing where it’s hot. Retro they can’t play in and they have not been able to establish a runner and that’s really hurt the brand,” he said.

Not all hope is lost for Under Armour, the analyst said. 

“It’s doable for Under Armour to make a comeback. All the brands that were originally performance brands have done it. They really just need to step up.”

Related Link: Adidas President Mark King Discusses Being At The Intersection Of Performance And Fashion

Small Is The New Big 

With retro trends clearly a hallmark of 2017, it has given an opportunity for many brands of the past to regain momentum. Many footwear brands that had faded from view are making or at least attempting a comeback — and marketing to the younger generation with a thirst for retro fashion. 

“Small is the new big. I think there is a message that the consumer is looking for unique product. It is really difficult for a mega brand to be viewed as a niche brand, or a smaller brand,” Powell said. 

Big ships can't turn as fast, Louis Colon III, FILA's director of heritage, told Benzinga earlier this month. 

“Now people are looking for more value, for more authenticity, but it needs to be on-trend. The big ships can’t turn that fast. We have an advantage [in that] we are smaller and nimble and have built an infrastructure to be able to turn things around really fast. I think you will see more businesses adapt to our business model. Some of our competitors need to reposition themselves as a little smaller, which is harder because they are a bigger ship."

In fashion, this is especially relevant, as the consumer wants to appear to put some thought and style into their look. They move away from brands with too high of a market share to be unique.

Photo by Brett Hershman