The Global Footwear Market: Athletic and non-athletic Shoes

Transcription

1 The Global Footwear Market: Athletic and non-athletic Shoes August 2009 Packaged Facts Rockville Pike Rockville, Maryland t f

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3 Company Background Packaged Facts is a trusted provider of authoritative consumer market research. For over 30 years, our in-depth research, expert analysis and personalized client support have helped business professionals make the right strategic decisions. Why Buy From Us? In-depth research expert analy sis. Our reports are written by analysts with years of experience as professionals working in the industries that they now cover. This experience and our time-intensive research methodology result in authoritative analysis that aids the decision-making processes of our clients. Our reports continue to provide a broad, top-level overview of a market and offer not only the raw data, but focus on interpretation of that data to make it more relevant and usable by our clients. The right information at the right time. From identifying the effects of emerging markets across major industries, to covering the trends in niche markets, our reports are timely. Our editorial team tracks the trends that will shape these markets in the coming months, and years. Packaged Facts provides the expert analysis our clients have come to rely on to make the right strategic decisions, at the right time. Products you need with flexibility in pricing and delivery you want. We offer a breadth of products that includes both in-depth Market Profiles with expansive coverage of a specific topic, and MarketLooks, which offer concise summaries of our popular full-length studies. With Buy By The Slice, you save money by purchasing smaller section(s) of a report (when you don't need the entire report) which you can read immediately online. Instant Online Delivery is a unique online delivery method that enables you to purchase, read and use the research you need immediately. P e r s o n a l i z e d C l i e n t S u p p o r t Packaged Facts is unrivaled in the level of client support that we provide to our clients. From assistance in identifying the most relevant research, to post-sale question and answer support, our goal is to develop long-term relationships that meet the ongoing needs of our clients. About the Author Cogitamus Consulting is a branding and market research boutique in NYC that's all about hard work, imagination and common sense. Working with our clients, we custom tailor solutions and provide creative, thought-provoking analysis that address the most pertinent questions facing marketers, through general business consulting, white papers, and branded product concept and strategy development.

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5 THE GLOBAL FOOTWEAR MARKET: ATHLETIC AND NON-ATHLETIC SHOES AUGUST 2009 The Global Footwear Market: Athletic and non-athletic Shoes has been prepared by Packaged Facts. We serve consumer products companies and allied businesses in the United States and abroad with a complete line of research publications. Packaged Facts market intelligence reports are specifically designed to aid the actionoriented executive by providing a thorough presentation of essential data and concise analysis. Vice President of Publishing Publisher Research Director Communications Associate Author Don Montuori Tatjana Meerman David Sprinkle Daniel Granderson Cogitamus Consulting Publication Date August 2009 LA All rights reserved. No part of this report may be reproduced without permission of the publisher. Copyright 2009 Packaged Facts

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7 The Global Footwear Market Table of Contents Table of Contents The Global Footwear Market: Athletic and non-athletic Shoes Chapter 1: Executive Summary... 1 Scope of Report...1 Product Categories...1 Methodology...2 Global Footwear Market... 3 Global Footwear Market Rises 2% Driven by Asia, Latin America...3 Figure 1 1: Global Footwear Retail Market, (in billions $)...3 Unit Volume Declines Globally...4 Figure 1 2: Global Footwear Retail Market Unit Volume, (in millions of pairs)...4 U.S. Footwear Retail Market... 5 U.S. Footwear Market Flat...5 Figure 1 3: U.S. Footwear Retail Market and Percent of Global Footwear Market, (in billions $)...5 U.S. Unit Volume Declines...6 Figure 1 4: U.S. Footwear Apparent Consumption by Volume and Percent of Global Footwear Market, (in millions of pairs)...6 Imports Dominate U.S. Market...6 Figure 1 5: Share U.S. Footwear Import Volume by Top 10 Countries of Origin, 2008 (%)...7 U.S. Footwear Sales by Consumer Group & Major Product Category..7 Figure 1 6: Share of U.S. Footwear Retail Sales by Consumer Group and Major Product Category, 2008 (%)...8 Global Footwear Market Forecast... 9 Global Footwear Market to Reach $238 Billion by Figure 1 7: Global Footwear Retail Market Forecast, (in billions $).9 Global Unit Volume Consumption to Reach 12.1 Billion Pairs...10 Figure 1 8: Global Footwear Retail Market Unit Volume Forecast, (in millions of pairs)...10 U.S. Footwear Market U.S. Footwear Market to Suffer from Thriftier Consumer Habits...11 Figure 1 9: U.S. Footwear Retail Market Forecast, (in billions $)..11 Unit Volume Declines Globally...12 Figure 1 10: U.S. Footwear Retail Market Unit Volume Forecast, (in millions of pairs)...12 Footwear Retail Sales by Major Channels Figure 1 11: Share of U.S. Footwear Sales by Major Channel, 2008 (%)...13 August 2009 Packaged Facts i

8 Table of Contents The Global Footwear Market Chapter 1: Executive Summary [cont.] Competitive Landscape...14 Footwear Market Highly Fragmented Table 1 1: Selected Footwear Marketers with Footwear Sales Greater Than $1 Billion, (in millions $) Marketplace and Consumer Trends...15 Down Economy Means Thriftier Consumer Fashion and Footwear Industries Feeling the Pinch Figure 1 12: Quarterly Clothing and Clothing Accessory Store Sales, 1992 Q1, 2009 (in billions $) Consumer Footwear Expenditures Kids Footwear Has Three Protections Company Ethics and Added Values Important to Consumers Counterfeiting, a Dangerous Business Industry Hopes to See End Depression-Era Tax Style and Innovation Trends: Personalized Footwear Comfort versus Style: Footwear No longer Easily Categorized Technology Offers Good Shoes and Good Health Aggressive Designs Versus Staid Style Marketing Outreach...21 Recession Time to Engage Loyal Consumers Integration Important as Media Preferences Shift Jimmy Choo Out of The Shoe Box Thinking Virtual Marketing and Etail Make Most of Recession Dollars All the Simplicity of Make Use of Alternative Advertising Media The Puma Past Masher Behavioral Targeting in Diverse Consumer Market Word-of-Mouth Increasingly Important Social Networking to Play Big Part in WOM Don t Forget the Human Touch Product Placement Opportunities Abound Nike Active in Broadcast Placement Reliance on Sports Icons Shifting More to Celebrity Payless and Summer Rayne Oakes Go Green Footwear Consumer...27 Men s Athletic Footwear Penetration Levels Highest at 20% Table 1 2: Total Consumer Penetration Levels for Men s Footwear Bought in the Past 12 Months, (%) Women s Non-Athletic Footwear Penetration Levels Highest at 23% Table 1 3: Consumer Penetration Levels for Women s Footwear Bought in the Past 12 Months, (%) ii Packaged Facts August 2009

9 The Global Footwear Market Table of Contents Chapter 1: Executive Summary [cont.] For Footwear, Consumers Shop Wal-Mart Most...28 Table 1 4: Consumer Penetration Levels for Stores Shopped Most Often for Shoes, by Women, Men and Total Population, (%) Chapter 2: The Market Scope of Report...33 Product Categories...33 Methodology...34 Global Footwear Market Global Footwear Market Rises 2% Driven by Asia, Latin America...35 European Growth Tempers...35 U.S. Drags the Global Market Down...35 Figure 2 1: Global Footwear Retail Market, (in billions $)...36 Global Five-Year Growth at 6%...36 Table 2 1: Global Footwear Retail Market and Year-over-Year Percentage Change, (in millions $)...37 Unit Volume Declines Globally...37 Figure 2 2: Global Footwear Retail Market Unit Volume, (in millions of pairs)...38 Table 2 2: Global Footwear Retail Market Unit Volume and Year-over-Year Percentage Change, (in millions of pairs)...38 U.S. Footwear Retail Market U.S. Footwear Market Flat...39 Figure 2 3: U.S. Footwear Retail Market and Percent of Global Footwear Market, (in billions $)...39 U.S. Market Losing Global Dominance...40 Table 2 3: U.S. Footwear Retail Market and Year-over-Year Percentage Change, (in millions $)...40 U.S. Unit Volume Declines...40 Figure 2 4: U.S. Footwear Apparent Consumption by Volume and Percent of Global Footwear Market, (in millions of pairs)...41 Table 2 4: U.S. Footwear Apparent Consumption by Volume and Year-over- Year Percentage Change, (in millions of pairs)...41 Imports Dominate U.S. Market...42 Figure 2 5: U.S. Footwear Import Volume and Percent of Apparent Consumption, (in millions of pairs)...42 Table 2 5: U.S. Footwear Import Volume and Year-over-Year Percentage Change, (in millions of pairs)...43 China Imports Declining...43 Is Vietnam the New China for U.S. Imports?...43 Table 2 6: U.S. Footwear Import Volume by Top 10 Countries of Origin, (in millions of pairs)...44 Figure 2 6: U.S. Footwear Import Volume Shares, by Top 10 Countries of Origin, 2008 (%)...44 August 2009 Packaged Facts iii

10 Table of Contents The Global Footwear Market Chapter 2: The Market [cont.] U.S. Footwear Sales by Consumer Group: Women, Men, Kids Table 2 7: U.S. Footwear Retail Market by Consumer Group, Women, Men, Kids, (in millions $) Figure 2 7: Share of U.S. Footwear Retail Market by Consumer Group, 2008 (%) U.S. Footwear Sales by Major Product Category Table 2 8: U.S. Footwear Retail Market by Major Product Category, (in millions $) Figure 2 8: Share of U.S. Footwear Retail Market by Major Product Category, 2008 (%) U.S. Footwear Sales by Consumer Group & Major Product Category Women s, Children s Athletic Footwear Strong Men s, Children s Non-Athletic Decline Table 2 9: U.S. Footwear Retail Market by Consumer & Major Product Type, (in millions $) Women s Non-Athletic, Men s Athletic Growth Stable Figure 2 9: Share of U.S. Footwear Retail Sales by Consumer Group and Major Product Category, 2008 (%) Global Footwear Market Forecast...50 Global Footwear Market to Reach $238 Billion by Figure 2 10: Global Footwear Retail Market Forecast, (in billions $) Global Growth at Annual Rate of 4% Table 2 10: Global Footwear Retail Market and Year-over-Year Percentage Change, (in millions $) Global Unit Volume Consumption to Reach 12.1 Billion Pairs Figure 2 11: Global Footwear Retail Market Unit Volume Forecast, (in millions of pairs) Table 2 11: Global Footwear Retail Market Unit Volume Forecast and Year-over-Year Percentage Change, (in millions of pairs) U.S. Footwear Market...53 U.S. Footwear Market to Suffer from Thriftier Consumer Habits Figure 2 12: U.S. Footwear Retail Market Forecast, (in billions $) U.S. Global Market Share to Drop Two Points by Overall Growth Estimated at 1% Annually to Reach $48.4 Billion Table 2 12: U.S. Footwear Retail Market Forecast and Year-over-Year Percentage Change, (in millions $) Segments to Show Similar Growth Table 2 13: U.S. Footwear Retail Market Forecast by Consumer Group & Major Product Category, (in millions $) Unit Volume Declines Globally iv Packaged Facts August 2009

11 The Global Footwear Market Table of Contents Chapter 2: The Market [cont.] Figure 2 13: U.S. Footwear Retail Market Unit Volume Forecast, (in millions of pairs)...56 Table 2 14: U.S. Footwear Retail Market Unit Volume Forecast and Year-over-Year Percentage Change, (in millions of pairs)...56 Chapter 3: Retail & Distribution Overview...57 Footwear Distribution Method and Class...57 Method: Wholesale or Direct...57 Class: Authorized or Mass...58 Footwear Retail Channels Overview...58 Shoe Stores...59 Discount Shoe Stores...59 Sporting Goods and Athletic Shoe Stores...59 General Merchandise: Mass Discounters...60 General Merchandise: Department Stores and National Chains...60 Apparel: Specialty Apparel Stores...60 Apparel: Off-Pricers...60 Non-Store Retail: Catalog...60 Non-Store Retail: The Internet...61 Footwear Retail Sales by Major Channels Shoe Stores Remain the Medium of Choice...62 Table 3 1: U.S. Footwear Retail Market by Major Channel, (in millions $)...62 General Merchandise Stores Still Second, but Struggling...63 Apparel Stores Less of a Force...63 Sporting Goods Stores on the Rise...63 Catalogs Tried and True, Internet Still on Trial...63 Zappos.com Gets in Step...64 Figure 3 1: Share of U.S. Footwear Sales by Major Channel, 2008 (%)...65 Footwear as a Percent of Retailer Sales by Channel...65 Table 3 2: U.S. Footwear Retail Sales as a Percent of Selected Retail Channel Sales, (%)...66 Retail Channels and Stores by Consumer Preference Footwear Consumers Prefer to Shop at Specialty Apparel Stores...67 Figure 3-2: Consumer Penetration Levels for Type of Retail Shopped Most Often for Shoes, by Adult Users, 2008 (%)...67 Wal-Mart, Payless Still Top Choice for Consumers...68 Kohl s Hopes Celebrity Will Kick Sales Up a Notch...68 Economy Hard on Off-Pricers Too...68 And from Behind Comes Famous Footwear...68 Table 3-3: Consumer Penetration Levels for Stores Shopped Most Often for Shoes, by Adult Users, (%) August 2009 Packaged Facts v

12 Table of Contents The Global Footwear Market Chapter 4: Competitive Landscape...71 Overview Footwear Market Highly Fragmented Nike the Global Leader Adidas at Number Other Top Competitors: Puma, Asics, New Balance, C&J Clark Table 4 1: Selected Footwear Marketers with Footwear Sales Greater Than $1.0 Billion, (in millions $) Athletic Footwear Market More Concentrated at Top Niche Athletic Sales Lower but Offerings Diverse Nike Leads U.S. Footwear Market with Double-Digit Share Followed By Adidas, Jones Apparel in Single Digits Privately Held Companies Share Considerable Table 4 2: Selected Global Footwear Marketers with U.S. Sales, (in millions $) Figure 4 1: Share of U.S. Footwear Wholesale Market by Selected Company, 2008 (%) Consolidation and Strategic Acquisitions All but Stopped Nike on the Prowl? Skechers Diggin in Its Heelys LaCrosse Footwear, Inc. Expands with Sustainable Acquisition Selected Company Profiles...78 Nike, Inc...78 Overview Performance Figure 4 2: Nike, Inc. Total Net Sales, (in millions $) Table 4 3: Nike, Inc. Total Net Sales and Year-over-Year Percentage Change, (in millions $) Sales by Product Category Figure 4 3: Share of Nike, Inc. Total Net Sales by Product Category, 2009 (%) Sales by Geographic Region Figure 4 4: Share of Nike, Inc. Total Net Sales by Geographic Region, 2009 (%) Footwear Sales Solid Despite Economy Figure 4 5: Nike, Inc. Footwear Net Sales and Percent of Total Net Sales, (in millions $) Table 4 4: Nike, Inc. Total Net Sales and Year-over-Year Percentage Change, (in millions $) Cole Haan, Converse and Other Sales Did Suffer Figure 4 6: Nike, Inc. Net Sales of Cole Haan, Converse & Other Products and Percent of Total Net Sales, (in millions $) Table 4 5: Nike, Inc. Total Net Sales and Year-over-Year Percentage Change, (in millions $) Brand Portfolio Table 4 6: Nike Brand Portfolio Timeline of Significant Events Table 4 7: Nike Timeline of Significant Events vi Packaged Facts August 2009

13 The Global Footwear Market Table of Contents Chapter 4: Competitive Landscape [cont.] Under Armour, Inc Overview...88 Performance...88 Figure 4 7: Under Armour, Inc. Total Net Sales, (in millions $)...89 Table 4 8: Under Armour, Inc. Total Net Sales and Year-over-Year Percentage Change, (in millions $)...90 Sales by Product Category...90 Figure 4 8: Share of Under Armour, Inc. Total Net Sales by Product Category, 2008 (%)...91 Sales by Geographic Region...92 Figure 4 9: Share of Under Armour, Inc. Total Net Sales by Geographic Region, 2008 (%)...92 Footwear Sales See Astounding Incremental Growth...92 Figure 4 10: Under Armour, Inc. Footwear Net Sales and Percent of Total Net Sales, (in millions $)...93 Table 4 9: Under Armour, Inc. Total Net Sales and Year-over-Year Percentage Change, (in millions $)...93 Product Portfolio...94 Table 4 10: Under Armour Footwear Product Portfolio...94 Timeline of Significant Events...95 Table 4 11: Under Armour Timeline of Significant Events...95 Skechers, USA Inc Overview...96 Performance...97 Figure 4 11: Skechers USA, Inc. Total Net Sales, (in millions $)..97 Table 4 12: Skechers USA, Inc. Total Net Sales and Year-over-Year Percentage Change, (in millions $)...98 Sales by Channel...98 Figure 4 12: Share of Skechers USA, Inc. Total Net Sales by Channel, 2008 (%)...98 Sales by Geographic Region...99 Figure 4 13: Share of Skechers USA, Inc. Total Net Sales by Geographic Region, 2008 (%)...99 Product Portfolio...99 Table 4 13: Skechers USA Footwear Product Portfolio Table 4 14: Skechers USA Licensed Footwear Product Portfolio Timeline of Significant Events Table 4 15: Skechers USA Timeline of Significant Events Jones Apparel Group Overview Performance Figure 4 14: Jones Apparel Group Total Net Sales, (in millions $) August 2009 Packaged Facts vii

14 Table of Contents The Global Footwear Market Chapter 4: Competitive Landscape [cont.] Table 4 16: Jones Apparel Group Total Net Sales and Year-over-Year Percentage Change, (in millions $) Sales by Channel Figure 4 15: Share of Jones Apparel Group Total Net Sales by Channel, 2008 (%) Sales by Geographic Region Figure 4 16: Share of Jones Apparel Group Total Net Sales by Geographic Region, 2008 (%) Footwear Sales Figure 4 17: Jones Apparel Group Footwear & Accessories Net Sales and Percent of Total Net Sales, (in millions $)) Table 4 17: Jones Apparel Group Total Net Sales and Year-over-Year Percentage Change, (in millions $) Brand & Product Portfolio Table 4 18: Jones Apparel Group Footwear Product Portfolio Timeline of Significant Events Table 4 19: Jones Apparel Group Timeline of Significant Events Deckers Outdoor Corporation Overview Performance Figure 4 18: Deckers Outdoor Total Net Sales, (in millions $) Table 4 20: Deckers Outdoor Total Net Sales and Year-over-Year Percentage Change, (in millions $) Sales by Channel Figure 4 19: Share of Deckers Outdoor Total Net Sales by Channel, 2008 (%) Sales by Geographic Region Figure 4 20: Share of Deckers Outdoor Total Net Sales by Geographic Region, 2008 (%) Brand Portfolio Table 4 21: Deckers Outdoor Footwear Product Portfolio Timeline of Significant Events Table 4 22: Deckers Outdoor Timeline of Significant Events Adidas AG Overview Performance Figure 4 21: Adidas AG Total Net Sales, (in millions $) Table 4 23: Adidas AG Total Net Sales and Year-over-Year Percentage Change, (in millions $) Sales by Product Figure 4 22: Share of Adidas AG Total Net Sales by Channel, 2008 (%) Sales by Geographic Region Figure 4 23: Share of Adidas AG Total Net Sales by Geographic Region, 2008 (%) Sales by Division viii Packaged Facts August 2009

15 The Global Footwear Market Table of Contents Chapter 4: Competitive Landscape [cont.] Figure 4 24: Share of Adidas AG Total Net Sales by Geographic Region, 2008 (%) Footwear Sales Grew 11% in Figure 4 25: Adidas AG Total Footwear Net Sales and Percent of Total Net Sales, (in millions $) Table 4 24: Adidas AG Total Footwear Net Sales and Year-over-Year Percentage Change, (in millions $) Brand Portfolio Table 4 25: Adidas AG Footwear Brand Portfolio Timeline of Significant Events Table 4 26: Adidas AG Timeline of Significant Events Genesco, Inc Overview Performance Figure 4 26: Genesco Inc. Total Net Sales, (in millions $) Table 4 27: Adidas AG Total Net Sales and Year-over-Year Percentage Change, (in millions $) Sales by Division Figure 4 27: Share of Genesco Inc. Total Net Sales by Division, 2008 (%) Brand Portfolio Table 4 28: Genesco Inc. Footwear Brand Portfolio Timeline of Significant Events Table 4 29: Genesco Inc. Timeline of Significant Events Crocs Overview Performance Figure 4 28: Crocs, Inc. Total Net Sales, (in millions $) Table 4 30: Crocs, Inc. Total Net Sales and Year-over-Year Percentage Change, (in millions $) Sales by Product Figure 4 29: Share of Crocs, Inc. Total Net Sales by Channel, 2008 (%) Sales by Geographic Region Figure 4 30: Share of Crocs, Inc. Total Net Sales by Geographic Region, 2008 (%) Footwear Sales Figure 4 31: Crocs, Inc. Total Footwear Net Sales and Percent of Total Net Sales, (in millions $) Table 4 31: Crocs, Inc. Total Footwear Net Sales and Year-over-Year Percentage Change, (in millions $) Brand Portfolio Table 4 32: Crocs, Inc. Footwear Brand Portfolio Timeline of Significant Events Table 4 33: Crocs, Inc. Timeline of Significant Events August 2009 Packaged Facts ix

16 Table of Contents The Global Footwear Market Chapter 5: Marketplace and Consumer Trends Thriftiness Hot in a Down Economy The Return of the Cobbler Figure 5 1: Total Sales for Footwear and Leather Goods Repair Establishments, (in millions $) Consumers Cut Back Figure 5 2: Quarterly Retail & Foodservice Sales, 1992 Q1, 2009 (in billions $) Figure 5 3: Quarterly Personal Consumption Expenditures (PCE), 1992 Q1, 2009 (in trillions $) Fashion and Footwear Industries Feeling the Pinch Figure 5 4: Quarterly Clothing and Clothing Accessory Store Sales, 1992 Q1, 2009 (in billions $) High-End Branded Footwear Toughing it Out Consumer Footwear Expenditures Figure 5 5: Average Annual Footwear Expenditure Per Consumer Unit: All Consumers Units, ($) Table 5 1: Average Annual Footwear Expenditure Per Consumer Unit by Household Income Before Tax, ($) Table 5 2: Average Annual Footwear Expenditure Per Consumer Unit by Age of Reference Person, ($) Table 5 3: Average Annual Footwear Expenditure Per Consumer Unit by Race or Ethnic Origin of Reference Person, ($) Table 5 4: Average Annual Footwear Expenditure Per Consumer Unit by Region, ($) Table 5 5: Average Annual Footwear Expenditure Per Consumer Unit by Education Level, ($) Kids Footwear Has Built-In Protections Million Kids by Figure 5 6: Population Forecast of U.S. Kids Age 3 11, (in millions) An Influential Force with Buying Power Figure 5 7: Spending Power Forecast of U.S. Kids Age 3 11, (in billions $) Cool Licenses Trump All Figure 5-8: The Inchworm Shoe Kids Express Themselves with Crocs s Jibbitz Charms Company Ethics and Added Values Important to Consumers Global Consumers: Will Spend More on Ethical Brands Green Particularly Important to Youth to a (Price) Point Sustainable Initiatives are Financially Viable Deckers Finds a Simple Way to Sustainability Naturalizer and Dress for Success TOMS Shoes One for One Danner and the Fallen Officers Drive Counterfeiting, a Dangerous Business Staggering Consequences Counterfeit Counter-Intelligence x Packaged Facts August 2009

17 The Global Footwear Market Table of Contents Chapter 5: Marketplace and Consumer Trends [cont.] Industry Hopes to See End Depression-Era Tax Style and Innovation Trends Free to Re-Invent Me Make Me Unique: Personalized Footwear Figure 5-9: Adidas Customizable Mi Originals Work Shoes Get the Custom Treatment Emotional Pulls the Shoes Strings Too High End Activity Interchangeable Shoes Figure 5-10: Sandals with Interchangeable Upper or Band Finding Comfort in a Pair of Shoes Comfort versus Style: Footwear No Longer Easily Categorized Shoe Comfort Gets More Accessible Comfort Shoe Brands Break the Mold Figure 5-11: Privo s Acacia Slip-on with Flex-Fit Figure 5-12: Indigo s Sweetie Pump with ABS Heel Figure 5-13: Unstructured s Un.radke Ankle Boot Figure 5-14: Kigo Footwear Fashion Finds Comfort Figure 5-15: RSVP Lyndsey Cushioned by Foot Petals The Science of Footwear Figure 5-16: Optimus Prime inspired Nike Air Trainer "Transformers" Under Armour Gets Sophisticated Technology Offers Good Shoes and Good Health Better Health Through Earthly Footwear at Sky-High prices Spas, Fitness Experts Saw Opportunity Figure 5-17: Masai Barefoot Technology Kaya Figure 5-18: Fit Flops Sandal Figure 5-19: Z-Coil Freedom Experts Conflicted on Fitness Shoe Promises Fall Footwear Stylings: 1980s Revisited, Strong Embellishments and Colors, Aggressive Heels and Boots, Women s Footwear Goes Retro, Aggressive Retro Designs Not New A No-Frills Backlash in the Offing? Chapter 6: Marketing Outreach Recession Time to Engage Loyal Consumers Integration Important as Media Preferences Shift Jimmy Choo Takes It Down a Notch More Strategies to Reach Price Conscious Consumers Virtual Marketing and Etail Make Most of Recession Dollars More People Cocooning and Online in Recession All the Simplicity of August 2009 Packaged Facts xi

18 Table of Contents The Global Footwear Market Chapter 6: Marketing Outreach [cont.] Make Use of Alternative Advertising Media Alternative Media Increasingly Important, Especially Among the Young The Puma Past Masher Behavioral Targeting in Diverse Consumer Market Word-of-Mouth: Added-Value for Marketers and Consumers Footwear Clubs Breed WOM Social Networking to Play Big Part in WOM Proof That WOM Works Don t Forget the Human Touch Product Placement Opportunities Abound Nike Active in Broadcast Placement Reliance on Sports Icons Shifting More to Celebrity What Do Kelly Ripa and Eddie Van Halen Have in Common? Appropriate and Authentic Celebrity Relationships Payless and Summer Rayne Oakes Go Green Candie s Taps Britney to Connect with Young Consumers If the License Fits, Wear It Table 6-1: License! Global Selected Top Global Licensees in the Footwear Category, Do-Good Marketing Do-Good Marketing Part of a Whole Brand s Image Timberland Taps Double Benefit Chapter 7: The Footwear Consumer Note on Experian Simmons Market Research Bureau Consumer Data Note on BIGresearch Data Men s Athletic Footwear Penetration Levels Highest at 20% Table 7-1: Total Consumer Penetration Levels for Men s Footwear Bought in the Past 12 Months, (%) Figure 7 1: Total Consumer Penetration Levels for Men s Footwear Bought in the Past 12 Months, (%) Women s Non-Athletic Footwear Penetration Levels Highest at 23% Table 7-2: Consumer Penetration Levels for Women s Footwear Bought in the Past 12 Months, (%) Figure 7 2: Total Consumer Penetration Levels for Women s Footwear Bought in the Past 12 Months, (%) Penetration When Purchasing for the Opposite Sex Typical Table 7-3: Consumer Penetration Levels for Men s and Women s Footwear Bought in the Past 12 Months by Member of the Opposite Sex, (%) xii Packaged Facts August 2009

19 The Global Footwear Market Table of Contents Chapter 7: The Footwear Consumer [cont.] Top Footwear Segment Consumer Demographics by Sex Male and Female Athletic Shoe Purchasers Characteristics Upwardly Mobile Table 7-4: Demographic Characteristics of Male Athletic Shoe Purchasers, 2009 (index) Table 7-5: Demographic Characteristics of Female Athletic Shoe Purchasers, 2009 (index) Male and Female Non-Athletic Shoe Purchasers Characteristics Also Upwardly Mobile Table 7-6: Demographic Characteristics of Male Non-Athletic Shoe Purchasers, 2009 (index) Table 7-7: Demographic Characteristics of Female Non-Athletic Shoe Purchasers, 2009 (index) Male and Female Boot Purchasers Showed Dramatically Different Characteristics Table 7-8: Demographic Characteristics of Male Boot Purchasers, 2009 (index) Table 7-9: Demographic Characteristics of Female Boot Purchasers, 2009 (index) Male and Female Boot Purchasers Showed Dramatically Different Characteristics Table 7-10: Demographic Characteristics of Male Slipper Purchasers, 2009 (index) Table 7-11: Demographic Characteristics of Female Slipper Purchasers, 2009 (index) Consumer Agreement with Select Attitudinal Statements Surprise! Shoe Shopping a Favorite Pastime for Women Table 7-12: Top Demographic Characteristics of Consumers who Agree a Lot with the Statement: Shopping For Shoes is Favorite Pastime, 2009 (index) Brand/Designer Important to Urbanites Table 7-13: Top Demographic Characteristics of Consumers who Agree a Lot with the Statement: Shoe Brand or Designer is Important, 2009 (index) Fewer Purchases and Less Expensive Purchases Among the More Disenfranchised Table 7-14: Top Demographic Characteristics of Consumers who Agree a Lot with the Statement: I am Buying Fewer Shoes Because of the Economy, 2009 (index) Table 7-15: Top Demographic Characteristics of Consumers who Agree a Lot with the Statement: I am Buying Less Expensive Shoes Because of the Economy, 2009 (index) Function over Form Skewed Older Table 7-16 Top Demographic Characteristics of Consumers who Agree a Lot with the Statement: In Buying Shoes, I Prioritize Function Over Style, 2009 (index) Footwear Consumer at Retail August 2009 Packaged Facts xiii

