market trends in us and european footwear july 8 2017

1

July8,2017

DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

1) IntheUSandinEuropeancountries,athleisureandhealthandwellnesstrendsbuoyedfootwearsalesgrowthin2016.Nike,Adidas,PumaandJDSportsFashionallposteddouble-digitpercentagesalesgrowthratesintheirlatestrespectivefiscalyearresults.

2) TrendsinthefootwearmarketcloselymirrorthoseoftheapparelfashionmarketinthatspecialtyfootwearretailersintheUSandtheUKthatoffersports-inspiredfootwearstylesarethriving.

3) Weexpectglobalfootwearsaleswillbedrivenbythecontinuationofathleisureandhealthylifestyletrends,theriseofe-commerce,productinnovationandtheevolvingopportunitiesprovidedby3Dprintingandcustomization,aswellasAmazon’scontinuedpenetrationoftheapparelandfootwearcategories.

Market Trends in US and European

Footwear

Deborah Weinswig

Managing Director,

Fung Global Retail & Technology

deborahweinswig@fung1937.com

US: 917.655.6790

HK: 852.6119.1779

CN: 86.186.1420.3016

2

July8,2017

DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

Introduction:TheUSandEuropeanFootwearMarketsInthisreport,weexplorefootwearretailingintheUSandleadingEuropeanmarketssuchastheUK,FranceandGermany.Ouranalysisconsiderscontinuingandemergingtrendsinfootwearretailing.

WehaveobservedthattrendsinthefootwearmarketcloselymirrorthoseoftheapparelfashionmarketinthatfootwearretailersintheUSandUKthatoffersports-inspiredfootwearstylesarethriving.Consequently,webelievethatintheUSandinEuropeancountries,athleisureandhealthandwellnesstrendsbuoyedfootwearsalesgrowthin2016.

Globalfootwearsaleswillbedrivenbythecontinuationofathleisureandhealthylifestyletrends,theriseofe-commerce,evolvingopportunitiesprovidedby3Dprintingandcustomization,aswellasAmazon’scontinuedpenetrationoftheapparelandfootwearcategories.Finally,likeapparelretailers,footwearmanufacturersarealsostrivingtospeeduptheirsupply-chaincyclestobringproductfromdesigntomarketatafasterrate.

AthleisureTrendInlinewiththeathleisuretrend,consumersareincreasinglyseekingdesignersneakersandshoesthatincludeelementsofsportsdesign.Acontinuedshifttoamoreactivelifestyleisdrivingsportsfootwearsalesincreases,asdepictedinthefollowingchart.

Figure1.Year-over-YearGrowthinSportsFootwearSales,2016(%)

Source:Euromonitor/FungGlobalRetail&Technology

SportsfootwearsalesincreasedatafasterratethantotalfootwearsalesintheUKandtheUSin2016.

• UK:TotalUKfootwearvaluesalesincreased6.2%yearoveryearin2016toreach£10.7billion($14.4billion),accordingtotheOfficeforNationalStatistics(ONS).Althoughthisgrowthratewasstrongerthanthatforclothing,itwastheslowestyear-over-yeargrowthrecordedbytheONSinthepastthreeyears.

• US:IntheUS,totalfootwearsalesincreasedonly2.8%toreach$76.6billionin2016,accordingtotheBureauofEconomicAnalysis.

10%9%

8%

UK France US

IntheUS,totalfootwearsalesincreasedonly2.8%toreach$76.6billionin2016.

TotalUKfootwearvaluesalesincreased6.2%yearoveryearin2016toreach£10.7billion($14.4billion),representingtheslowestgrowthinthepastthreeyears.

3

July8,2017

DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

Reflectingtheathleisuretrend,in2016researchfirmMintelreportedthat,forthefirsttime,moreUKwomenboughttrainersthanshoeswithheels:some37%ofUKwomenboughttrainersintheyearendedMay2016comparedto33%buyingheels.

Athleticandlifestylefootwearbrandsfigurestronglyinthetop-fivefootwearbrandsineachcountry.Below,wechartfootwearbrandmarketsharesintheUSandtheUK.

USNikecontinuestoholdtheleadingmarketshareinUSfootwearsalesin2016,representing17.9%ofretailvaluefootwearbrandsales,accordingtoEuromonitor.

Figure2.US:FootwearMarketSharebyBrand,2016(%)

Source:Euromonitor/FungGlobalRetail&Technology

EuropeIntheUK,FranceandGermany,Nike’smarketshareislower.

