U.S. footwear companies will continue to face weak consumer spending in a rocky economy this year, said a report released Wednesday by ratings agency Standard & Poor’s.
But analysts at the agency are bullish on the growth of the sneaker market, particularly in the lightweight running and urban casual shoe categories, this year.
The report, titled “Top 10 Investor Questions: How Will U.S. Footwear Companies Fare in the Continuing Slow-Growth Economy?,” addresses investors’ concerns about how the slowdown in Europe will affect S&P-rated firms like Genesco Inc., Foot Locker Inc., Brown Shoe Co. and Collective Brands Inc.
The biggest growth opportunities for footwear companies in this environment, said the report, is expanding e-commerce.
“We expect online sales to continue to rise at high-single-digit to mid-teen rates for footwear companies this year, and to constitute almost 10 percent of total sales at these companies,” Diya Iyer, primary credit analyst, wrote in the report.
Meanwhile, the biggest threat to shoe firms is the limited opportunity for organic growth in the U.S. market, which S&P believes is saturated.
“Footwear companies are underestimating the extent to which they will need to shutter unprofitable stores in the coming year,” said Iyer. “[But] given the rising unemployment and financial turmoil in Europe and the continued slowdown in Asia, we don’t expect international expansion to contribute significantly to sales growth for footwear players in the coming year.”
Bright spots in the industry are that the athletic and casual categories will continue to outperform the rest of the market.
“In particular, we expect basketball and running shoes and apparel to benefit Foot Locker, casual brands including Vans to benefit Genesco, and Sperry Top-Sider and Keds to benefit Wolverine World Wide Inc. We believe Collective’s Payless Domestic segment has less opportunity to capitalize on name brands, and expect the same to be true for Brown Shoe until it completes its portfolio realignment,” the report said.
Another positive about footwear firms is that so few of them have debt, leading S&P to believe “refinancing risk is limited for the footwear industry over the next few years.”