20 Table of Contents The Global Footwear Market Chapter 7: The Footwear Consumer [cont.] For Footwear, Consumers Shop Wal-Mart Most Table 7-17: Consumer Penetration Levels for Type of Retail Shopped Most Often for Shoes, by Adult Users, Men and Women, (%) Specialty for Young, Department Store for Old Preference by HHI Plays Out Along Socio-Economic Lines Blacks and Hispanics Prefer to Shop at Specialty Apparel Table 7-18: Consumer Penetration Levels for Type of Retail Shopped Most Often for Shoes, by Age, Household Income and Race, 2008 (%) For Footwear, Consumers Shop Wal-Mart Most Table 7-19: Consumer Penetration Levels for Stores Shopped Most Often for Shoes, by Women, Men and Total Population, (%) Age, HHI and Race Affect Retail Preference Department Stores Should Address Aging Consumer High Income Households Shop Value, but Branding Important Racial Preference Decidedly Different Table 7-20: Consumer Penetration Levels for Top 15 Stores Shopped Most Often for Shoes, by Age, Household Income and Race, 2008 (%) Price, Selection, Quality and Location Top Shoe Retail Drivers Table 7-21: Top Consumer Shoe Retail Drivers for Men and Women, 2008 (%) Average Monthly Spend on Shoes in 2008: $ Table 7-22: Average Monthly Spend on Shoes, by Adults, Men and Women, (%) The Younger You are the More You Spend Wealthier More Likely to Spend on More Expensive Footwear Whites Show Lowest Average Spend Levels Table 7-23: Average Monthly Spend on Shoes, by Age, HHI and Race, 2008 (%) Consumers Likely to Spend Less Table 7-24: Consumer Response to the Question, Over the next 90 days (July, August and September), do you plan on spending more, the same or less on footwear than you would normally spend at this time of the year? by Adults, Women and Men, (%) Table 7-25: Consumer Response to the Question, Over the next 90 days (July, August and September), do you plan on spending more, the same or less on footwear than you would normally spend at this time of the year? by Age, HHI and Race, 2008 (%) Chapter 8: The Athletic Footwear Consumer Note on Simmons Market Research Bureau Consumer Data Sneaker, Athletic and Sport Shoes Penetration Higher for Women at 63% xiv Packaged Facts August 2009

21 The Global Footwear Market Table of Contents Chapter 8: The Athletic Footwear Consumer [cont.] Table 8-1: Total Consumer Penetration Levels for Sneakers, Athletic Shoes, or Sports Shoes Bought in the Past 12 Months, by Sex and Total Population, 2009 (%) Casual Sneakers Top Among Both Men and Women Table 8-2: Total Consumer Penetration Levels for Sneakers, Athletic Shoes, or Sports Shoes Product Segments Bought in the Past 12 Months, by Sex and Total Population, 2009 (%) Top Demographic Characteristics by Sneakers, Athletic Shoes, or Sports Shoes Type Casual Sneaker Purchasers More Likely Than Average to Be Young Living on East or West Coast Table 8-3: Demographic Characteristics of Casual Sneaker Purchasers, by Sex, 2009 (index) Exercise and Walking Purchasers Skew Much Older, Retired Table 8-4: Demographic Characteristics of Exercise and Walking Shoe Purchasers, by Sex, 2009 (index) Jogging or Running Purchasers More Likely Than Average to be Educated, White-Collar, Family-oriented Table 8-5: Demographic Characteristics of Jogging and Running Shoe Purchasers, by Sex, 2009 (index) Cross Trainers Similar to Joggers Table 8-6: Demographic Characteristics of Cross Training Shoe Purchasers, by Sex, 2009 (index) Female Basketball Shoe Purchasers High Earners versus Male Table 8-7: Demographic Characteristics of Basketball Shoe Purchasers, by Sex, 2009 (index) Tennis Shoe Purchasers Not Necessarily the Country Club Stereotype Table 8-8: Demographic Characteristics of Tennis Shoe Purchasers, by Sex, 2009 (index) Aerobic Sneaker Purchasers More Likely Than Average to be High-income Women Table 8-9: Demographic Characteristics of Aerobic Shoe Purchasers, by Sex, 2009 (index) Hiking Purchasers More Likely Than Average to be Educated, West Coast Table 8-10: Demographic Characteristics of Hiking Shoe Purchasers, by Sex, 2009 (index) Nike and New Balance Only Brands with Double Digit Penetration Levels Table 8-11: Total Consumer Penetration Levels for Sneakers, Athletic Shoes, or Sports Shoes Brands Bought in the Past 12 Months, by Sex and Total Population, 2009 (%) Top Demographic and Psychographic Characteristics by Selected Sneakers, Athletic Shoes, or Sports Shoes Brand Nike Purchasers Demographics and Psychographics Table 8-12: Demographic Characteristics of Nike Shoe Purchasers, by Sex, 2009 (index) August 2009 Packaged Facts xv

22 Table of Contents The Global Footwear Market Chapter 8: The Athletic Footwear Consumer [cont.] Table 8-13: Psychographic Characteristics of Nike Shoe Purchasers, 2009 (index) New Balance Purchasers Demographics and Psychographics Table 8-14: Demographic Characteristics of New Balance Shoe Purchasers, by Sex, 2009 (index) Table 8-15: Psychographic Characteristics of New Balance Shoe Purchasers, 2009 (index) Adidas Purchasers Demographics and Psychographics Table 8-16: Demographic Characteristics of Adidas Shoe Purchasers, by Sex, 2009 (index) Table 8-17: Psychographic Characteristics of Adidas Shoe Purchasers, 2009 (index) Reebok Purchasers Demographics and Psychographics Table 8-18: Demographic Characteristics of Reebok Shoe Purchasers, by Sex, 2009 (index) Table 8-19: Psychographic Characteristics of Reebok Shoe Purchasers, 2009 (index) Skechers Purchasers Demographics and Psychographics Table 8-20: Demographic Characteristics of Skechers Shoe Purchasers, by Sex, 2009 (index) Table 8-21: Psychographic Characteristics of Skechers Shoe Purchasers, 2009 (index) Asics Purchasers Demographics and Psychographics Table 8-22: Demographic Characteristics of Asics Shoe Purchasers, by Sex, 2009 (index) Table 8-23: Psychographic Characteristics of Asics Shoe Purchasers, 2009 (index) Converse Purchasers Demographics and Psychographics Table 8-24: Demographic Characteristics of Converse Shoe Purchasers, by Sex, 2009 (index) Table 8-25: Psychographic Characteristics of Converse Shoe Purchasers, 2009 (index) Puma Purchasers Demographics and Psychographics Table 8-26: Demographic Characteristics of Puma Shoe Purchasers, by Sex, 2009 (index) Table 8-27: Psychographic Characteristics of Puma Shoe Purchasers, 2009 (index) xvi Packaged Facts August 2009

23 The Global Footwear Market Chapter 1: Executive Summary Chapter 1 Executive Summary Scope of Report This Packaged Facts report analyzes the U.S. footwear market sold through retail channels and includes a look at the global market for comparison. The report covers the market in terms of value and unit volume consumption and details U.S. dollar retail sales estimates by major retail channel, major product type, and consumer segment. Also included is an overview of the competitive landscape and profiles of selected players within the space. The report discusses major trends affecting the market including economic factors, design and marketing, and provides detailed analysis of consumer preferences by major product category and retail preferences. Product Categories Footwear products covered in the scope of this report include essentially every type and style from athletic to zories (flip-flops). In presenting the U.S. retail market, Packaged Facts has categorized footwear by two major types as follows: Athletic Footwear includes athletic, sport, and active lifestyle footwear for men women and children. Major athletic brands include Adidas, Asics, Fila, K-Swiss, New Balance, Nike, Puma, Reebok, and Saucony. Athletic footwear also includes footwear that is not specifically for a specific individual or team sport but may be performance inspired or intended for other activities. Products include outdoor footwear (hiking boots and sandals) by brands such as Merrell and Teva, and casual sneakers by brands such as Converse, Skechers, and Vans. Products such as ski and snowboard boots are included in the market numbers but are not the focus of discussion. Non-Athletic Footwear covers casual and dress footwear for men, women and children such as pumps, loafers, or Mary Janes. It also includes house slippers, various types of work shoes and boots. Products not in the scope of this report include footwear accessories (i.e. shoe trees, bags, polishes, laces) gaiters, parts of shoes, socks, and foot care products. August 2009 Packaged Facts 1

24 Chapter 1: Executive Summary The Global Footwear Market Methodology The information presented in this report was obtained from primary and secondary research. Primary research entailed on-site examination of footwear products in retail stores and consultations with footwear industry observers and executives. Secondary research involved canvassing information from financial, marketing, and trade publications, company literature, and independent research reports, plus reviews of websites, industry groups such as the American Apparel and Footwear Association, blogs and readers comments posted on these sites. Market figures in this report are predominantly estimates by Packaged Facts based on data from the U.S Department of Commerce s U.S. Census Bureau and major players in the industry. Data from the U.S. Census Bureau included the Economic Census (1997, 2002, and 2007), primarily for retail sales numbers, Annual Survey of Manufacturers (ASM) for product shipment statistics, Advanced Monthly Sales for Retail and Foodservice and the Annual Retail Trade Survey for additional retail figures. Other market data sources include the U.S. Bureau of Economic Analysis (BEA), the U.S. Bureau of Labor Statistics (BLS), and the U.S. International Trade Commission (USITC). The analysis of consumer behavior and demographics is based on data from the Experian Simmons Market Research Bureau (New York NY) Winter 2008 Study of Media and Markets, which is based on the responses of over 20,000 adults age 18 and over, and from BIGresearch Consumer Intentions & Actions Survey (CIA), a monthly online surveys of 8,000+ consumers. 2 Packaged Facts August 2009

25 The Global Footwear Market Chapter 1: Executive Summary Global Footwear Market Global Footwear Market Rises 2% Driven by Asia, Latin America Packaged Facts estimates the global footwear market at retail grew two percent over the 2007 level of $189.3 billion to $192.3 billion in The 2008 gain was the lowest during the five-year period spanning 2004 through 2008 and was due largely to increased sales in the emerging economies of Latin America and Asia. For the period, the global footwear market grew at a compound annual growth rate of six percent. Figure 1 1 Global Footwear Retail Market, (in billions $) Global Footwear Retail Market Source: Packaged Facts August 2009 Packaged Facts 3

26 Chapter 1: Executive Summary The Global Footwear Market Unit Volume Declines Globally Packaged Facts estimates total volume declined two percent form the 2007 level 10.5 billion pairs to 10.3 billion pairs in The decline was driven largely by the slow down in the United States; however, Packaged Facts estimates that all international markets in the aggregate still showed a slight decline of one percent. For the period, footwear volume grew at a CAGR of six percent. Figure 1 2 Global Footwear Retail Market Unit Volume, (in millions of pairs) 12, , , , , , , , , , , Global Footwear Retail Market Unit Volume Source: Packaged Facts 4 Packaged Facts August 2009

27 The Global Footwear Market Chapter 1: Executive Summary U.S. Footwear Retail Market U.S. Footwear Market Flat Packaged Facts estimates the U.S. retail footwear market rose just 0.3% over the 2007 level of $46.6 billion to reach $46.8 billion in 2008 to account for 24% of the global market. The U.S. market had seen greater gains in earlier years most notably 10% gains in the boom years for the U.S. economy 2005 and 2006 adding $4 billion in market value. For the period, the U.S. retail footwear market grew at a CAGR of three percent. Figure 1 3 U.S. Footwear Retail Market and Percent of Global Footwear Market, (in billions $) % 26.6% 25.7% 24.6% 24.3% 30% 25% % % % % % Source: Packaged Facts U.S. Footwear Retail Market % of Global Footwear Retail Market August 2009 Packaged Facts 5

28 Chapter 1: Executive Summary The Global Footwear Market U.S. Unit Volume Declines Packaged Facts estimates footwear volume declined seven percent from the 2007 level of 2.5 billion pairs to less than 2.4 billion pairs in As a percent of global consumption, the United States accounted for 28% of total footwear volume, but fell to just 23% by For the period, footwear volume grew at a CAGR of one percent. Figure 1 4 U.S. Footwear Apparent Consumption by Volume and Percent of Global Footwear Market, (in millions of pairs) 3, % 26.1% 30% 2, % 24.0% 22.9% 24% 2, , , , , , % 1, % % *2007 *2008 0% U.S. Footwear Market % of Global Footwear Market * Estimated by Packaged Facts. Source: U.S. Census Bureau; U.S. International Trade Commission ( ) Imports Dominate U.S. Market Virtually all footwear (96%) sold in the United States is produced overseas by contract manufacturers. China accounted for 87% of total footwear import volume in 2008 while imports from Vietnam have replaced Brazil as the second largest supplier of U.S. footwear 6 Packaged Facts August 2009

29 The Global Footwear Market Chapter 1: Executive Summary since Vietnam imports grew at a CAGR of 24% for the period growing its share of the U.S. market from two percent in 2004 to five percent in Figure 1 5 Share U.S. Footwear Import Volume by Top 10 Countries of Origin, 2008 (%) Vietnam 5.0% China 86.9% Brazil 1.7% Italy 0.9% Taiwan 0.6% Indonesia 1.7% Thailand 0.8% Mexico 0.4% India 0.5% All others 1.2% Hong Kong 0.3% Source: U.S. International Trade Commission ( ); calculated by Packaged Facts U.S. Footwear Sales by Consumer Group & Major Product Category Packaged Facts estimates all women s footwear accounted for 50% of total footwear sales through retail in 2008, up slightly from 49% in 2004, while men s footwear accounted for 36% in 2008 down from 38% in Children s footwear was unchanged at 13% of the market. Non-athletic footwear remained the dominant product type in 2008 accounting for 55% of the total U.S. market with athletic footwear capturing the remaining 45%. Perhaps not surprisingly, women s non-athletic footwear captured the largest share of the market at 35% while men s athletic footwear made up 22%. Women s athletic footwear August 2009 Packaged Facts 7

30 Chapter 1: Executive Summary The Global Footwear Market accounted for 15% of the market while children s athletic footwear made up eight percent. Men s non-athletic footwear accounted for 15% while children s non-athletic footwear made up six percent. Figure 1 6 Share of U.S. Footwear Retail Sales by Consumer Group and Major Product Category, 2008 (%) Men's athletic footwear, incl sneakers & outdoor/hiking boots 21.8% Women's athletic footwear, incl sneakers & outdoor/hiking boots 15.2% Men's footwear, including dress & casual footwear 14.6% Women's footwear, including dress & casual footwear 35.3% Children's footwear, incl boys, girls, infants, & toddlers 5.5% Children's athletic footwear,incl sneakers & outdoor/hiking boots 7.7% Source: Packaged Facts. 8 Packaged Facts August 2009

31 The Global Footwear Market Chapter 1: Executive Summary Global Footwear Market Forecast Global Footwear Market to Reach $238 Billion by 2013 Packaged Facts forecasts the global market for footwear to grow much slower than in previous years at a compound annual growth rate (CAGR) of four percent to reach $238 billion by Sales in 2009 are expected fall six percent from the 2008 level of $192 billion to settle below the $182 billion mark. However, the market should rebound in 2010 with a seven percent gain to $194 billion. Expect gains around the seven percent mark thereafter through Figure 1 7 Global Footwear Retail Market Forecast, (in billions $) Global Footwear Retail Market Forecast Source: Packaged Facts August 2009 Packaged Facts 9

32 Chapter 1: Executive Summary The Global Footwear Market Global Unit Volume Consumption to Reach 12.1 Billion Pairs On a unit volume basis, Packaged Facts expects a six percent decline from the 2008 level of 10.3 billion to 9.7 billion in The drop will be led by slower consumption all around, but with more acute declines in the United States and Europe. Six percent growth is expected thereafter as the United States and Europe return to more modest growth rates and emerging economies see consumption rates rise. For the period unit volume is expected to grow at a CAGR of three percent. Figure 1 8 Global Footwear Retail Market Unit Volume Forecast, (in millions of pairs) 14, , , , , , , , , , , , , Global Footwear Retail Market Unit Volume Forecast Source: Packaged Facts 10 Packaged Facts August 2009

33 The Global Footwear Market Chapter 1: Executive Summary U.S. Footwear Market U.S. Footwear Market to Suffer from Thriftier Consumer Habits In the United States, Packaged Facts estimates more timid overall growth as consumers work through a paradigm shift in the shopping mindset. Packaged Facts estimates sales of footwear in the United States will drop 14% from the 2008 level of $46.8 billion to just $40.1 billion in However, the sharp drop in 2009 will be greeted by a welcomed eight percent gain to $43.3 billion in 2010 as consumers return to stores. Expect growth rates to wane thereafter to about the three percent mark by 2013 reaching $$48.4 billion. Figure 1 9 U.S. Footwear Retail Market Forecast, (in billions $) % 22.1% 22.4% 22.0% 21.2% 25% % % % % % 0.0 Source: Packaged Facts U.S. Footwear Retail Market Forecast % of Global Footwear Retail Market Forecast 0% August 2009 Packaged Facts 11

34 Chapter 1: Executive Summary The Global Footwear Market Unit Volume Declines Globally It is estimated that footwear consumption in unit volume terms will decline 11% from the 2008 level of 2.4 billion pairs to settle at 2.1 billion pairs in 2009 a level not seen since Packaged Facts sees seven percent growth in 2010 to near the 2.3 billion pair mark. However, growth thereafter will slow, eventually to two percent by 2013 when consumption will near the 2.5 billion mark. Figure 1 10 U.S. Footwear Retail Market Unit Volume Forecast, (in millions of pairs) 3, % 21.8% 22.1% 21.9% 21.3% 25% 2, % 20% 2, , , , , , , % 1, % % 0.0 Source: Packaged Facts U.S. Footwear Retail Market Unit Volume Forecast % of Global Footwear Retail Market Unit Volume Forecast 0% 12 Packaged Facts August 2009

35 The Global Footwear Market Chapter 1: Executive Summary Footwear Retail Sales by Major Channels Packaged Facts estimates shoe stores accounted for 54% of total footwear retail sales in the United States in General merchandise stores, (i.e. superstores, department, discounters) saw their share dwindle in the period from 23% of the footwear market to 19%. Footwear sales at apparel stores accounted for 12% while sporting goods stores made up seven percent of the total footwear retail market. Finally, non-store retailers (i.e. catalogs, etailers) captured six percent of footwear sales. Figure 1 11 Share of U.S. Footwear Sales by Major Channel, 2008 (%) General merchandise stores 18.6% Clothing stores 12.0% Shoe stores 53.6% Sporting goods stores 6.9% Nonstore retailers 5.6% All other 3.3% Note: Non-store retailers includes catalog sales and ecommerce sales. * Also includes hobby, book, and music stores. Source: Packaged Facts. August 2009 Packaged Facts 13

36 Chapter 1: Executive Summary The Global Footwear Market Competitive Landscape Footwear Market Highly Fragmented The global footwear market is highly competitive and fragmented with a few major players and a seemingly endless array of smaller players, including designers, marketers, manufacturers and retailers, all vying for share. Globally, several companies crack the $1.0 billion dollar barrier in footwear sales but only Nike, Inc. and Adidas AG bring in more than $5.0 billion. Table 1 1 Selected Footwear Marketers with Footwear Sales Greater Than $1 Billion, (in millions $) Company CAGR Nike, Inc. $7,580.4 $8,387.1 $9,025.1 $10,472.9 $10, % Adidas AG 5, , , , , Puma AG 1, , , , , Asics Corporation , , , , Geox SpA , , Skechers USA Inc , , Wolverine Worldwide Inc , , , Ecco Sko A/S , The Timberland Company 1, , , , Jones Apparel Group 1, Note: Nike footwear sales are for the 12-month period ending November 30, 2008 and include estimates for Cole Haan, Converse, Hurley, Nike Golf, and Umbro. Adidas AG sales include Reebok sales for the entire period on a pro forma basis. Some companies sales include retail sales in addition to wholesale. Jones Apparel Group figures include wholesale footwear and accessories, but do not include footwear sold through retail locations. Sales for Adidas AG, Puma AG, Asics Corporation, Geox SpA, Ecco Sko A/S have been translated to U.S. dollars using the average annual exchange rate for their respective home currencies. Source: Compiled by Packaged Facts from annual reports. 14 Packaged Facts August 2009

37 The Global Footwear Market Chapter 1: Executive Summary Marketplace and Consumer Trends Down Economy Means Thriftier Consumer In a time of economic crisis, more consumers will conclude that conspicuous consumption is no longer acceptable. Instead of feeling good about expensive brands, many consumers will increasingly feel good about getting the best value or not spending at all in Fashion and Footwear Industries Feeling the Pinch In all, total retail sales (adjusted for seasonality, holidays, etc.) for clothing and clothing accessories stores, which includes footwear retail, for the fourth quarter of 2008 fell six percent from the third quarter and eight percent from the same period in 2007 to $51.5 billion. The first quarter of 2009 saw sales pick up three percent over the fourth quarter of 2008, but were still down five percent from the first quarter of 2008 to $52.9 billion. August 2009 Packaged Facts 15

38 Chapter 1: Executive Summary The Global Footwear Market Figure 1 12 Quarterly Clothing and Clothing Accessory Store Sales, 1992 Q1, 2009 (in billions $) Source: U.S. Census Bureau; calculated from monthly data by Packaged Facts. Consumer Footwear Expenditures st Qtr 2nd Qtr 3rd Qtr 4th Qtr According to the U.S. Bureau of Labor Statistics, average annual expenditures on footwear per consumer unit 1 totaled $327 in 2007, up eight percent from the 2006 level of $304. Generally, average footwear spending has remained in the low $300 range, dipping lower during times of low economic growth and rising during better economic times. Kids Footwear Has Three Protections The trends affecting the adult footwear category higher fuel and material costs, a weak U.S. dollar, rising labor costs in China, increased retail demand for discount shoes at mass, and a 1 The terms consumer unit, family, and household are often used interchangeably for convenience. However, according to the U.S. Bureau of Labor Statistics, the proper technical term for purposes of the Consumer Expenditure Survey is consumer unit. 16 Packaged Facts August 2009

39 The Global Footwear Market Chapter 1: Executive Summary lessened consumer spending in reaction to the recession are also pressuring the $6.2 billion kids footwear category, but kids footwear has built-in protections. One, the kids demographic is growing at a greater rate than the general population. Two, kids footwear needs constant replacing. Three, kids (and parents) are eternally susceptible to the attentiongrabbing power of licensing. Company Ethics and Added Values Important to Consumers As consumers have gotten smarter, they have also gotten more curious. Not only do they want to know the specific functional benefits of products, they also want to know about the core brand and associated company values and beliefs. Some industry experts think this will take a back seat amid recession concerns, whereas others believe it is more important than ever to provide a positive emotional connection that is inherent in cause-related marketing that empowers consumers during times of distress and upheaval. According to the second-annual, multi-country, Edelman Goodpurpose study conducted the fall of 2008, more than half of the 6,000 global consumers surveyed said that even in the midst of a recession they would be prepared to spend more for a brand if it supported a good cause. Already, several footwear companies have made sustainable footwear forays, such as Deckers with the Simple Shoes brand. The company s goal is to make the Simple brand 100% sustainable with materials including organic cotton, eco-certified leather, bamboo, and recycled car tires and inner tubes for its rubber soles. Simple Shoes are sold through a variety of retail channels including independent retailers, outdoor shops and department stores such as Dillard's and Nordstrom. The company even sells through alternative footwear channels such as Whole Foods Markets. Counterfeiting, a Dangerous Business In 2008, the domestic value of counterfeit and pirated goods seized for intellectual property rights violations was up 39% to $272.7 million, an increase of almost $76 million from U.S. Customs found that for 2007, 40% of all intellectual property rights seizures were footwear, up from $63.4 million in 2006 to $78 million with the vast majority being in athletic shoes and the main source being China. Purchasing cheap, knock-off designer products from the trunk of a car or from a street hawker is inconsequential to many consumers who do not care about the repercussions to the industry being scammed that go beyond the bottom line and effect employees across the August 2009 Packaged Facts 17

40 Chapter 1: Executive Summary The Global Footwear Market board. Consumers also do not realize the potential dangers of a counterfeit product knockoffs are likely made from sub-par materials that at best may be ill-fitting but may also cause injury. Industry Hopes to See End Depression-Era Tax Footwear industry members of The Affordable Footwear Initiative have been urging Congress to pass the Affordable Footwear Act and offer consumers some relief by ending a Depression-era shoe import tax meant to protect domestic manufacturers from cheaper imports. Packaged Facts estimates wholesale prices of footwear rose eight percent in 2008 and those price increases were passed on to consumers despite the slowing economy. In the most recent effort to repeal the tax, Senators Maria Cantwell (D-WA) and John Ensign (R-NV) formally reintroduced the bipartisan Affordable Footwear Act (S. 730) in April The legislation would eliminate the regressive and hidden tax paid on most, lower-cost and children's shoes, or about 60% of the shoes sold in the United States each year. Style and Innovation Trends: Personalized Footwear Through keeping a finely tuned ear to the whims of consumers, the industry is making strides in personalization and customization by offering an ever-widening variety of shoes that satisfy not only functional needs but ever important emotional ones, from design options to celebrity brands that echo and/or magnify an individual s personality and beliefs. Several brands in the Adidas stable offer personalized and customized platforms, such as Adidas mi Adidas and mi Original. Mi Adidas, which allows consumers to custom-design running shoes was launched in Adidas performance stores in 2007, followed by the launch in 2008 of Mi Originals to Adidas concept stores. Emotional benefits can also play a part in customization, where the consumers can fully express themselves artistically! Enter Zazzle s custom shoe offering ( Zazzle's custom shoe platform is the first fully customizable shoe with user-generated content, allowing users to design and select colors for the entire shoe. Consumers are able to create unique custom canvas shoes by uploading their own designs, patterns, illustrations, images and text, and then preview their shoes instantly. Users can also embellish their shoe designs with preset colors and patterns. The shoes are embellished and 18 Packaged Facts August 2009

41 The Global Footwear Market Chapter 1: Executive Summary assembled from scratch within 24 to 48 hours, which enables consumers to receive their shoes in one to two weeks. Comfort versus Style: Footwear No longer Easily Categorized Over the past several years, there has been a step change in seeking solace from the shoes that hurt us. Footwear fashion trends are ephemeral and reliant on consumer trends, innovation and artistry, but in the past year, the most widespread buzz has been on casual comfort and health and wellness rather than on well-heeled stilettos! The marketplace has seen growing crossover. Shoes are no longer siloed into business wear, casual wear, sporting wear or dress wear. Casual Friday has evolved into Casual Everyday. Sports and lifestyle continue to merge. Consumers want to go from faxing, to flexing, to a festive night out seamlessly and in comfort. Several brands such as Jones Apparel s Easy Spirit have made it their core business to promote this idea while other brands have adopted strategic partnerships that combine multiple brands into hybrid footwear products. For example, Nine West and New Balance struck such a deal in 2008 to create a line of footwear combining the style and comfort technology of each. Technology Offers Good Shoes and Good Health In response to continued consumer interest in health and wellness and the multi-tasking lifestyle, a slew of shoe manufacturers and brands are touting a wealth of health claims. Ailments from back pain to varicose veins and benefits such as improved posture, posterior toning, and burning calories, are all being met with high-technology and design innovations such as rounded soles and heels, extensive cushioning and contoured shapes to mimic walking barefoot. The idea of a fitness shoe that offers inherent health and wellness benefits is not new. Earth shoes, first made popular in the U.S. during the 1970s, were the precursor to the wide variety of wellness footwear available today. Now known as Earth Footwear, with an average retail price around $100 a pair, they are designed to create proper alignment of the spine and stretch the calf muscles. Newer products have newer price points and more impressive claims! Products such as MBTs by SwissMasai have sold more than a million pairs at $230 to $270. Chung Shi, a German August 2009 Packaged Facts 19

42 Chapter 1: Executive Summary The Global Footwear Market fitness shoe with a rocker bottom, is priced at around $170. Other players in this arena include the FitFlop, NGR shoes (No Gym Required) and the Z-Coil Freedom. Aggressive Designs Versus Staid Style In women s non-athletic designs, particularly those for fall 2009, the look is about strong straps, buckles, and chains. Booties, a mixture between a shoe and an ankle boot, have reemerged on runways and on celebrities in a variety of styles, such as peep-toe, lace-up, oxford and fold-over. Also big are heels with big personality thick straps, bling, tassels, buckles and six-inch plus heels in bold colors. But others view the more aggressive styles including everything from extreme platforms, high sculptural heels and thicker heels, as more architectural and exciting, rather than simply slutty! While these more flamboyant and aggressive looks will continue to have traction and possibly reflect a sense of escapism in difficult economic times, there is another more conservative trend at work driven more by fear and practicality that emerges in fall introductions and further penetrates into winter introductions. Many designers are also introducing more serious and classic shoes that are more practical with an emphasis on blacks and browns, with muted colors, simple lines and less embellishments (and more conservative pricing) in anticipation of less-adventurous consumers. 20 Packaged Facts August 2009

