Footwear retail in 2024: signs of recovery or a bumpy ride ahead?

In 2023, the retail footwear industry faced several significant challenges beyond the supply chain disruptions and pandemic-related issues of the previous two years. High inflation led to rising material and transportation costs, squeezing margins for retailers and manufacturers alike. This, coupled with a strong US dollar making imports more expensive, impacted consumers who had less discretionary income to spend on non-essential items such as footwear. Further exacerbating the situation, the North American market became saturated with athletic footwear, making it difficult for brands to stand out.

Manufacturers

Hong Kong-based Yue Yuen and Stella International Holdings, two of the world’s largest footwear manufacturers, illustrate some of these challenges.

Yue Yen’s footwear manufacturing business faced headwinds in 2023, resulting in an overall 12.0% year-on-year revenue decline to 7.89 billion US dollars. This decline reflected a broader industry trend of soft global demand and excess inventory. To navigate these difficulties, the group implemented a cost-reduction and efficiency strategy that included flexible production planning and dynamic workforce adjustments aligned with demand fluctuations. These measures mitigated the impact of lower capacity utilisation and led to an impressive improvement in gross profit margin by 0.8 percentage points to 19.2%.

Meanwhile, Stella Holdings, which is executing a three-year plan to achieve a 10% operating margin and low teens annualised growth in profit after tax by 2025, saw its full-year revenue fall by 8.5% year-on-year to 1.49 billion US dollars, driven by a 12.5% year-on-year decline in shipment volumes, as part of its strategy to reshape the product and customer mix, as well as destocking by some customers during the year. But the clouds seem to be lifting. Despite a slight decrease in average selling price, Stella has seen impressive sales growth, with a 13.5% increase in the last quarter of 2023 and a further 18.9% increase in the first quarter of the current year, driven by the sports category.

Retailers

Sports retailer Foot Locker appears to be turning a corner, following the launch of its long-term growth strategy, Lace Up, in March 2023. After struggling with declining sales for six quarters due to a tough consumer environment and heavy discounting, the company is showing signs of recovery: in the fourth quarter of last year, Foot Locker saw a positive turnaround with a 2.0% year-over-year sales increase to 2.4 billion US dollars. This is a welcome change after a period of needing to reduce prices to clear inventory.

“We are pleased to report fourth quarter results ahead of our expectations, including meaningfully accelerated sales trends relative to the third quarter, earnings per share that exceeded our guidance range, and improvements across multiple KPIs. As we continued to deliver on the strategic imperatives of our Lace Up Plan, we built significant momentum through the holiday season, driven by full-price selling in addition to compelling promotions. We also proactively reinvested in markdowns to end the year with leaner inventory levels compared to our expectations”, explained Mary Dillon, President and Chief Executive Officer. Nevertheless, 2024 is still expected to be a “rebuilding year”.

Meanwhile, the British retailer JD Sports has “outperformed the sportswear market”. According to its latest trading update for the year ended on the 3^rd of February, the company achieved like-for-like sales growth of over 4% and organic growth of over 8% compared to the previous year, reflecting strong consumer demand and real business improvement. In addition, everyday sportswear is performing particularly well, with organic growth above 10%.

Despite JD Sports’ sales growth, CEO Régis Schultz acknowledges the difficulties in the current retail climate. But he remains optimistic and expects trading conditions to improve throughout the year, “helped by a busy sporting summer and softer comparatives with last year”. Furthermore, JD Sports is actively expanding its presence in one of its key markets, North America. The recent acquisition of the US retailer Hibbett is expected to significantly increase its North American market share, pushing it from roughly 32% to 40% of its total group sales.

Shoe Carnival reported back-to-back full-year sales declines in fiscal 2023 (ended on the 3rd of February), with annual sales down by 6.8% year-on-year to 1.17 billion US dollars. But fourth quarter sales were “at the high end of the Company’s expectation”, down by 3.6% year-on-year, “driven by strong sales growth during the key December holiday period”. Continuing its long-term profitability strategy, underpinned by the optimisation of its inventory, the modernisation of its store fleet and the expansion of its store network – notably with the recent acquisition of Rogan’s  –  Shoe Carnival is aiming for a comeback in fiscal 2024, with projected sales growth of 4.0% to 6.0% for the full year.  

Echoing this trajectory, Genesco saw a positive sign in the fourth quarter with a 1.9% year-over-year sales increase, although it wasn’t enough to offset a 2.5% decline for the full year, reaching 2.32 billion US dollars. This was largely due to lower store sales, primarily at Journeys, its key brand, and decreased wholesales, partially offset by an increase of 8% in e-commerce sales, highlighting the growing importance of online retail.

“As we move into Fiscal 2025, we have more work to do to meet the needs of our changing consumer”, acknowledged Mimi E. Vaughn, Genesco’ Chief Executive Officer. “We have an outstanding team in place at Journeys with both an experienced new leader and new chief merchant, a unique proposition as the destination for teen fashion footwear and the tremendous support of our brand partners to accomplish this (…). We are well positioned to unlock Journeys’ considerable earnings potential and value”, she concluded.