(Reuters) - Shares of sporting goods retailers were pummeled in early trading on Friday as dismal quarterly results from Hibbett and Foot Locker heightened investor concerns about a supply glut intensifying price wars in the industry.
The results closely follow those of bigger rival Dick’s Sporting, which warned on Tuesday that its gross margins could possibly be pressured in perpetuity.
The results also weighed on shares of suppliers including Nike Inc (NKE.N), Adidas (ADSGn.DE) and Under Armour (UAA.N). Nike was down 3.8 percent and was the biggest drag on the Dow .DJI and the S&P 500 .SPX.
“Athletic apparel and footwear is over-distributed and there is too much inventory in the channel,” John Zolidis, president of research firm Quo Vadis Capital Inc, wrote in a note.
“We see potentially several years of retrenchment as supply is reduced to meet the new, lower level of demand.”
Waning demand for basketball shoes, a steep drop in spending on sneakers, coupled with a pessimistic outlook for the back-to-school season have fueled investor worries over the industry’s path forward.
Apparel traffic dropped over the past three months, with July seeing the steepest decline of 4.6 percent, according to checks by Cowen analysts. Traffic is down 4.1 percent in the first seven months of the year, the analysts said.
Richard Johnson, the chief executive of Foot Locker, one of the largest sportswear chains in the United States, also blamed the lack of new innovative products in the market and expected the trend to continue through the year.
Sportswear retailers typically have exclusive tie-ups with suppliers such as Nike and Adidas to showcase their latest and limited edition products that usually help attract younger shoppers.
Also, looming over the industry is online retailer Amazon.com’s (AMZN.O) push into newer areas.
“The problem facing Sportsman’s Warehouse and Hibbett Sports is simple: Would a customer rather drive 30 minutes to one of their stores or stay home and buy from Amazon, especially with free shipping?” Nathan Yates, director of research at Forward View Consulting, said in an email.
The industry is also struggling to clear inventory following a string of bankruptcies including those of Sports Authority, Performance Sports and Gander Mountain.
“We predict several years of pain for the companies that compete in this arena,” Zolidis said.
Reporting by Gayathree Ganesan in Bengaluru; Editing by Sriraj Kalluvila