43 The Global Footwear Market Chapter 1: Executive Summary Marketing Outreach Recession Time to Engage Loyal Consumers Given a recession, a footwear marketer s first instinct may be to cut costs on outreach and innovation, but such cuts can do more harm than good. Rather, marketers should see it as a time of opportunity to re-evaluate their brand strategies and re-connect with core consumers. In a panel moderated by Footwear News Editorial Director Michael Atmore for the Council of Fashion Designers of America programs designer Vince Camuto commented on the difficulties posed by the current economy "I expect next year to be our best year. It's a wakeup call to the industry, but it's also a great opportunity to work on your product, reorganize and reinvent yourself." (Footwear News, December 15, 2008) Research shows cost-cutting can undermine a marketer s long-term business strategy. For example, data from the British study Profit Impact of Market Strategy revealed that over the past 30 years, companies that spent more on innovation during downturns saw returns on capital employed rise 23.8% during recovery times, while those that limited spending only saw gains of 0.6%. (Ad Age, February 25, 2008) Integration Important as Media Preferences Shift It will be increasingly important to integrate marketing activity with a unified idea that is expressed through multiple outreach formats especially to build relationships with younger consumers who are more likely to play a video game than watch television, and read a blog than a magazine. Classic advertising methods are less and less effective as the advertising marketplace has become more fragmented and the consumer audience for each individual media information source has shrunk and dispersed due to the varied choices. A mixture of TV, print and out of home, plus emerging media and guerilla tactics, should be part of any large-scale plan. A study conducted by the National Retail Federation and BIGResearch found that emerging media forms of communication such as online video-game ads, blogs and text messages are gaining influence with consumers. "As new technology places itself on the market, [it] is diverting attention from the typical newspaper and magazine advertisements," said Pamela Goodfellow, Senior Analyst at BIGResearch. "It's up August 2009 Packaged Facts 21

44 Chapter 1: Executive Summary The Global Footwear Market to retailers to be nimble in knowing what the latest and greatest is to reach their customers." (AdAge.com, November 20, 2008) Jimmy Choo Out of The Shoe Box Thinking Luxury shoemaker, Jimmy Choo isn t standing idly by waiting for the recession to end. Instead, the brand has launched an aggressive youth-targeted, buzz-building initiative to fuel excitement in a difficult economy. In June 2009, Jimmy grabbed attention announcing a partnership with retailer H&M for a limited-edition collection of shoes (price points for most shoes at $55 to $138), accessories, and ready-to-wear items due in stores in November Jimmy Choo is also prepping to debut Choo 24/7 for spring Separate from the main spring collection, it will feature updated versions of favorite styles in a variety of colors, materials and heel heights. In support of the launch, the company plans an extensive marketing push for January With this endeavor, coupled with the H&M collaboration and its Project PEP charitable initiative, the company hopes to differentiate itself. This is an integrated strategy, said CEO, Josh Schulman. It s very important that we remain close to our customers and potential customers. Now is the time to take market share. (Footwear News, June 22, 2009) Virtual Marketing and Etail Make Most of Recession Dollars Of course, not every player has the money for the big branding efforts. Virtual marketing and etailing has emerged as a simple way for smaller and emerging footwear players to make their products directly available to consumers and in a fiscally problematic time makes the most out of limited financial resources. All the Simplicity of With all the capabilities of new technologies, the power of a simple campaign is oft forgotten. Online newsletters such as DailyCandy, insider s guide to what s hot, new and undiscovered from fashion and style to gadgets and travel with a free daily newsletter and website predominantly for women or similarly Thrillist for men are an easy and fun way to blast your market message or new product introduction. The voice of these s is quirky, fun and attention-grabbing. 22 Packaged Facts August 2009

45 The Global Footwear Market Chapter 1: Executive Summary Make Use of Alternative Advertising Media While traditional mass-marketing vehicles still hold the most sway, a study conducted by the National Retail Federation and BIG Research found that alternative marketing outreach through online video-game ads, blogs and text messages are gaining influence overall with consumers. Retail ad inserts (traditional circulars and multi-advertiser coupon packages) are the most influential in clothing purchases, at 33% of consumers citing them, followed by magazines at 27%, newspapers at 23%, and broadcast TV at 21%. Text messages influence three percent of clothing purchases, but jumps to six percent among the key target market of 18- to 34-year-olds. Product placement is also particularly effective among the 18- to 34- year-old demographic 16% said it impacted a clothing purchase. (Ad Age, November 20, 2008) The Puma Past Masher In January 2009, Puma launched "Puma Past Masher", a Web application that lets visitors upload a personal photo and mash it up with fashion from previous eras to commemorate the brand's 60th birthday. Mash up options included 225 hairstyles, tops and accessories, which allow 45 million possible combinations. Notes and comments on each look can be added to the custom-designed image and those images can then be exported to Facebook and Flickr. The application, no longer up, generated tremendous popular response in the blogosphere. Behavioral Targeting in Diverse Consumer Market While alternative online tactics such as social networking are terrific at building buzz, utilizing an increasingly popular online advertising strategy behavioral targeting may be a better way to reach consumers and directly drive sales from key consumers. Experts note that search-related ads sponsored by links, on Google or Yahoo! for example, are the largest growth sector, but behavioral targeting is a much more pro-active approach. Behavioral targeting occurs when marketers analyze web users online activities to figure out who is most likely to be interested in its product, which enables them to place ads on whatever sites those consumers are visiting. For example, behavioral segments important to the footwear industry, such as fashion-interested, outdoor sports enthusiast or soccer mom, would be based on where the user has gone and/or what they have done on various web pages. August 2009 Packaged Facts 23

46 Chapter 1: Executive Summary The Global Footwear Market Word-of-Mouth Increasingly Important Before the emergence of user reviews and comparison sites such as epinions.com, a few unhappy customers couldn't do much damage. Now their unfiltered rants can be read by millions of prospects. Of course, consumer opinion can also tilt in a positive direction. For example, the Princess Poochie blog, shoedaydreams.com, is devoted primarily to shoes, including discussions on shoes Princess Poochie owns, shoes she wants, shoes she just bought or favorite online discoveries. Shoe offers alerts to consumers with champagne tastes on beer budgets. For those longing for white tailored Gucci pumps, Poochie's blog points to a similar style, available in four colors at Target. She also points out recent introductions (Christian Louboutin s Estoteri, $995 at Barney s!) and to sales (Finnish designer, Minna Parikka 20% - 50% off!) Social Networking to Play Big Part in WOM More and more marketers are using word-of-mouth (WOM) as a key part of their marketing and brand strategies, which may be particularly meaningful to footwear marketers. It s easy and inexpensive, especially with the growth in web communications and communities, for marketers to offer ample opportunity to interact with real consumers. For example, Facebook already has in place pages and pages of special Footwear-interested groups, both corporate and consumer. One of the most popular is Nike, Inc. s Facebook page with nearly 1.5 million fans. Toms Shoes, the company that gives a pair of shoes to a child for each pair it sells, had more than 96,000 fans. Don t Forget the Human Touch Programs, such as Kigo s Friends of Kigo influencer program, tap the human element to get the word out. According to Kigo co-founder Rachelle Kuramato, instead of throwing money at less targeted approaches, they have tapped active, gregarious women in certain markets (New York City, Chicago, San Francisco and Atlanta), including a PTA President, a lawyer, and an owner of a Pilates and Yoga studio to wear Kigos and share their positive experiences with the portable comfort shoe and build buzz for the July 2009 website launch. Product Placement Opportunities Abound Non-traditional strategies and tactics will begin playing larger roles in getting product messages out to consumers, as millions of TiVo/DVR users tune out commercials and ignore 24 Packaged Facts August 2009

47 The Global Footwear Market Chapter 1: Executive Summary print media. Luckily, many footwear marketers are already skilled in alternative outreach programs, particularly product placement. Marketers should explore more placement opportunities within their own cultures for opportunities notably fashion and health. The dominance of reality fashion and health television programming is astounding. No longer relegated to daytime on a couple of cable networks, the small screen offers options from The Doctors on CBS to Dr. Oz (of Oprah fame) on Discovery Health, or from The Fashion Show on Bravo to Project Runway on Lifetime. It is an ever-growing list of television product placement opportunity including a soon-to-be seen competition-based shoe design reality television series featuring fledgling shoe designers, à la Project Runway, Sole Perspective. The program hopes to foster awareness and appreciation among consumers and benefit the footwear industry through the use of corporate driven marketing challenges. Nike Active in Broadcast Placement Neilsen Product Placement Service found that during the first quarter of 2008, apparel placements ranked number one on both broadcast and cable with 4,493 and 26,063 placements, respectively. Nike ranked number six in the period with 575 placements on prime-time broadcast network television with 575 placements (versus Coca-Cola with 2,990 placements), and the only footwear brand in the top ten for number of placements. (The Center for Media Research Brief, September 26, 2008) Reliance on Sports Icons Shifting More to Celebrity Not surprisingly, athletic footwear and sports stars are an easy marketing mix and companies are continually aligning themselves with top sporting professionals and events from edgier X- Game mavens to old standards like football and tennis icons to promote a performance message. It s a no brainer. But with the increasing number of athletic footwear marketers competing for share points, the focus is on further differentiating brands with lifestyle benefits rather than solely on functional performance benefits. The main reason for the shift is the influx of non-sport specific, casual sneakers for everyday use. While there will always be a place for the professional athlete in promoting a brand (where would Nike be without it s young Olympians?!), non-sporting celebrities can better speak to a August 2009 Packaged Facts 25

48 Chapter 1: Executive Summary The Global Footwear Market broader emotional universe of benefits and dreams while sports stars live more in the technological and performance benefits of a shoe. This is leading to relationships and introductions from hitherto unknown regions. For example, 2008 saw talk show host Kelly Ripa team with Ryka to co-design a footwear and apparel collection and act as spokesperson for the brand in its print and online campaign. In 2009, Eddie Van Halen is launching a line of high and low-top sneakers, similar to the ones he sports onstage with the red, white and black stripes that mimic the design of his Frankenstein guitar. Payless and Summer Rayne Oakes Go Green Licensing, co-branding, and sponsorships with celebrities provide opportunities for meaningful brand impressions among consumers especially in the face of media and product clutter proliferation and dwindling advertising effectiveness. For example, in November 2008, Payless ShoeSource launched the first-ever affordable green footwear line with the help of Summer Rayne Oakes, Discovery Network's Planet Green fashion and beauty expert and author of Style, Naturally: The Savvy Shopping Guide to Sustainable Fashion & Beauty (Chronicle Books, February 2009). The new brand, Zoe and Zac, at $30 a pair, is a key part of Payless' strategy to bring well-recognized, fresh, and innovative new brands to every consumer at a good price. Oakes, as Payless ecoconsultant, will be involved in seasonal line reviews focusing on materials use and aesthetics for the product, packaging, and in-store materials, as well as participate in other marketing activities for the brand. 26 Packaged Facts August 2009

49 The Global Footwear Market Chapter 1: Executive Summary Footwear Consumer Men s Athletic Footwear Penetration Levels Highest at 20% According to data compiled by Experian Simmons Market Research Bureau, the two major men s footwear segments, athletic and non-athletic, both saw decreased levels of penetration in the past years in terms of footwear bought in the past twelve months. Athletic shoes dropped two points since 2007 to 20% of the population purchasing in 2009, while nonathletic shoes dropped three points since 2006 to 17% in and 2005 saw the highest levels in usage penetration for the six year period for both segments, at 23% for athletic and 20% for non-athletic, as consumers recovered from the faltering economy in the early years of the new millennium. (see Chapter 7: Athletic Footwear Consumer for a specific look at sneaker, athletic and sports shoes) Boots and slippers also dropped from the highs of 2004 each dropping a point by 2009 and settling at six percent and eight percent, respectively. The 2004 levels could not be maintained as America rolled into another recessionary period one likely to have greater staying power. Don t expect penetration levels to bounce back quickly in the coming years as consumers may continue to put off new footwear purchases, in lieu of a visit to the local cobbler. Table 1 2 Total Consumer Penetration Levels for Men s Footwear Bought in the Past 12 Months, (%) Men s Footwear Bought in the Last 12 Months Fall 2004 Fall 2005 Fall 2006 Fall 2007 Fall 2008 Winter 2009 Athletic Shoes 23% 22% 22% 22% 21% 20% Non-Athletic Shoes Slippers Boots* * Excluding work boots Source: Compiled by Packaged Facts based on data from Experian Simmons National Consumer Study, Winter This material is used with permission. August 2009 Packaged Facts 27

50 Chapter 1: Executive Summary The Global Footwear Market Women s Non-Athletic Footwear Penetration Levels Highest at 23% Same story, different sex. Women s footwear purchase penetration levels showed a similar trend to men s. Again the two largest categories, athletic and non-athletic, saw decreased penetration with a steady decline since For women, the largest segment, non-athletic shoes, fell from 26% in 2004 to 23% in Athletic shoes fell from 20% in 2004 to 17% in Slippers followed the pattern with a three point drop by It is likely that come the fall 2009 edition of Simmons data will show a decline. Women s boot purchase did not follow the same pattern as men s. However, the current uptick to eight percent in winter 2009 from seven percent in fall 2008 for women s boots is likely due to heavier purchasing during the snow and sleet months. Table 1 3 Consumer Penetration Levels for Women s Footwear Bought in the Past 12 Months, (%) Women s Footwear Bought in the Last 12 Months Fall 2004 Fall 2005 Fall 2006 Fall 2007 Fall 2008 Winter 2009 Non-athletic Shoes 26% 25% 25% 25% 24% 23% Athletic Shoes Slippers Boots * Excluding work boots Source: Compiled by Packaged Facts based on data from Experian Simmons National Consumer Study, Winter This material is used with permission. For Footwear, Consumers Shop Wal-Mart Most According to data from BIGresearch, in the years BIGresearch, nearly 18% of adult consumers have no preference for a particular branded outlet, 12% of consumers shop most often at Wal-Mart and Payless for footwear. Wal-Mart and Payless were the only stores reaching double-digit preference. However, when broken out by male and female shoppers, Payless sees a much higher level of loyalty from women at 16% than men at seven percent, while Wal-Mart sees little differentiation by sex. Since 2006, both Wal-Mart and Payless have suffered some loyalty erosion. Both dropped two percentage points from 14% of the adult population in 2006, while runners-up Kohls and DSW each gained points. In 2008, five percent of consumers shopped 28 Packaged Facts August 2009

51 The Global Footwear Market Chapter 1: Executive Summary Kohl s most often and four percent of consumers shopped DSW, up from four percent and two percent in 2006, respectively. Rounding out the top ten retailers for shoe shopping were JC Penney, Foot Locker, Macy s, Sears, Kmart, and Target, garnering between two and three percent of adult for The rest of the retailers jockeyed for miniscule penetration levels, often at less than half a point with little in the way of preference changes over the period. August 2009 Packaged Facts 29

52 Chapter 1: Executive Summary The Global Footwear Market Table 1 4 Consumer Penetration Levels for Stores Shopped Most Often for Shoes, by Women, Men and Total Population, (%) Store Adults Women Men Adults Women Men Adults Women Men WalMart 11.8% 12.5% 11.2% 11.6% 12.6% 10.5% 14.1% 15.5% 12.6% Payless Kohls DSW JC Penney Foot Locker Macy's Sears Kmart Target Famous Footwear Shoe Carnival Nordstrom Dillards Finish Line Online/Internet Marshalls Zappos Dick's Sporting Goods Ross Shoes.com Belk Nike Rack Room SAS Shoes Academy Big 5 Sporting Goods Ebay Shoe Dept Skechers Bass Bealls Easy Spirit (continued) 30 Packaged Facts August 2009

53 The Global Footwear Market Chapter 1: Executive Summary Table 1 4 [cont.] Consumer Penetration Levels for Stores Shopped Most Often for Shoes, by Women, Men and Total Population, (%) Store Adults Women Men Adults Women Men Adults Women Men LL Bean Meijer Mervyns New Balance Outlet Stores Shoe Show TJ Maxx Florsheim Haband Journeys Mason Redwing Rockport Value City Nine West No Preference Other Note: -- signifies not data available. Source: BIGresearch, Consumer Intentions and Actions Survey and Simultaneous Media Study, BIGresearch, All Rights Reserved. Compiled by Packaged Facts. August 2009 Packaged Facts 31

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55 The Global Footwear Market Chapter 2: The Market Chapter 2 The Market Scope of Report This Packaged Facts report analyzes the U.S. footwear market sold through retail channels and includes a look at the global market for comparison. The report covers the market in terms of value and unit volume consumption and details U.S. dollar retail sales estimates by major retail channel, major product type, and consumer segment. Also included is an overview of the competitive landscape and profiles of selected players within the space. The report discusses major trends affecting the market including economic factors, design and marketing, and provides detailed analysis of consumer preferences by major product category and retail preferences. Product Categories Footwear products covered in the scope of this report include essentially every type and style from athletic to zories (flip-flops). In presenting the U.S. retail market, Packaged Facts has categorized footwear by two major types as follows: Athletic Footwear includes athletic, sport, and active lifestyle footwear for men, women and children. Major athletic brands include Adidas, Asics, Fila, K-Swiss, New Balance, Nike, Puma, Reebok, and Saucony. Athletic footwear also includes footwear that is not designed for a specific individual or team sport but may be performance inspired or intended for other activities. Products include outdoor footwear (hiking boots and sandals) by brands such as Merrell and Teva, and casual sneakers by brands such as Converse, Skechers, and Vans. Products such as ski and snowboard boots are included in the market numbers but are not the focus of discussion. Non-Athletic Footwear covers casual and dress footwear for men, women and children such as pumps, loafers, or Mary Janes. It also includes house slippers, various types of work shoes and boots. Products not in the scope of this report include footwear accessories (i.e. shoe trees, bags, polishes, laces) gaiters, parts of shoes, socks, and foot care products. August 2009 Packaged Facts 33

56 Chapter 2: Executive Summary The Global Footwear Market Methodology The information presented in this report was obtained from primary and secondary research. Primary research entailed on-site examination of footwear products in retail stores and consultations with footwear industry observers and executives. Secondary research involved canvassing information from financial, marketing, and trade publications, company literature, and independent research reports, plus reviews of industry group websites, such as the American Apparel and Footwear Association, and blogs and readers comments posted on these sites. Market figures in this report are predominantly estimates by Packaged Facts based on data from the U.S Department of Commerce s U.S. Census Bureau and major players in the industry. Data from the U.S. Census Bureau included the Economic Census (1997, 2002, and 2007), primarily for retail sales numbers, Annual Survey of Manufacturers (ASM) for product shipment statistics, Advanced Monthly Sales for Retail and Foodservice and the Annual Retail Trade Survey for additional retail figures. Other market data sources include the U.S. Bureau of Economic Analysis (BEA), the U.S. Bureau of Labor Statistics (BLS), and the U.S. International Trade Commission (USITC). The analysis of consumer behavior and demographics is drawn from data produced by the Simmons Market Research Bureau (New York, NY) Winter 2008/09 Study of Media and Markets, which is based on the responses of over 20,000 adults age 18 and older and from BIGresearch Consumer Intentions & Actions Survey (CIA), a monthly online survey of 8,000+ consumers. 34 Packaged Facts August 2009

57 The Global Footwear Market Chapter 2: The Market Global Footwear Market Global Footwear Market Rises 2% Driven by Asia, Latin America Packaged Facts estimates the global footwear market at retail grew two percent over the 2007 level of $189.3 billion to $192.3 billion in The 2008 gain was the lowest during the five-year period spanning 2004 through 2008 and was due largely to gains posted by emerging economies in Latin America and Asia. Some leading marketers reported gains in the range of 10% to 15% over 2007 levels for these regions while others showed much more muted results. In fact, Nike Inc., the largest footwear and athletic apparel marketer, had a 31% gain in its Asia Pacific region for the 12-month period ending November European Growth Tempers In Europe, results were mixed with some marketers reporting mid-single to low-double-digit gains while others saw declines into the double-digits. Adidas AG, the largest marketer in Europe saw overall footwear and apparel sales in its home region up 15% in 2008, while its global footwear sales were up four percent. Alternately, niche marketer Crocs saw its overall footwear sales decline 15% while sales in Europe decline a whopping 13% in U.S. Drags the Global Market Down In the United States, retailers found themselves with excess inventory, especially towards the end of the year, and were caught between lower demand and higher product costs leaving little wiggle room to cut prices and move product. Many U.S. retailers saw sales declines for the year, at least in terms of volume, but because of sharply higher prices, the market remained slightly positive. From the product marketer perspective, the economic and corresponding retail environments combined with higher average footwear prices due to a lower U.S. dollar meant fewer orders and lower volume. Still others noted remarkable success such as footwear newcomer Under Armour, which saw sales rocket up more than 100%. For most smaller mainstream marketers and marketers of products focusing on fads and recent trends, 2008 was the year of reckoning with sales down substantially. 2 Nike, Inc. reports its results on a fiscal year period ending May 31 of each year. August 2009 Packaged Facts 35

58 Chapter 2: Executive Summary The Global Footwear Market Figure 2 1 Global Footwear Retail Market, (in billions $) Global Footwear Retail Market Source: Packaged Facts Global Five-Year Growth at 6% Gains in the years leading up to 2008 had been more robust including nine percent gains in 2005 and 2006 pushing the market to well more than $181 billion. The more modest gain of four percent in 2007 was due partly to slightly lower average prices, as well as slower volume growth. For the period, the global footwear market grew at a compound annual growth rate of six percent. 36 Packaged Facts August 2009

59 The Global Footwear Market Chapter 2: The Market Table 2 1 Global Footwear Retail Market and Year-over-Year Percentage Change, (in millions $) Year Total Net Sales YoY % Change 2004 $153, , % , , , CAGR % Source: Packaged Facts Unit Volume Declines Globally While the global market was higher in U.S. dollar terms, volume sales told a different story. Packaged Facts estimates total volume declined two percent from the 2007 level 10.5 billion pairs to 10.3 billion pairs in The decline was driven largely by the economic downturn in the United States; however, Packaged Facts estimates that all international markets in the aggregate still showed a slight decline of one percent. Major competitors such as Nike and Adidas AG noted unit sales were up in slightly Europe and higher in other regions outside the United States, but for many other competitors the European market was less kind. For the period, footwear volume grew at a CAGR of six percent. August 2009 Packaged Facts 37

60 Chapter 2: Executive Summary The Global Footwear Market Figure 2 2 Global Footwear Retail Market Unit Volume, (in millions of pairs) 12, , , , , , , , , , , Global Footwear Retail Market Unit Volume Source: Packaged Facts Table 2 2 Global Footwear Retail Market Unit Volume and Year-over-Year Percentage Change, (in millions of pairs) Year Total Net Sales YoY % Change 2004 $8, , % , , , CAGR % Source: Packaged Facts 38 Packaged Facts August 2009

61 The Global Footwear Market Chapter 2: The Market U.S. Footwear Retail Market U.S. Footwear Market Flat Packaged Facts estimates the U.S. retail footwear market rose just 0.3% over the 2007 level of $46.6 billion to reach $46.8 billion in The U.S. market had seen greater gains in earlier years most notably 10% gains in the boom years for the U.S. economy 2005 and 2006, adding $4 billion in market value. For the period, the U.S. retail footwear market grew at a CAGR of three percent. Figure 2 3 U.S. Footwear Retail Market and Percent of Global Footwear Market, (in billions $) % 26.6% 25.7% 24.6% 24.3% 30% 25% % % % % % Source: Packaged Facts U.S. Footwear Retail Market % of Global Footwear Retail Market August 2009 Packaged Facts 39

62 Chapter 2: Executive Summary The Global Footwear Market U.S. Market Losing Global Dominance As a percent of the global market, the United States accounted for essentially 25%, but was down 0.2% from the level seen in Once the dominant market around the globe, the United States is no longer the big kid on the block, as the European Union consolidates more member states under its banner and emerging economies from Asia to Latin America gain greater consumer purchasing power. As a result, the U.S. market lost two percentage points in its global standing since Table 2 3 U.S. Footwear Retail Market and Year-over-Year Percentage Change, (in millions $) Year Total Net Sales YoY % Change 2004 $41, , % , , , CAGR % Source: Packaged Facts U.S. Unit Volume Declines While the U.S. market in terms of value barely squeaked out a gain, in volume terms the market as measured by apparent consumption 3 suffered its first decline since Packaged Facts estimates footwear volume declined seven percent from the 2007 level of 2.5 billion pairs to less than 2.4 billion pairs in As a percent of global consumption, the United States accounted for 28% of total footwear volume, but fell to just 23% by Volume in earlier years had been rising at a rate between five and six percent, but as a possible harbinger of things to come growth slowed in 2007 to just one percent. For the period, footwear volume grew at a CAGR of one percent. 3 Apparent consumption in volume terms is a measure determined by shipment quantities, plus import quantities, minus export quantities. It is a measure quantities supplied to the market and is not a direct measure of retail sales. 40 Packaged Facts August 2009

63 The Global Footwear Market Chapter 2: The Market Figure 2 4 U.S. Footwear Apparent Consumption by Volume and Percent of Global Footwear Market, (in millions of pairs) 3, % 26.1% 30% 2, % 24.0% 22.9% 24% 2, , , , , , % 1, % % *2007 *2008 0% U.S. Footwear Market % of Global Footwear Market * Estimated by Packaged Facts. Source: U.S. Census Bureau; U.S. International Trade Commission ( ) Table 2 4 U.S. Footwear Apparent Consumption by Volume and Year-over-Year Percentage Change, (in millions of pairs) Year Total Net Sales YoY % Change , , % , *2007 2, *2008 2, CAGR % * Estimated by Packaged Facts. Source: U.S. Census Bureau; U.S. International Trade Commission ( ) August 2009 Packaged Facts 41

64 Chapter 2: Executive Summary The Global Footwear Market Imports Dominate U.S. Market Virtually all footwear sold in the United States is produced overseas by contract manufacturers. In fact, imports have dominated the U.S. footwear market for some time, accounting for more than 90% since In 2006, imports hit their peak at 96% of the U.S. market with 2.4 billion pairs. Imports leveled off there after growing less than one percent in 2007 and declining six percent in 2008 to less than 2.3 billion pairs. The decline was due in part to the slowdown in the U.S. economy, but also due to the lower value of the U.S. dollar which effectively drove import prices higher. For the period, footwear imports grew at CAGR of one percent. Figure 2 5 U.S. Footwear Import Volume and Percent of Apparent Consumption, (in millions of pairs) 3, % 98% 2, % 95.4% 96.1% 95.6% 95.7% 96% 2, , , , , , % 92% 90% 1, % 86% % 82% % U.S. Footwear Imports % of U.S. Apparent Consumption Note: Percent of apparent consumption estimated by Packaged Facts ( ) Source: U.S. International Trade Commission, U.S. Census Bureau (imports and percent of apparent consumption ( ) 42 Packaged Facts August 2009

65 The Global Footwear Market Chapter 2: The Market Table 2 5 U.S. Footwear Import Volume and Year-over-Year Percentage Change, (in millions of pairs) Year Total Net Sales YoY % Change , , % , *2007 2, *2008 2, CAGR % * Estimated by Packaged Facts. Source: U.S. Census Bureau; U.S. International Trade Commission ( ) China Imports Declining China accounted for 87% of total footwear import volume in 2008, essentially unchanged in share terms, but in volume terms was down six percent from the 2007 level of 2.1 billion pairs to less than 2.0 billion pairs. China had grown its share of U.S. imports from the 2004 level of 83%, but topped out by For the period China footwear imports grew at a CAGR of two percent. Is Vietnam the New China for U.S. Imports? While import growth from China has topped out, imports from Vietnam have become the new star, replacing Brazil as the second largest supplier of U.S. footwear in Vietnam imports grew at a CAGR of 24% for the period, growing its share of the U.S. market from two percent in 2004 to five percent in 2008 supplying 111 million pairs of footwear. Vietnam s import growth was primarily at the expense Brazilian manufacturers. Brazil saw supply to the United States dwindle at an annual rate of 21% and accounted for just two percent of all U.S. imports in 2008 at 38 million pairs. August 2009 Packaged Facts 43

66 Chapter 2: Executive Summary The Global Footwear Market Table 2 6 U.S. Footwear Import Volume by Top 10 Countries of Origin, (in millions of pairs) Country CAGR China 1, , , , , % Vietnam Brazil Indonesia Italy Thailand Taiwan India Mexico Hong Kong All others Total 2, , , , , % Source: U.S. International Trade Commission ( ). Figure 2 6 U.S. Footwear Import Volume Shares, by Top 10 Countries of Origin, 2008 (%) Vietnam 5.0% China 86.9% Brazil 1.7% Mexico 0.4% Italy 0.9% Taiwan 0.6% Indonesia 1.7% Thailand 0.8% India 0.5% All others 1.2% Hong Kong 0.3% Source: U.S. International Trade Commission ( ); calculated by Packaged Facts 44 Packaged Facts August 2009

