Expert: Look For Adidas And Puma To Continue Run In 2017
In a year where notable names Nike Inc (NYSE: NKE) and Under Armour Inc (NYSE: UA) (NYSE: UAA) suffered considerable share declines, 2016 was the start of a remarkable turnaround for adidas AG (ADR) (OTC: ADDYY). With the current retro fashion cycle, 2017 is shaping up to be another big year for the German sportswear company.
Retro Trend In Vogue
“Adidas [is] really riding this retro [trend] that we are in right now, as well as a move away from performance footwear as fashion. It really has a lot to do with the fashion cycles we are in right now that [are] playing to their strengths,” said sneaker industry guru, Matthew Powell of NPD in an exclusive interview with Benzinga.
The retro fashion trend really is hitting its stride and poses a problem for Under Armour in the short term, as it is so new to footwear and can't capitalize the way the established brands can.
Nike has also struggled due to its over indexing in basketball, which hit a wall about 18 months ago, according to Powell. Nike’s significant presence in performance footwear has hurt the brand, a segment that has fallen out of favor recently. Adidas continues to ride the wave of the retro trend, sales were up about 80 percent in the United States in 2016.
Adidas little brother Puma AG Rudolf Dassler Sport (ETR: PUM) is also a notable footwear company to watch in 2017 due to its significant retro style presence. Recent key endorsements of Rihanna and Kylie Jenner, prompting the women’s side to grow faster than the men's side for Puma, although it remains a smaller business.
"The interesting thing about retro is there are so many styles in all of these brands’ vaults that they can bring back. Puma has never really been recognized as a technical performance brand in the United States, so when we are in a period where performance is not selling that well, they really are benefiting," said Powell. Sales for Puma were up about 45 percent in 2016.
“The sneaker business is a fashion business. What happens is performance categories go in and out of fashion, it does not really impact the primary end-user who is actually using the product for sport. Seventy-five (75) percent of all athletic shoes are never worn for their intended purpose. It has always been a fashion business, but sometimes performance is fashion,” added Powell.
Will Athleisure Trend Continue?
Athleisure has been a notable buzzword for the athletic apparel companies since 2015, led by millennials preference for fitness and health. Powell sees this trend continuing for a long time.
“They want versatile clothes they can use for multiple purposes, athleisure really affords them to have comfortable casual clothes that also can be worn for performance if they want,” said Powell.
A notable yet surprising company capitalizing on this trend according to Powell is L Brands Inc (NYSE: LB)'s Victoria's Secret, which has undergone a significant product strategy shift after dropping its swimwear line in 2016.
Outlook for 2017
“I think in footwear Adidas continues to have a very strong run. I think Nike recovers but Nike is so huge in the U.S., they are never going to put up the kind of increases that the much smaller Adidas and Puma’s are putting up,” said Powell.
Donald Trump’s recent comment about the dollar being too strong and temporary pullback it experienced could also benefit shoe companies, although a potential high tariff border tax on products could mean prices could be going way up.
The controversial Trans Pacific Partnership is also a catalyst for the industry, which “would benefit just about everybody,” according to Powell.
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