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The Internet Changed Sneakernomics Forever

May 7 2014, 2:50am CDT | by , in News

The Internet Changed Sneakernomics Forever
 
 

The internet has had a huge role in shaping today’s sneaker business.  The game has changed forever.  And we can expect even more changes in the next few years.  This blog will explore the history of sneaker sales on the internet and then opine on what’s coming next.

History

Only recently have the sneaker retailers become serious about eCommerce. A decade ago, many sneaker retailers opted to outsource their eCommerce business. At the time this was an expeditious decision to grab easy profits with no expenditure, but it set the industry back a decade.  Retailers lost years of sales data on some of their best customers.  Sneaker stores gave up the ability to communicate and develop relationships with their fans on the web.

With outsourced ecommerce, the prices weren’t the same; the assortments were different; Products bought online could not be returned to physical stores.  But worst of all, the retailers had no idea who was shopping on their site, where they lived and what they bought. Plus there was no way for them to communicate with these customers. It set the industry back a decade.

Online only retailers flourish

This huge strategic misstep allowed internet-only sneaker retailers to flourish.  Out of nowhere, Zappos became the largest sneaker retailer on the web and they did it without the #1 brand, Nike.  The online portion of Eastbay, Footlocker’s direct mail/online business, grew like crazy but the nameplate sites struggled.  Other pure play online sneaker retailers took significant share. Sneaker brand sites had an open playing field.

Physical stores get in the game

In the last few years, physical store retailers realized that they had given tremendous market share to their brand partners and to the pure play competitors.  Some of the physical retailers realized the missed opportunity and began to try to claw back lost share. The key brick-and-mortar players in the sneaker business have all had terrific growth in the lost three years.  As an example, Dick’s posted a gain of nearly 70% in 2013 for their ecommerce business.

Internet sales drive comps

Over the last few years, sales growth on the internet has vastly outpaced the sales growth in physical stores.  According to my analysis of the data from SportsOneSource.com, Sales of sneakers in physical stores grew in the low singles in 2011, but were up by more than half in on the internet. In 2012, sneakers sold through brick and mortar doors again grew in the low singles while sales on the web increased by a third. In 2013, sneaker sales in physical stores grew in the low singles while eCommerce grew about 20%.

One interesting side note is that 2013 sales on the web could have been higher but for the massive growth in marquee basketball. Mall retailers count on release shoes to prop up the smaller C&D level stores. Therefore, retailers limit how many pairs of limited releases are available on the web, in an effort to sustain the marginal stores.

In 2013 sales on the internet at Footlocker Inc. grew about 20% while comps grew in the mid singles. Sales on the internet were 11% of all Footlocker sales. Ecommerce sales at Dick’s grew about two thirds last year, while comps were only up in the low singles. 2013 Sales from the web at DSW improved about 20% in 2013, with comps flat. ECommerce was 10% of DSW results. Finally last year at the Finish Line, Internet sales grew almost 25%, with comps up mid singles. Web sales were 12.5% of Finish Line sales.

Growth of sneaker sales on the internet will continue

Based on my research, sneaker sales on the web were 16% of total sneaker sale last year and grew about 20%. In fact, in in 2012 and 2012 sales of all sport footwear on the internet grew about 20% each year. If we assume 20% growth for internet sales and low singles growth in physical stores, in 5 years, sales of sneaker on the web will approach a third of all sneakers sold.

What’s Next?

  • With so much of the growth in sport footwear coming from the web, retailers who do not have a fully developed ecommerce strategy will lag in comps behind the industry leaders.
  • Marginal stores will become more marginal. The growth in internet sales has to be coming at the expense of the smaller C&D level stores in retail chains.  In these smaller stores, the assortments are the weakest and most basic.  Inventories are lean. Consumers, unable to find what they want, will head to the web, further marginalizing these stores
  • On the web, the brands win over the retailers.  Brand sites over a greater content, larger assortments and more exclusive products.  These factors will drive more customers to brand sites over retail sites. Nike just announced that they had 100 million views in 7 days of their World Cup “Winner Stays” commercial.  There is no way physical retailers can compete with that kind of consumer experience.
  • We’ll see more limited releases move to the internet. Limited releases have always been problematic for sneaker retailers.  Systems have to be put into place, extra personnel hired and there is always the risk of bad behavior.  As brands and retailers figure out how to handle the web traffic, we’ll see more shoes released via the web.
  • Post millennials and millennials are eschewing the malls. They don’t need to congregate at the food court any longer; they can do that on their phone.  With immediate and robust access to every brand and virtually every store right in their pocket, there is no need to go to the mall any longer.
  • Using feedback from social media, brands and retailers can use that feedback loop to better tailor their assortments to what kids want to buy and when.  This predictive ability will make decision making more correct and timely.
 

The internet has had a profound impact on the sneaker business.  We are in a much different place than we were a decade ago.  I dare say we are not prepared for the changes that will happen in the next 5 years.

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