Takeaway: We’re seeing a re-birth of athletic footwear unlike any we’ve seen since the 1980s. The TAIL opportunities and risks are tremendous.

Editor's Note: This special investing presentation is exclusively for our institutional subscribers. Subscribers to "Retail Pro" can expect a Roundup Summary Video following this call. A description of the presentation follows below. 

BLACK BOOK: Athletic Footwear | Duopoly Destruction or Paradigm Shift? - zs3

On Tuesday, March 7 at 12:30pm we’ll be presenting a Deep Dive Black Book on the athletic footwear space, and the massive changes that we’re seeing in the industry. Specifically, for the better part of 50 years, this industry has been a Global Duopoly between Nike and Adidas, with a handful of smaller brands battling it out for the leftovers. This is a business of scale, with near impossible barriers to entry for smaller aspiring brands. We’ve seen dozens come and go over the years. But the industry is changing at its core, and at lightning speed.

Adidas has lost its footing, which is obvious, and it’s unclear if it will ever get it back. On the flip side, Nike’s footwear game is better than ever (and ‘ever’ is a long time). Scale is still critical for sustainable profitability in footwear, and the concentration of the manufacturing base has evolved at a glacial pace. Stores are important, but the balance between DTC and wholesale has gained critical importance for a brand to be successful, and grow profitability at a consistent rate.

Long-term athlete endorsements used to be vital, but incremental capital is proving to get higher returns on shorter-duration social media influencers and media spend. Most importantly, the consumer – on a global scale – has changed, and we’re seeing an accelerated shift towards a ‘sneaker culture’ unlike we’ve seen since the last big shift in consumer tastes in the 1980s. This casualization trend intensified during the pandemic, and is not going away. This has attracted a lot of new competition, unlike we’ve seen in decades. It also created new categories of footwear, including luxury sneakers, and ‘dressy’ sneakers that synch with casual workwear.

As such, we’re seeing per capita consumption make new highs, and we think that this is a secular trend that will persist. As a clincher, average selling prices are pushing the limits that were previously thought to be a pipe dream. Ultimately, we think that the doors have opened up for smaller brands to succeed where high barriers previously blocked the way and challenge the historical Nike/Adidas Duopoly.

There are also opportunities and threats for footwear retailers, both traditional brick & mortar retailers, new digital retailers, and resale platforms alike. We think there will be some big winners and big losers over the next 3-5 years (beginning immediately). We’ll explore all of these themes and outline our winners and losers in the deck.

Relevant Tickers/Names: NKE, ADDYY, PUMSY, SKX, DECK, ONON, UAA, LULU, FL, JD Sports, DKS, HIBB, GOAT, StockX, FTCH (Stadium Goods), REAL, Li Ning, Anta, xtep and the luxury houses that compete in the space like LVMH, Kering, and other private brands (potential IPOs).