67 The Global Footwear Market Chapter 2: The Market U.S. Footwear Sales by Consumer Group: Women, Men, Kids Packaged Facts estimates women s footwear accounted for 50% of total footwear sales through retail in 2008, up slightly from 49% in 2004, while men s footwear accounted for 36% in 2008 down from 38% in Children s footwear was unchanged at 13% of the market. All three categories saw modest gains in 2008 of less than one percent, however, women s footwear showed the greatest growth over the period at four percent. Table 2 7 U.S. Footwear Retail Market by Consumer Group, Women, Men, Kids, (in millions $) Product by Consumer Type CAGR Women's footwear $20, $21, $23, $23, $23, % Men's footwear 15, , , , , Children's footwear 5, , , , , Total $41,824.8 $44,200.8 $46,556.1 $46,588.0 $46, % Source: Packaged Facts. August 2009 Packaged Facts 45

68 Chapter 2: Executive Summary The Global Footwear Market Figure 2 7 Share of U.S. Footwear Retail Market by Consumer Group, 2008 (%) Men's footwear 36.4% Women's footwear 50.4% Children's footwear 13.2% Source: Packaged Facts. U.S. Footwear Sales by Major Product Category Non-athletic footwear remained the dominant product type in 2008 accounting for 55% of the total U.S. market with athletic footwear capturing the remaining 45%. However, those shares have shifted since 2004 when non-athletic footwear accounted for 59% of the total market and athletic footwear made up 41%. Packaged Facts estimates non-athletic footwear grew at a CAGR of just one percent for the period to $25.9 billion while athletic footwear grew at a CAGR of five percent to reach $20.9 billion. 46 Packaged Facts August 2009

69 The Global Footwear Market Chapter 2: The Market Table 2 8 U.S. Footwear Retail Market by Major Product Category, (in millions $) Consumer & Category CAGR Non-athletic footwear $24,764.2 $25,310.1 $25,812.7 $25,819.1 $25, % Athletic footwear 17, , , , , Total $41,824.8 $44,200.8 $46,556.1 $46,588.0 $46, % Source: Packaged Facts Figure 2 8 Share of U.S. Footwear Retail Market by Major Product Category, 2008 (%) Athletic footwear 44.7% Non-athletic footwear 55.3% Source: Packaged Facts. August 2009 Packaged Facts 47

70 Chapter 2: Executive Summary The Global Footwear Market U.S. Footwear Sales by Consumer Group & Major Product Category Women s, Children s Athletic Footwear Strong A deeper look by consumer group and major product category shows both women s and children s athletic footwear saw the greatest growth in the period posting annual rates of eight percent and seven percent, respectively. Both saw gains of one percent in 2008 to reach $16.5 billion for women s athletic footwear and $3.6 billion for children s athletic footwear. Women s athletic footwear accounted for 15% of the market while children s athletic footwear made up eight percent. Men s, Children s Non-Athletic Decline Showing negative growth, Packaged Facts estimates men s non-athletic footwear declined at an annual rate of less than one percent to settle at $6.8 billion while children s non-athletic footwear posted an annual rate of decline at two percent to below the $2.6 billion mark. Shares for 2008 were 15% and six percent, respectively. Table 2 9 U.S. Footwear Retail Market by Consumer & Major Product Type, (in millions $) Consumer & Product Type Women's footwear, including dress & casual footwear Men's athletic footwear, including sneakers & outdoor/hiking boots Women's athletic footwear, including sneakers & outdoor/hiking boots Men's footwear, including dress & casual footwear Children's athletic footwear, including sneakers & outdoor/hiking boots Children's footwear, including boys, girls, infants, & toddlers CAGR $15,074.5 $15,766.2 $16,437.1 $16,445.8 $16, % 9, , , , , , , , , , , , , , , , , , , , , , , , , Total $41,824.8 $44,200.8 $46,556.1 $46,588.0 $46, % Source: Packaged Facts 48 Packaged Facts August 2009

71 The Global Footwear Market Chapter 2: The Market Women s Non-Athletic, Men s Athletic Growth Stable Perhaps not surprisingly, women s non-athletic footwear captured the largest share of the market at 35% while men s athletic footwear made up 22%. Growth for both segments was only slight in 2008, however, for the period, men s athletic footwear showed annual growth at a CAGR of three percent to reach $10.2 billion while women s non-athletic footwear grew at a CAGR of two percent to reach $16.5 billion. Figure 2 9 Share of U.S. Footwear Retail Sales by Consumer Group and Major Product Category, 2008 (%) Men's athletic footwear, incl sneakers & outdoor/hiking boots 21.8% Women's athletic footwear, incl sneakers & outdoor/hiking boots 15.2% Men's footwear, including dress & casual footwear 14.6% Women's footwear, including dress & casual footwear 35.3% Children's footwear, incl boys, girls, infants, & toddlers 5.5% Children's athletic footwear,incl sneakers & outdoor/hiking boots 7.7% Source: Packaged Facts. August 2009 Packaged Facts 49

72 Chapter 2: Executive Summary The Global Footwear Market Global Footwear Market Forecast Global Footwear Market to Reach $238 Billion by 2013 Packaged Facts expects the global footwear market to grow at a substantially slower clip between 2008 and 2013 compared to previous years. The global economic environment will likely put a damper on consumer spending putting pressure on all measures of the footwear including frequency of purchase, unit consumption and pricing. Regionally, markets will be affected to varying degrees and at various points in time as the global economic slump works its way through international markets. For instance, the Asia-Pacific region may take longer to slow down and may not be as severe as other regions. Figure 2 10 Global Footwear Retail Market Forecast, (in billions $) Global Footwear Retail Market Forecast Source: Packaged Facts 50 Packaged Facts August 2009

73 The Global Footwear Market Chapter 2: The Market Global Growth at Annual Rate of 4% Packaged Facts forecasts the global market for footwear to grow much slower than in previous years at a compound annual growth rate (CAGR) of four percent to reach $238 billion by Sales in 2009 are expected fall six percent from the 2008 level of $192 billion to settle below the $182 billion mark. However, the market should rebound in 2010 with a seven percent gain to $194 billion. Expect gains around the seven percent mark thereafter through Table 2 10 Global Footwear Retail Market and Year-over-Year Percentage Change, (in millions $) Year Total Global Sales YoY % Change 2008 $192, , % , , , , CAGR % Source: Packaged Facts Global Unit Volume Consumption to Reach 12.1 Billion Pairs On a unit volume basis, Packaged Facts expects a six percent decline from the 2008 level of 10.3 billion to 9.7 billion in The drop will be led by slower consumption all around, but with more acute declines in the United States and Europe. Packaged Facts expects countries in the Asia-Pacific region will see more modest declines with some showing some modest gains. Expect a modest rebound of six percent in 2010 to reach 10.2 billion pairs driven by a bounce in consumption by more developed regions such as the United States and Europe. Meanwhile it is expected that Latin and South America will show sluggishness as the economic cycle takes longer to work its way through various countries. Six percent growth is expected thereafter as the United States and Europe return to more modest growth rates and emerging economies see consumption rates rise. For the period unit volume is expected to grow at a CAGR of three percent. August 2009 Packaged Facts 51

74 Chapter 2: Executive Summary The Global Footwear Market Figure 2 11 Global Footwear Retail Market Unit Volume Forecast, (in millions of pairs) 14, , , , , , , , , , , , , Global Footwear Retail Market Unit Volume Forecast Source: Packaged Facts Table 2 11 Global Footwear Retail Market Unit Volume Forecast and Year-over-Year Percentage Change, (in millions of pairs) Year Total Global Sales YoY % Change , , % , , , , CAGR % Source: Packaged Facts 52 Packaged Facts August 2009

75 The Global Footwear Market Chapter 2: The Market U.S. Footwear Market U.S. Footwear Market to Suffer from Thriftier Consumer Habits In the United States, Packaged Facts estimates more timid overall growth as consumers work through a paradigm shift in the shopping mindset. The days of conspicuous consumption are being replaced by a higher level of frugality and conservative spending habits that will force many marketers to adjust product lineup to offer better values for staple footwear. Consumers who once spent $200 on a pair of shoes will be looking to drop that to $150 or lower. Others who bought multiple pairs of shoes per year will cut back by a few pairs. And, more consumers will likely take better care of older shoes, perhaps with visits to their local repair shop. Figure 2 12 U.S. Footwear Retail Market Forecast, (in billions $) % 22.1% 22.4% 22.0% 21.2% 25% % % 15% % % % U.S. Footwear Retail Market Forecast Source: Packaged Facts % of Global Footwear Retail Market Forecast August 2009 Packaged Facts 53

76 Chapter 2: Executive Summary The Global Footwear Market U.S. Global Market Share to Drop Two Points by 2013 It is expected that the United States will continue its decline as the leading footwear market as other regions continue to grow at faster rates. For 2009, Packaged Facts expects the United States to account for just 22% of the global footwear market in U.S. dollar terms. By 2013, that share is expected to drop to 20%. Overall Growth Estimated at 1% Annually to Reach $48.4 Billion Packaged Facts estimates sales of footwear in the United States will drop 14% from the 2008 level of $46.8 billion to just $40.1 billion in However, the sharp drop in 2009 will be greeted by a welcomed eight percent gain to $43.3 billion in 2010 as consumers return to stores. Expect growth rates to wane thereafter to about the three percent mark by 2013 reaching $48.4 billion. Table 2 12 U.S. Footwear Retail Market Forecast and Year-over-Year Percentage Change, (in millions $) Year Total U.S. Sales YoY % Change 2008 $46, , % , , , , CAGR % Source: Packaged Facts. Segments to Show Similar Growth Packaged Facts expects all segments to show rather slow growth overall with men s nonathletic footwear and children s footwear leading the pack at slightly better than one percent annually through Slower growth is expected in children s and women s athletic footwear. 54 Packaged Facts August 2009

77 The Global Footwear Market Chapter 2: The Market Table 2 13 U.S. Footwear Retail Market Forecast by Consumer Group & Major Product Category, (in millions $) Consumer & Category Women's footwear, including dress & casual footwear Men's athletic footwear, including sneakers & outdoor/hiking boots Women's athletic footwear, including sneakers & outdoor/hiking boots Men's footwear, including dress & casual footwear Children's athletic footwear, including sneakers & outdoor/hiking boots Children's footwear, including boys, girls, infants, & toddlers CAGR $16,490.8 $14,229.4 $15,349.9 $16,136.6 $16,685.8 $17, % 10, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Total $40,061.7 $40,061.7 $43,344.1 $45,631.5 $47,169.4 $48, % Source: Packaged Facts. Unit Volume Declines Globally It is estimated that footwear consumption in unit volume terms will decline 11% from the 2008 level of 2.4 billion pairs to settle at 2.1 billion pairs in 2009 a level not seen since Packaged Facts sees seven percent growth in 2010 to near the 2.3 billion pair mark. However, growth thereafter will eventually slow to two percent by 2013 when consumption will near the 2.5 billion mark. August 2009 Packaged Facts 55

78 Chapter 2: Executive Summary The Global Footwear Market Figure 2 13 U.S. Footwear Retail Market Unit Volume Forecast, (in millions of pairs) 3, % 21.8% 22.1% 21.9% 21.3% 25% 20.4% 2, % 2, , , , , , , % 1, % % U.S. Footwear Retail Market Unit Volume Forecast % of Global Footwear Retail Market Unit Volume Forecast 0% Source: Packaged Facts Table 2 14 U.S. Footwear Retail Market Unit Volume Forecast and Year-over-Year Percentage Change, (in millions of pairs) Year Total U.S. Sales YoY % Change , , % , , , , CAGR % Source: Packaged Facts 56 Packaged Facts August 2009

79 The Global Footwear Market Chapter 3: Retail & Distribution Chapter 3 Retail & Distribution Overview This chapter presents data and analysis on the retail aspects of the U.S. footwear market, along with descriptions on the method (wholesale or direct) and class (authorized or massmarket) of distribution and typical retail categories. Following that is an analysis of footwear sales as a percent of total sales for each major channel as well as U.S. footwear dollar sales by major retail channel and consumer preferences by retail channel as well as branded retailers. Footwear Distribution Method and Class Method: Wholesale or Direct Most large marketers distribute their footwear directly to major retail outlets, including department stores, shoe stores, and athletic stores, along with factory outlets, their own branded concept stores, and leased departments in independent stores. A marketer may own or use a network of distribution centers, typically situated in central areas easily accessible by truck, rail, or other transport. These distribution centers serve as the supply source for retail outlets in the surrounding geographic area. Some regional and smaller-scale manufacturers also sell their shoes directly to retailers, usually to independently owned specialty stores or regional department stores. However, the majority of small manufacturers use wholesalers or distributors to channel their shoes to retail outlets. Wholesalers often perform important functions, other than product transfer, such as helping retailers keep track of stocks, setting up merchandising displays, and providing information on industry trends. Smaller marketers do not exclusively use wholesalers and distributors, but often find them the best option for their scale. The larger marketers may supplement direct distribution through use of the wholesaler system, especially in international markets, but by and large, the larger marketers rely on their own distribution, selling direct to retailers. In addition, retailers often have their own distribution centers that receive shipments from major shoe manufacturers and then disseminate them to franchised or owned-and-operated stores. August 2009 Packaged Facts 57

80 Chapter 3: Retail & Distribution The Global Footwear Market Class: Authorized or Mass Footwear may be distributed on a mass (unlimited) or authorized (limited or franchise) basis. Mass-distributed footwear is supplied to a variety of retail outlets without limits or restriction; little or no attempt is made to protect retail accounts from competition or maintain product exclusivity. Mass-distributed products are generally lower-priced, often a benefit resulting from higher unit volume and faster turnover. As implied, mass-distributed products have a much wider range of distribution than authorized-distribution (limited) footwear. Common retailers consist of national retailers, local and regional discount shoe stores, and warehouse clubs. Authorized distribution is restricted in part based on geography to reduce competition at the retail level for each individual brand. The selected outlets may be the only selling agents of the manufacturer within a specific territory, and therefore have a protected franchise, but the degree of restriction on a limited distribution line can vary depending on market. For example, a particular product line may be distributed through only one outlet in a small town, whereas in a major metropolitan area, several outlets might carry that same brand. Outlets for limited distribution can also be selected on the basis of clientele and image. The prime outlets for limited distribution are usually class A department stores, shoe stores, and sporting goods stores. In some cases, marketers are able to reserve a predetermined amount of square footage to carve out exclusivity or even create the appearance of a store-within-astore. Footwear Retail Channels Overview In the United States, footwear is sold through a variety of retail formats ranging from national chains to non-clothing and apparel stores (where footwear accounts for less than one percent of that retail sector s total sales). Footwear sales through alternative retail formats such as catalogs and the Internet are playing increasingly important roles in the down economy but to a lesser degree than other products sold through these channels. Footwear can even be found for sale by street vendors although the likelihood of counterfeits is high, and if you look hard enough and have the cash, one will find an artisan cobbler such as E Vogel to craft a custom pair. But for most Americans, the local Wal-Mart, Payless or Foot Locker is the channel of choice. 58 Packaged Facts August 2009

81 The Global Footwear Market Chapter 3: Retail & Distribution There are many ways to categorize retail establishment, but below outlines the general landscape for footwear retail options. Shoe Stores Shoe stores can be grouped into one of two types of outlets. Family shoe stores provide footwear selections for the entire family in a variety of styles. Specialty shoe stores, often more up-market, are usually geared towards women or men, and often represent a branded shoe store concept like Nine West for women or Florsheim for men, which focus on a particular type of shoe such as dress or casual. Shoe superstores, much larger than traditional shoe stores, are becoming increasingly important in the athletic shoe category. Through recently built superstores, retailers are hoping to steal market shares by offering an extensive selection of athletic and rugged outdoor footwear, along with a wide variety of products for overall sporting needs. Discount Shoe Stores Discount shoe retailers such as Payless, DSW and Famous Footwear offer a variety of footwear types at reduced prices. These stores often specialize in closeouts, and are generally characterized by a no-frills, self-service atmosphere. For some footwear marketers, factory outlets are an important discount retail channel providing them the opportunity to distribute excess inventory or sub-par merchandise such as irregulars. Marketers often prefer distributing shoes to factory outlets rather than discount shoe stores or mass discounters, fearing that association with those channels may cheapen the brand name in the eyes of the consumer. Outlets are usually located in remote areas so they do not cut into the sales of retail channels found in indoor malls, shopping strips, and city centers. Sporting Goods and Athletic Shoe Stores Athletic stores provide the largest assortment of athletic and rugged footwear. Athletic specialty stores such as Foot Locker specialize in this type of footwear and provide a sales staff with extensive knowledge about the product offerings. Sporting goods stores such as Dick s or Modell s not only provide sporting equipment, but an athletic footwear department as well. August 2009 Packaged Facts 59

82 Chapter 3: Retail & Distribution The Global Footwear Market General Merchandise: Mass Discounters Wal-Mart, Kmart, and Target are the primary mass discounter retailers. These retail outlets provide consumers with an opportunity for one-stop shopping, along with a self-service selection of inexpensive shoes. General Merchandise: Department Stores and National Chains Among the most important outlets for footwear are department stores such as Nordstrom, and Macy s, and national chains such as Sears and JC Penney. These stores typically encompass an average of 20,000 square feet and sell a variety of goods, including fashionable clothing, accessories, cosmetics, and housewares, in distinct departments spread out over several floors. They typically offer sales support, higher-quality merchandise, name-brand shoes, and wide selections. Apparel: Specialty Apparel Stores Stores that specialize in apparel may offer a few lines of current shoes along with the season s clothing offerings. They account for a small but significant part of the retail pie and are often the choice for many fashion forward consumers. Examples of apparel specialty stores include Kenneth Cole and Banana Republic Apparel: Off-Pricers Off-pricers include retailers such as Marshalls, Loehman s and Filene s Basement through which brand names are sold at discount prices. Often, these shoes are manufactured as an offprice shoe, or a lower-end line, and are not available at other retail outlets. Non-Store Retail: Catalog Catalogs such as L.L. Bean offer higher-end footwear selections; other catalogs fill mid-tier and bargain niches. These companies specialize in mail order as their predominant outlet for the sale of products, although they may also have a few company outlet stores. While other retailers, such as department stores, may have mail-order catalogs (as do various footwear marketers), their primary business is not mail order, and they are traditionally classified within their respective channels. The growing role of the Internet, which is a particularly central issue to mail order marketers, will of course transform the retail/direct-sales boundaries. 60 Packaged Facts August 2009

83 The Global Footwear Market Chapter 3: Retail & Distribution Non-Store Retail: The Internet Just a few short years ago, all of the top-ranking footwear marketers had websites to promote their products, but the quality and style of the websites ranged as widely as the marketers themselves. Most used their websites primarily as consumer and business resources, providing information on the company, where to find stores, current product lines, and investment information or employment opportunities. However, few were using them as a direct-to-consumer retailing tool. Today, many are now focusing their websites to provide a wide-ranging product selection to sell directly to consumers. Brand loyalty plays a key role as consumers lose the benefit of trying on footwear directly before purchase. However, many marketers have lessened the fitting need by offering incentives such as free shipping and returns. In addition, independent online retailers such as Zappos.com have taken the Amazon.com model to the footwear market. August 2009 Packaged Facts 61

84 Chapter 3: Retail & Distribution The Global Footwear Market Footwear Retail Sales by Major Channels Shoe Stores Remain the Medium of Choice Packaged Facts estimates shoe stores accounted for 54% of total footwear retail sales in the United States in 2008, up just one percent from the 2007 level of $24.8 billion to $25.1 billion. Growth was driven in part by an increase in the number shoe stores such as Skechers that capitalized on more youth-oriented footwear trends. This comes despite certain industry insider claims that over-capacity in shoe retailing has led to cutthroat competition forcing some companies to go out of business. For example, Footstar, Inc., which operated leased footwear departments at K-Mart stores and also supplied footwear to Rite Aid drug stores, was unable to renew its contracts for 2009 and decided to liquidate. Another factor contributing to the increase in the shoe store channel has been the push by several marketers to open and operate their own retail locations focused primarily and sometimes exclusively on their own brands. Companies from Nike, Inc. to Wolverine Worldwide, Inc. have continued to open stores under their own specific brands. The shoe store channel grew at an annual rate of five percent during the period, increasing its share of the footwear market. Table 3 1 U.S. Footwear Retail Market by Major Channel, (in millions $) Channel CAGR Shoe stores $20,701.2 $22,876.8 $24,941.6 $24,810.0 $25, % General merchandise stores 9, , , , , Clothing stores 5, , , , , Sporting goods stores* 2, , , , , Non-store retailers 2, , , , , All other 1, , , , , Total $41,830.0 $44,200.8 $46,556.1 $46,588.0 $46, % * Also includes hobby, book, and music stores. Note: All major categories are employer firms only. All other includes non-employer firms. Source: Packaged Facts. 62 Packaged Facts August 2009

85 The Global Footwear Market Chapter 3: Retail & Distribution General Merchandise Stores Still Second, but Struggling General merchandise stores, which include superstores such as Wal-Mart (which from a consumer perspective, sees the highest levels of shopper penetration for footwear), department stores such as Macy s, and discounters such as K-Mart, saw their share dwindle in the period from 23% of the footwear market to 19%. Packaged Facts estimates sales declined at a CAGR of three percent to $8.7 billion. Footwear sales of specific retailers are not known; however, many retailers have had problems. While Wal-Mart continues to do well, especially in the down economy, other retailers such as Macy s and K-Mart have suffered due to elements such as over-capacity and declining traffic. Apparel Stores Less of a Force Packaged Facts estimates footwear sales at clothing stores were down slightly in 2008, but still grew at an annual rate of one percent for the period. Despite the modest growth, it is estimated that footwear sales as a percent of the total footwear market declined from 13% in 2004 to 12% in Sporting Goods Stores on the Rise Accounting for just seven percent of the footwear market, sporting goods stores saw better results, growing two percent in 2008 to reach $3.2 billion. For the period sporting goods stores footwear sales grew at a CAGR of four percent. Catalogs Tried and True, Internet Still on Trial Non-store retailers, which include catalogs and etailers, saw sales increase at an annual rate of six percent to reach $2.6 billion to account for six percent of footwear sales. Many footwear marketers and retailers have used catalogs as a way to proactively entice consumers for some time. For instance Genesco, which operates the high-end Johnston & Murphy men s footwear brand, has sold product via catalog since the 1980s. The catalog has been solid performer for the company mainly due to the loyal customer base the company has built over time. Only in the last few years has the Internet become a force in the footwear market. Because of the inherent need for consumers to try on footwear, growth has been much slower than many other products that are sold over the Internet for many other marketers. As an example, Skechers, which had $1.4 billion in sales in 2008 stated that just one percent of its sales, or August 2009 Packaged Facts 63

86 Chapter 3: Retail & Distribution The Global Footwear Market $18 million, came from the Internet despite having sold products via the Internet since Still the company did see annual growth of 39% for sales through the Internet during the period. Zappos.com Gets in Step While marketers and brick-and-mortar retailers have seen their Internet sales grow slowly compared to other products more suited for online retailing, Zappos.com has been a bright spot finding robust growth. In 2008, sales grew an estimated 19% to reach the $1.0 billion mark. For the period sales grew at an annul rate of 53%! However, the company has not been immune from the economic slump. While quarterly sales were unavailable, the fact that the company laid off eight percent of its workforce at the end of 2008 points to the likelihood of slowing, if not declining growth going into Packaged Facts August 2009

87 The Global Footwear Market Chapter 3: Retail & Distribution Figure 3 1 Share of U.S. Footwear Sales by Major Channel, 2008 (%) General merchandise stores 18.6% Clothing stores 12.0% Shoe stores 53.6% Sporting goods stores 6.9% Nonstore retailers 5.6% All other 3.3% * Also includes hobby, book, and music stores. Note: Non-store retailers includes catalog sales and ecommerce sales. Source: Packaged Facts. Footwear as a Percent of Retailer Sales by Channel Not surprisingly, shoe stores in the United States captured virtually all their total sales from the sales of footwear, while other major channels in which footwear is sold saw less than four percent of their sales come from footwear. Shoe stores saw 93% of their revenues come from footwear in 2008 versus 87% in Sporting goods stores clothing stores captured four percent of their sales from footwear in General merchandise stores, which include department store chains, super stores such as Wal-Mart, and discount stores such as K-Mart, saw two percent of their sales come from footwear while non-store retailers saw just one percent. August 2009 Packaged Facts 65

88 Chapter 3: Retail & Distribution The Global Footwear Market Table 3 2 U.S. Footwear Retail Sales as a Percent of Selected Retail Channel Sales, (%) Channel CAGR Shoe stores 87.2% 90.3% 93.2% 93.0% 93.4% 1.7% Sporting goods Clothing stores General merchandise stores Non-store retailers All Channels Note: Does not include all other retail channels and non employer firms. Sporting goods stores also includes book, music and hobby retailers. Source: Packaged Facts. 66 Packaged Facts August 2009

89 The Global Footwear Market Chapter 3: Retail & Distribution Retail Channels and Stores by Consumer Preference Footwear Consumers Prefer to Shop at Specialty Apparel Stores According to data supplied by BIGresearch, when asked what type of retail location they prefer to shop at for footwear, specialty apparel (i.e. segmented clothing and shoe stores) ranked number one with consumers at 30%, followed by discount stores with 18% and department stores with 17%. The Internet and catalogs were far less popular with just three percent and one percent of respondents, respectively. Membership houses barely registered and 18% had no preference. For more information on consumer retail preferences, see Chapter 6: The Footwear Consumer. Figure 3-2 Consumer Penetration Levels for Type of Retail Shopped Most Often for Shoes, by Adult Users, 2008 (%) Discount Store 18.1% Department Store 16.7% Internet 3.0% Catalog 1.2% Membership Warehouse 0.2% Specialty Apparel 29.9% No Preference 18.1% Other 12.8% Source: BIGresearch, Consumer Intentions and Actions Survey and Simultaneous Media Study, July BIGresearch, All Rights Reserved. Compiled by Packaged Facts. August 2009 Packaged Facts 67

90 Chapter 3: Retail & Distribution The Global Footwear Market Wal-Mart, Payless Still Top Choice for Consumers BIGresearch named Wal-Mart the retail leader for footwear purchases followed by Payless Shoe Source, both with 12% of consumers. However, preferences for these two are down from 14% in What s more, both retailers saw their consumer preference numbers decline to 11% in BIGreasearch s February 2009 survey. In spite of the downturn, Wal-Mart continues to trump competitors in the down economy with its commitment to everyday low prices and efforts to include higher profile name brands such as L.E.I. and Danskin. Payless current retail outreach strategy focuses more on celebrity launches such as the launch of the Christian Siriano for Payless collection created by the Project Runway winner, available in September Kohl s Hopes Celebrity Will Kick Sales Up a Notch Picking up the slack was third-place Kohl s, which saw its consumer preference rise from four percent in July 2006 to five percent in July 2008 to six percent in February Kohl's has long utilized a celebrity strategy. In April 2009, the company, in partnership with Iconix Brand Group's Candie's brand, signed a marketing deal with pop star Britney Spears, who will appear this year in the Candie's Only at Kohl's print, TV, in-store and online ad campaigns. Economy Hard on Off-Pricers Too After seeing small but steady growth since 2006, off-pricer DSW saw its preference decline back to three percent in February 2009 from four percent in July 2008 in spite of increasing its selection of designer footwear. And from Behind Comes Famous Footwear In July 2008, Famous Footwear accounted for 1.6% of consumer interest, but after adding exclusive fashion brands such as Fabulosity and Miss Bisou and launching a high-profile ad campaign during the 2009 Academy Awards, interest has improved. In February 2009, BIGresearch has the retailer at 2.3%. 68 Packaged Facts August 2009

91 The Global Footwear Market Chapter 3: Retail & Distribution Table 3-3 Consumer Penetration Levels for Stores Shopped Most Often for Shoes, by Adult Users, (%) Store Wal-Mart 11.8% 11.6% 14.1% Payless ShoeSource Kohl s DSW JC Penney Foot Locker Macy's Sears Kmart Target Famous Footwear Shoe Carnival Nordstrom Dillards Finish Line Online/Internet Marshalls Zappos Dick's Sporting Goods Ross Shoes.com Belk Nike Rack Room SAS Shoes Academy Big 5 Sporting Goods ebay Shoe Dept Skechers Bass Bealls Easy Spirit LL Bean (continued) August 2009 Packaged Facts 69

