Much-needed changes to merchandising in sports retail are on the horizon, but things will get worse before they get better for retailers and brands, according to a "sneakernomics" report released Wednesday by Matt Powell, vice president and senior industry advisor at The NPD Group.
Retailers and brands have pledged to scale back promotions, which were rampant last year, but that will cost them sales, Powell warned. "Acceptance of this fact is the first step to improvement," Powell said in the report, which was emailed to Retail Dive.
Sports gear and actual athletic wear must take a back seat to more streetwear styles, and women must get their due, considering theirs is the fastest-growing market, Powell also said.
Athletic retail had a tough year last year, but, although he provided some straight talk on Wednesday, Powell sought to assure brands and retailers in the space that it wasn’t "a disaster."
That may be cold comfort, considering how much work some brands and stores have to do to ensure that 2018 is a better year. According to analysts, teens are increasingly turning their backs on Nike and Under Armour is becoming "just another brand in a sea of brands," while retailers like Foot Locker and Dick's are under pressure as athletic styles in general are giving way to more urban fashion, Powell notes. Nike has been forced to turn to Amazon for direct sales, and overseas, as its North American sales have declined.
Adidas has departed most forcefully from performance sports wear, Powell's prescription for this year, and that has shown up in its results. Adidas grabbed back the number two spot from Under Armour in 2016, basing much of its comeback on a focus on urban aesthetics and streetwear. The company's second quarter currency-neutral revenues rose 19% as its gross margin improved 0.7 points to 50.1%, and net income from continuing operations in the quarter grew 16% to € 347 million (about $409 million).
All distribution channels recorded double-digit growth during Q2, with particularly strong support from e-commerce, where revenues grew 66%. "They continuously release new colorways for some of their key products like the NMD," according to a Jane Hali note emailed to Retail Dive. "Adidas Originals is always successful as the product resonates with a fashion upscale customer. The product continues to be design led with minimalistic silhouettes."
Adidas marketers also seem to have their finger on the teen pulse, considering the brand's recent pullback on television advertising to reach Gen Z on mobile. Streaming continues to gain teen video share as preference for linear TV declined 2% since last fall, and Snapchat is the preferred social media platform for 47% of teens using the platform, up 12% year-over-year, Piper Jaffray found.
But for all brands, discounts are too often driving sales, as they did at the holidays, Powell noted in his Black Friday report. That has to change. " I have low expectations for athletic footwear in 2018," he wrote. "Brands have stated that they will tighten advertising policies to try and rein in the rampant promoting we saw in 2017. While these are the right steps to recovery, it means that in the short term retailers and brands will do less business."
Righting inventories will help ease discounting, he also said, but that's another uphill climb. "While reported inventories are improving in terms of quantity, the quality of inventory remains poor," he warned. "There still is far too much performance basketball and running products in the market, which is creating markdowns at retail. Brands and retailers must work to shift inventories away from performance. The consumer is quite clear in telling us they have no appetite for 'performance-as-fashion.'"
But "fashion as fashion" is another story, Powell suggests, noting that the brands farther along on that road will do best this year. And it's an opportunity for lesser known labels, too.