Everyone Is Doing "Retro," and Now the Luxury Houses Have Joined In: Sneakers Are Hot for a Fourth Year. What Is Changing in This Market?

Sneaker trends change faster and faster — and keeping up doesn't make you a winner.

Think of the market rankings in sportswear as a talent show. The audience used to vote once every four years, in step with the big sporting events. Now it votes once a year — sometimes once every six months.

On July 26, the German sportswear brand Puma and Under Armour, the sponsor of Stephen Curry's signature shoe, both reported second-quarter results. Puma had revenue of $1.23 billion and operating profit of $58 million, holding the lead it had taken over Under Armour, whose revenue came in at $1.2 billion and whose losses widened to $95.5 million.

It looks as though Puma has locked down third place in the industry, ahead of Under Armour. And not only Puma: New Balance, the privately held brand now in fifth, closed its gap with Under Armour to under 10% last year.

Only three years ago, Under Armour was still "the dark horse that had passed Adidas in the US and was getting ready to challenge Nike."

Meanwhile, Nike and Adidas together hold a bigger share of the market than they used to. According to Euromonitor, the two giants' combined share is 25.9%, and 40.3% if you count sneakers alone. In 2012 those figures were 22.2% and 35.6%.

That doesn't mean the two giants are taking share from the brands below them. The whole sportswear market has grown fast along with the athleisure trend. Skechers' revenue rose 16.9% in 2017, to $4.16 billion, the first time in the brand's 25 years that it passed $4 billion. New Balance took in $4.5 billion last year, and CEO Chris Davis said the company had become a "truly global brand."

Counting from the day Adidas put the Stan Smith on a runway, this is the fourth year in which athleisure has been the mainstream and sales of performance gear have been sliding. Market data keep confirming it: US men's shoe sales caught up with women's, sportswear was the only growth driver in the global apparel industry in 2016, Adidas beat Jordan, the basketball-shoe seller, in the US on the strength of casual running shoes …

Judged by market performance, every brand that courted this retro-sneaker wave — or happened to catch it — looks like a winner for now, and every brand that didn't has tasted failure.

That explanation is too simple. Simple enough to leave the impression that Vans, which has stuck to selling retro skate shoes, can now make money in its sleep. And right now it does look that way: Vans's results over the past few quarters show startling momentum.

But once every player has learned to do "retro," new points of difference are bound to appear.

Brands like Puma challenged performance sportswear with "retro" and "fashion." Now everyone has learned the trick

Sportswear brands with $3-5 billion in annual revenue, aiming at every category and every market, can no longer win the mass market with performance sneakers alone, the way Nike once did.

The challengers in the second tier have had to accept a new set of rules, written mainly by Adidas, and dating back roughly to the NMD's release day in March 2016.

Puma, now risen to third, is without question the star of that second tier. It sells mostly retro sneakers in the $60-100 range, and its best-known model is the Puma Suede (this year happens to be the Suede's 50th anniversary). After Rihanna, Puma signed The Weeknd, Kylie Jenner and other celebrities, and each of those partnerships maps onto a new model: The Weeknd pushed the Limitless, Jenner moved the Puma Fierce.

Another big reason for Puma's fast growth over the past two years is that it chose to go after women, a segment Nike and Adidas had not fully worked: in 2017, less than a quarter of Nike's revenue came from female customers. The good times didn't last. The sharp identity Rihanna's personal image gave the brand turned into resistance when Puma tried to enter the men's market. At the same time, as Nike rolled out a Jordan line designed for women this spring, more and more companies began saying they sell running shoes to women — Skechers, Converse, New Balance and others among them.

Given enough time, consumers see through the formula. This celebrity-plus-sneaker model has lost the mystery it had at the start, when Kanye West was both a legendary hip-hop artist and a shoe designer.

