If yesterday’s dismal market performance is any indication of what’s to come, 2016 could be a challenging year for business.
On the heels of a choppy 2015 with its own share of market turbulence, a lackluster holiday shopping season and generally slower retail traffic and sales, leading footwear company execs are certainly hoping for brighter days ahead.
And while a 450-point drop in the Dow Jones industrial average is frightening, for shoe companies and business in general, it’s not all doom and gloom.
The markets — spurred and spooked by geopolitical factors, currency shifts, the price of commodities and a host of other variables — are in constant flux. And the other business factors affecting company’s outlooks certainly aren’t insurmountable. Awareness is often the best starting point.
Here are four factors — good and bad — that could impact shoe companies this year.
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Weather & Inventory
Unfortunately weather is one element that can’t be left in 2015. In much of the country, winter appears to have shaken its identity crisis and is finally producing the bone-chilling temperatures that we’ve come to love and hate. But, insiders warn that the stretch of unseasonably warm weather that occurred from September through December, in many parts of the U.S., has already done its damage.
Shoe companies are now grappling with record high levels of seasonal inventory and have resorted to unprecedented discounting and promotional activity to get rid of it. Further, retailers may need to prepare for more weather-induced sluggishness, due in part to El Niño, which is expected to linger well into the spring.
FX Pressure
Almost every company with an international presence (think Nike Inc., VF Corp., Foot Locker Inc., Wolverine World Wide Inc.) had to manage the effects of a historically strong U.S. dollar in 2015. While hedging and price concessions have been implemented to help buffer those challenges, the dollar remains healthy into 2016.
Further, the greenback’s strength has lowered tourism traffic in key markets such as New York, Hawaii and Las Vegas, taking an added toll on firms like Macy’s Inc. and Deckers Brands’ Ugg label.
Changing Consumer Shopping Patterns
During the Thanksgiving and Black Friday weekend, the shift from brick-and-mortar spending to online shopping was palpable. Research shows that the pattern will continue and even accelerate in 2016. One study found that mobile shopping alone could grow by nearly 70 percent this year.
Not only are consumers changing where and how they shop, their tastes in what they buy has evolved. These days, “experiences” such as dining, travel and visits to museums, plays and cultural activities are getting a larger chunk of consumers’ wallets. Shoe companies will have to figure out how to compete in this evolving consumer landscape.
Oil Prices, Unemployment, Higher Wages
One report by Cowen and Co.’s consumer team suggests we have yet to see the impact of higher minimum wages on consumer spending. In 2015, the country’s largest private employer, Wal-Mart Stores Inc., raised its minimum wage and other companies have been feeling the pressure to follow suit.
“Higher minimum wages over the last two years have been an under-appreciated benefit, in particular for lower-end consumers,” the report said. “We will see meaningful increases again in 2016.”
Lower unemployment and fuel prices should also bolster retail sales in 2016, although Cowen and Co.’s team remained “constructive” regarding minimum wage increases, “given that 24 percent of households earn less than $25,000 per year.”
The team’s analysis found that, for 2016, 23 states will increase their minimum wage, averaging a 5.5 percent weighted average increase.
“States in the West and the Northeast lead the increase and are regions that already boast the highest minimum wages in the country, which should fuel continued robust growth for consumer categories that over-index to lower-income consumers,” the report noted.
Walmart, Ross Stores Inc. and Target Corp., the report said, should benefit from a healthier low-income consumer.
