Stock Market Turmoil: How China’s Economic Crash Is Affecting Shoe Companies

China-Stock-Market
China stock market.
Getty Images.

There’s no end in sight, it seems, for the global market meltdown stemming from China’s stock market crisis.

The downward spiral of China’s stock indexes and the latest crash — the Shanghai Composite slumped 8.5 percent Monday — continues to alarm Wall Street investors, some of whom may have been holding on to hope that China’s economic debacle was an isolated global event.

But “this is not your grandfather’s economy,” said Matt Priest, president of the Footwear Retailers & Distributors of America (FDRA).

“This situation emphasizes just how interrelated global economies are,” Priest said.

In early morning and midday trading Monday, it was a sea of red across footwear stocks — and most other stocks, for that matter —  while the S&P 500, the Dow Jones Industrial average and the Nasdaq all entered correction, with the Dow losing a record 1,000 points.

“Shoe companies are tracking the declines of the U.S. stock indexes, and this [stock activity] could undoubtedly impact consumer confidence, particularly if it goes on for an extended period of time with no rally,” Priest said. “We’ve seen the ups and downs before where there were declines, but things recovered quickly.”

But a quick recovery doesn’t appear to be in the equation right now, Priest said, which could create an additional drag on back-to-school momentum and leading into the upcoming holidays.

Matt Powell, sports-industry analyst with NPD Group, agrees.

“This market correction will surely have an impact on consumption,” Powell said. “As most of the large sneaker brands are truly international brands, they cannot help but be impacted.”

However, Priest reassures, it’s not all doom and gloom.

“China is our largest supplier of footwear, and the devaluation of currencies — particularly the yuan — could have a positive impact on the prices of footwear coming across the border,” Priest said. “From a production perspective, this would lower prices and stop the rise of certain inflationary pressures we’ve seen lately.”

China is the second-largest U.S. economy and the most populous country in the world, so it makes sense that major movements in its stock market — or a crash, as in the case today — would impact other countries, but some analysts have said the current, ongoing sell-off of U.S. stocks may be overblown.

In midday trading Monday, Skechers USA Inc. was down 9 percent, Under Armour Inc. had shed about 7 percent and Nike declined about 3 percent — but it has lost more than 15 percent off its high in the past week.

Sterne Agee CRT analyst Sam Poser said in the midst of the panic that accompanies economic downturns and stock market crashes, it’s important for investors to maintain a reasonable perspective.

“People want to broad brush everything as one big piece of trouble but there’s nothing incredibly unusual here,” Poser said. “The stocks that have been up the most recently are getting hit the most; where investors have invested a lot of money, that’s where they’re taking the most off the table.”

Poser also noted that, in the case of this particular stock market slump, shoe companies are no different than other businesses taking a hit.

“The are some companies that are perceived to have exposure in China that are getting hurt by what’s happening there,” Poser said. “Nike, for example, has a big China business, but there could still be an offset in impact because of the devaluation of the yuan since costs of production are going down.”

For investors and shareholders grappling with how to proceed with their investments during the economic crisis, Poser said the primary consideration should remain the underlying strength of a business.

“If you thought a company was a great company before [the stock meltdown], then it’s probably still a great company today; if you thought it was terrible before, it’s probably still terrible now,” Poser said.

In fact, Poser said, buying stock in a top-performing shoe company at a time like this is a viable consideration.

“It’s like buying stock on sale,” Poser said.