For most companies without the money for expensive sneaker-technology research, casual fashion running shoes are a lower-threshold growth opportunity — and they have also made the competition harder to read. Adidas was the first to put the Stan Smith on a fashion-week runway where everyone could see it; as the choices multiply, that kind of success gets harder to repeat.

One piece of evidence: Vans, priced in the same $60-100 range, has indeed kept selling better and better.

The latest results from Vans's parent, VF Corporation, released last week, showed Vans up 35% for the quarter. Vans has barely paid a big name to appear in an ad, yet it has become the shoe that hip-hop artists — the same artists tied closely to the big sportswear brands — wear on stage.

When Vans turned 50 we wrote about the brand's history, and about its long ability to seep into pop culture. For a consumer, a new pair of Vans might bring back the young years of a first rock concert — or it might just be that they are sick of seeing a certain logo everywhere lately.

Vans is now the hot brand in the $60-100 band, which means it is taking business not only from Puma but from Adidas's biggest-selling casual shoe, the Superstar. Foot Locker, the largest sneaker retailer in the US, said last winter that the Superstar's run of sales growth was slowing.

The sneaker market is not a zero-sum game today, of course, but marketing spending is climbing along with the competition. Puma's marketing outlay rose another 10% last quarter, and its pre-tax margin after operating costs is under 5%. In China, the market we know better, the traffic-drawing celebrities available have already been carved up among the big sportswear brands. That creates a second problem: when a launch depends on a single endorser, it is harder for the product to travel beyond that person's fans.

Against this background, and even though revenue grew 15% year on year, Puma's shares still fell 7.8%.

"In the first six months of this year, there have been major shifts in product trends and consumer demand, especially in footwear." That line from Puma CEO Bjorn Gulden was essentially what sent the stock down after the quarterly report.

He said the company had hurried the launch of its "dad shoe," the Puma Thunder, to answer the new trend. "The scramble to respond made this quarter difficult. We had to speed up procurement … I wish we could have moved faster."

Dad shoes catch fire, and sneaker companies find themselves steered by luxury brands

What forced Puma into that scramble was not another sportswear brand.

Last summer, a gray colorway of the Curry 3 that Under Armour designed for Stephen Curry was mocked online as "grandma shoes" for being dated and ugly, and it became the go-to example whenever anyone wanted to attack the brand for not understanding fashion.

Under Armour could hardly have guessed that a nearly identical formula — the "dad shoe" — would sweep the market a few months later and become the leading edge of fashion.

The trend was pushed by luxury brands that saw sneakers as a way to capture new customers. It is a style with a wide last and an elaborately built outsole: a sneaker in name, a fashion shoe in fact. The name comes from how closely it resembles the jogging shoes dads bought at sporting-goods chains around 2000.

Balenciaga, Dior Homme, Gucci, Prada, Acne Studios and other luxury houses all designed their own dad shoes across the two fashion seasons of 2017. Balenciaga's Triple S, with its lavish and meaningless pile of decoration and its outright rejection of comfort and practicality, became the most popular dad shoe of the second half of 2017.

This April the Italian fashion house Versace worked with Goat, a popular limited-edition sneaker resale app in the US, to release a dad shoe called Chain Reaction, made with the rapper 2 Chainz. It cost $920 (about 6,268 yuan) and sold out within 24 hours.

The shoe's designer was Salehe Bembury, formerly a senior sneaker designer on Adidas's Yeezy team, who last autumn sent Versace a message on LinkedIn to the effect of "you should be selling sneakers." The result, Chain Reaction, appeared at Milan Fashion Week this January, followed by more than three months of celebrities and socialites carpet-bombing social media with it.

This is no different from how Kanye West releases each season of Yeezy. In fact, this season's lead Yeezy models, the Yeezy 500 and Yeezy 700, are both dad-shoe designs.

Once dad shoes caught fire, the sportswear brands came to and pushed out their own cheaper versions in 2018 — Nike, Puma, Reebok, FILA, Anta, even Li-Ning, which took its designs down a fashion-week runway. As Puma's CEO said, plenty of people were caught off guard by this wave.

