Innovation is key for shoe sellers in tough market

Posted Dec 3rd 2007 5:28PM by Zac Bissonnette
Filed under: Consumer Experience, Marketing and Advertising, NIKE, Inc'B' (NKE)

A customer in line outside London's Oxford Street Nike Town store waiting to buy the limited edition

Back in August, I wrote about all the beaten-down shoe stocks currently on the market: companies like Rocky Brands (NASDAQ: RCKY), Finish Line (NASDAQ: FINL), Phoenix Footwear Group (AMEX: PXG), and Shoe Pavilion (NASDAQ: SHOE).

Basically, selling shoes without a strong brand name is a tough business. Companies like Phoenix and Rocky are seeing their margins crushed by competitive forces, and retailers like Finish Line, Shoe Pavilion, and Genesco (NYSE: GCO), owner of stores like Journeys, are having a hard time making any money.

Innovation is they key to success in the industry, and there have been a few stories recently about companies looking to do just that. Nike (NYSE: NKE) and Foot Locker (NYSE: FL) have teamed up to launch House of Hoops, which aims to be a "destination" for basketball consumers.

At its Nike stores as well, the leading basketball footwear company is realizing that, to differentiate itself and expand margins, it will have to provide customers with more than just a nice shoe: they need a unique shopping experience.

To that end, Nike and other companies including Steve Madden (NASDAQ: SHOO) are allowing people to custom-design their own shoes online. Of course, that's more expensive than buying them off the rack, but that really offers shoppers something unique: a one-of-a-kind shoe.

And of course, Adidas, Puma, and Nike are all trying to capitalize on the excitement surrounding this week's European Championship.

There are a lot of cheap shoe stocks out there. But the companies that are selling commodities and providing customers with a commodity-like experience are unlikely to see a turnaround. Before investing in shares of a shoe retailer like Finish Line, Foot Locker, or Genesco, ask yourself whether that company provides an experience that is unique. If all they're selling are shoes, they'll be extremely vulnerable to price competition.

Right now, it looks like Foot Locker is the only company that's innovating. Of course, that could change, and Finish Line already has plans to launch promotions similar to Foot Locker's House of Hoops with Nike.

Tags: FL, Foot Locker, FootLocker, Footwear, GCO, Genesco, Nike, NKE, Shoes