Popular 90s Sneaker Brands Re-Enter Crowded U.S. Basketball Vertical

Fila96

Performance shoe styles remain out of favor, but that hasn’t prevented a host of companies from re-entering a declining U.S. basketball market in 2018. Back in March, Puma announced its return after a 17-year hiatus and both New Balance and Fila have since expressed their intent to compete with Nike, Adidas and Under Armour in the now crowded vertical.

On Tuesday, New Balance announced its re-entry into the performance basketball market by hiring Darius Bazley (a promising H.S. prospect), to serve as a million-dollar intern (deal worth up to $14 million with performance incentives); in addition to spending January-March ’19 in Boston at NB headquarters, Bazley will wear the company’s basketball shoes upon his arrival to the NBA.

Then on Wednesday, Fila announced it had inked ’18 Basketball Hall of Fame inductee Grant Hill to a lifetime contract (first signed with co. in ’94). The company plans to grow its retro footwear business, but unlike Puma and New Balance, is not expected to release new performance basketball sneakers.

The brash 90s brand And1 has also made headlines in ’18, re-signing Kevin Garnett to the label (first signed in ’03)  and announcing the Nov. 3rd re-release of its popular TaiChi model; the sneaker made famous by Vince Carter in the ’01 dunk contest.

Howie Long-Short: Fila’s ’94 signing of Hill paid immediate dividends. Fila (KRX: 081660) sold 1.5 million pairs of the GH1, Hill’s debut sneaker; the most any retailer had sold for a player’s first signature shoe since the release of the AJ1. Of course, Hill was just the 4th NBA player to receive a signature shoe in their rookie season; Hakeem Olajuwan (’84, Etonic Akeem The Dream) and Shaquille O’Neal (’92, Reebok Shaq Attaq) were the others.

Fila’s ’95 release of the GH2 was even more successful. The company sold $135 million (10% of total footwear revenue) worth of the Hill signature sneaker (more than they did of the GH1). By ’96, Fila had overtaken both Adidas and Reebok (trailing only Nike) in the U.S. basketball shoe sales.

It’s curious to see new entrants in the space considering retro basketball is in decline, basketball is out of fashion and the basketball shoe market is down -13% from its ’15 peak ($1.3 billion). NPD Group reported a “low-teen drop” in basketball sneaker sales during the month of August (last report issued) and Retail Analyst Matt Powell expected a similar result in September, saying “too much performance product forced on the market will weigh on results”; apparently, even more is on the way.

Fan Marino: After 17 years out of the game, Puma (PMMAF) decided to re-enter the performance basketball space in time for the ’18-’19 season. The company made headlines with the splashy signings of DeMarcus Cousins (Warriors), Terry Rozier (Celtics) and Marvin Bagley III (Kings), but their first retail release (a modernized version of the Clyde Court Disrupt) is off to a rocky start on the hardwood; high profile endorsees Kevin Knox (Knicks) and DeAndre Ayton (Suns) both sprained ankles in the shoe last weekend.

Earlier this week, we noted that the NBA was offering elite H.S. basketball prospects a new “professional path”; a six-figure payday (among other benefits) to forego collegiate basketball and play a single season in the G-League. We explained that players projected to be selected in the top 24 selections of the NBA draft would be better off sitting out the season than taking a step up in competition; falling a single slot in the draft would cost the player more (over the first 2 years of their deal) than they’d receive for playing the entire season.

The G-League’s new path isn’t going to hurt NCAA basketball, but the Bazley model could (at least until the CBA is renegotiated and players can enter the draft directly from H.S. in June ‘23); if the NBA’s next class of stars (and their agents) can find companies willing to pay them 7 figures not to play, it’ll wipe out the top talent within the college ranks. Don’t believe me? 9 of the top 10 players selected in the ’18 NBA draft were freshman (Mikal Bridges was the exception) last season.

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Fila Sales Rebound with Rerelease of Disrupter II

Fila

Fila, Inc. has returned to prominence with the updated rerelease of the Disruptor II, a bulky sneaker that first debuted in 1996. With the rerelease, Fila has successfully capitalized on two current fashion trends, retro apparel and the stereotypical “dad shoe”; particularly popular amongst women. The Disruptor II’s affordable price point ($65-$70) and widespread availability (think: Urban Outfitters, Journeys) has also contributed to its success. Foot Locker CEO Dick Johnson labeled the Disruptor II one of his chain’s most popular styles.

Howie Long-Short: Fila U.S. (KRX: 081660) sales rose +21% during Q2 ‘18, with the Disruptor II heavily contributing to the record earnings period. The company’s “conversion from wholesale to retail” and a revised sales strategy (see: targeting younger demo) has also been effective. Fila grew sales +10.9% (to $687 million) and operating profit rose +24.1% (to $90.6 million) during the most recent quarter.

Fila, Inc. owns 53% of Acushnet (GOLF), the maker of Titleist golf equipment. For those who missed Monday’s piece on rising golf equipment salesGOLF grew Q2 sales +11.7% YoY (on a consolidated basis); Titleist clubs (718 Irons, Vokey SM7 Wedges) and Titleist golf ball sales were credited for driving the top line growth. GOLF shares are up +60% over the last 12 months; they’ll open at $27.51 on Wednesday.

Interestingly, Anta Sports (ANPDY) owns the rights to use the Fila brand in China (Fila controls 15% of the JV). Anta, China’s largest sportswear maker, reported H1 revenue increased +44% (to $1.5 billion); strong sales of the Fila brand contributed to the growth.

Fan Marino: For those old enough to remember the 90s, Fila was a major player in the footwear and apparel space; in 1997, the company generated $687 in U.S. sales. Grant Hill even signed an $80 million endorsement deal to serve as the brand. Remember these?

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RUSSELL ATHLETIC LEAVING UNIFORM BUSINESS TO FOCUS ON HERITAGE, CORPORATE AND PROMOTIONAL MARKETS

Berkshire Hathaway’s (BRK.A) Russell Athletic has decided to exit the team uniform business (primarily HS and youth leagues) and turn its focus towards a “longer-term, more-healthier place” in consumer retail. A new line of “heritage” styled lifestyle and streetwear clothing, to be launched at Barney’s before to being sold at retailers like Urban Outfitters, will be a part of the company rebrand. A partnership with S&S Activewear (3rd largest U.S. distributor) provides the company with access to previously unreachable corporate and promotional business. Russell plans to maintain its team channel; selling non-uniform items and using S&S Activewear to service those sales.

Howie Long-Short: There is certainly some cache surrounding the “heritage” market, with companies like Champion (HBI), Fila USA (KRX: 081660) and Calvin Klein (PVH) experiencing recent resurgences. HBI reported Champion Q2 ’17 revenues were up 7%, with Fila USA and Calvin Klein up 11.5% ($71.3 million) and 8% ($786 million) respectively, over last year’s figures. It’s been 20 years since Russell Athletic has been relevant, but if you wait long enough, everything comes back into style.

Fan Marino: For those too young to remember, Russell was the largest marketer and manufacturer of athletic apparel in to the early 1990s; when Nike (NKE), Adidas (ADDYY) and Under Armour (UAA) began to pump big dollars into D-1 athletic contracts. Just 2 programs remain with the once dominant brand, Georgia Tech and Southern Miss, both of which have contracts ending with the company in 2018. There has been no word on if their new suppliers will offer cut-off jerseys, the signature look from Russell’s heyday.

Russell Looks To Build On Retail Momentum