Behind it is a shift in who decides what counts as "cool" in the sneaker business. In an industry led by basketball, soccer and cross-training, function-first shoe technology was the leading edge of style. Nike did this better than anyone: the little window over the air unit on the AirMax served both a novel visual effect and materials technology, and its design language still followed "form follows function."

Now that people buy sneakers in pursuit of fashion, does every part of a shoe still need a functional justification? The luxury brands, practiced at setting trends, were the first to break the rule.

Some say dad shoes are ugly. Stephen Bayley, author of Ugly: The Aesthetics of Everything, made an interesting point: ugliness is not only a matter of taste but a matter of context. When the Bauhaus ideal of minimalism has spread across iPhones, basic clothing and single-color sock sneakers, the ugly, complicated dad shoe becomes a symbol of revolt against boredom.

The business explanation is simpler. Identical sock sneakers have left the market badly homogenized. Nike first introduced the Flyknit knitted upper in 2012, and today every sportswear brand sells a similar sock-like running shoe, leaving designers less and less room to work in.

Virgil Abloh's deconstruction and the return of the functional sneaker: Nike has copied every one of Adidas's trend plays

Nike, first in the industry, did not launch a dad shoe as its lead model for the season the way Puma did. It made a token gesture: it pulled the Nike Air Monarch, a cross-training shoe, out of its own archive, changed the colorway and did a few collaborations.

Nike now has Virgil Abloh and his The Ten collection. This Black designer, today the men's creative director at Louis Vuitton, is Nike's "Kanye West."

There is no shortage of articles reading Virgil Abloh, and every one of them mentions how close he is to Kanye. After Virgil's first show for Louis Vuitton, the fastest thing to reach the headlines was not his designs but the photograph of him weeping in the arms of Adidas's favorite son, Kanye West. The difference between them is that Kanye is less a designer than a celebrity with tens of millions of fans, while Virgil Abloh fits the contemporary image of a luxury creative director.

The Ten, the collection he designed for Nike, broke new ground by giving ten Nike sneakers a deconstructed treatment. "Deconstruction," put plainly, comes out no different in the end from the dad shoe: both add decoration to a sneaker that serves no function.

After a year of taking blows from Adidas on trend, Nike, as the industry's number one, copied its rival's entire playbook fast. Virgil is the answer to Kanye; putting out six collaboration shoes at once during Paris Fashion Week was about staking out Nike's own ground in fashion; and The Ten keeps dropping new pieces and refreshing the resale charts. This is where years of accumulated resources paid off.

In October 2017 Nike announced a new group strategy, mainly to restructure its wholesale channels and put more money into its own direct business, including its e-commerce app. After launching React in March 2018, a running shoe aimed at Adidas's Boost, Nike's business began to get back on track; the latest results, published at the end of June, brought the first increase in North American sales in four quarters. The 100 goals scored at the World Cup by players Nike sponsors pushed that momentum further.

Two rankings show how completely Nike has returned to dominance across the sneaker market.

The first is NPD Group's list of the ten best-selling sneakers of the first quarter of 2018. All ten came from Nike, Jordan or Nike-owned Converse, with the basic running shoe Nike Tanjun in first place.

2018 Q1 sneaker sales ranking (source: NPD Group)

1

Nike Tanjun

2

Air Jordan 11 Low

3

Air Jordan 1 High OG

4

Nike Air Max 270

5

Nike Air Huarache

6

Converse All Star Lo

7

Nike Revolution 4

8

Air Jordan 9 Retro

9

Nike Air Force 1 Low

10

Nike Flex Contact

In the 2017 edition of the same list, the only two non-Nike shoes were Adidas's Superstar and Tubular Shadow. Adidas's disappearance from the first-quarter list, NPD argued, was the result of Adidas stepping up new-model launches to fill out its lineup — long a weak spot for a brand whose recent growth has run on hits. Group CEO Kasper Rørsted's explanation on the first-quarter earnings call was this: "When you do it online, you need to release [products] at a different cadence, whereas the old approach was to dump a bunch of products at any point in the year."

