Yahoo Finance Ugly shoes are here to stay: Ugg, Crocs thriving as consumers turn to comfort Read full article Oops! Something went wrong.Please try again later.More content below Oops! Something went wrong.Please try again later.More content below Oops! Something went wrong.Please try again later.More content below Oops! Something went wrong.Please try again later.
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Please try again later.More content below CROX NKE ^GSPC ADDDF ADDYY BIRK SKX DECK Brooke DiPalma · Senior Reporter 10 April 2024 at 3:40 pm · 6-min read In this article: Oops! Something went wrong.Please try again later.More content below Oops! Something went wrong.Please try again later.
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Uggs to work, Crocs to parties, and Birkenstocks and socks all summer long.
Consumers’ desire to wear comfy shoes all day, everyday is taking priority and spreading across generations.The continued casualization of footwear is driving once-stale brands into the spotlight as their businesses reap increasing sales.
In a note to clients, Stifel analyst Jim Duffy highlighted a “shift in retro trend evidenced by the meteoric rise of New Balance’s chunky dad shoes …as well as explosive popularity of the [Adidas] Samba , plus the Campus and Gazelle.”
But, how did bulky “dad shoes” suddenly become a fashion staple?
ADVERTISEMENT It’s the rising appeal to wear something that “feels good on your feet,” Duffy said to Yahoo Finance over the phone.
“Particularly with younger consumers, you’re seeing a lot of them embrace comfort and prioritize that over fashion, or even represented as fashion,” said Duffy.
The global comfort footwear market is expected to grow from $26.35 billion in 2023 to $47.37 billion in 2028.
Now, top players like Nike and Adidas need to watch their backs for rising stars.
The typical American only buys about seven pairs of shoes per year, per Duffy, and Decker Outdoor ( DECK ), Crocs ( CROX ), Birkenstock ( BIRK ), and Skechers ( SKX ) are racing to earn their place in shoppers’ closets.
“The bigger brands like Adidas and Nike have realized …these companies are coming for us and they might be small today, but you blink your eyes and they could be a lot bigger,” said Wedbush analyst Tom Nikic over the phone.Both brands need to re-focus on innovation and less on e-commerce sales, he added.
Capitalizing on comfort Brands that have leaned into the pivot are showing results on their balance sheet.For the nine months ending in December 2023, Decker reported a 17% jump in revenue while its profit grew nearly 50% to $632 million.
Crocs clocked a 47% bump to its profit for full-year 2023 and its sales went up 11%.
Story continues Crocs now anticipates revenue growth of 3% to 5% in fiscal 2024 compared to last year.
Investors have recently rewarded the companies, sending Decker’s shares flying 29% year to date and 89% over the past year, outpacing the S&P 500 ( ^GSPC )’s gains by a landslide.
Two of Decker’s comfiest brands, Ugg and Hoka, have been driving the bus on its growth.Its latest quarterly results show that Ugg sales increased 15%, reaching its first-ever $1 billion quarter, while revenue from Hoka jumped 22% to $429 million.
“Hoka remains our primary growth vehicle with considerable opportunity for both region and category expansion,” CEO Dave Powers said on an earnings call.
Remote workers who flocked to fuzzy slippers during the pandemic are deciding to stick with the style, even as life goes back to normal and they return to in-person work, UBS analyst Jay Sole told Yahoo Finance.
Decker has also grown beyond its furry boots roots, expanding to slip-ons and even sneakers, reaching a “younger” and “more diverse consumer,” said Powers.
And looser dress codes are becoming the norm everywhere, from offices to schools to malls.
“That more relaxed dress code applied to kids in school and kids going out in public as well,” leading to that group “continuing to wear other slippers, Ugg, or Crocs,” Duffy said.
The competition is fierce.
In Piper Sandler’s latest consumer survey with teens, Crocs fell from the No.7 to No.6 brand in footwear “mainly due to the popularity of UGG.” Crocs also ranked as No.
3 for trends that could be “on the way out” with male teens.Birkenstock jumped on as the No.10 favorite footwear brand among teenagers, while HeyDude clocked in at No.8.
However, Deckers’ stock could be getting too expensive after its rapid rise, warned Sole.
Crocs, which has seen its stock shoot up roughly 37% this year, still has runway for growth, according to analysts.
Concerns over its 2022 HeyDude acquisition has slowed Crocs’ stock performance, with its shares dropping nearly 14% in 2023 before recovering this year.
In its fiscal fourth quarter report, the main Crocs brand surpassed $3 billion in sales, jumping 14% year over year.
“A lot of people who wouldn’t have been caught dead wearing a pair of Crocs” gave them a try during the shutdowns and are now returning due to their comfortability and price point.The company’s focus on innovation, comfort, value, and personalization remain key components of its position, said Nikic.
Meanwhile, HeyDude still needs to diversify its distribution and designs, with the brand currently offering only two models.
The turnaround could take 18-plus months, according to Nikic.
“The stock itself is not overly expensive from a valuation perspective,” he explained.”The only reason why it’s as cheap as it is, is because the HeyDude brand has been a little bit of a roller-coaster ride.If they can get HeyDude on the right track …you’ve got a lot of upside potential in Crocs shares.”
Crocs are displayed on shelves in an exhibition hall.(Fabian Strauch/picture alliance via Getty Images) (picture alliance via Getty Images) Other names that have been ridings this trend include Skechers and Birkenstock, which went public last October .Skechers CEO John Vandemore said at a recent conference that consumers’ response to the shoes has been “very positive.”
However, a challenging retail landscape has muted Skechers’ stock return this year, while Birkenstock’s lockup expiration in early April has contributed to its share price struggles.
Overall, Decker, Crocs, Birkenstock, and Skechers “are really well positioned to continue to deliver nice growth,” said Sole, though their stocks could face ongoing pressure if concern around consumers’ strength changes.
Companies that have missed out on consumers’ willingness to spend on comfort include V.F.Corporation ( VFC ), parent of Vans and Timberland, and sneaker maker AllBirds ( BIRD ).
“Vans was the hottest brand in the world before COVID,” said Nikic, but the company failed to introduce new products, losing customer interest in the process.
Allbirds, on the other hand, has limited physical retail presence due to its online, direct-to-consumer model, making it difficult to continue expanding its customer base.
But comfy yet ugly footwear is here for the long haul.
For one, while some think chunky running shoes and sandals with holes aren’t the most stylish (looking at many of my colleagues), others take pride in their feel and looks.
Plus, sharing how you feel about the shoes’ appearance — whether you love ’em or hate ’em — actually makes those shoes more popular, per Jorge Barraza, a professor of consumer psychology at the University of Southern California.
Being seen as ugly can create a polarizing image that itself draws a fan following.People may like being contrarian and enjoy “what is being signaled by wearing this brand versus not.”
Moreover, the desire to feel like walking on clouds is here to stay, so expect more slip-ons at the office and fewer dress shoes.
“The workplace has become a lot more business casual, or just purely casual,” said Barraza.
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Brooke DiPalma is a senior reporter for Yahoo Finance.Follow her on Twitter at @ BrookeDiPalma or email her at [email protected].
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