By Alexandria Sage - Analysis
SAN FRANCISCO (Reuters) - For a shoe brand, there’s a lot to love about toning footwear. Potential annual sales of $1 billion and growing, shoes selling at double the average price, and a huge market of walkers looking to shape up.
So why is Nike Inc (NKE.N), the global leader in athletic footwear, nowhere to be found?
Toning shoes, which slightly upset the wearer’s balance and force muscles to work harder while walking, is today’s fastest-growing athletic footwear category.
Retailers from Finish Line FINL.O to Foot Locker (FL.N) are adding more shelf space for the shoes, while brands like Reebok, a division of Adidas AG ADSG.DE, Avia and Skechers (SKX.N) are grabbing market share with their offerings.
That leaves Nike, known as an innovator at the forefront of everything new in the industry, on the outside.
“They should have been on this sooner and they’re playing catch-up now,” said analyst Matt Powell of research firm SportsOneSource. “Clearly, Nike is losing significant market share.”
The toning category’s dizzying growth — from $17 million in 2008 to $245 million in 2009, according to research firm NPD Group — is in sharp contrast to the 1.4 percent decline in overall athletic footwear sales last year.
And although toning shoes make up just a small part of the overall $18.6 billion U.S. athletic shoe market, they drove sales gains over the holidays, said Powell, who earlier this month estimated $1 billion in toning shoe sales in 2010.
“This could be as big as $2 billion,” he added. “I actually think $1 billion is low now.”
Nike has been caught off-guard before by trends, whether the popularity of technical fabrics that jump-started rival Under Armour’s (UA.N) business, or the urban skater craze.
Powell estimates that Nike took a 20 percent market share loss in women’s footwear in the fourth quarter due to what he called a “lack of focus on the female customer.”
But others say Nike’s absence is 100 percent deliberate.
“They’re about pure, raw sports,” said Brian McGough, an analyst with investment research firm Hedgeye Risk Management. “I don’t know that a toning shoe fits there. That screams Reebok.”
The problem for Nike is image, experts say. Toning shoes are not geared to athletes or would-be athletes, the base Nike has spent millions courting over the years with sleek marketing campaigns. Instead, toning shoes have found favor with so-called “soccer moms” — a less-sexy category more reminiscent of suburbia than its swoosh logo.
Besides the image issues, Nike may not be convinced this toning trend has legs.
As Stifel Nicolaus analyst Thomas Shaw put it, “Since no one knows really if it’s sustainable, I would probably think it’s not a bad idea for them to hold off on it.”
Nike spokesman Derek Kent told Reuters that “the best way to tone is to train. There are no shortcuts.”
He added that Nike always keeps an eye on the consumer and how to create products to give them a competitive edge.
Analysts say Nike is surely eyeing the market closely to see if, and when, it should jump in. If that happens, Nike will need to put its own innovative spin on its product rather than look like an also-ran in this market.
McGough likened Nike’s possible move to the recent launch of Apple Inc’s iPad (AAPL.O) that came well after Amazon.com Inc’s (AMZN.O) Kindle e-reader. The dissimilarity of the iPad, which also contained e-reader functions, helped Apple avoid a perception that it created a “me-too product,” he said.
The toning shoe craze comes at a time when Nike has faced weak global sales, hurt by the economic downturn and a lack of sports buzz that it hopes this year’s soccer World Cup will change.
Shares of Nike have now returned to late 2008 levels, or about $67.60, after hitting a three-year low last March. The company said in December it would return to sales growth in its current third quarter, after four quarters of sliding revenue.
Nike could also use a winner to appeal to women, a demographic it has recently struggled to please.
So far, toning shoes have been marketed primarily to women who don’t want to sweat while getting into shape.
Skechers, for example, exhorts consumers to “get in shape without setting foot in a gym” with its “Shape-Ups” shoes priced $110 to $120. They’re purported to improve posture, firm calf and thigh muscles and reduce joint stress at the knees.
Reebok says its “EasyTone” shoes, meanwhile, help you “get better legs and a better butt with every single step.”
Retailers acknowledge that they’ve had to fill shelves with toning shoes made by competitors of Nike, their largest vendor.
Finish Line, Nike’s second-largest customer, stocks its toning shoes primarily from Skechers and Reebok.
Men — who account for more than 50 percent of all athletic shoe sales, but whose awareness of toning shoes is far less than that of women, could be a huge untapped market.
And the timing is right to market the shoes to concerned parents, given a pervasive childhood obesity problem in the United States, said Powell.
“This is a trend still in its early stages with room to grow,” said Sam Sato, Finish Line’s chief merchandising officer, who said “traditional athletic shoe companies” were expected to enter the market as the category expands.
Reporting by Alexandria Sage; Editing by Tim Dobbyn