UK:IntheUK,NikeandAdidasholdsecondandthirdplace,respectively.

Figure3.UK:FootwearMarketSharebyBrand,2016(%)

Source:Euromonitor/FungGlobalRetail&Technology

17.9%

3.5% 2.6% 2.4% 2.0% 2.0% 1.6% 1.4% 1.4% 1.2%

10.9% 10.6%

3.8%2.7% 2.7% 2.3% 1.8% 1.8% 1.8% 1.7%

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July8,2017

DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

France:InFrance,VivarteheldthehighestmarketshareintheFrenchfootwearmarketat11%in2016.Thiswasfollowedwith7%eachbyNikeandAdidas,whichbothregisteredthehighestfootwearvaluemarketshareincreasesin2016,accordingtoEuromonitor.

Germany:InGermany,localplayerDeichmannheldthehighestbrandmarketshareat13.1%in2016,accordingtoEuromonitor.NikeandAdidasfollowedinsecondandfourthplace,withmarketsharesof5.7%and5.0%,respectively,in2016.

Inadditiontoleadingmarketshares,salesofmultinationalathleticfootwearmanufacturers/brandsaresoaring.

• Nike:Globalfootwearrevenuesincreased15%yearoveryearatconstantcurrenciesinFY16.

• Puma:FootwearsalesinFY16increased12.6%yearoveryearatconstantcurrencies.

• Adidas:CEOKasperRorstedstatedonthecompany’slastearningsresultscall(1Q17)thatthefootwearcategorywasstillvastlyoutgrowingapparelintermsofsales.Otherwise,thecompanydoesnotseparatelybreakoutsalesoffootwearandapparel.

• JDSportsFashion:TheUKsportsfashionandoutdoorgoodsretailerreportedrevenuesincreasedby31%yearoveryearinFY16.Althoughthecompanydoesnotbreakoutfootwearsalesseparatelyfromapparelorsportingequipment,webelievethatfootwearsalestrendswereinlinewiththeSportsFashionbusiness.

TheSneakerCultureSneakershavebecomepartofeverydaystyleandincreasinglymoreyoungconsumersarefollowing,buyingandcollectingsneakers.Sneakerresellinghasevolvedintoabillion-dollarindustry,boostedbytheriseofathleisureandthesneaker“culture.”AfootwearstockmarketcalledStockXhasevenbeenestablishedtoallowbuyersandsellerstotransactatfairmarketvalues.Sneakeraficionadosarepurchasingnewly-launchedsneakerswiththeintentofresellingthemthroughconsignmentshopssuchasFlightClubandStadiumGoods,appssuchasStockXandGOATandsocial-mediaplatforms,particularlyInstagramandFacebook.Thesneakerresalemarketisgrowingsteadilyandexpandingandattractinginvestment.

• StadiumGoods,asneakerandapparelresalemarketplacewithaNewYorkstoreraisedover$4.6millioninequityfundinginJanuary2017.

• GOAT,anappdedicatedtoresellingsneakersraised$25millioninfundinginFebruary2017.

Connected/SmartFootwearFootwearmanufacturersandretailersseecommercialpotentialinactivitymonitoringandsmart,connectedfootwear.

• UnderArmour:ThesportwearbrandlauncheditsfirstsmartshoemodelsinFebruary2017.Theshoesproviderunnerswithautomatic

TheglobalfootwearrevenuesofNikeandPumaincreasedby15%and13%,respectively,infiscalyear2016.

5

July8,2017

DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

trackingcapabilitiesandinsightsonmuscularfatigue.UnderArmourplanstodoublethenumberofconnectedfootwearmodelsitoffers.Thethreesmartshoemodelswillretailfor$140–$160.

• Nike:Thecompany’sself-lacingsneakersapparentlygeneratedastrongresponsefromathletesandconsumers.Thetrainersusecablesandpressuresensorstodeterminehowtightlytheyneedtobelaced.

Source:news.nike.com

SpeedingUpSupplyChainsLikefast-fashionapparelretailers,footwearretailerssuchasNikeandAdidasareworkingonspeedinguptheirsupply-chaincyclestoreducedesign-to-markettimelines.