92 Chapter 3: Retail & Distribution The Global Footwear Market Table 3-3 [cont.] Consumer Penetration Levels for Stores Shopped Most Often for Shoes, by Adult Users, (%) Store Meijer Mervyns New Balance Outlet Stores Shoe Show TJ Maxx Florsheim Haband Journeys Mason Redwing Rockport Value City Nine West No Preference Other Note: -- signifies not data available. Source: BIGresearch, July Consumer Intentions and Actions Survey and Simultaneous Media Study, July BIGresearch, All Rights Reserved. Compiled by Packaged Facts. 70 Packaged Facts August 2009

93 The Global Footwear Market Chapter 4: Competitive Landscape Chapter 4 Competitive Landscape Overview This chapter presents a look at the competitive landscape for footwear with an examination of major players and the jockeying for position within the global and U.S. markets. The first section highlights the major events such as strategic partnerships, acquisitions and divestitures among selected competitors and puts these events into context of the overall market. The second section presents selected marketer profiles of both major and minor competitors to provide a sample of the dominant players juxtaposed to smaller players that have found niches or are attempting to crack into the major leagues. Footwear Market Highly Fragmented The global footwear market is highly competitive and fragmented with a few major players and a seemingly endless array of smaller players, including designers, marketers, manufacturers and retailers, all vying for share. Globally, several companies crack the $1.0 billion dollar barrier in footwear sales but only Nike, Inc. and Adidas AG bring in more than $5.0 billion. Nike the Global Leader At the top, Nike had sales of $10.3 billion from its Nike brand at the end of its 2009 fiscal year. Packaged Facts estimates total company footwear sales, which include Cole Haan, Converse, Hurley, Nike Golf, and Umbro brands, at $10.9 billion for the 12-month period ending November 30, Adidas at Number 2 Adidas AG vaulted much higher in 2006 when it purchased Reebok, adding more than $2.0 billion in footwear sales globally. In an effort to further focus its holdings on athletic footwear and apparel, the company later sold its Salomon brand, which makes ski equipment 4 Nike, Inc. s fiscal year ends May 31 of each year. Figures here have been adjusted to reflect approximate calendar year results more comparable to other firms. August 2009 Packaged Facts 71

94 Chapter 4: Competitive Landscape The Global Footwear Market and hiking boots, to Finland-based Amer Sports. Including Reebok for the period, total footwear sales for the company grew at an annual rate of six percent. Other Top Competitors: Puma, Asics, New Balance, C&J Clark Companies hovering nearer to the $2.0 billion global footwear sales mark include Germanybased Puma AG at $2.1 billion in 2008 and Japan-based Asics Corporation at $1.7 billion. U.S.-based New Balance Athletic Shoe, Inc. probably the largest privately held athletic footwear marketer had $1.6 billion in total sales in 2008, but the number also includes an unspecified amount in athletic apparel and accessories. Also unknown is privately held, United Kingdom-based C&J Clark, which markets mostly casual footwear for men, women, and children. Total sales are unknown, but are believed to somewhere between $1.5 and $2.0 billion. Table 4 1 Selected Footwear Marketers with Footwear Sales Greater Than $1.0 Billion, (in millions $) Company CAGR Nike, Inc. $7,580.4 $8,387.1 $9,025.1 $10,472.9 $10, % Adidas AG 5, , , , , Puma AG 1, , , , , Asics Corporation , , , , Geox SpA , , Skechers USA Inc , , Wolverine Worldwide Inc , , , Ecco Sko A/S , The Timberland Company 1, , , , Jones Apparel Group 1, Source: Compiled by Packaged Facts from annual reports. Note: Nike footwear sales are for the 12-month period ending November 30, 2008 and include estimates for Cole Haan, Converse, Hurley, Nike Golf, and Umbro. Adidas AG sales include Reebok sales for the entire period on a pro forma basis. Some companies sales include retail sales in addition to wholesale. Jones Apparel Group figures include wholesale footwear and accessories, but do not include footwear sold through retail locations. Sales for Adidas AG, Puma AG, Asics Corporation, Geox SpA, Ecco Sko A/S have been translated to U.S. dollars using the average annual exchange rate for their respective home currencies. Athletic Footwear Market More Concentrated at Top In athletic footwear, competition is much more concentrated at the top with U.S.-based Nike, and Germany-based Adidas AG, Puma AG, and Asics Corporation with $22 billion combined global footwear revenue. But beyond that, the competition dwindles below the $1.0 billion mark to a smattering of players focusing on niche markets. 72 Packaged Facts August 2009

95 The Global Footwear Market Chapter 4: Competitive Landscape Niche Athletic Sales Lower but Offerings Diverse New Balance Shoe Inc. is still one of the largest, most recognized brands and known for its special widths not available by other brands, but its footwear sales globally are likely under the $1.0 billion mark. Other minor athletic footwear competitors (2008 sales) include Fila (~$ million), K-Swiss ($340 million), Columbia Sportswear ($217 million), Amer Sports ($210 million), and Under Armour ($85 million). Other footwear marketers, such as Skechers, market what may be termed as performanceinspired footwear casual footwear with athletic shoe construction and styling along side more traditionally styled casual footwear. Here the line gets a bit blurry making it difficult to distinguish athletic footwear from non-athletic footwear. It also becomes a matter of marketing perspective and consumer perception. Still others, such as Wolverine Worldwide, VF Corporation, Deckers Outdoor Corporation, and The Timberland Company, produce a wide range of athletic and outdoor footwear as well as every conceivable hybrid version in between. Nike Leads U.S. Footwear Market with Double-Digit Share Packaged Facts estimates Nike accounted for the largest share of the U.S. market in wholesale terms with 21% on $4.3 billion in revenue for the 12-month period ending November 30, 2008, growing from 18% in Followed By Adidas, Jones Apparel in Single Digits Adidas AG accounted for eight percent of the U.S. market in 2008 on footwear sales of $1.6 billion. The company had only three percent of the market in 2005, but after the acquisition of Reebok, the company s share jumped to nine percent in Jones Apparel Group accounted for five percent of the U.S. market through its Easy Spirit, Nine West and other brands wholesale revenues and is the largest marketer of women s nonathletic footwear. The company s share is likely a bit higher considering that footwear sold through its retail channels is not included in this figure. Privately Held Companies Share Considerable Other companies that likely have a considerable stake in the U.S. market include several companies for which data was not available. They include Berkshire Hathaway-owned Justin Brands, United Kingdom-based C&J Clark, Kenneth Cole, LA Gear, and Red Wing Shoe. August 2009 Packaged Facts 73

96 Chapter 4: Competitive Landscape The Global Footwear Market Table 4 2 Selected Global Footwear Marketers with U.S. Sales, (in millions $) Company CAGR Nike, Inc. $3,225.4 $3,589.4 $3,958.1 $4,332.3 $4, % Adidas AG , , , Jones Apparel Group 1, Skechers USA, Inc Brown Shoe Company, Inc Collective Brands (Stride Rite) Wolverine World Wide, Inc New Balance Shoe, Inc Deckers Outdoor Corporation The Timberland Company Asics Corporation Puma AG Crocs, Inc Genesco, Inc Weyco Group, Inc Ecco Sko A/S K-Swiss, Inc LaCrosse Footwear, Inc Columbia Sportswear Company Under Armor, Inc Geox SpA Amer Sports Corporation Heelys, Inc Note: Nike footwear sales are for the 12-month period ending November 30, 2008 and include estimates for Cole Haan, Converse, Hurley, Nike Golf, and Umbro. Adidas AG sales include Reebok sales for the entire period on a pro forma basis. Some companies sales include retail sales in addition to wholesale. Some company sales have are for the fiscal year ending January Jones Apparel Group figures include wholesale footwear and accessories, but do not include footwear sold through retail locations. Sales for Adidas AG, Amer Sports Corporation, Puma AG, Asics Corporation, Geox SpA, Ecco Sko A/S have been translated to U.S. dollars using the average annual exchange rate for their respective home currencies. Source: Compiled by Packaged Facts from annual reports. 74 Packaged Facts August 2009

97 The Global Footwear Market Chapter 4: Competitive Landscape Figure 4 1 Share of U.S. Footwear Wholesale Market by Selected Company, 2008 (%) Crocs, Inc. 1.4% Genesco 1.3% Weyco 1.1% Puma 1.5% Asics 1.9% Timberland 2.3% All others 37.6% Deckers Outdoor 2.8% New Balance 3.1% Wolverine 3.2% Stride Rite 3.3% Brown Shoe 3.6% Skechers 3.9% Nike 21.0% Jones Apparel 4.6% Adidas AG 7.6% Note shares may not include all footwear products for some companies; figures may include other products. Source: Packaged Facts Consolidation and Strategic Acquisitions All but Stopped Consolidation continued into 2008 as companies made changes to their portfolios in hopes of finding strategic benefits and accelerated growth. However, activity slowed dramatically in 2009 as the economic landscape forced marketers to focus on conserving cash versus spending on big deals. The largest firms focused on strengthening their core businesses whether they are performance athletic and sports footwear or dress and casual footwear. Many firms divested businesses up through 2008 that were no longer adding the level of value needed to continue stronger growth or that were no longer a focus of the overall company. Nike sold its Bauer Hockey business in 2008, but added Umbro to focus more on soccer. Adidas AG sold Salomon to Amer Sports in 2005 as it tried to digest Reebok. August 2009 Packaged Facts 75

98 Chapter 4: Competitive Landscape The Global Footwear Market A few smaller, niche companies that reaped rewards from fads through 2008 tried to bolster their business by adding additional products and brands. Skechers played around with kids player, Heelys, and Deckers Outdoor bought TSUBO, a fashionable comfort shoe company, in Crocs, Inc. bought several smaller firms in the years following its IPO, but so far has failed to add a mainstream footwear product instead focusing on companies and products that compliment its existing business. Its Jibbitz charms business has so far turned out to be a smart deal, but its acquisition of Fury Hockey, a hockey gear maker, was a mess. Nike on the Prowl? In early 2009, speculation of further Nike acquisitions surfaced when Women s Wear Daily reported that Nike was in talks to acquire Quiksilver Inc., maker of surfing and skateboard lifestyle-oriented apparel. The speculation turned out to be just that as no deal had been reached by the time of this writing. Though Nike has been sitting on a pile of cash and other current assets ($9.0 billion as of February 2009) with which it could make strategic acquisitions, Packaged Facts contends that adding Quiksilver, which has had problems growing revenue and staying afloat, would add little to Nike s portfolio brands since its Hurley business already plays in much the same space as Quiksilver. What s more, the company is still digesting Umbro, which it acquired in March Umbro is a much more strategic fit adding a strong global soccer business to Nike s other sports focuses, but sales growth for the Umbro brand is not as strong as some other businesses. Skechers Diggin in Its Heelys In August 2008, Skechers announced it had proposed the acquisition of Heelys Inc. Heelys makes kids sneakers with wheels in the heels that allow kids to alternate between rolling and walking. Talks had been going on reportedly since December 2007, but Skechers decided to make its desires known in August 2008 when it announced its offer of $143 million, or $5.25 per share. Skechers dropped pursuit when Heelys rejected the offer, citing Heelys management was being unrealistic regarding its company s value. Shortly thereafter the bottom fell out of the U.S. economy and took Heelys sales with it. Heelys 2008 sales declined 61% from the 2007 level of $184 million to just $71 million. As a result, Heelys share price was cut from just over $5.00 a share at the end of August 2008 to a low of $1.19 in March In November 2008, the company hired middle-market investment bank Houlihan Lokey to advise on strategic options. In a possible acknowledgment that Heelys management faltered over the proposed merger, CEO Donald Carroll resigned in February Packaged Facts August 2009

99 The Global Footwear Market Chapter 4: Competitive Landscape LaCrosse Footwear, Inc. Expands with Sustainable Acquisition In May 2009, LaCrosse Footwear Inc., a marketer of branded work and outdoor footwear and apparel, announced its intention to acquire Environmentally Neutral Design Outdoor, Inc., or END, for about $500,000. END designs and markets outdoor and athletic footwear using sustainable practices such as recycled materials and began shipping product only in The company received the Best Trail Running Shoe Debut from Runner s World magazine in their April 2009 issue and Best Road Running Shoe Debut in their June 2009 issue. The company will debut its Spring 2010 line at upcoming shows including the Outdoor Retailer Summer Show. The acquisition by LaCrosse closed in June August 2009 Packaged Facts 77

100 Chapter 4: Competitive Landscape The Global Footwear Market Selected Company Profiles Nike, Inc. Company Details Company Type Revenues (fiscal year ending May ) Descriptions Public $19.2 billion Employees 32,500 President, CEO VP GM Global Footwear VP Footwear Sportswear VP Global Footwear Converse VP Footwear Sport Performance VP & Chief Executive Officer, Cole Haan Mark Parker Jan Singer Andrea Correani John R. Hoke Chris Lindgren James Seuss Nike World Headquarters Address One Bowerman Drive Beaverton, OR Tel: Website: Overview Based in Beaverton, Oregon, Nike, Inc. is the world s largest designer and marketer of athletic footwear and apparel. The company designs, markets and distributes footwear, apparel, equipment, and athletic and fashion accessories in more than 180 countries worldwide. Products are sold through a variety of channels including more than 25,000 retail accounts in the United States and more than 27,000 retail accounts internationally. Nike also operates company-owned retail locations such as Nike factory stores and brand specific stores such as Niketown, Cole Haan, and Converse. The company had 296 company-owned retail locations in Other distribution channels include Internet etail, as well as independent distributors and licensees. 78 Packaged Facts August 2009

101 The Global Footwear Market Chapter 4: Competitive Landscape Virtually all of the company s footwear and apparel products are manufactured outside the United States, primarily in Asia by contract suppliers in China, Vietnam, Indonesia, and Thailand, though other countries such as Argentina, Brazil, India, Italy, and South Africa also produce products for sale in those countries and surrounding regions. In total, Nike contracts out to manufacturers in 34 countries. In October 2007, Nike announced that it had reached agreement to acquire soccer footwear and apparel brand Umbro for $565 million. The acquisition was complete in March 2008 for $576 million. The acquisition gives Nike a leading position in the soccer market and greater exposure to international customers. In February 2008, Nike announced that it reached an agreement to sell its Bauer Hockey to an investor group led by Kohlberg & Company and Canadian businessman W. Graeme Roustan for $200 million. The sale was completed in April of Performance For its fiscal year ending May 31, 2009, Nike reported total net sales increased three percent over the 2008 level of $18.6 billion to $19.2 billion. However, net sales were down seven percent in its fourth quarter as the global recession curtailed spending on athletic wear worldwide. The company indicated that futures orders for its products for the first half of its 2010 fiscal year were down 12% (five percent excluding changes in currency exchange rates). Nike s futures orders program accounted for 86% of U.S. sales in For the period, Nike s net sales grew from $13.7 billion at a compound annual growth rate (CAGR) of nine percent. August 2009 Packaged Facts 79

102 Chapter 4: Competitive Landscape The Global Footwear Market Figure 4 2 Nike, Inc. Total Net Sales, (in millions $) 25, , , , , , , , , , Source: Nike, Inc. annual reports and press releases. Figures are for the fiscal year ending May 31 of stated year. Table 4 3 Nike, Inc. Total Net Sales and Year-over-Year Percentage Change, (in millions $) Year Total Net Sales YoY % Change 2005 $13, , % , , , CAGR % Source: Nike, Inc. annual reports and press releases. Figures are for the fiscal year ending May 31 of stated year. Total Net Sales 80 Packaged Facts August 2009

103 The Global Footwear Market Chapter 4: Competitive Landscape Sales by Product Category Nike footwear accounted for 54% of the company s total net sales in its 2009 fiscal year, up slightly from 52% in 2008, but down over the longer term. In 1999, footwear accounted for 60% of total net sales and was even higher in previous years. However, the company has worked to build its other businesses in an effort to become more diversified. Apparel accounted for 27% and equipment made up six percent of total net sales in Nike s Other division, which includes the fashion footwear and apparel brand Cole Haan, Converse, Nike Golf, and newly acquired Umbro, made up the remaining 13%. Figure 4 3 Share of Nike, Inc. Total Net Sales by Product Category, 2009 (%) Apparel 27.4% Equipment 5.8% Footwear 53.7% *Other 13.1% Figures are for the fiscal year ending May 31 of stated year. * Other includes footwear products sold through Cole Haan, Converse, Hurley, Nike Golf, and Umbro brands. Source: Nike, Inc. annual reports and press releases. August 2009 Packaged Facts 81

104 Chapter 4: Competitive Landscape The Global Footwear Market Sales by Geographic Region Nike s largest share of sales by region was in the United States in 2009 at 34%, but international markets have become the largest driver of growth for the company. Even including Nike s Other business, which accounted for 13% in 2009, international is where it s at for Nike. In fact, international sales have accounted for more than 50% of Nike s total sales since It s not to say that the U.S. business hasn t seen growth. Sales grew at a CAGR of six percent between 2005 and But that pales in comparison to the Asia Pacific and Americas regions, which showed annualized growth of 15% and 17%, respectively. As a result, the Asia Pacific region accounted for 17% of total sales in 2009 compared to just 14% in The Americas region was just five percent of total net sales in Figure 4 4 Share of Nike, Inc. Total Net Sales by Geographic Region, 2009 (%) Europe, Middle East and Africa 28.7% Asia Pacific 17.3% Americas 6.7% Other* 13.1% United States 34.1% Figures are for the fiscal year ending May 31 of stated year. * Other includes footwear products sold through Cole Haan, Converse, Hurley, Nike Golf, and Umbro brands. Source: Nike, Inc. annual reports and press releases. 82 Packaged Facts August 2009

105 The Global Footwear Market Chapter 4: Competitive Landscape Footwear Sales Solid Despite Economy Despite the slowing economy, Nike s footwear business still fared well posting a six percent increase over the fiscal year 2008 level of $9.7 billion to $10.3 billion in Footwear sales were up in all regions including four percent in the United States, 15% in the Asia Pacific region, 13% in the Americas. Europe and the Middle East lagged with an increase of just one percent. For the period, Nike footwear sales grew at a CAGR of nine percent. Figure 4 5 Nike, Inc. Footwear Net Sales and Percent of Total Net Sales, (in millions $) 12, % 53.3% 53.7% 52.2% 52.2% 60.0% 10,000 9,732 10, % 8,000 7,300 7,966 8, % 6, % 4, % 2, % % Footwear Figures are for the fiscal year ending May 31 of stated year. Source: Nike, Inc. annual reports and press releases. % of total Nike net sales August 2009 Packaged Facts 83

106 Chapter 4: Competitive Landscape The Global Footwear Market Table 4 4 Nike, Inc. Total Net Sales and Year-over-Year Percentage Change, (in millions $) Year Total Net Sales YoY % Change 2005 $7, , % , , , CAGR % Source: Nike, Inc. annual reports and press releases. Figures are for the fiscal year ending May 31 of stated year. Cole Haan, Converse and Other Sales Did Suffer It was Nike s collection of other businesses that suffered in 2009, falling three percent from the 2008 level of $2.6 billion to $2.5 billion. In comparable terms, which excludes Bauer Hockey and the addition of Umbro, the company stated sales did increase five percent over all, but were down three percent in the fourth quarter. The company noted that both its Cole Haan and Nike Golf businesses suffered from the economic environment. For the period, sales grew at a CAGR of 10%. 84 Packaged Facts August 2009

107 The Global Footwear Market Chapter 4: Competitive Landscape Figure 4 6 Nike, Inc. Net Sales of Cole Haan, Converse & Other Products and Percent of Total Net Sales, (in millions $) 3, % 13.0% 13.8% 13.9% 13.1% 15.0% 2,500 2,593 2,514 2,260 2,000 1, % 1,736 1,500 1, % % Cole Haan, Converse and Other Figures are for the fiscal year ending May 31 of stated year. Source: Nike, Inc. annual reports and press releases. % of total Nike net sales Table 4 5 Nike, Inc. Total Net Sales and Year-over-Year Percentage Change, (in millions $) Year Total Net Sales YoY % Change 2005 $1, , % , , , CAGR % Figures are for the fiscal year ending May 31 of stated year. Source: Nike, Inc. annual reports and press releases. August 2009 Packaged Facts 85

108 Chapter 4: Competitive Landscape The Global Footwear Market Brand Portfolio Nike s pervasive swoosh can be seen on virtually every sport footwear and athletic product from aquatics to wrestling. The company also markets and operates other brands including fashion footwear marketer and retailer Cole Haan, athletic and casual footwear and apparel maker Converse, youth-oriented actions ports marketer Hurley International and United Kingdom-based soccer footwear and apparel maker Umbro. Table 4 6 Nike Brand Portfolio Division/Brand Nike Cole Haan Converse Hurley Umbro Source: Nike, Inc annual report. Description Designed primarily for specific athletic use, although products are worn for casual or leisure purposes. Subbrands include Nike Air Jordan, and Nike Golf Casual footwear, apparel and accessories for men and women under the brand names Cole Haan and Bragano Athletic and casual footwear, apparel and accessories under the Converse, Chuck Taylor, All Star, One Star, John Varvatos, and Jack Purcell trademarks and footwear under the Hurley Action sports apparel for surfing, skateboarding, and snowboarding, youth lifestyle apparel, and accessories Athletic and casual footwear, apparel and equipment, primarily for the sport of soccer 86 Packaged Facts August 2009

109 The Global Footwear Market Chapter 4: Competitive Landscape Timeline of Significant Events Table 4 7 Nike Timeline of Significant Events Year Significant Event Athlete Phil Knight and Bill Bowerman, a track coach who tinkered with shoe designs, meet at the 1957 University of Oregon The two men form Blue Ribbon Sports to make quality American running shoes. The company becomes Nike, after the Greek goddess of victory. The Nike "Swoosh" is designed by graduate student Carolyn Davidson, who is paid $35. The same year Nike splits with Onitsuka in a 1972 dispute over distribution rights. At the 1972 Olympic Trials, Knight and Bowerman persuade some marathoners to wear Nike, followed by advertising that Nike s were worn by "four of the top seven finishers." Bowerman tests a new sole by stuffing a piece of rubber into a waffle iron. The result is the waffle sole, 1974 which is added to Nike s running shoes Nike captures 50% of the U.S. running shoe market Nike goes public. Nike expands with shoes for other sports, introducing the Air Jordan basketball shoe named after 1985 basketball superstar Michael Jordan. Nike's famous "Just Do It" slogan is introduced Company buys dress-shoe maker Cole Haan Nike opens first NikeTown store. Nike acquires Canstar Sports, which includes hockey equipment maker Bauer Company signs 20-yr-old golf phenomenon Tiger Woods for $40 million endorsement contract. Nike acquires the license to place its logo on NFL uniforms Nike launches a Jordan-branded athletic footwear and apparel division. Nike opens Jordan store-within-a-store boutiques Bowerman dies; Nike releases a line of running shoes in his honor. The company launches a line of athletic electronics, including MP3 players, heart monitors, and two-way 2000 radios Nike opens its first Nikegoddess store in Newport Beach, California Nike acquires Hurley International, a distributor of action sports apparel. Nike acquires Converse and leaves it as a separate operating Company becomes the first company to be named "Advertiser of the Year" by the Cannes Advertising Festival, twice (also 1994). Nike creates the Exeter Brands Group, a wholly owned subsidiary, to build athletic footwear and apparel 2004 brands for the value retail channel. Company acquires Official Starter Properties LLC & Official Starter LLC. Nike launches Air Jordan XX, the 20th edition of the Air Jordan basketball shoe series Company introduces the Nike Free shoe, designed to simulate barefoot training. Nike introduces Air Max 360 featuring a foamless midsole using a new method of creating air soles Company teams with Apple Computer on Nike+ combining digital technology with footwear to provide music, biofeedback, and data collection. Nike opens flagship retail store in Beijing, China and sponsors 22 of the 28 Chinese teams competing in 2007 the 2008 Summer Olympics Company sells Starter to Iconix Brand Group Nike introduces Air Jordan XX3 Company acquires United Kingdom-based Umbro Ltd and sells Nike Bauer Hockey 2008 Nike introduces the lightest athletic shoes to date using Flywire and Lunarlite technology reducing weight up to 18% Company introduces new NikeID.com for custom consumer personalization of Nike products Nike introduces Lunarglide+ featuring Dynamic Support 2009 Company announces restructuring and that it may cut 1,400 jobs Nike fiscal year end (May 31) revenues reach $19.2 billion Source: August 2009 Packaged Facts 87

110 Chapter 4: Competitive Landscape The Global Footwear Market Under Armour, Inc. Company Details Company Type Revenues (2008) Descriptions Public Employees 2,200 CEO Senior Vice President of Footwear and Licensing Senior Vice President of Consumer Insights $725 million Kevin Plank Raphael Peck Kevin Haley Address 1020 Hull Street Baltimore, MD Tel: (410) Website: Overview Founded in 1996 as KP Sports by University of Maryland football player Kevin Plank, Under Armour is best known for its moisture-wicking undershirts and other apparel. Based in Baltimore, Maryland, the company's products are used by both youth and professional athletes and are sold worldwide. Though originally started as a specialty athletic apparel company, Under Armour has quickly grown to become the company to watch in the athletic apparel arena. The company began offering footwear in 2006 with the introduction of football cleats followed by baseball, lacrosse and softball cleats and slides in In 2008, Under Armour introduced training footwear and in 2009 the company entered the running footwear market with plans to offer soccer cleats later in the year. Similar to the company s apparel line, Under Armour uses its HEATGEAR brand of fabrics and offers footwear products at multiple price points. Performance Under Armour s net sales grew 20% over the 2007 level of $607 million to top the $725 million mark in Sales growth was driven by all categories and regions, but it was footwear and international sales that drove growth in percentage terms. While 20% was quite respectable, especially given the deteriorating economic environment in 2008, the gain was 88 Packaged Facts August 2009

111 The Global Footwear Market Chapter 4: Competitive Landscape the slowest during the five year period. In fact, sales growth was most robust in percentage terms in 2006, when net sales rocketed up 53% followed by another 40% gain in For the period, net sales grew at a CAGR of 37%. Figure 4 7 Under Armour, Inc. Total Net Sales, (in millions $) Source: Under Armour, Inc. annual reports and press releases. Total Net Sales August 2009 Packaged Facts 89

112 Chapter 4: Competitive Landscape The Global Footwear Market Table 4 8 Under Armour, Inc. Total Net Sales and Year-over-Year Percentage Change, (in millions $) Year Total Net Sales YoY % Change 2004 $ % CAGR % Source: Under Armour, Inc. annual reports and press releases. Sales by Product Category In just a few short years, Under Armour managed to grow its footwear business to account for 12% of sales, surpassing its sales from licensing and accessories at four percent each. Still, the bulk of Under Armour s business is apparel, accounting for 80%. 90 Packaged Facts August 2009

113 The Global Footwear Market Chapter 4: Competitive Landscape Figure 4 8 Share of Under Armour, Inc. Total Net Sales by Product Category, 2008 (%) Apparel 79.8% Footwear 11.7% Accessories 4.3% License revenues 4.1% Source: Under Armour, Inc annual report. August 2009 Packaged Facts 91

114 Chapter 4: Competitive Landscape The Global Footwear Market Sales by Geographic Region The United States accounted 91% of total net sales in 2008 with Canada accounting for four percent and all other countries accounting for nearly five percent. Growth in the United States for the five-year period was at an annual rate of 18%, but at 46% for Canada and 58% for all other countries combined. Figure 4 9 Share of Under Armour, Inc. Total Net Sales by Geographic Region, 2008 (%) United States 91.1% Canada 4.4% Other international 4.5% Source: Under Armour, Inc. annual reports and press releases. Footwear Sales See Astounding Incremental Growth Sales of Under Armour footwear grew from $27 million in 2006 to $41 million in 2007, up 52% eventually capturing seven percent of Under Armour s total net sales. However, sales in 2008 more than doubled, up 108% to $85 million. But the big gains may be yet to come. In the first quarter of 2009, Under Armour footwear sales rose a whopping 243% over the same 92 Packaged Facts August 2009

115 The Global Footwear Market Chapter 4: Competitive Landscape period in 2008 to reach $57 million suggesting that the company could very well do sales of more than $200 million by the end of Figure 4 10 Under Armour, Inc. Footwear Net Sales and Percent of Total Net Sales, (in millions $) % % % 10.0% % 6.7% % 6.0% % 0.0% % 2.0% 0.0% Footwear Source: Under Armour, Inc. annual reports and press releases. Table 4 9 Under Armour, Inc. Total Net Sales and Year-over-Year Percentage Change, (in millions $) Year Total Net Sales YoY % Change % % CAGR Source: Under Armour, Inc. annual reports and press releases. % of total Under Armour net sales August 2009 Packaged Facts 93

