Morgan Stanley
  • Research
  • Jul 5, 2017

Athletic Footwear Brands Chase Growth via Fast Fashion

Consumers want new and now, a trend that is pushing athletic-wear brands to rethink how fast they can design and manufacture footwear.

Some people really love their sneakers—and not just the collectors. Maybe they’re hardcore runners wearing through new pairs every few weeks, or they just want to have the latest designs showcased by aficionados on curated blogs and various social media feeds.

Indeed, it has become commonplace for many consumers to see new styles online and shop for them instantly—followed by speedy delivery. This rise of “fast fashion,” particularly for footwear, is pushing brands to continuously roll out new models. For the world's largest athletic brands, the shift toward new and now poses both a challenge and an opportunity.

Since 2007, global sales of athletic wear have increased 61%. Faster supply chains can help sustain that growth for years to come.

The challenge: Revamp how they design and manufacture athletic shoes, a process that currently requires dozens of steps and long lead times. The opportunity: Streamline the process to as few as three steps, and incorporate new technology for creating prototypes and 3D printing to speed production of key materials. These and other innovations could boost revenues, with more direct sales and fewer discounts; improve margins and reduce operational risk; and finally, win more market share in an already booming category.

In a recent report, “The Need for Speed Hits Athletic Wear,” Jay Sole, lead apparel and footwear analyst for Morgan Stanley Research and his colleagues around the world collaborated to look at why and how some of the largest athletic brands are moving to reinvent their supply chains—and what this means for industry and investors.  “Improving supply chains should accelerate athletic wear share gains,” Sole says. “As brands offer more and better fashion newness, athletic wear can continue to outperform rival categories for the consumer's discretionary dollar.”

Global Athletic Wear Sales on Steady Upward Trajectory

Sources: Euromonitor, Morgan Stanley Research

Consumers Set the Pace

The athletic wear category has enjoyed a long run of growth. Since 2007, global sales of athletic wear have increased 61%. Faster supply chains, Soles says, can help sustain that growth for years to come. Morgan Stanley expects global athletic wear sales to reach $355 billion in 2021, up from $290 billion today. “The potential financial impact of faster supply chains could be game-changing for athletic wear stocks,” says Sole, whose team recently raised its long-term growth forecasts for the industry's leading players.

Social media and online retail have shifted the power from brands and retailers to consumers, who have access to more choices, creating a premium for novelty over brand loyalty. According to a Cotton Incorporated Lifestyle Monitor™ Survey, 47% of consumers say they want their favorite apparel store to offer new styles once per month or more often; for shoppers age 35 and younger, that preference for novelty jumps to 65%.

What Consumers Want: More New Styles, More Often


To meet this demand, athletic brands must reinvent their supply chains to bring products to market faster, offer a wider selection, and balance the need for enough inventory with the risk of too much. For athletic shoes, this is particularly challenging. “The traditional manufacturing process of an average shoe typically requires 28 separate, manual operations,” Sole says. “From the time when a designer first conceives a new shoe until a consumer buys it, the concept shoe can pass through hundreds of hands, travel across tens of thousands of miles, and take 18 months to complete.”

Brands Step Up Innovation

The largest brands have been investing heavily in research and development over the past five years. Now, their shift toward digital design and automated manufacturing is accelerating. Together, automation and digitization could cut lead times by 66% or more—to 4 to 6 months vs. 12 to 18—over the next five years. One leading athletic-wear company has set a goal of bringing lead times to six to eight weeks for half of its products by 2020.

“The pieces are in place for the industry to reinvent footwear manufacturing,” says Sole. Speed allows brands to capture sales upside on in-demand products in season, while helping to reduce “bad” inventory purchases, which usually result in deep discounts at the end of the season. “We think both factors add another 15% to top-line growth,” Sole estimates.

Meanwhile, the combination of direct sales and better supply-chain management should help increase full-price sales and reduce input costs, paving the way for industry margin on earnings before interest and taxes (a key performance barometer) to increase to 8.5% from 7.9% in 2016.

Biggest Players Take the Prize

While the entire athletic wear category is growing—benefiting brands, retailers and suppliers—the largest companies are best positioned to take advantage of supply-chain improvements. “We believe brands will capture 68% of industry profit growth over the next five years,” says Sole.

Brands Could Capture 68% of Industry Profit Growth Over Next 5 Years

Source: Morgan Stanley Research estimates

In fact, more customized products sold directly by brands, could boost eCommerce sales and help brands take market share from retailers. Morgan Stanley estimates that 50% of the top brands' unit growth could come via their own channels.

“Later moving brands may still prosper from strong industry trends, and retailers and suppliers capable of positioning themselves as strategic partners should win,” he adds. Companies that don't invest in supply-chain improvements or offer a differentiated value proposition, however, risk being lapped.

For more Morgan Stanley Research on the outlook for athletic wear, ask your Morgan Stanley representative or Financial Advisor for the full report,“The Need for Speed Hits Athletic Wear” (Jun 6, 2017). Plus, more Ideas.