Retailers of Footwear Run Over By Price Wars
Stock for sporting goods retailers plunged on Friday as quarterly results that were poor posted by Foot Locker and Hibbett increased concerns by investors about a glut in supply that could intensify price wars across the industry.
The most recent results followed those of Dick’s Sporting Goods a larger rival, which warned earlier in the week that gross margins might be pressured.
Foot Locker shares were down over 26%, while Hibbett Sports dropped by 18.2%, Finnish Line 12.5%, Dicks another 3.2% and Big 5 over 3.2%.
Results weighed on stock of suppliers such as Nike Inc., Under Armour and Adidas. Nike was off 3.8% and fell the most on the Dow.
Athletic footwear and apparel is being over-distributed and a glut of inventory is causing problems, said one industry analyst.
He added that he sees retrenchment for several years as overall supply is lowered to meet a new, lower level of consumer demand.
Dropping demand in shoes for basketball, a steep fall in spending for sneakers, added to a pessimistic outlook for this year’s back to school season fueled concerns of investors over the path ahead for the industry.
Traffic at apparel and footwear stores over the last three months dropped, with the biggest decline in July of 4.6%, according to analyst’s reports. Traffic is 4.1% down for the year through July, showed reports.
Richard Johnson the CEO of Foot Locker, one of the largest U.S. sportswear chains blamed the lack of any new innovative products across the market and said he expected that this trend would continue to the end of 2017.
Retailers of sportswear typically hold exclusive rights with suppliers like Adidas and Nike to showcase the latest products that are limited edition usually helping to attract in shoppers that are younger.
In addition, Amazon the online e-commerce retailer is looming over the entire industry as it pushes into new areas.
One analyst described it this way: Why would a customer drive 30 to 45 minutes in traffic to a store when they can remain at home and purchase online from Amazon, especially if it includes free shipping.
Clearing inventory has also become a big problem for the industry after a run of bankruptcies including Gander Mountain, Performance Sports and Sports Authority.
One Wall Street analysts said his office predicts it will be a number of years of problems for companies competing in this arena.