Brand clout keeps U.S. shoe buyers loyal in slump

A customer shops for athletic shoes at a Nike store in downtown Portland, Oregon in this March 21, 2006 file photo.

BANGALORE (Reuters) - If you thought cash-strapped U.S. consumers would walk out on their favorite branded shoes for a bargain-priced pair, think again.

Brand power has driven sales at mid-tier footwear makers like Deckers Outdoor (DECK.O) and Wolverine World Wide (WWW.N) over the past year even as sellers of other consumer goods fail to woo U.S. shoppers pinched by rising fuel and food costs, falling home values and tighter lending conditions.

"Nothing's worse than an ill-fitting pair of shoes, and nothing is more emotionally disturbing than buying a pair of an unknown brand of shoes," Marshal Cohen, an expert on consumer behavior and an analyst with market research firm NPD Group, said.

Some branded footwear makers are also looking to capitalize on the fierce loyalty shown towards their brands by passing on a portion of rising manufacturing costs to customers.

Shoppers are willing to pay extra to get their hands on popular brands like Nike, Deckers' UGG and Skechers USA's (SKX.N) Cali and Sport.

Deckers has posted better-than-expected results in the last five quarters as its core UGG brand, made famous by the company's sheepskin boots and slippers, fueled sales.

In the latest first quarter, UGG sales rose by a whopping 84 percent and contributed more than 56 percent of Deckers' total revenue even as skeptical Wall Street analysts debated whether to classify UGG as a fad or a must-have brand.

Industry goliath Nike's (NKE.N) combined sales for its top three brands, Nike, Jordan and Converse, outperformed the industry in both March and April, analysts said.

Deckers' stock has jumped nearly 62 percent over the past year while Nike's shares have climbed nearly 22 percent. Both outstripped the wider S&P 1500 Footwear Sub-Industry Index .15GSPSHOE, which rose about 3.7 percent in the same period.

"Consumers have always reached back to their favorite footwear brands because of the physical comfort factor as well as the psychological comfort factor," NPD's Cohen, who is also the author of "Why Customers Do What They Do," said.

In a recent visit to several stores in New York, JP Morgan analyst Robert Samuels observed consumers focusing on quality brand names such as Nike, Liz Claiborne Inc LIZ.N's Juicy and UGG at discount-oriented malls as well as their upscale counterparts.

"People are just buying less frequently and they are really being a little bit more nitpicky about what they really want to spend their dollars on," Susquehanna Financial Group analyst Christopher Svezia said from New York.

BETTING ON WINNERS

Amid the current turmoil rocking the retail industry, department stores such as Nordstrom (JWN.N) and Neiman Marcus have made orders and reorders for proven winners, sustaining the momentum of several brands like UGG and Wolverine's Merrell and Hush Puppies.

Wolverine's market value has risen 17 percent this year on strong sales of its lifestyle brands that target different countries and consumer groups.

Retailers are also increasingly maintaining leaner inventories to avoid selling a large pile of goods at discounted prices at the end of a season.

But NPD's Cohen was skeptical of the move to trim inventories. "Consumers get very frustrated when shopping in these tough times, not finding what they want and being forced to go elsewhere.

"Loyalty becomes very vulnerable in lean times... Retailers are shooting themselves in the foot when cutting footwear inventories down both in assortment and stock per style."

Footwear companies are also trying to attract loyalists of non-shoe brands by teaming up with sellers of items like clothing, handbags and jewelry.

Skechers, whose stock jumped 22 percent this year through Wednesday, has said it will partner with Bebe Stores (BEBE.O) to design and sell Bebe-branded footwear for women. The Bebe Sport footwear line is set to launch in the United States in spring 2008 with a campaign featuring actress Eva Longoria.

And since brand visibility propels sales, footwear makers have been spending a good chunk of their annual budgets on brand-building initiatives.

"Footwear is a very emotional and relationship-oriented product. Experimenting with footwear is not an area where consumers are willing to 'play'. Apparel is less fit specific and accessories even less so," NPD's Cohen said.

(Editing by Pratish Narayanan)