• Nike:TheExpressLaneisaNikeinitiativethatrevolvesaroundmanufacturingandsupply-chainspeed.Theinitiativefocusesonrestockingproductmorerapidlyaccordingtoconsumerdemand,basedonsell-throughdatainsight,aswellasincreasingthespeedofcreatingnewproductsfromscratchandbringingthemtomarket.Thewholeend-to-endprocessisbeingcutinhalffromsixmonthsonaveragetothreemonthsorless.Nikebelievesthecustomerwantsshoesthatcombineperformanceandstyle.Nikeisalsousingmoreadvancedautomationtechnologies,localizingsourcingforfastermaterialleadtime.Thecompanyisalreadyseeingapositivegrossmarginimpactandweexpectthattocontinuetoaccelerate.

• UnderArmour:UnderArmourisalsoworkingonspeedtomarketandreducingtimeframeofdesigntomarketcycles.

3DPrintingMajorsportswearbrandsareadopting3Dprintingtechnologyinfootwearproduction.Nike,NewBalanceandUnderArmourhavealllaunchedlimitededitionsof3Dprintedfootwear,whilstAdidasplanstorolloutits3Dprintedshoes.FootwearretailerDSW,alsolaunchedapop-upstorefeaturingcustom3DprintedfootwearcompanyFeetz.

Likefast-fashionapparelretailers,footwearretailerssuchasNikeandAdidasareworkingonspeedinguptheirsupply-chaincyclestoreducedesign-to-markettimelines.

6

July8,2017

DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

Source:feetz.com

Ittypicallytakesabout9–18monthstoproducefootwearfromconceptualizinganewdesigntostoreshelves.3Dprintingtechnologycouldshortenthetimeperiodtojust3–6months.

Inthemediumtolongterm,theinnovationof3Dprintingwillmeantheabilitytomanufacturenewproductsthatpreviouslywouldhavebeenimpracticaltoproduce,aswellasashifttomovemanufacturingclosertocustomermarkets.

• Zalandoisthinkingaboutintroducing3Dprintingforsmallerandmedium-sizedfashionlabels,asitwouldbeespeciallyeconomicallybeneficialtousethetechnologytoreprinttop-sellingtrainers.

• Adidasisalreadybuilding3D-printingfactories,called“Speedfactories”inGermanyandAtlantawhereitwillbeabletoproducegoodsondemand.Adidashasnotstatedhowmuchits3Dprintedshoeswillcost,onlythattheywillbepricedasa“premium”product.Adidasexpectstohaveshippedabout5,000pairsof3Dprintedsneakersbytheendof2017andover100,000bytheendof2018.

• Nikehasstatedthatitsshoescouldonedaybe3Dprintedin-storeorevenathome.

CustomizationFootwearretailersareshowingstronginterestin3Dprintingtechnology,asthisinnovativetechnologycanhelpnotonlytospeedupproduction,butalsoallowthemtocapitalizeontheneedforcustomization.Customizationiskeyforfootwear,duetothenatureoftheproduct,consumerexpectationsforaperfectfitanddemandforfunctionality.

• UnderArmourisalsoworkingonsneakerpersonalization,withcustomizationcapabilitiesforconsumerstobeabletobuildtheirfootwear.

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July8,2017

DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

E-commerceE-commercegrowthinfootwearisincreasingrapidly.TheUKhadthehighestinternetretailingfootwearpenetrationat27%in2016,accordingtoEuromonitor.

Figure4.FootwearInternetRetailPenetrationbyCountry,2016(%)

Source:Euromonitor/FungGlobalRetail&Technology

AmazonIntermsofpure-playonlineretailers,AmazonhasevolvedintoamassiveselleroffootwearthroughZappos.com,third-partybrandedandprivate-labelfootwear.

• AccordingtoasurveyconductedbyProperInsights&AnalyticsinJuly2016,USrespondentsindicatedthatAmazonwasthemostshoppedretailerforfootwear.

Figure5.US:RetailersWhereRespondentsShoppedforFootwearinthePast90Days(%)

SurveyscarriedoutinJulyofeachyearSurveyBase:6,809adultsaged18+Source:ProsperInsights&Analytics

27%

16%13%

UK US France

7.9%

8.8%

8.9%

9.0%

11.9%

12.7%

16.2%

35.3%

0.0% 10.0% 20.0% 30.0% 40.0%

Macy’s

JCPenney

PaylessShoeSource

Target

Kohl’s

Walmart

Amazon

NotShopped

2016 2015 2014

TheUKhadthehighestinternetretailingfootwearpenetrationat27%in2016.