That did not convince investors. Adidas's first-quarter results, released in May, still showed sharp gains in revenue and profit, yet the stock fell 5.8%, with analysts pointing to a slowdown in the brand's growth in North America. Adidas's market share is still far below Nike's, but on the strength of hits like the NMD and the Superstar its momentum in the fourth quarter of last year was clearly better than Nike's. Within half a year the picture had flipped again.

The second ranking shows the same thing. Drawn from transaction records on the sneaker resale platform StockX, it reflects how much demand there is for limited-edition sneakers — read it as a hype index. Of the ten most popular sneakers of the previous 72 hours, six were Nikes and the other four were all Adidas Yeezys.

In the third quarter of 2016, Adidas passed Nike in the sneaker resale market for the first time. As our report at the time showed, StockX's trading index put Adidas's secondary-market volume two years earlier at only about 1% of Nike's; that ratio can now reach 41%. But the Nike shoes on this latest list are all recent releases, while Adidas has gone some time without a new talking point.

Worth noting is the white Nike React Element 87, which has just dropped out of the resale top 10. Released on July 13, 2018 at a retail price of $160, it has resold 3,639 times at an average price of $353 — a 109.4% premium — with more than 2,000 pairs traded in the first week, and the premium shows almost no sign of falling.

This React Element 87 has no celebrity behind it and is not a collaboration, which is very rare in today's market. A new Yeezy, by contrast, can now fall to a premium of around 50% within weeks of release.

Look closely at how the shoe was designed and released: it first appeared at Paris Fashion Week; the upper carries decorative patches and exposed stitching (deconstruction again!); and it uses the transparent material luxury brands currently love (the reasoning being that you can pair it with a personalized sock — essentially the same idea as a see-through handbag full of flowers, made for Instagram). It follows every rule of the game.

The most important thing, though, is that this is the first React shoe positioned as casual fashion since Nike introduced the React sole technology. In other words, sports technology has not stopped mattering; it just has to meet certain conditions before it can work.

A few traces already point to a revival of the functional side of sneakers. Over the past few months, Luke Matthews, brand manager at the UK sneaker retailer Size?, has noticed that a handful of niche hiking shoes from brands such as Nike and FILA are selling well. "People like these shoes because they were, in the end, made for a purpose, and that purpose is built into the design."

"The popularity of outdoor aesthetics asserts a demand for something 'real' within this elusive world of trends," Stuart Wells, Adidas's global brand marketing director for outdoor, told the trend publication Highsnobiety. "Function over form, especially the kind of protection meant for uncertainty." Translated: it gives the buyer the pleasure of feeling above the crowd.

The modern runner is too common a figure. The sportswear industry wants to repeat the casual running shoe's success in soccer and basketball

The latest forecasts say athleisure running shoes will remain the main engine of industry growth in 2018, but NPD Group analyst Matt Powell thinks that growth will flatten out. "The modern-runner image has become too common. The sportswear industry needs a new image to lift sales."

Could the new image be a cooler, new-generation soccer kid?

In Paris on July 3, the pop star Justin Timberlake wore a coach's jacket at one stop of this year's tour, with a big Jordan logo on the back and the words "Paris" and "Saint-Germain."

It was the first appearance of a collaboration between Nike-owned Jordan and Paris Saint-Germain — though Jordan is a basketball brand. Three days before that, on June 30, the club's 19-year-old French forward Kylian Mbappé scored twice against Argentina, the crucial third and fourth goals, and became a star overnight.

France went on to win this year's World Cup, and the young Mbappé became the new face of Nike's advertising in Europe. After the tournament his Instagram following passed 15 million, and the press catalogued his everyday clothes. One detail rarely got left out: how much he liked wearing a shoe from the World Cup collaboration Virgil Abloh designed for Nike. Nike had given him a pair, with his name written on it by hand, months before the tournament started.

