There was a ray of hope about the short term future of U.S. athletic footwear sales as retailers announced significantly improved Back-to-School and August Results. Although the NSGA’s consumer survey released last week confirmed our previous report (SEW 0334) showing retail sales of athletic footwear in the first half trailed behind last year’s results, the sector appears to be showing some real light at the end of the tunnel.

Leading the charge was an eye-popping 21% comparable store sales increase at mall specialist The Finish Line, which posted an 18% comp increase in footwear, highlighted by a stunning 27% comp increase in August footwear sales.  To be sure, the shift of Nike allocation played a large role in the footwear success at The Finish Line, but management is quick to point to the success of other brands such as K-Swiss, Reebok and adidas as well.

And while the results pale in comparison to FINL, Foot Locker hinted in its recent review of Q2 results that Back-to-School sales trends were improved after FL posted two quarters of weak numbers, including a 4.4% comp store decline for the quarter through July.

Gart’s Doug Morton noted that footwear sales trends were “clearly better” in Q3 than they had been in Q2. And Pacific Sunwear continues to cite footwear as a key contributor to their stellar same-store sales performances, with the category posting a 20% comp store gain in their Q2 ending July.

The trend appears to be lifting ships in the family footwear sector as well, with Shoe Carnival posting a 5.1% comp increase for August, driven by a “high single digits increase” in athletic.  This result reversed a year-to-date decline of 2.4%. Brown Shoe Company’s Famous Footwear unit posted a 2.0% comp increase for August, against a 1.3% decline a year ago and a negative 3% YTD trend for 2003.  Again, athletic footwear was cited as a primary driver. The gain in August was the first comp store increase since last October aside from April’s Easter shift-assisted improvement.

Perhaps most encouraging was the data from SportScanINFO which revealed a low single digit increase in athletic footwear sales in August, the first positive month this year. 

The SportsScanINFO results would seem to indicate that many footwear retailers enjoyed an improving sales trend in August.

Based on our conversations with retailers and manufacturers, Casual and Retro styles continue to be the largest category in units, dollars and in growth percentage.  Basketball has been a solid performer and Running is starting to show some signs of improvement, especially on the better end, led by specialty brands and Nike Shox.

K-Swiss remains the hottest brand in the market and Reebok has some very positive momentum around a strong Classics performance, as well as impressive sales in Basketball. 
Many big name Wall Street analysts had projected a “brown shoe” resurgence, but other than on an item basis, athletic appears to be the key category for the foreseeable future.

For retailers outside of athletic footwear, BTS sales were good, but not great.

“The back-to-school season started with a bang and we're expecting robust sales in September because the consumer appeared to be flooded with cash,” said Bill Dreher, retail analyst with Deutsche Bank Securities. Dreher pointed to easier sales comparisons, tax rebate checks and a lower withholding rate as drivers of the uptrend in general.

Many analysts feel the strong August, which accounts for about 8.0% of annual retail sales, and Back-to-School could foreshadow a brisk holiday season and spell good news for retailers. The Bank of Tokyo-Mitsubishi said that overall August same-store sales rose 5.2%, above its expectation of a 4% to 5% increase and the 1.8% increase in the year-ago period.

BT-M’s Michael Niemira expects September sales to rise about 3.5% to 4%. Last year, BT-M’s survey of 70+ key U.S. chain stores produced an anemic 1.5% gain in comps for September last year.

But the good news at retail does not appear to be universal, as sales at teen retailers shift within the mall and discounters and wholesale clubs continue to take the wind out of the sails of the department store sector, except at the high end. Discounters had a 6.4% increase in August, while wholesale clubs posted an 8.8% gain. Department stores fared worse, with the exception of higher-end nameplates Nordstrom (+3.2%) and Neiman Marcus (+7.6%).

Niemira observed in a report that the middle-income consumer continues to be weighed down by a sluggish job market, while the high-income consumer — buoyed by an increase in the stock market — and the low-income consumer — helped by the tax rebate checks — have increased spending.

This observation would lend some credence to other evidence we have seen of the high-low scenario that sees retailers focusing on better, more exclusive, high-end product and opportunity buys for the lower end. Private label fills in the middle and leaves the mid-tier brands scratching their heads.

The trend also goes a long way in explaining the results in athletic footwear. The Finish Line has clearly benefited by the increase in marquee footwear product that brings traffic in the door and PacSun spikes sales with niche skate brands. FINL said that 50% of their product for fall will be mall exclusives and no one else seems to be getting the skate brands PacSun is getting. Both sell more of everything else as a result. The family footwear guys left plenty of open-to-buy for the opportunity buys that enable them to fuel traffic flow. It’s the ill-defined middle that may get left behind.


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