116 Chapter 4: Competitive Landscape The Global Footwear Market Product Portfolio Under Armour s footwear product line began with football cleats a side of the footwear business known for thinner margins and slow sales growth. However, the company found success and quickly introduced other sport cleats. But it was the launch of its training footwear that gave the industry an inkling of the company s goals. The introduction of running footwear confirm suspicions: Under Armour fully intends to be a major player in the athletic footwear business, going head-to-head with the likes of Nike and Adidas. Table 4 10 Under Armour Footwear Product Portfolio Footwear Type Running Training Football Baseball Soccer Lacrosse Softball Slides Source: Description Available in men's and women's sizes; models include Revenant, Illusion, Apparition, Spectre, Mirage, Chimera Available in men's, women's, boys', and girls' sizes; models include Proto Power II, Proto Speed II, Proto Evade II Available in men's and boys' sizes; models include Proto Combine, SoFlo Low, Fierce, Nitro, Triple Option, Pursuit, Crusher, Iso II, Combat, Demolish, Breakaway, Hammer II, Proto Blast Available in men's and boys' sizes; models include Heater, Ignite, Raptor, Twin Bill, Streak, Leadoff II, Prowler Available in men's sizes; models include Dominate, Create Available in men's and women's sizes; models include Iso II, Crank, Iso, Contener, Proto Speed, Proto Blast, Hammer II, Twin Bill ATV, Combat, Demolish, Breakaway Available in women's sizes; models include laser II Glyde, Radar, Available in men's, women's, and boys' sizes; models include Playmaker Massage, Ignite, Chesapeake II, Compression, Locker, Updrit, Gyra 94 Packaged Facts August 2009

117 The Global Footwear Market Chapter 4: Competitive Landscape Timeline of Significant Events Table 4 11 Under Armour Timeline of Significant Events Year Significant Event 1996 Under Armour is founded by former University of Maryland football player Kevin Plank Under Armour posts more than $5.3 million in sales Under Armour goes public selling 9.5 million shares of stock. Company posts $281.1 million in sales. Under Armour introduces cleated footwear line in attempt to enter footwear market. Company launches Click-Clack ad campaign with the tagline "I Think You Hear Us Coming". Company signs top NFL draft picks A.J. Hawk and Vernon Davis as spokespersons. Company becomes authorized supplier of footwear to NFL. Company posts $26.9 million in footwear sales. Under Armour opens first branded retail store in Annapolis, MD. Company introduces baseball, lacrosse and softball cleated footwear and slides. Footwear sales total $40.9 million. Under Armour introduces athletic training footwear in first push into mainstream athletic footwear market. Company opens second branded retail store in Aurora, IL. Company becomes exlusive official outfitter of University of Maryland Athletics. Footwear sales total $84.8 million. Under Armour introduces running footwear. Company launches Athletes Run ad campaign. Footwear sales for the first quarter of 2009 rise 243% over the 2008 level of $16.6 million to $56.9 million. Source: Under Armour, Inc. press releases. August 2009 Packaged Facts 95

118 Chapter 4: Competitive Landscape The Global Footwear Market Skechers, USA Inc. Company Details Company Type Revenues (2008) Descriptions Public $1.1 billion Employees 4,130 CEO President Executive Vice President, Product Development Robert Greenberg Michael Greenberg Mark Nason Address 228 Manhattan Beach Blvd., Manhattan Beach, CA Tel: (310) Website: Overview Based in Manhattan Beach, California, Skechers was founded by Robert Greenberg, founder of L.A. Gear. Skechers is a more fully integrated footwear company in that it not only designs footwear for sale through wholesale channels but also receives much of its revenue from its Skechers footwear retail locations. At the end of 2008, the company operated 84 concept stores, 83 factory outlet stores and 37 warehouse outlet stores in the United States, and 16 concept stores and three factory outlets internationally. The company also sells Skechers footwear through various third-party retail channels including department and specialty stores. The company markets shoes in over 100 countries and territories using distributors and subsidiaries in Canada, Brazil, Chile, and across Europe, as well as through joint ventures in Asia. The company offers a diverse range of footwear for men, women and children under the Skechers brand, as well as other licensed brands such as Ecko, Bebe Sport and Zoo York. Its core consumers are 12 to 24 year-old men and women attracted to its youthful brand image and fashion forward designs. Many of its best-selling and core styles are also developed for children with colors and materials that reflect a playful image. 96 Packaged Facts August 2009

119 The Global Footwear Market Chapter 4: Competitive Landscape Performance Total net sales for Skechers rose three percent over the 2007 level of $1.4 billion posting a gain of $47 million. Sales growth in previous years had been more robust, including a 20% gain in 2006 to $1.2 billion and 16% gain in For the period net sales grew at a CAGR of 12%. Figure 4 11 Skechers USA, Inc. Total Net Sales, (in millions $) 1, , , , , , , , Source: Skechers USA, Inc. annual reports and press releases. Total Net Sales The company s domestic wholesale business declined three percent due to both price and volume declines and as a result of the weakened U.S. retail market. Meanwhile, international wholesale sales increased 13% due to stronger demand for its products in several European countries and Brazil. The company s retail sales increased one percent in the United States and five percent internationally due to an increase in the number of locations; however, same store sales were off nine percent in the United States and three percent internationally. August 2009 Packaged Facts 97

120 Chapter 4: Competitive Landscape The Global Footwear Market Table 4 12 Skechers USA, Inc. Total Net Sales and Year-over-Year Percentage Change, (in millions $) Year Total Net Sales YoY % Change 2004 $ , % , , , CAGR % Source: Skechers USA, Inc. annual reports and press releases. Sales by Channel Domestic wholesale sales accounted for 56% of total net sales in 2009 with international wholesale sales capturing 23%. For the company s direct-to-consumer business, brick-andmortar retail accounted for 20%, while e-commerce sales made up just one percent. Figure 4 12 Share of Skechers USA, Inc. Total Net Sales by Channel, 2008 (%) International wholesale 23.1% Domestic wholesale 56.0% Retail 19.7% E-commerce 1.3% Source: Skechers USA, Inc annual report. 98 Packaged Facts August 2009

121 The Global Footwear Market Chapter 4: Competitive Landscape Sales by Geographic Region The company recorded sales from the United States accounting for 75% of total net sales, with Canada capturing just three percent. All other countries combined made up the remaining 22% of Skechers net sales Figure 4 13 Share of Skechers USA, Inc. Total Net Sales by Geographic Region, 2008 (%) United States 75.2% Canada 3.0% Other international 21.8% Source: Skechers USA, Inc. annual reports and press releases. Product Portfolio The company s Skechers brand is made up of five sub-brands targeted at specific demographics. Skechers USA is the company s main imprint targeted at its core consumers. The company also offers athletic-styled footwear under its Skechers Active brand, casual outdoor footwear under the Skechers Cali brand, rugged outdoor footwear under the Skechers Work brand and children s shoes under Skechers Kids. Licensors include: Ultd. By Marc August 2009 Packaged Facts 99

122 Chapter 4: Competitive Landscape The Global Footwear Market Ecko, Red by Marc Ecko, Zoo York, 310 Premium Footwear, Mark Nason, Bebe Sport, and Punkrose. Table 4 13 Skechers USA Footwear Product Portfolio Skechers Lines Skechers USA Skechers Active Skechers Cali Skechers Work Skechers Kids Source: Skechers USA, Inc annual report. Description Men's and women's footwear generally sold through mid-tier retailers, department stores and some footwear specialty shops. Line includes: Casuals, Dress Casuals, Relaxed Fit (for men only), Seriously Lightweight (for men only), Sandals and Casual Fusion. Footwear for men and women with "technical performance-inspired looks" sold through specialty shoe stores, department stores and athletic footwear retailers. Line includes: Joggers, Trail Runners, Sport Hikers, Terrainers, Performance (for men only), Skechers D Lites (for women only), and Sport Sandals. Sneakers, skimmers, wedges and sandals for young women designed with canvas, fabrics and leather with unique prints to typify the California lifestyle. The sandals range from dress casual looks to casual to beach thongs. Line is sold through specialty casual shoe stores and department stores. Men s and women s casuals, field boots, hikers and athletic shoes. Typically sold through department stores, athletic footwear retailers and specialty shoe stores, as well as marketed directly to consumers through business-to-business channels. Line includes: Skechers Kids, which is a range of infants, toddlers, boys and girls boots, shoes and sneakers; S-Lights and Hot Lights by Skechers; Skechers Cali for Girls, which is trend-inspired boots, shoes, sandals and dress sneakers; Airators by Skechers; Skechers Super Z-Strap; Skechers Bungees; HyDee HyTop from Skechers; and Babiez by Skechers 100 Packaged Facts August 2009

123 The Global Footwear Market Chapter 4: Competitive Landscape Table 4 14 Skechers USA Licensed Footwear Product Portfolio Fashion & Street Brands Unltd. by Marc Ecko & Red by Marc Ecko Zoo York 310 Premium Footwear Mark Nason & Siren by Mark Nason Bebe Sport Punkrose & Public Royalty Source: Skechers USA, Inc annual report. Description Marc Ecko is a line of men s street-inspired traditional sneakers, fusion sneakers and urban-focused casuals. Red by Marc Ecko is a line of women s classic and fashion-forward fusion sneakers, sandals and Mary Janes for young women. Line of action sports and lifestyle footwear for men, women and boys. Follows the color palette and trends of Zoo York apparel and targets skateboarders and those that embrace skate fashion. Available in skate and specialty shops as well as select athletic and department stores. Footwear collection for men with top-quality leathers, a fashionforward approach to design and comfort, and materials that are derived from 310 Motoring s customized cars, including wood burl and carbon fiber. The line consists of high-design boots, shoes, and stylized athletics. Available in select department stores, specialty retailers and urban independents. Sophisticated and fashion forward footwear collection, marketed to style-conscious men, designed to complement designer denim and dress casual wear. Available in better department stores and boutiques. Embracing the style and design of the Bebe Sport apparel, the sneaker and sandal line features such details as rhinestones, satin laces, and patent leather targeted at women 18 to 34. Available at department stores and specialty boutiques. Punkrose for women and Public Royalty for men are cuttingedge street ready footwear inspired by music, art, fashion, and action sports. Line consists of boots, sandals, high-top and lowtop sneakers, skimmers, slip-ons. Available at department stores, sneaker shops and specialty boutiques. August 2009 Packaged Facts 101

124 Chapter 4: Competitive Landscape The Global Footwear Market Timeline of Significant Events Table 4 15 Skechers USA Timeline of Significant Events Year 1992 Significant Event Robert Greenberg, founder of LA Gear, is ousted from LA Gear. Greenberg and his son, Michael, start Skechers to distribute $40 million of Doc Martens shoes and boots capitalizing on the grunge fashion trend The Greenbergs have a fall out with R. Griggs Group and lose the distributorship of Doc Martens Greenbergs launch women s sneakers line Net sales top $370 million Skechers goes public Skechers opens stores in London, Paris and Germany Skechers is endorsed by Britney Spears in overseas markets to appeal to teenage girls while in the U.S. the men s line is endorsed by Rob Lowe and Matt Dillon to retain the adult market. New Christina Aguilera Skechers Campaign Launches Internationally; Global Superstar Looks ``Naughty and Nice'' in Fall 2004 Footwear Ads. Skechers Creates Kitson-Branded Footwear Line; Leading Lifestyle Footwear Company. Partners with L.A.'s Hottest Boutique. Net sales top $1.0 billon for the first time. Skechers announces licensing agreement to design, develop and market men's footwear worldwide for the premier action sport lifestyle brand Zoo York. Company announces licensing agreement to design, develop and market footwear in the United States and key international markets for the aviationinspired apparel brand AVIREX Net sales top $1.2 billion. SKECHERS Sues Asics for Trade Libel, Unfair Competition and Tortious Interference with Business Relationships. Company introduces Shrek by Skechers. Company posts net sales of nearly $1.4 billion. Skechers announces licensing agreement with bebe stores, inc. (NASDAQ:BEBE) to design, develop and market BEBE SPORT women's footwear. Company Signs Idol Winner David Cook to Global Deal. Company announced acquisition proposal to acquire Heelys, Inc. for $5.25 per share in cash, or $142.8 million Heelys rejects bid outright and Skechers drops pursuit of deal. Company establishes joint venture in Hong Kong and Macau, China. Company opens flagship store in San Francisco. Net sales rise three percent to over $1.4 billion. Skechers expands in South America and establishes Skechers Chile Ltda. First quarter net sales decline 11% from the 2008 level of $385 million to $344 million. Source: Skechers USA press releases. 102 Packaged Facts August 2009

125 The Global Footwear Market Chapter 4: Competitive Landscape Jones Apparel Group Company Details Company Type Revenues (2008) Descriptions Public $3.6 billion Employees 7,925 President & CEO CEO, Footwear, Accessories and Retail President, Wholesale Better Footwear Brands Wesley R. Card Andrew Cohen Richard Paterno Address 1411 Broadway New York, New York Tel: (212) Website: Overview Based in New York, Jones Apparel Group, Inc. is one of the leading women s-focused footwear, apparel and accessory designers and marketers. The company markets such venerable brands as Gloria Vanderbilt, Givenchy, and Jones New York and footwear brands Nine West, Bandolino, and Easy Spirit as well as the Dockers Women brand under license from Levi Strauss & Co. The company s operations are comprised of five segments: wholesale better apparel, wholesale jeanswear, wholesale footwear and accessories, retail and licensing. At the end of 2008, the company operated 373 specialty retail stores and 644 outlet stores primarily comprising either footwear and accessories or apparel. Though the company sells many products in its own stores as well as through third-party retailers, its Nine West, Easy Spirit, Bandolino and AK Anne Klein retail stores also offer products that are not marketed to its wholesale customers. The company also opened its first multi-branded specialty store under the ShoeWoo name in In 2008, department stores, accounted for 58% of gross revenues with Macy's, Inc., being its largest customer accounting for 21% of 2008 gross revenues. Jones Apparel has the exclusive license to produce and sell women's footwear under the Dockers Women trademark in the United States and Canada through In early 2009, the August 2009 Packaged Facts 103

126 Chapter 4: Competitive Landscape The Global Footwear Market company signed a similar agreement with Levi Strauss & Co. to produce and sell boys' footwear under the Dockers trademark in the United States through The men s license for the Dockers brand is held by footwear marketer and retailer Genesco, Inc. In July 2008, Jones Apparel announced that it had an exclusive license through the end of 2009 with New Balance Athletic Shoe, Inc. to create and distribute a fashion-lifestyle footwear collection that brings together New Balance's performance and materials technology with Nine West's styles. Performance Net sales for Jones Apparel declined six percent from the 2007 level of $3.8 billion to $3.6 billion in The sales declines were led by the jeanswear business; however, the footwear and accessories business as well as its retail division also suffered. The one bright spot was an increase in revenues from foreign sales, up a modest four percent to $337 million for its continuing businesses. The company has fully divested of its Mexico-based operations. For the period, net sales for Jones Apparel declined at a CAGR of six percent. 104 Packaged Facts August 2009

127 The Global Footwear Market Chapter 4: Competitive Landscape Figure 4 14 Jones Apparel Group Total Net Sales, (in millions $) 6, , , , , , , , , , , Total Net Sales Source: Jones Apparel Group annual reports and press releases. Table 4 16 Jones Apparel Group Total Net Sales and Year-over-Year Percentage Change, (in millions $) Year Total Net Sales YoY % Change 2004 $4, , % , , , CAGR % Source: Jones Apparel Group annual reports and press releases. August 2009 Packaged Facts 105

128 Chapter 4: Competitive Landscape The Global Footwear Market Sales by Channel Jones apparel saw 30% of its net sales come from its wholesale better apparel business followed by footwear and accessories with 26%. Wholesale jeanswear and retail accounted for 22% and 20%, respectively. Licensing accounted for less than two percent. Figure 4 15 Share of Jones Apparel Group Total Net Sales by Channel, 2008 (%) Wholesale footwear and accessories 25.9% Wholesale jeanswear 22.0% Retail 20.2% Wholesale better apparel 30.4% Licensing 1.5% Source: Jones Apparel Group 2008 annual report. 106 Packaged Facts August 2009

129 The Global Footwear Market Chapter 4: Competitive Landscape Sales by Geographic Region By region, Jones Apparel saw 91% of its sales come from the United States with foreign sales accounting for less than 10%. Figure 4 16 Share of Jones Apparel Group Total Net Sales by Geographic Region, 2008 (%) United States 90.5% Other international 9.5% Source: Jones Apparel Group annual reports and press releases. Footwear Sales Sales of footwear and accessories declined two percent from the 2007 level of $956 million to settle at $938 million in The company has struggled to find traction in this arena for several years and has fluctuated between meager growth and modest declines. In all, the group saw sales decline at an annual rate of two percent during the period. August 2009 Packaged Facts 107

130 Chapter 4: Competitive Landscape The Global Footwear Market Figure 4 17 Jones Apparel Group Footwear & Accessories Net Sales and Percent of Total Net Sales, (in millions $)) 1, % 25.2% 26.3% 27.0% 1, % 24.0% 19.5% 20.2% 21.0% 900 1, % 15.0% % 9.0% % 3.0% % Footwear & accessories Source: Jones Apparel Group annual. % of total Jones Apparel net sales Table 4 17 Jones Apparel Group Total Net Sales and Year-over-Year Percentage Change, (in millions $) Year Total Net Sales YoY % Change 2004 $1, % CAGR % Source: Jones Apparel Group annual reports. 108 Packaged Facts August 2009

131 The Global Footwear Market Chapter 4: Competitive Landscape Brand & Product Portfolio Jones Apparel s footwear brand portfolio ranges from higher priced Joan & David to more budget oriented Dockers Women. However, the company is perhaps best known as a midpriced favorite among women with its Nine West and Anne Klein brands. Table 4 18 Jones Apparel Group Footwear Product Portfolio Category Bridge Better Upper Moderate Moderate Source: Jones Apparel Group 2008 Annual Report Brand Joan & David Nine West Nine West Kids Enzo Angiolini AK Anne Klein Circa Joan & David Boutique 9 Bandolino Easy Spirit Nine & Company Mootsies Tootsies Mootsies Tootsies Kids Sam & Libby Sam & Libby Kids Dockers Women August 2009 Packaged Facts 109

132 Chapter 4: Competitive Landscape The Global Footwear Market Year Timeline of Significant Events Table 4 19 Jones Apparel Group Timeline of Significant Events Significant Events Nine West Group founders Jerome Fisher and Vincent Camuto establish a wholesale shoe 1977 business, Fisher Camuto Corporation, taking advantage of business ties with Brazilian manufacturers and the cheaper labor and abundant raw materials found in that country The company makes sales of $9 million Fisher Camuto forms Jervin (the name comes from the first three letters of each of their first names) to sell unbranded women's shoes made in Brazil, to retailers and wholesalers. The company tries to buy out the footwear division of U.S. Shoe but is spurned. Company prepares to go public in 1991 and 1992, merging its wholesale and retail divisions (Fisher Camuto, Fisher Camuto Retail, Espressioni, and Jervin) into the Nine West Group. The name came from its first address, Nine W. 57th Street, in Manhattan Nine West goes public U.S. Shoe again rejects a Nine West buyout offer for its shoe business The proposal kicks up some dust, however, as U.S. Shoe shareholders make it clear they want a sale Nine West Group Acquires U.S. Shoe Corporation, which includes the Easy Spirit brand, Amalfi, Evan-Picone, and Bandolino for $600 million. Nine West begins to pare down operations, closing U.S. Shoe's Cincinnati headquarters 1996 and domestic factories, shifting manufacturing to Brazil, and discontinuing or selling unprofitable brands Restructuring continues as the company lays off some 1,000 workers in Ohio Facing too much inventory and too little demand, Nine West lays off about 6% of its workforce, curtails expansion plans, and says it would cut production by about 40% Clothing designer and distributor Jones Apparel Group buys out Nine West for $1.4 billion. Jones buys Nine West's accessories maker Victoria + Co Nine West also settles claims of price-fixing that year, paying a $34 million nationwide settlement. Jones Apparel acquires Maxwell Shoe Company in July and Barneys New York in 2004 December. Dilliard's Department Stores eliminates Nine West brands in effort to offer more upscale 2005 footwear Rumors circulate that Jones Apparel is looking to sell Nine West. Jones Apparel sells its Barneys retail stores Dubai-based private equity firm Istithimar 2007 PJSC for $945 million. Nine West Group and New Balance partner to create fashion-lifestyle footwear collection that brings together New Balance's innovative performance and materials technology with Nine West's renowned fashion styling Jones Apparel Group and Steven Madden Sign License Agreement to design collection of junior and girls footwear under the l.e.i. brand and distributed exclusively to Wal-Mart stores. Jones Apparel footwear and accessory sales decline 2% with overall sales declining 6% due to economic downturn Nine West Footwear Corporation Signs License and Distribution Agreement With Kurt Geiger Ltd. for Nine West and Easy Spirit. Company announces the closing of 225 stores in effort to cut costs. Source: Jones Apparel Group press releases; Packaged Facts August 2009

133 The Global Footwear Market Chapter 4: Competitive Landscape Deckers Outdoor Corporation Company Details Company Type Revenues (2008) Descriptions Public Employees 640 President & CEO President of the Simple and UGG Australia Divisions President, Teva Brand $689.4 million Angel R. Martinez Constance X. Rishwain Peter Worley Address 495-A South Fairview Avenue Goleta, California Tel: (805) Website: Overview Located in Goleta, California, Deckers Outdoor Corporation was started by University of California, Santa Barbara student, Doug Otto in The company s first products were its Deckers brand sandals that became popular among the surfing and beach crowd. In 1985 the company entered into a licensing agreement to produce and distribute Teva sandals. The company manufactured its original brand of Deckers sandals for over 20 years, but retired the brand after its purchase of the Simple brand to focus on Teva and Simple products. Since then, Deckers has grown into an international company with footwear brands Teva (acquired in 2002), Simple, Ugg (acquired in 1995), and TSUBO (acquired in 2008). For 2009, the company has resurrected its original Deckers brand selling the products exclusively online. Performance Total sales for Deckers grew 54% over the 2007 level of $449 million to top the $689 million mark in Sales were led by wholesale sales of its Ugg boots, which totaled $484 million, up 66% over the 2007 level of $292 million. Simple brand footwear grew 25% over the 2007 level of $11 million to reach $14 million in 2008, but Teva sales decline one percent to $81 million. The company s consumer direct business, which includes company-owned stores and August 2009 Packaged Facts 111

134 Chapter 4: Competitive Landscape The Global Footwear Market sales through the Internet rose 68% to $107 million. For the period, total sales of Deckers footwear grew at a CAGR of 34%. Figure 4 18 Deckers Outdoor Total Net Sales, (in millions $) Source: Jones Apparel Group annual reports and press releases. Table 4 20 Deckers Outdoor Total Net Sales and Year-over-Year Percentage Change, (in millions $) Year Total Net Sales YoY % Change 2004 $ % CAGR % Source: Deckers Outdoor annual reports and press releases. Total Net Sales 112 Packaged Facts August 2009

135 The Global Footwear Market Chapter 4: Competitive Landscape Sales by Channel Wholesale sales of Ugg accounted for the vast share of Deckers total sales at 70% with Teva accounting for 12%. Simple and TSUBO wholesale sales accounted for two percent and one percent, respectively. Direct-to-consumer sales totaled 16% of total sales with ecommerce sales capturing 10% and sales through retail locations making up six percent. Figure 4 19 Share of Deckers Outdoor Total Net Sales by Channel, 2008 (%) Teva wholesale 11.7% UGG wholesale 70.2% Simple wholesale 2.0% ecommerce 10.0% TSUBO wholesale 0.5% Retail stores 5.6% Source: Deckers Outdoor 2008 annual report. August 2009 Packaged Facts 113

136 Chapter 4: Competitive Landscape The Global Footwear Market Sales by Geographic Region The company took in 84% of sales from customers in the United States with the remaining 16% coming from international customers. Figure 4 20 Share of Deckers Outdoor Total Net Sales by Geographic Region, 2008 (%) United States 84.3% Other international 15.7% Source: Deckers Outdoor annual reports. 114 Packaged Facts August 2009

137 The Global Footwear Market Chapter 4: Competitive Landscape Brand Portfolio Deckers received a substantial boost to its Ugg brand in 2007 when Oprah Winfrey released her list of favorite things. The result was a spike in sales for Deckers fourth quarter 2007 and the 66% increase in sales for 2008 mentioned above. In June 2008, the company reintroduced a limited quantity of the Deckers brand flip flop, but by the following year the company had sold out of inventory. The company states that it has exciting things in the pipeline, but no indication of when the brand will be available again. Table 4 21 Deckers Outdoor Footwear Product Portfolio Brand Deckers UGG Teva Simple TSUBO Source: The original Deckers brand flip flops. Description Luxury comfort brand and the category creator for luxury sheepskin footwear. Originally adopted as a favored brand by the California surf community, the UGG brand was acquired by Deckers in 1995 and has since been repositioned as a luxury comfort collection sold through high-end retailers. Outdoor performance and lifestyle brand and pioneer of the sport sandal market. Originally founded in the 1980s to serve the professional river guides, the product line has since expanded to include casual open-toe and closed-toe footwear, including adventure travel shoes, outdoor multi-sport shoes, trail running shoes, amphibious footwear, light hikers and other rugged outdoor footwear styles and accessories. Began in 1991 as an alternative to all the over-built, over-priced, and over-hyped products in the marketplace, he brand's legacy was built on its original sneaker design, the Old School Sneaker, and grew to include successful sandal and casual products Acquired in 2008, TSUBO (meaning pressure point in Japanese) was founded by a British designer in 1998 and marketed as a high-end casual footwear constructed to provide consumers with contemporary footwear that incorporates style, function and maximum comfort. TSUBO products are sold throughout the United States primarily at department stores and independent shoe stores, as well as several countries worldwide, including Canada, France, Australia, and Japan. August 2009 Packaged Facts 115

138 Chapter 4: Competitive Landscape The Global Footwear Market Timeline of Significant Events Table 4 22 Deckers Outdoor Timeline of Significant Events Year 1973 Significant Events University of California, Santa Barbara student, Doug Otto, begins producing sandals Grand Canyon river guide, Mark Thatcher, begins producing the Teva sandal for niche market Deckers enters into licensing agreement to produce and distribute Teva sandals Simple Shoes established by Eric Meyer as a link between athletic and outdoor shoes. Deckers acquires Simple Shoes. Deckers completes initial public offering Deckers brand retired to focus on other brands Ugg Holdings founded by Brian Smith for the purpose of importing sheepskin boots from Australia Deckers acquires Ugg Holdings Deckers acquires Teva Net sales in the U.S. climb 78% vaulting over the $100 million mark for the first time to reach $175 million; total net sales reach $215 million Deckers expands Ugg brand to include footwear for spring and summer Source: Deckers brand reintroduced with a purely online sales model. Deckers sales climb 54% over the 2007 level of $449 million to $689 million. Deckers brand flip flops reintroduced with a purely online sales model. Deckers sales climb 54% over the 2007 level of $449 million to $689 million. Company creates joint venture for Ugg in China. First quarter net sales continue to climb despite economic recession rising 38% to $134 million. 116 Packaged Facts August 2009

139 The Global Footwear Market Chapter 4: Competitive Landscape Adidas AG Company Details Company Type Revenues (2008) Descriptions Public $15.8 billion Employees 38,982 CEO & Chairman, Adidas Group President, Adidas Brand President and CEO, Reebok President of North America, Reebok Chief Marketing Officer, Reebok President & CEO, Rockport Herbert Hainer Erich Stamminger Uli Becker Jim Gabel Matt O Toole Michael Rupp Adidas Americas Address 5055 N. Greeley Avenue Portland, OR Tel: (971) Website: Overview Based in Herzogenaurach, Germany, Adidas AG has more than 150 subsidiaries and is the second largest global footwear marketer by total dollar sales. In addition to the Adidas brand of products, the company operates the Reebok business (which includes Rockport and Reebok-CCM Hockey) and the Taylor-Made golf business. The company also operates Adidas America Inc. based in Portland, Oregon, where it focuses on its basketball, adventure and alternative sports product lines. Reebok s headquarters remain in Canton, Massachusetts while TaylorMade-Adidas Golf is based in California. The company had nearly 39,000 employees at year-end 2008, up from 31,000 in The company has relationships with 300 manufacturing partners and sourced 97% of its footwear from countries in Asia in 2008, up from 96% in Unlike many other companies, sourcing from China represented just 44% of total footwear volume, down from 49% in Other major countries for sourcing included Vietnam (31%) and Indonesia (18%). August 2009 Packaged Facts 117

140 Chapter 4: Competitive Landscape The Global Footwear Market Performance Total sales for Adidas AG rose 13% over the 2007 level of $14.0 billion to top the $15.8 billion mark in Sales growth was driven primarily by the Adidas business, which grew 18% in 2008 to reach $11.5 billion. TaylorMade-Adidas Golf rose eight percent to reach $1.2 billion. It was Reebok that struggled as sales declined one percent to under $3.2 billion. For the period, total sales grew at an annual rate of nine percent. Figure 4 21 Adidas AG Total Net Sales, (in millions $) 18, , , , , , , , , , , , , , Total Net Sales Note: U.S. dollar sales figures are converted from Euros using the average annual exchange rate for each year. Source: Adidas AG annual reports. 118 Packaged Facts August 2009

141 The Global Footwear Market Chapter 4: Competitive Landscape Table 4 23 Adidas AG Total Net Sales and Year-over-Year Percentage Change, (in millions $) Year Total Net Sales YoY % Change 2004 $11, , % , , , CAGR % Note: U.S. dollar sales figures are converted from Euros using the average annual exchange rate for each year. Source: Adidas AG annual reports. Sales by Product Sales of footwear accounted for 46% of total net sales in 2008, little changed from 2007 with apparel making up 44%. Hardware captured the remaining 10% of total sales. August 2009 Packaged Facts 119