Soccer as a sport has already begun to absorb the methods of the fashion sneaker. Adidas, the official sponsor, moved first. From early 2017 it worked with the Russian designer Gosha Rubchinskiy on a soccer-themed collection running three seasons, and its later collaborations with trend retailers such as New York's Kith were all billed as "soccer-inspired" too.

After that, everyone from luxury houses to streetwear labels put out a collection in the same vein: Versace, House of Holland, Vetements, Off-White, Stussy, Supreme … The clothes correspond to no real team, but they borrow the look of a soccer kit to display a fan's way of life. They arrived all at once during the Spring/Summer 2018 men's fashion weeks.

As Europe's traditional sport, soccer has given a nearly saturated American street fashion a new source of inspiration. "Apart from sports like basketball and American football that need giants, soccer is a sport most 'ordinary people' can play," Tim Brown, a former New Zealand international midfielder and founder of the footwear brand Allbirds, said in an interview with GQ. "A soccer uniform, unlike basketball, football or baseball, has a clear lineage, a recognized form of menswear, like the T-shirt and the polo shirt."

Russia, host of this year's World Cup, made advertising material easy to find. Open a trend site's World Cup coverage and you will find pieces on how Muscovites wear Puma and throw parties. Open YouTube and you will find three influencers hired by New Balance uploading travel videos in New Balance kit, showing viewers around Russian scenery and customs.

It is not only soccer. Basketball has caught the brands' eye too.

At NBA All-Star Weekend in February, Adidas staged an extravaganza in Los Angeles stuffed with events and parties, releasing 14 limited-edition basketball shoes over two days. The brand's own all-star lineup — the supermodel Karlie Kloss, the fashion designer Alexander Wang and the singer Pharrell Williams — all turned up, and the game on court was not between NBA players but between East Coast and West Coast rappers.

On June 20, Puma, having finished its womenswear collaboration with Rihanna, signed two NBA rookies and named the legendary American rapper Jay-Z creative director of its basketball business — the brand's first return to basketball in 20 years. Adam Petrick, Puma's global director of brand and marketing, said they intended to build the basketball business out of "culture," taking its fashion and music dimensions into account. Sports Illustrated reported on July 24 that New Balance also wants to relaunch a basketball line.

Meanwhile, more and more NBA players show up at fashion weeks, treating them as a chance to raise their own profile; Angelique Kerber won Wimbledon in an Adidas x Palace outfit; and the New York luxury label Thom Browne signed a three-year deal with FC Barcelona — Thom Browne said in an interview that it was Barça that proposed the partnership.

After the success of the casual running shoe, the sportswear industry is hooked and wants to run the same play again: use marketing to package soccer and basketball as a brand-new, cool way of life.

These new things look very cool. Whether they can reach the broad mass market is another question.

Running shoes became a new market because the way society dresses grew more casual overall, and because running is a middle-class sport anyone can take up. Participation in basketball and soccer is much lower, and if the two sports only become sources of "inspiration," the shoe that gets designed in the end is still a casual shoe. The business will not necessarily get any bigger.

Still, the hunt for new growth has only just begun, the running-shoe boom will go on, and everyone is rushing to release the next shoe that might set the market off.

Three days ago Nike released a partial image of the coming AirMax 720. Another new air-cushion shoe from Nike this year.

Adidas has already put up a new page on its website. There is the puzzling name P.O.D. System, a video tracing the model's history and lineage just like the one for the NMD, and a design that splits the sole (or should we say "deconstructs" it?) into three big pieces, so the colors can be swapped later.

Puma is releasing a new colorway of its "dad shoe," the Thunder, for the third time. Let's hope this one isn't too late.

As for what will be in fashion next season, nobody knows yet.

Cover image from Nike

Graphics: Feng Xiuxia, Wang Kaiman