Intermsofpure-playonlineretailers,AmazonhasevolvedintoamassiveselleroffootwearthroughZappos.com,third-partybrandedandprivate-labelfootwear.

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July8,2017

DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

Amazon’stotalshopperpenetrationratesareboostedinparticularbymillennials:almostone-quarterofUSmillennialshadshoppedatAmazonforshoesinthe90dayspriortothelatestsurvey.Targetseesasimilarjumpformillennials,buttheotherleadingretailersseemoreevenparticipationratesacrossagegroups.

Figure6.US:TopRetailersShoppedforFootwearinthePast90Days,bydemographic,July2016(%)

Millennialsdefinedasthosebornbetween1983and1998;GenXersdefinedasthosebornbetween1965and1982;BabyBoomersdefinedasthosebornbetween1946and1964.SurveyBase:6,809adultsaged18+Source:ProsperInsights&Analytics

• Amazonhaslaunchedprivate-labelfootwearlinessuchasthemen’sprivate-labeldressshoebrandFranklin&Freeman.In2017,Amazonbegantrialingitsfirstprivate-labelfashionrangesspecificallyfortheUKmarket—althoughthesedonotyetincludefootwear.Moreprivate-labelfootwearlinescouldfollow.

• Amazonpurchaseda3DstartupfocusedonshoefittingcalledShoefitrin2015.

• AmazonFashionannouncedthelaunchofadedicatedsneakerstoreof2,500brandsonitsIndiaplatform,includingtopsneakerbrandssuchasVans,Converse,Adidas,Puma,Reebok,NewBalance,FilaandAsicsamongothers.

WalmartInJanuary2017,WalmartpurchasedonlinefootwearretailerShoeBuyfor$70millioninamoveaimedtohelptheretailerbettercompetewithAmazon’sZappos.

• ShoeBuy’sonlinecatalogueoffersshoesfrom800footwearandclothingbrands.ShoeBuywasfoundedin1999inBostonasoneofthefirstonlinesellersoffootwearalongwithZappos.

16.2%

12.7% 11.9%

9.0% 8.9%

24.4%

17.1%14.5%

16.6%

13.4%

18.8%

15.2% 14.6%

10.3% 9.9%10.4%8.8% 9.2%

3.9%6.2%

Amazon Walmart Kohl’s Target PaylessShoeSource

AllAdults18+ Millennials GenXers BabyBoomers

InJanuary2017,WalmartpurchasedonlinefootwearretailerShoeBuyfor$70millioninamoveaimedtohelptheretailerbettercompetewithAmazon’sZappos.

9

July8,2017

DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

ProductInnovationisKeyFootweargiantssuchasNikeandAdidashaveastrongmedium-andlong-termproduct-innovationpipeline.

• Innovativefeatures/materials:Productinnovationareasincludenewcushioning,lightweightperformancematerialsanddigitally-integratedproducts.Designersandretailers,suchasAdidas,arealsoexperimentingwithnewmodelsandstylesproducedoutofinnovativeandsustainablefabricssuchasrecycledoceanplastic.

• Collaborationswithdesigners:SportsweargiantsNike,AdidasandPumacontinuetocollaboratewithhigh-profiledesignerssuchasAlexanderWangandStellaMcCartney,aswellasartistssuchasKanyeWestandavarietyofathletes.

KeyTakeaways• Theathleisuretrendisstrengtheningunderlyingdemandfor

footwear.Consumersareseekingtoincorporatesport-styleddesignsintotheireverydaywardrobe.

• Trendsinthefootwearmarketcloselymirrorthoseintheapparelfashionmarket.SpecialtyfootwearretailersintheUKandtheUSthatoffermoresports-inspiredfootwearstylesarethriving.Consequently,intheUSandinEuropeancountries,athleisureandhealthandwellnesstrendsbuoyedfootwearsalesgrowthin2016.

• Theglobalfootwearmarketwillbeshapedbythecontinuationofathleisureandhealthylifestyletrends,theriseofe-commerce,theevolvingopportunitiesprovidedby3Dprintingandcustomization,aswellasAmazon’scontinuedpenetrationoftheapparelandfootwearcategories.

10

July8,2017

DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

DeborahWeinswig,CPAManagingDirectorFungGlobalRetail&TechnologyNewYork:917.655.6790HongKong:852.6119.1779China:86.186.1420.3016deborahweinswig@fung1937.comEvaKubickaSeniorResearchAssociate

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