Analysis: Fashion and sport brands clash in luxury sneakers race

Bally

24/05/2018 12:16

By Giulia Segreti
    MILAN, May 24 (Reuters) - What do you get when luxury
fashion meets sport? $10,000 sneakers.
    High-end brands such as Kering's  PRTP.PA  Gucci, Prada
 1913.HK  and Balenciaga are increasingly looking to sneakers
for growth, putting them in direct competition with sportswear
giants like Nike  NKE.N , Puma  PMUG.DE  and Adidas  ADSGn.DE ,
and giving rise to ever-more striking and expensive designs. 
   Luxury groups say they are now increasing investments and
marketing budgets to face down their new opponents. 
    "When I saw sneakers were going to be a thing, I fought it
for a bit," Salvatore Ferragamo's  SFER.MI  designer Paul Andrew
said at a conference. "We're definitely now investing heavily in
that category, getting in very specialised people". 
    Global sales of sneakers - or trainers - rose 10 percent to
3.5 billion euros last year, outperforming a 7 percent rise in
handbags, according to consultancy Bain & Co. 
    "It's not really even a trend anymore - it's become a
category," said Bruce Pask, Men's Fashion Director at U.S.
department store Neiman Marcus. 
    Both luxury groups and sports companies are looking to cash
in on a booming market. Premium sneakers can start at around
$400 but can easily rise as high as $3,000, for a pair of
Christian Louboutin's leather, crystal-embellished sneakers.
    Limited editions can sell for well over $10,000, including
the Chanel X Pharrell Hu Race Trail or Nike's Air Jordan 3 Retro
DJ Khaled Grateful. 
    Sneakers are a big driver of the luxury shoe business, which
accountancy firm EY says is the fashion industry's
fastest-growing area.
    The rise of luxury sneakers is part of the growing influence
of casual and streetwear in high-end fashion, where it is now
acceptable to team sneakers with a tailored suit.
    Upmarket brands are tapping into street style to refresh
their looks and young buyers are driving the shift.
"Millennials" - born between the early 1980s and mid-90s -
already represent a third of the luxury market, according to
Bain.        
    Several luxury group executives recently noted the
importance of sneakers for their business and the need to step
up their game to face the rising competition. 
    Emilio Macellari, finance chief of Italian luxury goods
company Tod's  TOD.MI  - a pioneer in the sector, having
launched its first Hogan luxury sneaker in 1986 - said "there is
no brand that is not currently considering its (sneaker) offer".
    Pointing out how times are changing, he said luxury brands
were now "under attack" from sportswear companies, on top of the
usual competition from their luxury peers.
    But so-called "sneakerisation" could steal market share from
more traditional and formal-looking footwear, industry operators
say. 
    "After many seasons of comfortable shoes, it will be hard to
bring women back on heels," said Federica Montelli, head of
fashion at Milan's renowned la Rinascente department store.
    
    BLUE SNAKE AND PROFIT MARGINS
    In central Milan a pair of Nike's black leather, ankle-high
Air Jordan 5 Retro Premium sneakers sell for over 400 euros
($470). Only steps away, in one of the city's most exclusive
shopping areas, clients buy a pair of Gucci's ACE made with the
GG logo canvas, with a blue snake-leather detail for 450 euros.
    "What has changed is competition, with a clear overlap,"
said Claudia D'Arpizio, partner at Bain & Co. "Luxury consumers
are buying Nike and Adidas and vice-versa". 
    Ilaria, a young saleswoman in Milan streetwear shop One
Block Down, said that many customers walk in carrying shopping
bags from the nearby luxury boutiques.
    Sports groups say they are not worried by the competition. 
    "If (luxury groups) go the sports way... it is only
positive," said Puma Chief Executive Bjorn Gulden said. "If that
is a trend that pulls the sneaker market up, we can only be
happy."
    Analysts also say the intensifying competition is unlikely
to erode profit margins because the market is expanding. 
    "There is large space for prices moving up," said Erwan
Rambourg from HSBC. "The 'luxurisation' of sneakers could
possibly impact margins positively".

 (Additional reporting by Melissa Fares in New York, Emma
Thomasson in Berlin, Sarah White in Venice, Claudia Cristoferi
in Milan and Sonya Dowsett in Madrid; Editing by Pravin Char)
 ((Giulia.Segreti@tr.com; +39.02.66129416; Reuters Messaging:
giulia.segreti.thomsonreuters.com@reuters.net))