Catalogue and online direct selling will offer the best opportunities for footwear retailers through 2007, as will emphasis on targeting younger segments of the population. A new report from Mintel also predicts that the value-priced channel will continue taking sales from moderately priced retailers and increase its sales by 22 per cent through 2007.

The US shoe industry will struggle against low prices, and is forecast to grow by 13 per cent in current prices through 2007 (just 1 per cent in constant 2002 dollars) according to new research published by Mintel International.

Retail sales were down for the first quarter in 2003 according to its report on ‘Footwear Retailing. Giants like Nike experienced declines in their future orders during that same period of as much as 4 per cent compared to the same period last year. Increases in the value of sales for the industry have not kept pace with population growth, due to the decline in the average shoe price.

Through 2007, growth will depend on the improved economy and a competition based on differentiation of the product mix rather than the predatory pricing. Most hard-hit will be the high-priced sector, declining every year (although at a slow rate), while the moderately priced channel will increase by 15 per cent over that time period, reaching more than $10 million.

Certain sectors will fare better – catalogue/online direct selling will increase nearly 40 per cent through 2007, while the value-priced channel will continue taking sales from moderately priced retailers and increase its sales by 22 per cent through 2007.

The demographics of footwear retail
The footwear retail market, as with many markets, has put emphasis on targeting younger segments of the population.

The advertisement campaigns of both manufactures and retailers indicate that Generation X (27-38 in 2003) and Generation Y (9-26) are the driving force behind their business. With this consideration Payless ShoeSource re-evaluated its target customers and lowered the age group by 20 years (from targeting women aged 18-64 to women aged 18-44).

Women’s shoes, as might be expected, make up more than 55 per cent of the market in terms of dollar sales (and a greater percentage in volume sales), as compared to 30 per cent for men’s shoes and 15 per cent for children’s.

While the combined Generation X and Generation Y form the biggest population group in the United States – and in the future this group will drive the retail industry – ageing Baby Boomers will also be at least partially responsible for any growth in the footwear industry through 2007. In part simply because of the numbers of Baby Boomers, their changing needs in footwear as they age will require the industry to adapt to their demands.

In some cases, suppliers and retailers have responded, with New Balance creating a new walking shoe (650) in 2000. The shoe was designed in anticipation of the rise of walking as a health trend among Baby Boomers. This walking trend will remain strong over the next ten years.

Racial diversity will also play an important part in the footwear retail market. The fastest-growing segment of the population are Hispanics, responsible for spending the highest dollar amounts on footwear. However, this market has been more or less under-represented in terms of advertising expenditure and promotions geared specifically towards it.

High dependence on imports
Some 97.5 per cent of footwear sold in the US is imported, and China accounts for around 81 per cent of total imports. Lower labour costs and an absence of strict environmental laws have encouraged retailers to obtain greater amounts of inventory overseas, pushing the higher-volume/lower-priced market.

Though this trend has benefited the consumer in terms of low prices, it has hurt the industry as a whole, as low prices become a necessity to compete. The high dependence on import also puts retailers at risk of losing sales in the event of political or economic instability with the country of import.

Promotions, the driving force to build traffic
In 2002, more than half of all footwear was purchased during sales and promotion periods. The sustained downturn in the economy, rise of discounters and off-priced retailers, and lack of fresh products are some of the factors that have dampened consumers’ shopping. Since 1999 footwear prices have been spiralling down due to cheaper imports and heavy discounting.

According to the AAFA, the average price of footwear was down by 1.2 per cent from August 2001 to May 2003. With the continued downward trend on the average price of footwear, lower prices have become a mandatory expectation for consumers.

Department stores are resorting to giving higher discounts on their products in order to maintain sales. A fragmented industry and too many players in the footwear retail market have led to overestimation of demand, and in turn liquidation of inventories in the name of sales. To break away from this trend the industry would have to go through a major consolidation.

Changing channels
Discounters who follow fashion trends and carry exclusive product mixes have successfully taken larger shares of the industry from pure-play stores and department stores. The convenience of one-stop shopping has increased mass merchant sales across most product categories.

In sales (including all product types), discounters gained 9 per cent from 1997-2002, compared to the decline suffered by department stores (-6 per cent).

Exclusive lines, such as Springmaid at Wal-Mart, Martha Stewart at Kmart and Michael Graves at Target, have blurred the lines between mid-tier department stores and mass merchandisers.

The rise of the retailers like Stein Mart and TJ Maxx, which discount the exact products (which have had success in various product categories selling designer brands such as Ralph Lauren) sold in high-end department stores, has further drawn customers from that channel.

Fragmented options
Price and fashion are the pillars on which today’s retailers are trying to build their sales, and retaining customers is the major consideration for retailers. Such a highly fragmented industry poses a significant challenge to building customer loyalty, especially with the majority of shoppers going to several outlets to purchase shoes.

Stores such as Famous Footwear have started membership programs that give discounts and increased services to its loyalty club members. With every market segment lowering prices, a loyalty program can help to ensure certain traffic.

The need to diversify advertising
The advertising campaigns of footwear retailers need to incorporate today’s lifestyle. Featuring a celebrity always ensures a positive response, but customers are more likely to relate to a message where they are living that lifestyle themselves.

Footwear manufacturers like Nike and Reebok are already turning towards more introspective types of advertisements, but the trend has yet to mirror throughout the footwear retail industry.

Retailers also need to diversify their advertising message towards a racially mixed population of the United States. Hispanics could prove to be a very lucrative proposition if targeted by retailers as a core customer segment.

Footwear shoppers
Some 70 per cent of consumers purchased shoes in the 12 months prior to Mintel’s April 2003 survey. The strongest age group, in terms of the proportion of respondents who had bought shoes in the year, is 25-44-year-olds. While the majority of respondents from all income groups have purchased shoes, there are significant variations in outlet choice.

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The lowest income (under $25K) bracket was more likely than those in the $25k-$50K and $50K-$75K income brackets to make purchases at high-priced department stores. This is mainly due to Gen Y members coming into their own incomes as well as from older consumers with accumulated savings accustomed to shopping through those outlets.

The catalogue/online channel has a higher proportion of respondents earning $50K and higher, reflecting to some degree the higher penetration of Internet connections among the higher income groups. The fact that almost 30 per cent of people in the higher income brackets had bought shoes online suggests a major shift in buying behaviour.

It should also be noted that it is the non-metro areas that show higher levels of Internet purchases, suggesting that traditional retailers are potentially less at risk from the Internet than might otherwise be construed from these data.

A third of the respondent base agreed that they frequently purchased shoes on impulse. This potentially lucrative group tends to shop at higher-end department stores, through direct channels and at apparel retailers such as J Crew.