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Ever bolder leggings, stylish tennis shoes and stretch-fit pullovers have been everywhere in recent years. But that trend may be dying.
“The athletic apparel/footwear space was one of the strongest sub-sectors in our group coming out of the recession; but after an impressive multi-year growth cycle, we see several areas for concern that are not only likely weighing on the industry, but also have the potential to accelerate,” Tom Nikic, an analyst at Wells Fargo, said in a recent note.
The athleisure trend is dead, and dying faster every day, according to Nikic. From 2011-2016, athletic wear grew to be 30% of the total closing and footwear industry. It grew 7% a year, compared to the sluggish 1% growth of the general apparel sector, but that trend is starting to reverse.
In 2016, athletic apparel grew only 6%, the slowest growth since 2010, said Nikic. The general retail apocalypse hit the athletic brands as well, as companies like Sports Authority declared bankruptcy. For the first time since 2011, athletic footwear brands underperformed their general use counterparts.
Nikic says that this means that the athletic apparel brands are set to take a “breather” after its impressive growth over the past few years.
Some brands are going to be hit harder than others by this decline in athletic apparel. Nikic downgraded Under Armour in his Tuesday note saying it is set to be one of the hardest hit companies. He says that the trend is moving away from performance sneakers into more fashion-forward brands, which isn’t where Under Armour has been historically strong. Under Armour also has begun an aggressive growth plan that Nikic thinks will fall flat. He lowered his price target for Under Armour from $17 to $13.
Nike is being conservative in how it’s guiding investors. Nikic thinks that investor sentiment is rather low at the moment, so beating earnings estimates while lowering the guidance won’t move shares lower, but it also isn’t a great sign for the company. The company’s rather gray outlook means more for the rest of the segment than it does for Nike though, Nikic said. Stagnation in one of the top brands means multi-brand retailers and companies without Nike’s huge brand recognition will likely falter in the coming quarters.
Nikic lowered his price target for Nike from $56 to $55.
Amazon’s move into the grocery business has sparked panic among investors in many a sector, and apparel retailers like Foot Locker and Finish Line Sports are not immune. Nikic surveyed around 550 young men about their shopping habits and found that about 40% would be willing to buy their next high-cost sneaker from Amazon instead of from a traditional sneaker retailer.
It’s not all doom and gloom for the industry though. 18% of those surveyed by Wells Fargo said that they are planning on spending more on speakers in the near term.