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I've been covering this industry for about 10 years. The shift towards 'low performance' footwear (i.e. the kind of sneaker/shoe hybrid that you can wear with designer jeans) has been the big trend for more than half that time. The category just posted its 1st negative month -- ever. Is athletic back?? I won't call it a trend until I see another 2 months. But if this sticks then there are wide reaching implications for this industry. It also suggests that Matt Serra's comments on Foot Locker's conference call about a revival in the mall-based business might actually be true.

Some considerations if this holds...

1) Near-term, industry inventories are clean, which is a positive margin event. But as '09 approaches I am convinced that the world at large is underestimating the negative margin impact from 'everything Asia' (rising inflation and slowing growth). A couple points in share gain of the total footwear market could give the athletic space a well needed shot in the arm to keep margin pressure at bay -- at least to some degree.

2) Foot Locker would be the big winner. By no means could a simple cyclical boost elevate FL's status from the 'bottom quartile' list of virtually every mall REIT. But at 1x tangible book with $2 in net cash on the balance sheet, and margins having gone from 7% to 1% over the past 2 years - even the slightest tweak in top line could be meaningful.

3) Nike risk?? How could Nike possibly be at risk in the event of a strengthening US athletic cycle? Well, it's probably not - if nothing else due to the global portfolio diversification. But in a backward kind of way, we should keep in mind that Nike absolutely dominates US footwear retailers when times are tough. When the environment picks up, the retailers become less risk averse, and are usually willing to push back and try smaller brands.

The exhibit below shows year/year change in low profile footwear units. Courtesy of NPD Fashionworld.