Why Nike Should be Terrified of This Underrated Footwear Rival

By Markets Fool.com

Nike is the undisputed champion in the athletic footwear arena. The sports giant currently dominates the U.S. fitness footwear market, holding 62% market share, with sales of its popular basketball kicks leading the charge.

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At the end of Nike's fiscal 2015 fourth quarter, the company had future orders for its Nike brand shoes that totaled more than $13 billion, up 2% from the prior year. However, one of Nike's smaller and lesser-known rivals is looking stronger than ever today.

If the shoe fits
Once known for its knock-off sneakers and off-brand prices, Skechers is proving it is more than a one-trick pony. Skechers has sprinted past Adidas, New Balance, and others recently to grab the No. 2 brand share position in the U.S. athletic footwear market, behind none other than Nike.

That's an incredible feat for a company whose total revenue of $2.4 billion last year was less than 9% of Nike's $30 billion in revenue. Of course, it is important to remember that Nike's fiscal 2015 revenue also included apparel and accessories sales, whereas Skechers is solely in the business of selling shoes.

Source: Skechers.

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Nevertheless, Skechers is succeeding today in categories where Nike falls short -- specifically, walking and casual footwear. The company has gained meaningful ground with products such as its Skechers Memory Foam sneakers, Stretch Fit, and Relaxed Fit footwear.

Similar to Nike, Skechers also isn't shy about utilizing celebrity endorsements to tout its products. The California-based company has deals with everyone from drummer Ringo Starr and recording artist Demi Lovato to golfer Matt Kuchar and legendary quarterbacks Joe Montana and Joe Namath.

Yet, what Nike should perhaps be most terrified about is Skechers' ability to resonate with tweens, teens, and Millennials. The company's kids segment is vast and growing at a breakneck pace today. Some of the more popular brands within Skechers' kids category include S-Lights and Hot Lights, which contain a line of lighted sneakers and sandals for boys and girls; Skechers Airators or boy's sneakers with a built in foot-cooling system; Skechers Super Z-strap, offering an easy "z" shaped closure system for younger kids; and Elastika sneakers for girls with colorful bungee closures.

The lower price point of Skechers' kids shoes also gives it an edge over Nike in the space, particularly considering that most parents prefer not to overspend on sneakers that their kids will grow out of in a hurry. The cheapest pair of Nike boy's sportswear shoes, for example, cost $70 today, compared to $40 for a similar pair from Skechers.

While Nike is certainly large enough to maintain its athletic footwear lead in the years ahead, it would be a costly mistake to underestimate Skechers' growing influence in the market.

A smarter approach?
Skechers is making meaningful strides in product categories and segments where Nike could use some oomph -- namely in the so-called "tweens" demographic and casual sports footwear. For this reason, Nike might want to consider acquiring its underrated rival. Sure, shares of Skechers are trading around an all-time high north of $125 per share today. In fact, the stock is one of the best performing consumer goods names so far this year, having gained more than 126% year-to-date.

However, Nike's sheer size together with its cash-rich balance sheet would make acquiring Skechers costly but also more than doable. It would give Nike a more affordable brand, thereby helping it reach an even broader demographic of consumers than it already does. The bottom line here is that Skechers is a formidable competitor to the top dog in sports apparel and footwear today. It's time that Nike starts taking this rival seriously.

The article Why Nike Should be Terrified of This Underrated Footwear Rival originally appeared on Fool.com.

Tamara Rutter has no position in any stocks mentioned. The Motley Fool recommends Nike. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.