142 Chapter 4: Competitive Landscape The Global Footwear Market Figure 4 22 Share of Adidas AG Total Net Sales by Channel, 2008 (%) Apparel 44.2% Footwear 45.5% Hardware 10.2% Source: Adidas AG 2008 annual report. Sales by Geographic Region Europe accounted for 43% of total sales for Adidas AG followed by the Asia region with 25%. Sales in Europe grew seven percent in Euro terms in 2008 and 15% in dollar terms due to currency fluctuations. Sales in the Asia region were up 18% in Euro terms and 27% in U.S. dollar terms. North America captured 24% leaving the Latin America region with just eight percent of sales. North America sales decreased 14% in euro terms, down eight percent in U.S. dollar terms, while Latin America sales grew a whopping 36% in Euro terms and 46% in U.S. dollar terms. 120 Packaged Facts August 2009

143 The Global Footwear Market Chapter 4: Competitive Landscape Figure 4 23 Share of Adidas AG Total Net Sales by Geographic Region, 2008 (%) North America 23.5% Asia 24.8% Europe 43.4% Latin America 8.3% Source: Adidas AG annual reports and press releases. August 2009 Packaged Facts 121

144 Chapter 4: Competitive Landscape The Global Footwear Market Sales by Division The company s Adidas brand accounted for 73% of total net sales, 80% of which came from what the company termed sports performance products and the remaining 20% from sport style. The Reebok division, which the company acquired in 2006, accounted for 20% of total net sales, 80% of which was made up of the Reebok brand with 11% accounted for by the casual footwear brand Rockport and nine percent by Reebok-CCM Hockey products. TaylorMade-Adidas Golf captured the remaining seven percent of total company net sales. Figure 4 24 Share of Adidas AG Total Net Sales by Geographic Region, 2008 (%) Adidas 72.5% Reebok 19.9% TaylorMade-adidas Golf 7.5% Source: Adidas AG annual reports and press releases. 122 Packaged Facts August 2009

145 The Global Footwear Market Chapter 4: Competitive Landscape Footwear Sales Grew 11% in 2008 Total net sales of footwear for Adidas AG grew 11% over the 2007 level of $6.5 billion to top the $7.2 billion mark. Growth was due primarily to increased unit sales, which rose 10% from the 2007 level of 201 million pairs to 221 million pairs. For the period, total net sales of footwear for Adidas AG and Reebok footwear grew at a CAGR of six percent. Figure 4 25 Adidas AG Total Footwear Net Sales and Percent of Total Net Sales, (in millions $) 8, % 46.5% 45.8% 50.0% 7,200 6, % 39.8% 6,512 7, % 40.0% 5,600 5,689 5,957 5, % 4, % 4, % 3, % 2, % 1, % % % Footwear % of total Adidas AG net sales Figures for 2004 and 2005 are pro forma and reflect total footwear sales for Adidas and Reebok for the entire period. Source: Adidas AG annual reports. August 2009 Packaged Facts 123

146 Chapter 4: Competitive Landscape The Global Footwear Market Table 4 24 Adidas AG Total Footwear Net Sales and Year-over-Year Percentage Change, (in millions $) Year Total Net Sales YoY % Change , , % , , , CAGR % Figures for 2004 and 2005 are pro forma and reflect total footwear sales for Adidas and Reebok for the entire period. Source: Adidas AG annual reports. Brand Portfolio While the Adidas brand has done well in recent years, the company has had some difficulty integrating Reebok into the company and finding growth for the brand since its 2006 acquisition. Indications are that it may take several more years before the company fully realizes the synergies and gets Reebok back on a positive growth path. Table 4 25 Adidas AG Footwear Brand Portfolio Division/Brand Adidas Sport Performance Adidas Sport Style Reebok CCM Hockey Reebok Hockey Rockport Adidas Golf Source: Adidas AG 2008 annual report. Description Performance footwear, apparel and hardware focusing on four key categories globally: football, running, training and basketball. Consisting of Originals (defined as authentic sportswear) and the Fashion Group, which includes Y-3 and SLVR Traditionally focused on women's fitness footwear, the brand also offers men's fitness footwear and has been charged with reviving its style and appeal from years past Ice hockey skates and other gear Ice hockey skates and in-line roller skates Casual and outdoor footwear for men, women and children Golf footwear and apparel 124 Packaged Facts August 2009

147 The Global Footwear Market Chapter 4: Competitive Landscape Timeline of Significant Events Table 4 26 Adidas AG Timeline of Significant Events Year Significant Events Adidas grew out of an infamous rift between German brothers Adi and Rudi Dassler As WWI winds down, Adi scavenges for tires and rucksacks to create slippers, gymnastics shoes, and soccer cleats made by his sister The shoes' success allows the Dasslers to build a factory Amsterdam Olympics, German athletes showcase Dassler shoes to the world. American Jesse Owens sprints to an Olympic gold in Dassler's double-striped shoes and Nazis 1936 commandeered the Dassler factory to make boots for German soldiers. Adi makes friends with American soldiers even creating shoes for a soldier who wears them at the 1946 Olympics Rudi returns from an American prison camp and a dispute between the brothers splits the business, eventually forming Puma, and Adi's becomes Adidas, beginning one of the most intense rivalries in Europe. With innovations such as the replaceable-cleat soccer shoe, Adidas dominates the world athletic 1950s shoe market. Adidas overtakes the canvas sneakers made by P.F. Flyers and Keds. 1960s Adidas continues to expand globally to maintain its dominant position. A flood of new competitors following the 1972 Munich Olympics and the death of Adi in signals the end of an era. 1980s Nike and Reebok capture the North American market Adidas big mistake - turns down endorsement offer from young Michael Jordan. Robert Louis-Dreyfus becomes CEO, shifts production to Asia, pumps up advertising budget, 1993 and brings in former Nike marketers to re-establish the company's identity. Adidas becomes Adidas-Salomon with its $1.4 billion purchase of Salomon, a French maker of 1997 skis and other sporting goods. The company opens its first high-profile store in Portland, Oregon. Amid a 10% revenue slide, several executives leave the company The company announces that it would consolidate its apparel under the Heritage label to reinforce its position in the burgeoning casual wear market Adidas-Salomon opens Adidas Originals retail stores in Tokyo and Berlin Adidas-Salomon opens a store in New York City Despite slumping sales in the U.S. amid deep discounting by competitors, Adidas announces that it would not offer discounts and still intends to capture 20% of the country's shoe market Adidas' U.S. headquarters introduces the first computerized footwear: a running shoe with a chip that allows the shoe to change its support level according to the impact. The company opens its newest concept store: Performance. Company selected as official sportswear partner for the Beijing 2008 Summer 2005 Olympics. Adidas sells its Salomon division to Finland-based Amer Sports Corp. for 485 million. Adidas acquires of Reebok for $3.8 billion Adidas-Salomon changes name to Adidas AG Adidas consolidates Reebok and Adidas distribution centers Reebok and Vulcabras form joint venture in Argentina and Brazil Company announces world's largest Adidas store to open in Beijing. Adidas AG sales rise 13% over 2007 level of $14.0 billion to $15.8 billion Company accelerates restructuring initiative aimed at reducing management levels and costs by 100 million. Source: August 2009 Packaged Facts 125

148 Chapter 4: Competitive Landscape The Global Footwear Market Genesco, Inc. Company Details Company Type Revenues (2008) Descriptions Public $1.6 billion Employees 14,125 President & CEO Senior Vice President; Chief Executive Officer, Genesco Branded Group, President, Johnston & Murphy Robert J. Dennis Jonathan D. Caplan Genesco Park Address 1415 Murfreesboro Road Nashville, Tennessee Tel: (615) Website: Overview Founded in 1924, Nashville, Tennessee-based Genesco Inc. is primarily a retailer of branded footwear and licensed and branded headwear, with more than 2,200 footwear and headwear retail stores in the United States, Puerto Rico and Canada. Footwear retail brands include Journeys, Journeys Kidz, Shi by Journeys, Underground Station, and Johnston & Murphy. The company also operates headwear retailers such as Hatworld and Lids among others. Genesco also designs, sources, markets and distributes footwear under its own Johnston & Murphy brand and the Dockers brand licensed from Levi Straus & Co. to over 950 retail accounts. (Dockers Women s and children s footwear is licensed to Jones Apparel Group). Most of its Johnston & Murphy and Dockers branded footwear is manufactured by third parties primarily in Asia. Retail prices for Johnston & Murphy footwear generally range from $100 $250 while Dockers footwear ranges from $50 $90. Casual and dress casual footwear accounted for 39% of total Johnston & Murphy retail sales in Fiscal 2009, with the balance consisting of dress shoes and accessories. As of the company s fiscal year end (January 2009), Johnston & Murphy operated 157 retail shops and factory stores throughout the United States. Johnston & Murphy retail shops are located primarily in better malls nationwide and in airports and sell a broad range of men s 126 Packaged Facts August 2009

149 The Global Footwear Market Chapter 4: Competitive Landscape dress and casual footwear and accessories. The Company also sells Johnston & Murphy products directly to consumers through a direct mail catalog and an e-commerce website. The company added three net new shops and factory stores in Fiscal 2009 and plans to open up to four net new shops and factory stores in Fiscal Performance Total sales for the company grew three percent over the fiscal-year 2008 level of $1.5 billion to near the $1.6 billion mark. Sales of Johnston & Murphy retail and wholesale operations declined eight percent to $178 million with comparable store sales for Johnston & Murphy retail locations down 10%. By contrast, sales of Dockers brand footwear rose four percent to $97 million. For the period (ending January 2009), Genesco s total net sales grew at a CAGR of nine percent. Figure 4 26 Genesco Inc. Total Net Sales, (in millions $) 1, , , , , , , , , , Total Genesco Net Sales Note: Figures reflect fiscal year net sales ending January Source: Genesco Inc. annual reports. August 2009 Packaged Facts 127

150 Chapter 4: Competitive Landscape The Global Footwear Market Table 4 27 Adidas AG Total Net Sales and Year-over-Year Percentage Change, (in millions $) Year Total Net Sales YoY % Change 2004 $1, , % , , , CAGR % Note: Figures reflect fiscal year net sales ending January Source: Genesco Inc. annual reports. Sales by Division The company s Journeys retail group accounted for 49% of total net sales in 2009 with its Hat World Group capturing 26%. Station Group accounted for seven percent. Its proprietary and licensed footwear brands, Johnston & Murphy and Dockers, captured the remaining 12% and six percent, respectively. 128 Packaged Facts August 2009

151 The Global Footwear Market Chapter 4: Competitive Landscape Figure 4 27 Share of Genesco Inc. Total Net Sales by Division, 2008 (%) Station Group 7.2% Hat World Group 26.1% Journeys Group 49.0% Johnston & Murphy 11.5% Licensed Brands 6.2% Source: Genesco Inc annual report. Brand Portfolio The company s Journey s Group and Underground Station Group focus on mainstream footwear for kids, teens and youthful adults selling both brand names and private label footwear. Traditionally a men s footwear brand, Johnston & Murphy introduced a line of women s footwear and accessories in select Johnston & Murphy retail shops in the fall of August 2009 Packaged Facts 129

152 Chapter 4: Competitive Landscape The Global Footwear Market Table 4 28 Genesco Inc. Footwear Brand Portfolio Division/Brand Journeys Group Underground Station Group Johnston & Murphy Group Licensed Brands Source: Genesco Inc annual report. Description Includes Journeys, Journeys Kidz, and Shi by Journeys retail footwear chains selling brand name and private label footwear Located primarily in urban markets selling branded and private label footwear targeted at the age group Includes both J&M retail and wholesale operations focused on dress and casual dress men's footwear Primarily men's footwear sold under the Dockers brand licensed from Levi Strauss & Co. Timeline of Significant Events Table 4 29 Genesco Inc. Timeline of Significant Events Year Significant Event 1924 James Jarman starts the Jarman Shoe Company Jarman's son Maxey becomes company president, changes company's name to General Shoe General Shoe goes public General Shoe buys hundred-year-old shoemaker Johnston & Murphy Renames itself Genesco to reflect the change Company posts more than $1 billion in sales Genesco divests its apparel, soccer, and children's shoe businesses to focus on men's footwear. Genesco starts new chain, Underground Station, offering shoes and clothes to young urban men. Company also sells its slumping western boot business, including the Laredo Boot division and 26 Boot Factory stores, to Texas Boot Genesco sells Volunteer Leather to Minnesota-based S.B. Foot Tanning. Company closes its discount General Shoe Warehouse units Genesco ends its license to sell Nautica branded footwear Company closes Nashville Johnston & Murphy manufacturing plant Genesco begins closing about 35 Jarman shoe stores and starts to convert the rest to Underground Station stores. Genesco recieves bid to be acquired by Foot Locker. Rival The Finish Line, Inc. steps in with higher offer and Genesco rejects Foot Locker, Inc. proposal The Finish Line, Inc. backls away from acquisition bid and Genesco subsequently files lawsuit aginst Finish Line Inc. and UBS to complete merger Genesco annouces merger with Finish Line, Inc. terminated and settles lawsuit Source: Genesco revenues 3% over the 2007 level of $1.5 billion nearing the $1.6 billion mark. 130 Packaged Facts August 2009

153 The Global Footwear Market Chapter 4: Competitive Landscape Crocs Company Details Company Type Revenues (2008) Descriptions Public Employees 3,700 President & CEO $721.6 million John Duerden Address 6328 Monarch Park Place Niwot, Colorado Tel: (303) Website: Overview Based in Niwot, Colorado, Crocs, Inc. is a designer, manufacturer and retailer of molded and casual footwear for men, women and children under the Crocs brand. All Crocs brand shoes feature a proprietary closed-cell resin called Croslite, which enables the company to produce soft, comfortable, lightweight, superior-gripping, non-marking and odor-resistant shoes. The company boasts the footwear as being ideal for casual wear, as well as for professional and recreational uses such as boating, hiking, hospitality and gardening. Crocs shoes are sold in 129 countries and come in more than 270 styles and colors. The company also sells apparel and accessories; however, footwear remains its most significant source of sales. The company has licensing agreements with several sports teams as well as major media companies including Disney, Nickelodeon, Marvel, DC Comics and Warner Bros. primarily for its Jibbitz shoe charms business where it offers characters ranging from Mickey Mouse to Spiderman. Performance After booming between 2005 and 2007, sales of the superior gripping Crocs began to slip, declining 15% from the 2007 level of $874 million to $722 million in Sales of footwear were down 13% to $661 million while apparel and accessories fell 28% to $61 million. There were a couple of bright spots, though, as sales in Mexico were up four percent to $7 million and sales in the Asia-Pacific region boomed 26% to $205 million. It was the 28% drop in August 2009 Packaged Facts 131

154 Chapter 4: Competitive Landscape The Global Footwear Market North America that caused much of the decline. For the period, total net sales still grew at a phenomenal rate of 170%. 132 Packaged Facts August 2009

155 The Global Footwear Market Chapter 4: Competitive Landscape Figure 4 28 Crocs, Inc. Total Net Sales, (in millions $) Total Net Sales Source: Crocs, Inc. annual reports. Table 4 30 Crocs, Inc. Total Net Sales and Year-over-Year Percentage Change, (in millions $) Year Total Net Sales YoY % Change 2004 $ % CAGR 170.3% -- Source: Crocs, Inc. annual reports. Sales by Product In 2008, Crocs footwear accounted for 92% of company sales with the remaining eight percent going to apparel and accessories. The company has been trying to diversify and find August 2009 Packaged Facts 133

156 Chapter 4: Competitive Landscape The Global Footwear Market new revenues streams for its Croslite material and has had some success with its Jibbitz footwear charms business, but has faltered as well most notably with its Fury Hockey business, which it liquidated in Figure 4 29 Share of Crocs, Inc. Total Net Sales by Channel, 2008 (%) Footwear 91.6% Apparel & acessories 8.4% Source: Crocs, Inc annual report. Sales by Geographic Region The United States remained the largest sales region accounting for 45% of total Crocs sales with the Asia-Pacific region in a distant second at 28%. Europe accounted for 21% with Canada and Mexico at three percent and one percent, respectively. Sales from all other countries accounted for just one percent. 134 Packaged Facts August 2009

157 The Global Footwear Market Chapter 4: Competitive Landscape Figure 4 30 Share of Crocs, Inc. Total Net Sales by Geographic Region, 2008 (%) Canada 3.2% Mexico 1.0% Asia-Pacific 28.4% Europe 20.9% United States 44.5% All other 2.0% Source: Crocs, Inc. annual reports and press releases. Footwear Sales Total footwear sales grew at a CAGR of 179% for the period. Sales in 2008 fell 13% from the 2007 level of $763 million to $661 million, but still remained well above the 2006 level of $342 million. At its peak, footwear accounted for 97% of the company s sales, but dropped to 92% by August 2009 Packaged Facts 135

158 Chapter 4: Competitive Landscape The Global Footwear Market Figure 4 31 Crocs, Inc. Total Footwear Net Sales and Percent of Total Net Sales, (in millions $) 1, % % 96.5% 90.1% 91.6% 95.0% 90.0% % % 80.0% % % % % % 50.0% Source: Crocs, Inc. annual reports. Footwear % of total Crocs, Inc. net sales Table 4 31 Crocs, Inc. Total Footwear Net Sales and Year-over-Year Percentage Change, (in millions $) Year Total Net Sales YoY % Change 2004 $ % CAGR % Source: Crocs, Inc. annual reports. 136 Packaged Facts August 2009

159 The Global Footwear Market Chapter 4: Competitive Landscape Brand Portfolio The company s some odd 270 models include various styles of sandals and clogs, but the company has also expanded into virtually every type of footwear conceivable. Among the most notable is the Crox Rx brand designed for customers with special needs such as problems stemming from complications due to diabetes to hammer toes. The company s Ocean Minded brand are not Crocs at all, but was a bolt on acquisition to give the company a more diversified customer base. Ocean Minded footwear primarily consists of very casual footwear for ocean lifestyle activities such as boating or beach and include slip-ons and flip flops. Table 4 32 Crocs, Inc. Footwear Brand Portfolio Products Type/Brand Lifestyle Source: Description mammoth, clogs, sandals, flats, heels/wedges, boots, slip-ons, flip flops, medical, sport, work, prepair, YOU by Crocs, laces, Ocean Minded, Crox Rx casual, active, trendy, fun, sports teams, entertainment, high fashion, dressy August 2009 Packaged Facts 137

160 Chapter 4: Competitive Landscape The Global Footwear Market Timeline of Significant Events Table 4 33 Crocs, Inc. Timeline of Significant Events Year Significant Event 1999 George Boedecker forms footwear marketing and distribution company Source: Boedecker's company begins marketing of Crocs brand footwear produced by Foam Creations. Crocs, Inc. acquires Foam Creations. Sales reach $11 million. Company reorganizes from a limited liability company and incorporates in Delaware in anticipation of going public. Sales reach $265 million. Company raises $97 million selling nearly 5 million shares to the public. Sales top $354 million. Company creates the Jibbitz brand of accessories to its product portfolio and acquires Fury Hockey Inc to produce hockey, soccer and lacrosse equipment. Product portfolio includes 25 models of Crocs. Company acquires Ocean Minded brand of sandals, Bite, LLC producing performance footwear and sport sandals, and introdiuced women's fashion line YOU by Crocs. Product portfolio expands from 25 models to 250 models. Sales peak at$847 million. Company adds Tagger International B.V., a manufacturer of messenger bags. Company liquidates Fury Hockey after it fails to find a buyer. Company expands to 270 product models. Sales decline 15% $722 million. Crocs launches its Prepair collection designed to help athletes recover following fitness activity. First quarter sales decline 32% from the 2008 level of $198 million to $135 million in Packaged Facts August 2009

161 The Global Footwear Market Chapter 5: Marketplace & Consumer Trends Chapter 5 Marketplace and Consumer Trends Thriftiness Hot in a Down Economy The economic crisis, coupled with a different leadership in the White House, is leading to a genuine value shift in the country. Whereas the beginning of the decade will be remembered as an era of greed, its end will be marked by a return to a culture of responsibility in government, in industry, and at home. More consumers will conclude that conspicuous consumption is no longer acceptable. Thriftier behaviors, perhaps even bordering on downright frugality, will achieve more widespread acceptance. Instead of feeling good about expensive or ostentatious brands as they have in the past, many consumers will increasingly feel good about getting the best value, making the smartest choice, or not spending at all in Thriftiness and value shopping may become competitive, with consumers boasting about the many and unique ways in which they are able to avoid spending or get the best value rather than the best brand name or for those consumers with the most cunning and expertise, getting the best brand name for the best value. The surge in frugality has brought back a variety of money-saving behaviors from days of yore, such as layaway and home-cooked meals. Even cobblers are making a comeback. The Return of the Cobbler Many consumers are turning their backs on the throwaway mentality so pervasive in American culture. People are using glass instead of plastic, the library instead of Amazon, and repairing rather than replacing their shoes. The latter is a notable change within the footwear industry. Increasingly, consumers are seeking solace in the resole. A good men's shoe can be resoled 7 to 10 times and women's shoes between three and five times. While only 7,200 shoe repair shops remain in the U.S. (down from 100,000 during the 1930s), repair shops are seeing increases of 20% to 45%, with Chicago and New York shops the busiest, according to the Shoe Service Institute of America (SSIA). "It's the economy. People are having their shoes repaired instead of paying $150 and more for everyday shoes," says John McLoughlin, President of the Shoe Service Institute of America. (Milwaukee Journal Sentinel, October 25, 2008) August 2009 Packaged Facts 139

162 Chapter 5: Marketplace & Consumer Trends The Global Footwear Market According to the U.S. Census Bureau s annual services survey for 2007, total sales for footwear and leather goods repair establishments grew at an annual rate of five percent to reach $220 million after growing six percent in The 2008 survey was not yet available; however, if the SSIA estimates of 20% to 45% increases are any indication, then total sales for 2008 could be well above the $250 million mark. Figure 5 1 Total Sales for Footwear and Leather Goods Repair Establishments, (in millions $) Footwear and leather goods repair Source: U.S. Census Bureau Consumers Cut Back The renewed interest in shoe repair is just one example of how consumer behavior is evolving and adapting to the new economic realities in spending and in attitude. Consumer confidence further highlights shifting attitudes and behaviors. Though still not great, consumer confidence in June 2009 of 49.3 is an improvement over 26.9 in March Packaged Facts August 2009

163 The Global Footwear Market Chapter 5: Marketplace & Consumer Trends (1985=100). (The Conference Board Consumer Confidence Survey press release, April 8, 2009) The effects clearly indicate the pullback in consumer spending. According to data from the U.S. Census Bureau, the first quarter of 2009 saw retail sales (seasonally adjusted) decline nine percent from the first quarter of 2008 and more than one percent from the fourth quarter of In fact retail sales fell to a level not seen since Figure 5 2 Quarterly Retail & Foodservice Sales, 1992 Q1, 2009 (in billions $) st Qtr 2nd Qtr 3rd Qtr 4th Qtr Source: U.S. Census Bureau; calculated from monthly data by Packaged Facts Final figures from the U.S. Bureau of Economic Analysis showed that first quarter personal consumption expenditures (PCE) rose a meager 0.4% (current dollar, annualized basis). However, that was after the fourth quarter s steep decline the biggest drop in personal consumption (-9.0%) since (In real terms PCE grew at an annualized rate of 1.4% versus -4.3% in Q ) Consumers are scrutinizing every purchase, including the daily August 2009 Packaged Facts 141

164 Chapter 5: Marketplace & Consumer Trends The Global Footwear Market latte at Starbucks, weekly trips to the carwash, Friday dinner date nights, routine visits to the salon, designer accessories and shoes, yearly fitness club memberships and buying smaller, fuel-efficient cars to replace gas guzzling SUVs. Figure 5 3 Quarterly Personal Consumption Expenditures (PCE), 1992 Q1, 2009 (in trillions $) Source: U.S. Bureau of Economic Analysis st Qtr 2nd Qtr 3rd Qtr 4th Qtr Fashion and Footwear Industries Feeling the Pinch The fashion industry, in which footwear plays a role, is getting squeezed on many fronts including shifting consumer spending behavior and business issues such as retail store closings and credit squeezes on design houses. While growth had slowed considerably beginning in 2007 and began to decline in 2008, it was the first quarter of 2009 when the fashion industry really came apart at the seams. Jones Apparel Group, marketer and retailer of brands such as Nine West and Easy Spirit reported total net sales for the first quarter of 2009 were down nine percent from the same period in Even worse, its footwear and 142 Packaged Facts August 2009

165 The Global Footwear Market Chapter 5: Marketplace & Consumer Trends accessories wholesale business fell 13% while it s retail segment fell 11%. Even discounters such as Collective Brands with its Payless Shoe Source and Stride Rite operations saw a seven percent decline in its first fiscal quarter ending May 31, In all, total retail sales (adjusted for seasonality, holidays, etc.) for clothing and clothing accessories stores, which includes footwear retail, for the fourth quarter of 2008 fell six percent from the third quarter and eight percent from the same period in 2007 to $51.5 billion. The first quarter of 2009 saw sales pick up three percent over the fourth quarter of 2008, but were still down five percent from the first quarter of 2008 to $52.9 billion. Figure 5 4 Quarterly Clothing and Clothing Accessory Store Sales, 1992 Q1, 2009 (in billions $) st Qtr 2nd Qtr 3rd Qtr 4th Qtr Source: U.S. Census Bureau; calculated from monthly data by Packaged Facts August 2009 Packaged Facts 143

166 Chapter 5: Marketplace & Consumer Trends The Global Footwear Market High-End Branded Footwear Toughing it Out Brands such as Christian Louboutin (ranked by a June 2008 survey from the Luxury Institute as the most prestigious women's luxury shoe brand among U.S. women), with an average income of $348,000 and average net worth of $3.6 million (followed by Manolo Blahnik and Hermes), will be making touch choices as the economy continues to falter. Already plagued by low-cost imports from the likes of China and soft export markets in the United States and other countries, high-end footwear makers are reprioritizing, cutting costs, revamping their operations and courting new business. For example, luxury footwear designer Giuseppe Zanotti (producer for Proenza Schouler, Blumarine and Roberto Cavalli), told Footwear News in March 2009 that his company is analyzing costs to eliminate waste and lowering wholesale prices in a bid to help struggling high-end department partners, such as Saks Fifth Avenue, Neiman Marcus and Bergdorf Goodman, protect their margins. Consumer Footwear Expenditures According to the U.S. Bureau of Labor Statistics, average annual expenditures on footwear per consumer unit 5 totaled $327 in 2007, up eight percent from the 2006 level of $304. Generally, average footwear spending has remained in the low $300 range, dipping lower during times of low economic growth and rising during better economic times. However, a look at certain demographic measures show some stark differences among consumers. 5 The terms consumer unit, family, and household are often used interchangeably for convenience. However, according to the U.S. Bureau of Labor Statistics, the proper technical term for purposes of the Consumer Expenditure Survey is consumer unit. 144 Packaged Facts August 2009

167 The Global Footwear Market Chapter 5: Marketplace & Consumer Trends Figure 5 5 Average Annual Footwear Expenditure Per Consumer Unit: All Consumers Units, ($) Average annual footwear expenditure Source: U.S. Census Bureau Most notable is the amount of spending by household income. Households making more than $70,000 per year spent at least 66% more than those with a lesser household income. What s more, spending among this group grew at an annualized rate of five percent between 2003 and 2007 faster than any other income group. Equally as interesting is that households in the lowest income brackets less than $30,000 were one of the lowest spenders on footwear and spending declined at an annual rate of six- to 15% over the same period. August 2009 Packaged Facts 145

168 Chapter 5: Marketplace & Consumer Trends The Global Footwear Market Table 5 1 Average Annual Footwear Expenditure Per Consumer Unit by Household Income Before Tax, ($) Before Tax Income CAGR $15,000 to $19, % $20,000 to $29, $30,000 to $39, $40,000 to $49, $50,000 to $69, $70,000 and over Source: U.S. Bureau of Labor Statistics Consumer Expenditure Surveys; compiled by Packaged Facts The age group saw their average annual spending on footwear increase the fastest during the period at an annualized rate of 10%. However, those age had the highest average annual spending near the $400 mark. Table 5 2 Average Annual Footwear Expenditure Per Consumer Unit by Age of Reference Person, ($) Age of Reference Person CAGR under age 25 $206 $258 $297 $251 $ % between age 25 and between age 35 and between age 45 and between age 55 and over age Source: U.S. Bureau of Labor Statistics Consumer Expenditure Surveys; compiled by Packaged Facts Hispanic consumers had the highest average annual spending on footwear ($408), growing at an annual rate of three percent. By contrast, African America consumers saw spending decline at an annual rate of three percent, but remained near the high of those that were not African American or Hispanic. White and all other races and ethnic origins saw the greatest increase in spending, but remained the lowest at just $ Packaged Facts August 2009

