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What will 2012 bring for the footwear industry? Fresh challenges. Big opportunities. And a whole lot of uncertainty.
After the roller-coaster ride of 2011, the new year is shaping up to be another frenetic 12 months. The European debt crisis, which battered shoe stocks in the back half of last year, continues to be top of mind. The industry also is still grappling with a challenging sourcing environment, rocky economy and fickle consumer.
There are new obstacles, too. An already-charged political atmosphere in Washington, D.C., will heat up even more with a hotly contested presidential election, translating into more uneasiness for the industry. Firms must also plot global expansion more carefully in a landscape more complicated than ever.
But there are some notable bright spots. Retailers and consumers alike are energized by the proliferation of new women’s trends, namely the return of the elegant single sole. An emerging crop of young talent also continues to shake things up in the luxury world, while many firms in the outdoor and athletic spaces are capitalizing on the minimalist craze. In addition, the upcoming Olympic Games in London will put the big brands — Nike, Adidas, Puma and others — in the spotlight this year.
Technology also continues to change the playing field. Consumer adoption of mobile-commerce and the evolution of social media platforms present new marketing and sales opportunities.
On the retail front, department stores are vying to have the biggest and best shoe assortments, as both Macy’s and Barneys plan revamps this year. Some notable battles will take place in the boardroom, too, with a number of big sales expected to go down in the next few months. (Collective Brands Inc. is at the top of the for-sale list.) And expect the executive shuffle to continue: Already, last week, Camuto Group President Bob Galvin departed the firm.
Here’s a look at the 12 hot topics you should be watching in 2012:
1. The Sourcing Equation
After sourcing costs skyrocketed in 2011 for most footwear vendors, industry watchers said some of that pressure is beginning to let up. That’s not to say costs won’t still be a concern in the coming year, but the rate of increase does appear to be slowing.
“There are still significant cost pressures, but some aspects of those have moderated,” said Nate Herman, VP of international trade at the American Apparel & Footwear Association. “They are still higher than two years ago — 50 to 80 percent higher — but that’s better than last year.”
Herman also noted production will be on the move in the coming year as more companies explore manufacturing options outside China. In fact, he said, footwear imports from China are down 3.5 percent from a year ago.
“That’s due to people moving. Vietnam and Indonesia have been the biggest recipients of that [business],” he said. “You also see people exploring new markets and new suppliers in Bangladesh, Cambodia, Nicaragua and even places that were not traditional footwear suppliers, such as Ethiopia. Nobody is going to move all or even half [of production] outside China, but they are moving 10, 15, 20 percent to new markets and testing to see what works.”
2. All Eyes on Europe
Concerns over the European debt crisis have been weighing on the global markets for the past six months, and analysts expect more of the same in the first half of 2012 as world leaders hammer out a plan of action.
“The reality is that if there is still no orderly resolution [soon], and Greece takes a [more than 50] percent haircut, then Europe’s retail business could completely shut down,” said Kenneth Stumphauzer, analyst at Sterne Agee.
Paul Swinand, an analyst at Morningstar Inc., noted that Italy and Spain, in particular, face a tough year for consumer spending.
3. Rock the Vote
The world will be glued to the 2012 presidential race, and many footwear players worry about the distraction it will cause in Washington, particularly with unemployment and health care still front and center.
Matt Priest, president of the Footwear Distributors & Retailers of America, said it will be particularly challenging to advance issues that matter to the industry — for example, trade and sourcing legislation — during a year when the government is reluctant to make major moves. “Our job becomes much more important in terms of waving the flag on these issues,” Priest said. The good news: Once America casts its vote, President Obama (or a new Republican leader) will have the confidence to forge ahead with their agendas.
4. Executive Watch
Big-boss longevity was in question in 2011. Matt Rubel, Tamara Mellon, Joshua Schulman, Scott Savitz and Scott Silverstein all made sudden, if not shocking, departures.
Industry watchers predicted more executive shuffles will take place this year, as turnover traditionally runs counter to business cycles. Recruiters said firms often keep leaders in place for security in uncertain economies, but when the outlook improves, they want new blood for faster growth.
“2011 was a year where many companies were not happy with their performance and were investing in new leadership that they hope will generate significant improvements,” said John Jonas, founder and CEO of The Jonas Group. “Companies continue to come to us not nearly happy enough with the performance of their businesses and asking us to find much more capable talent.”
And with so many high-profile names out in the job market — and companies searching — it’s a good bet last year’s exits will be this year’s hires. That case becomes more compelling given that many of the execs who left have had long, distinguished careers in the retail and footwear arenas.
5. Retail Race
Department stores kicked up new battles in 2011, expanding their shoe departments and broadening their assortments, and they will continue to try to outdo one another this year.
In 2012, Barneys New York and Macy’s are the ones to watch, especially as the latter is investing $400 million in remaking its Herald Square flagship and creating what it believes will be the world’s largest shoe department. “No retailer rests on its laurels for too long without feeling gained on [by the competition],” said Arnold Aronson, managing director of retail strategies at Kurt Salmon.
“Saks Fifth Avenue had the first and best approach to maximizing the luxury and aspirational [shopping] experience, and the industry has basically followed its lead in taking big steps. You’ll see more stores re-engineering and adding embellishments.”
Anne Brouwer, senior partner at retail consulting firm MacMillanDoolittle, said, “Macy’s is still in a leadership position. They’re going to take the world’s biggest store and completely refresh it — a very exciting proposition drawing every tourist that visits New York.”
Meanwhile, Simon Doonan, the 25-year creative veteran at Barneys New York, quipped of the revamp race, “That’s what retail is: a dynamic, kinetic and competitive thing.”
6. M&A Mania
At least eight footwear firms changed hands last year — including big names such as Jimmy Choo, Timberland and Kurt Geiger — and market watchers are looking for activity to heat up in 2012, particularly because there’s plenty of private equity money that’s looking for somewhere to invest, said analysts.
Industry firms hunting for deals include Nike Inc., DSW Inc. and Foot Locker Inc. And VF Corp. might more additions to its portfolio, analysts said. Another active acquirer is Steven Madden Ltd., which ended 2011 by buying the Wild Pair trademark for $4 million.
Meanwhile, companies up for grabs include Collective Brands Inc. — or parts of it, at least — as it undergoes strategic review. Its fastest-growing wholesale arm is a prime takeover target, and there is much interest in its Sperry Top-Sider and Keds brands. “I’ve heard and seen some names [of buyers] kicked around. At the end of the day, there are some compelling assets here,” Susquehanna Financial analyst Christopher Svezia said of Collective. Eric Beder, analyst at Brean Murray Carret & Co., noted, “It’s going to be a very strong M&A year. More consolidation is going to be needed.”