169 The Global Footwear Market Chapter 5: Marketplace & Consumer Trends Table 5 3 Average Annual Footwear Expenditure Per Consumer Unit by Race or Ethnic Origin of Reference Person, ($) Race/Origin of Reference Person CAGR White, Asian, and All Others % Black or African American Hispanic or Latino Source: U.S. Bureau of Labor Statistics Consumer Expenditure Surveys; compiled by Packaged Facts Consumers in the Midwest region of the United States saw spending grow at an annual rate of eight percent, far out-pacing any other region in terms of spending growth. Consumers in the South had slow positive growth and remained under the $300 mark. Consumers in the Northeast and West both spent the same ($350) in Table 5 4 Average Annual Footwear Expenditure Per Consumer Unit by Region, ($) Region CAGR Northeast % Midwest South West Source: U.S. Bureau of Labor Statistics Consumer Expenditure Surveys; compiled by Packaged Facts Perhaps in correlation with household income, consumers at the high end of the spectrum in terms of education level spent the most on footwear in 2007 at a whopping $546, an annual gain of 15% during the period. Consumers with a bachelor degree spent less at $399, but still grew at an annual rate of four percent. Consumers with less than a bachelor degree spent essentially the same, though those with some college education saw spending decline at an annual rate of five percent. Table 5 5 Average Annual Footwear Expenditure Per Consumer Unit by Education Level, ($) Education CAGR Less than high school graduate % High school graduate High school graduate with some college Associate degree Bachelor's degree Master's, professional, doctorate Source: U.S. Bureau of Labor Statistics Consumer Expenditure Surveys; compiled by Packaged Facts August 2009 Packaged Facts 147

170 Chapter 5: Marketplace & Consumer Trends The Global Footwear Market Kids Footwear Has Built-In Protections The trends affecting the adult footwear category higher fuel and material costs, a weak U.S. dollar, rising labor costs in China, increased retail demand for discount shoes at mass, and a lessened consumer spending in reaction to the recession are also pressuring the $6.2 billion kids footwear category, but kids footwear has built-in protections. One, the kids demographic is growing at a greater rate than the generally population. Two, kids footwear needs constant replacing. Three, kids (and parents) are eternally susceptible to the attentiongrabbing power of licensing. 38 Million Kids by 1212 According to the latest available estimates from the U.S. Census Bureau, there are 36 million kids in the 3 to 11-year-old age group. Census data also show that these kids make up around 12% of the U.S. population. Distribution by age within the 3 11 population is remarkably even, with each single year of age accounting for 11% of that age bracket. Based on the most recent Census Bureau data, Packaged Facts estimates that the population of 3 to 11-year-olds will increase at an annual rate of about one percent to top the 37 million mark in 2011 and near the 38 million mark by That factors out to a lot of replacement shoes. 148 Packaged Facts August 2009

171 The Global Footwear Market Chapter 5: Marketplace & Consumer Trends Figure 5 6 Population Forecast of U.S. Kids Age 3 11, (in millions) Population of Kids Age 3Š11 Note: Estimates for May of each year. Source: U.S. Census Bureau, Packaged Facts. An Influential Force with Buying Power Kids are also a financial force. Packaged Facts estimates that the buying power of 3 to 11- year-olds totaled $20.1 billion in 2008, with 9 to 11-year-olds responsible for the greater share of kids purchasing power. Packaged Facts estimates that the kids buying power will grow at a compound annual growth rate of three percent to $22.8 billion by August 2009 Packaged Facts 149

172 Chapter 5: Marketplace & Consumer Trends The Global Footwear Market Figure 5 7 Spending Power Forecast of U.S. Kids Age 3 11, (in billions $) $23.5 $ $22.5 $22.0 $ $ $20.5 $ $19.5 $19.0 $ Spending Power of Kids Age 3Š11 Source: Packaged Facts. Cool Licenses Trump All This powerful persuasive and growing population does not mean that footwear marketers should feel excessively confident about long-term sales growth; rather, they should step it up as kids are increasingly marketing savvy and parents are increasingly value-conscious. With shoe prices rising and clothing budgets getting tighter, parents are going to be looking for product value as kids continue to push for the coolest shoes. Out-of-the-box innovations such as the Inchworm shoe, which are able to grow along with children's feet, will see more favor in the marketplace from parents. The shoes ifit technology allows the shoes to expand up to a full size with the press a button. The company estimates they last about three to six months longer than conventional shoes. 150 Packaged Facts August 2009

173 The Global Footwear Market Chapter 5: Marketplace & Consumer Trends Figure 5-8 The Inchworm Shoe But since kids have such tremendous input on the footwear their parents buy for them and are well aware of hot licensing properties, for kid-driven purchases, creative licensing will be more important in the current climate in driving current and future sales. As any good marketer knows, the way to a long-term customer is to hook them early in life. Collective Brands, through Payless ShoeSource, added several kid-friendly characters (and all the free marketing their ubiquitous entertainment outlets include) to enhance it offerings including Blues Clues, SpongeBob SquarePants, and Hannah Montana the latter of which are especially on target for tykes. According to an annual preschool survey conducted in spring 2009 by strategic marketing firm, Funosophy Inc. the top two characters kids age three to five are "just getting interested in" are Nickelodeon's SpongeBob SquarePants and Dora the Explorer, followed by the Disney Princesses, Hannah Montana and Barbie. Also seeing interest in the tyke sector: Go, Diego, Go!, Spider-Man, Minnie & Mickey Mouse, Scooby- Doo and Transformers. (Playthings, June 1, 2009) Character licensing allows a child to express herself. It is important for kids, who are just beginning to explore personal preferences and asserting their individuality, to be able to make choices among a safe array of footwear options. Parents are keenly aware of the power of childhood individuality often expressed through pester power an inexpensive, homegrown tactic marketers hope for. "These are the brands they ask their parents to buy, and we know kids influence the footwear purchasing decision from as young as age 2," said Todd Murray, Director of Children's Brands and Licenses for Brown Shoe Co., which holds the "Barbie," and "Power Rangers" among other licenses. (Footwear News, May 12, 2008) August 2009 Packaged Facts 151

174 Chapter 5: Marketplace & Consumer Trends The Global Footwear Market Kids Express Themselves with Crocs s Jibbitz Charms As if licensing characters for kids footwear were not enough, Crocs, Inc. has taken the trick one step further. In 2006, the company acquired Jibbitz LLC, a maker of charms for kids footwear that allow kids to personalize their Crocs shoes with a variety of fun options. Jibbitz have buttons on the back that pop into the holes on the toe of Crocs shoes allowing kids to swap out charms for a new look. The charms are available in every conceivable object of kids desire from bugs to butterflies to numbers to the space shuttle. With a retail cost of $2.49 per charm, it is easy for parents to say yes. Much easier than purchasing a new pair of shoes. The company s portfolio of licensed characters is a venerable list of the who s who among children s entertainment. Disney characters play a leading role in the portfolio from perennial favorite Mickey Mouse to Pixar creation WALL-E. Nickelodeon figures prominently, too, with Spongebob Squarepants and Dora the Explorer. Other character licenses include Peanuts, Harry Potter and various super heroes. Company Ethics and Added Values Important to Consumers As consumers have gotten smarter, they have also gotten more curious. Not only do they want to know the specific functional benefits of products, they also want to know about the core brand and associated company values and beliefs. Some industry experts think this will take a back seat amid recession concerns, whereas others believe it is more important than ever to provide a positive emotional connection that is inherent in cause-related marketing that empowers consumers during times of distress and upheaval. Global Consumers: Will Spend More on Ethical Brands According to the second annual multi-country Edelman Goodpurpose study conducted the fall of 2008, more than half of the 6,000 global consumers surveyed said that even in the midst of a recession they would be prepared to spend more for a brand if it supported a good cause. The most popular cause among consumers globally was protecting the environment, and more than two-thirds of respondents said that they would be willing to pay more for ecofriendly products during a recession. Sustainable and eco-friendly products and corporate attitudes are no longer part of a niche group of altruistic consumers, but rather an important feel good factor for a wide range of consumers who believe in making purchases that do more than just contribute to a company s top line growth. Sustainability and green initiatives 152 Packaged Facts August 2009

175 The Global Footwear Market Chapter 5: Marketplace & Consumer Trends are clearly front and center when it comes to economic considerations for footwear retailers, manufacturers and marketers. Green Particularly Important to Youth to a (Price) Point According to an April 2009 survey from Generate Insight, reported by MarketingCharts, Millennials (consumers age 13-29) are extremely educated about green issues, with 76% believing that it is very important or important for brands to get involved in the green movement. The majority of older Millennials (18-29) would choose the more expensive brand that gave back in a green way, but 71% of teens (age 13-17) would choose the less expensive product over the green. Sustainable Initiatives are Financially Viable Increasingly, manufacturers and retailers will recognize that altruistic and sustainability initiatives can be both financially viable, and help the bottom line. The Edelman survey also found that 80% of consumers said it is important even during a recession for brands and companies to allocate funds for social purposes. 68% said they would remain loyal to a brand in a recession if it supported a good cause. 55% said they would buy brands that support a good cause even if they aren t the cheapest. When choosing between two products of similar quality and price, consumers are more likely to have their purchase decision influenced by a brand s social purpose (42%) than innovation (30%) or brand loyalty (27%). (AdAge.com, November 17, 2008) Despite the economic downturn, Packaged Facts expects that many American consumers will continue to prioritize and justify potential extra expenses associated with socially responsible product purchases on ethical grounds. Footwear players have shown tremendous leadership in ethical outreach for many years. Deckers Finds a Simple Way to Sustainability A pioneer in sustainable footwear manufacturing, Simple Shoes, originally began in 1991 as an old school sneaker, but was bought by Deckers Outdoor Corporation a couple of years later and expanded to include sandals and casual footwear. The shoes are sold through a variety of retail channels including independent retailers, outdoor shops and department stores such as Dillard's and Nordstrom. The company even sells through alternative footwear channels such as Whole Foods Markets. August 2009 Packaged Facts 153

176 Chapter 5: Marketplace & Consumer Trends The Global Footwear Market Deckers has taken the Simple brand in an entirely sustainable direction, with the 2005 launch of Green Toe, an effort to reduce waste and use more sustainable techniques in manufacturing footwear. Their goal is to make the Simple brand 100% sustainable with materials including organic cotton, eco-certified leather, bamboo, and recycled car tires and inner tubes for its rubber soles. In spring 2009, the company introduced silk as a natural upper for its ecosneaks. The company has also started using water-based glue and employing more stitching to reduce the use of glue altogether. Another way the company is pushing towards its goal is through packaging with the company s shoes packed in 100% post-consumer recycled boxes. All these initiatives seem to be paying off. While first quarter 2009 sales are down slightly, Simple's sales increased 25% in 2008 to reach $14 million. Naturalizer and Dress for Success In May 2008, Brown Shoe Company s Naturalizer division teamed up with international nonprofit organization, Dress for Success, on Give Shoes, Give Hope. Founded in New York City in 1997, Dress for Success is an international not-for-profit organization offering services designed to help clients find a job and remain employed and promotes the economic independence of disadvantaged women. Women who brought their gently worn, workappropriate shoes to Dress for Success donation drop-offs at Naturalizer stores received a 20% off coupon toward her next in-store purchase. Naturalizer also contributed 4,300 new pairs of career shoes to Dress for Success affiliates. TOMS Shoes One for One TOMS Shoes founder, Blake Mycoskie, was spurred to action after seeing barefoot children with bruised and cut feet on a trip to Argentina. Now, TOMS Shoes One for One program donates a pair of shoes to children in need for every pair sold. Since 2006, more than 140,000 shoes have been given to children in Ethiopia, Argentina, South Africa and the United States, with a goal to donate 300,000 in Danner and the Fallen Officers Drive Danner, Inc., a provider of branded work and outdoor footwear, sponsored the second annual Drive to Remember for Fallen Officers. "We are honored to support the Drive to Remember and those who make the ultimate sacrifice for their communities," said Joseph P. Schneider, President and CEO of LaCrosse Footwear, Inc. "For more than 75 years, Danner has 154 Packaged Facts August 2009

177 The Global Footwear Market Chapter 5: Marketplace & Consumer Trends developed quality and high performance footwear for these men and women in the field, whether at work or enjoying the outdoors. We are truly honored to support this wonderful organization." (Business Wire, May 1, 2008) The Drive to Remember encompassed a 14-day, 5,000-mile tour from Vancouver, British Columbia to Washington, DC. Danner hosted a commemorative event at the Danner Factory Store, including a barbeque lunch to honor the Drive to Remember on their first stop in Portland, Ore. Proceeds from the sales of Danner socks during the event were donated to the organization to support the families of fallen officers. Counterfeiting, a Dangerous Business According to the World Customs Organization, approximately seven percent of the products sold around the globe are fakes. The United States is a top destination for counterfeits, with about $250 billion worth of scammed products crossing the border every year. In 2007, the U.S. Immigration and Customs Enforcement projected that total American job losses due to product counterfeiting was 1.4 million. According to U.S. Customs Bureau and other regulatory agencies, many counterfeit dollars are traced back to greater criminal threats such as organized crime, child labor, drug trafficking and terrorism. Staggering Consequences In 2008, the domestic value of counterfeit and pirated goods seized for intellectual property rights violations was up 39% to $272.7 million, an increase of almost $76 million from U.S. Customs found that for 2007, 40% of all intellectual property rights seizures were footwear, up from $63.4 million in 2006 to $78 million with the vast majority being in athletic shoes and the main source being China. Purchasing cheap, knock-off designer products from the trunk of a car or from a street hawker is inconsequential to many consumers who do not care about the repercussions to the industry being scammed that go beyond the bottom line and effect employees across the board. Consumers also do not realize the potential dangers of a counterfeit product knockoffs are likely made from sub-par materials that at best may be ill-fitting but may also cause injury. August 2009 Packaged Facts 155

178 Chapter 5: Marketplace & Consumer Trends The Global Footwear Market Counterfeit Counter-Intelligence In an interview with Footwear News, David Brener, the chief intellectual property rights operations branch officer in Washington, D.C., explained what is being done to combat the problem. We are trying to use a layered approach. We can't inspect our way out of the problem. We are using targeted techniques, risk-management techniques. We're going out on a post-transaction basis after the product arrives to go to companies and work with them to find weaknesses and correct them. When they have seminars and annual meetings, we have trade specialists there. He also noted that two of the most popular counterfeiting method is transshipping channeled through different locations to hide the final destination or purposely mislabeling such as shoes with a counterfeit logo that is covered and peeled off later. (Footwear News, October 20, 2008) Although most experts believe that nothing will stop counterfeiting, this type of proactive activity on behalf of law enforcement and industry players, coupled with high-tech innovation in anti-counterfeiting tracking tactics, such as RFID, holograms, permanent labels and invisible inks, helps stave the flood of fakes, particularly at the distribution level. However, once fakes make it to the consumer level, copies easily fool consumers less-discerning eyes. Industry Hopes to See End Depression-Era Tax Footwear industry members of The Affordable Footwear Initiative have been urging Congress to pass the Affordable Footwear Act and offer consumers some relief by ending a Depression-era shoe import tax meant to protect domestic manufacturers from cheaper imports. Packaged Facts estimates wholesale prices of footwear rose eight percent in 2008 and those price increases were passed on to consumers despite the slowing economy. Despite the best efforts of the footwear industry lobby over the past several years, the tax still remains, even though 96% of all shoes sold in the United States are imported and wholesale prices are rising. The tariff runs as high as 67.5% on some items and averages 10%. Repealing the shoe tax could help pass as much as $2 billion in savings to U.S. consumers. Proponents also assert that the Affordable Footwear Act would stave off further industry downsizing and protect domestic footwear manufacturing jobs. In the most recent effort to repeal the tax, Senators Maria Cantwell (D-WA) and John Ensign (R-NV) formally reintroduced the bipartisan Affordable Footwear Act (S. 730) in April Packaged Facts August 2009

179 The Global Footwear Market Chapter 5: Marketplace & Consumer Trends The legislation would eliminate the regressive and hidden tax paid on most lower-cost and children's shoes, or about 60% of the shoes sold in the United States each year. Coalition members include the American Apparel & Footwear Association (AAFA), Footwear Distributors and Retailers of America (FDRA), Retail Industry Leaders Association (RILA), Outdoor Industry Association (OIA), National Retail Federation (NRF) and many of the individual member companies represented by these associations. Visit the AAFAsponsored coalition website, for more information. August 2009 Packaged Facts 157

180 Chapter 5: Marketplace & Consumer Trends The Global Footwear Market Style and Innovation Trends Free to Re-Invent Me Footwear is a huge and increasingly diversified business, driven by a host of demographic, lifestyle and fashion trends. As a result, the category is being segmented ever more finely to meet the manifold functional and emotional needs and desires of shoe shoppers. This is seen in the diversity of mainstream footwear trends from casual comfort to sexy stilletto, and the fact that, in recent years, a far greater range of styles has become acceptable in the U.S. workplace. There is no urge to conform in terms of style. In fact, the urge now is to constantly evolve and change, as Americans continue to define, and re-define, themselves as individuals. The diverse nature of personal styles and the belief that one can re-invent oneself with, for example, a fashion makeover, driven by the wealth of makeover media, means there is a place in the average consumer s closet for a wide variety of shoe styles to reflect one s mood. Make Me Unique: Personalized Footwear In an ego-centric American culture where the individual is lauded exemplified by the popularity of reality-based TV programming, consumer-generated content and a plethora of products that are made just for me footwear innovations that engage and express the power of personal ego through design and functional options will begin to see more consumer interest. Although growth in this arena may be slow to build as word-of-mouth from loyal and satisfied customers is often the main source of advertising. Through keeping a finely tuned ear to the whims of consumers, the industry is making strides in personalization and customization by offering an ever-widening variety of shoes that satisfy not only functional needs but ever important emotional ones, from design options to celebrity brands that echo and/or magnify an individual s personality and beliefs. Several brands in the Adidas stable offer personalized and customized platforms, such as Adidas mi Adidas and mi Original. Mi Adidas, which allows consumers to custom-design running shoes, was launched in Adidas performance stores in 2007, followed by the launch 158 Packaged Facts August 2009

181 The Global Footwear Market Chapter 5: Marketplace & Consumer Trends in 2008 of Mi Originals to Adidas concept stores. See below the image of this author s customized at Mi Originals online with company name, city and born on date. Figure 5-9 Adidas Customizable Mi Originals Work Shoes Get the Custom Treatment Taking customization and function even further, LaCrosse Footwear, Inc. s Danner created the "mydanner" custom footwear program for building a one-of-a-kind, personalized Danner work boots. The process starts online with customers choosing materials (Vibram, GORE-TEX, Thinsulate, etc.), as well as leathers, fabrics, laces, and hardware. The program currently launches with three top Danner styles, the Super Rain Forest, Fort Lewis and the Santiam, with more styles to come. Production of the custom mydanner boots will take approximately two weeks. Danner even offers a more personalized premium package that includes a twonight stay in Portland, a private factory tour, and a private custom boot fit. In 2008, LaCrosse Footwear, saw its sales rise eight percent to reach $128 billion. Emotional Pulls the Shoes Strings Too Emotional benefits can also play a part in customization, where the consumers can fully express themselves artistically! Enter Zazzle s custom shoe offering ( Zazzle's custom shoe platform is the first fully customizable shoe with user-generated content, allowing users to design and select colors for the entire shoe. Consumers are able to create unique custom canvas shoes by uploading their own designs, patterns, illustrations, images and text, and then preview their shoes instantly. Users can also embellish their shoe designs with preset colors and patterns. The shoes are embellished and assembled from scratch within 24 to 48 hours, which enables consumers to receive their shoes in one to two weeks. August 2009 Packaged Facts 159

182 Chapter 5: Marketplace & Consumer Trends The Global Footwear Market High End Activity While there are a few mass players, such as At Nikeid.com and SteveMadden.com, making customization more affordable for the masses, the excitement is in high-end customization with boutiques popping up across the country. For example, at Morgan Miller, a boutique in southern Florida since 2006, shoe addicts can design their own custom-fit sandals, then cruise the mall or sip champagne as cobblers build their creation. About an hour later, the shoes are served on a silver platter. An array of soles, straps and embellishments are available and the cost ranges between $100 and $400. The store also hosts shoe parties. Many of the smaller shops have been around for decades, such as E Vogel in New York City specializing in custom shoes for men and riding boots for men, women and children since E Vogel's upscale clientele veer toward classic looks. The store is also popular with customers who can't buy shoes off the shelf, either because of orthotics or conditions such as bunions or hammertoes. Customers here pay $1,300 to start, with subsequent pairs costing $850 each. Although this shop employs 18 shoemakers, the average wait time for the first pair of shoes is about four months. Interchangeable Shoes Several start-up shoe companies touting interchangeable sandals and shoes have appeared on the scene, including Lexees, One Sole by Quick Change Artist, Bandals and Zip Shoes, for consumers who want unique personalized footwear options at lower price points. Lexees, One Sole and Bandals, are simple sandals with an interchangeable upper or band. Figure 5-10 Sandals with Interchangeable Upper or Band Soon to launch in the United States, the ZIPZ Shoes system s shoe tops and bottoms ("covers" and "souls" in ZIPZ language) are interchangeable to create different combinations with a variety of patterns, styles and colors in toddler, youth and adult sizes. ZIPZ, currently sold abroad, will appear in multiple U.S. retail locations in the fall of Packaged Facts August 2009

183 The Global Footwear Market Chapter 5: Marketplace & Consumer Trends Finding Comfort in a Pair of Shoes There is a stereotype that women seek solace in shoes, and stereotypes are often based in fact. An October 2007 poll from Consumer Reports National Research Center found that the average American woman has 19 pairs of shoes, however only four pairs are worn regularly and 43% have been at least moderately injured by their shoes. So it is unclear how much comfort women are actually getting out of their shoes. Comfort versus Style: Footwear No Longer Easily Categorized Over the past several years, there has been a steep change in seeking solace from the shoes that hurt us. Footwear fashion trends are ephemeral and reliant on consumer trends, innovation and artistry, but in the past year, the most widespread buzz has been on casual comfort and health and wellness rather than on well-heeled stilletos! The marketplace has seen growing crossover. Shoes are no longer siloed into business wear, casual wear, sporting wear or dress wear. Casual Friday has evolved into Casual Everyday. Sports and lifestyle continue to merge. Consumers want to go from faxing, to flexing, to a festive night out seamlessly and in comfort. Shoe Comfort Gets More Accessible Comfort shoes, once wore the stigma of hippie shoes, grandma shoes or nurse shoes, while high-fashion footwear fell within the parameters of suffer for beauty. Now women (and men to a lesser degree) have wide range of choices and price points that are both comfortable and fashionable less because high-fashion shoes are getting more comfortable and more because comfort shoes are getting more fashionable. Several brands such as Jones Apparel s Easy Spirit have made it their core business to promote this idea while other brands have adopted strategic partnerships that combine multiple brands into hybrid footwear products. For example, Nine West and New Balance struck such a deal in 2008 to create a line of footwear combining the style and comfort technology of each. Comfort Shoe Brands Break the Mold Several classic comfort shoe brands have introduced updated designs to meet consumer needs for a more attractive shoe. C&J Clark has introduced the Indigo, Privo and Unstructured lines under its Clarks brand. August 2009 Packaged Facts 161

184 Chapter 5: Marketplace & Consumer Trends The Global Footwear Market Figure 5-11 Privo s Acacia Slip-on with Flex-Fit Figure 5-12 Indigo s Sweetie Pump with ABS Heel Figure 5-13 Unstructured s Un.radke Ankle Boot Innovative shoe maker Geox has put its waterproof, breathable technology into great-looking, dressier loafers, boots and pumps. Naot, a comfort sandals maker, has branched into boots and shoes. In January 2009, Kigo footwear launched a line of portable, recycled, eco-friendly, comfort footwear. The shoes made of compressible materials feature a fold-close design, so they can stow as easily as a glove. Quality materials carefully selected to meet varying conditions and environments mean that Kigo shoes are as comfortable as a slipper yet as sturdy as an athletic shoe. 162 Packaged Facts August 2009

185 The Global Footwear Market Chapter 5: Marketplace & Consumer Trends Figure 5-14 Kigo Footwear Fashion Finds Comfort Fashion brands like Cole Haan, Kenneth Cole and Anne Klein, better known for fashion footwear, have also stepped into the world of comfort. For example, Cole Haan, owned by Nike, introduced a line of pumps with Nike Air technology in the soles and Anne Klein introduced a line of pumps and loafers with iflex-sole that are bendable like slippers. In August 2008, RSVP, a women s designer shoe brand, and Foot Petals, Inc., a maker of shoe inserts that relieve foot pain, launched RSVP Cushioned by Foot Petals, sold only on retail shoe site Zappos.com. The Foot Petals Tip Toe and Haute Heel inserts are sewn into each of the shoes' sock liners to add a feel-good element to each shoe. Figure 5-15 RSVP Lyndsey Cushioned by Foot Petals Similarly, Paris Hilton Footwear improved the comfort on the brands line of platform stilettos, with a "comfort heart", a cushion inside the inner sole of every shoe. The Science of Footwear While some footwear is inspired by science fiction, such as the 160 individually numbered Star Trek-inspired Enterprise Edition Airwalk sneakers, designed by street style designer Jeff Ng for CBS Consumer Products to celebrate the latest Star Trek voyage into theaters, or the August 2009 Packaged Facts 163

186 Chapter 5: Marketplace & Consumer Trends The Global Footwear Market Nike Air Trainer "Transformers" inspired by the Autobots' leader, Optimus Prime, there is even more spectacular innovation based in real science, particularly in the athletic shoe arena. Figure 5-16 Optimus Prime inspired Nike Air Trainer "Transformers" Under Armour Gets Sophisticated The sports apparel maker, Under Armour, has jumped into athletic footwear with the help of technology, such as rapid prototyping, where a special machine can "print" a polymer version of the shoe's sole. Under Armour can make sure the treads are in the right place, even give the sole a workout, without investing $20,000 and up for a costly steel mold. Under Armour is also utilizing 3-D software to build virtual versions of its shoes to save time on the development side by six months. Using software from sports-training company Dartfish, Under Armour tests that the "cartilage" of the shoe will properly absorb shocks and provide independent suspension when the foot hits the ground. Of course, challenging the major athletic footwear players such as Nike and New Balance will still be a major undertaking as these competitors have the same kinds of protocols and technologies. But if their sales in 2008 and the first quarter of 2009 are any indication, Under Armour is well on its way to becoming the next major designer and marketer. 164 Packaged Facts August 2009

187 The Global Footwear Market Chapter 5: Marketplace & Consumer Trends Technology Offers Good Shoes and Good Health In response to continued consumer interest in health and wellness and the multi-tasking lifestyle, a slew of shoe manufacturers and brands are touting a wealth of health claims. Ailments from back pain to varicose veins and benefits such as improved posture, posterior toning, and burning calories, are all being met with high-technology and design innovations such as rounded soles and heels, extensive cushioning and contoured shapes to mimic walking barefoot. Better Health Through Earthly Footwear at Sky-High prices The idea of a fitness shoe that offers inherent health and wellness benefits is not new. Earth shoes, first made popular in the U.S. during the 1970s, were the precursor to the wide variety of wellness footwear available today. Now known as Earth Footwear, with an average retail price around $100 a pair, they are designed to create proper alignment of the spine and stretch the calf muscles. Newer products have newer price points and more impressive claims! Products such as MBTs by SwissMasai have sold more than a million pairs at $230 to $270 for the "anti shoe" with a rocker bottom and a soft wedge heel your foot sinks playing on consumer vanity and health needs. Chung Shi, a German fitness shoe with a rocker bottom, is priced at around $170. Spas, Fitness Experts Saw Opportunity Bliss spa owner Marcia Kilgore, developed the FitFlop, which promises to help you walk faster and keep the hamstring and calf muscles active longer during steps, reduce joint strain and tone thighs. Taryn Rose shoes are made by artisans in Italy, but are built on an asymmetrical form, which gives full arch support, helps to reduce fatigue and improves comfort. The Z-Coil line, with its funky heel design, bills itself as pain-relief footwear. In 2009, fitness expert, Jennifer Cohen s introduced NGR shoes (No Gym Required) which offer similar promises, along with her first fitness, motivation and health guidebook, No Gym Required: Unleash Your Inner Rockstar. Cohen noted in an interview with MacLean s magazine in October 2008, "Though everyone's lifestyle is so different, it all comes down to the same thing. That is, how to maximize what you do in a minimum amount of time." August 2009 Packaged Facts 165

188 Chapter 5: Marketplace & Consumer Trends The Global Footwear Market Figure 5-17 Masai Barefoot Technology Kaya Figure 5-18 Fit Flops Sandal Figure 5-19 Z-Coil Freedom Experts Conflicted on Fitness Shoe Promises Those in the health field are generally skeptical about wellness and fitness shoes. "It's a lot of hype and often not a lot of supported substance," according to Bruce Williams, President of the American Academy of Podiatric Sports Medicine. "While there may be some truth to the claims... most people can do a lot better with a decent pair of running shoes or getting more active." (Cox News Service, July 22, 2008) 166 Packaged Facts August 2009