Footwear Spending Seen As More Resilient During Recessions Than Apparel Purchases
In the world of softlines, the footwear sector is in better shape than its apparel counterpart should the U.S. economy fall into a recession.
“Footwear is more resilient than apparel,” concluded Morgan Stanley equity analyst Alex Straton in a research note that addressed recession risks against the backdrop of rising tariffs.
The spate of tariffs imposed by U.S. President Donald J. Trump has many on Wall Street cautioning about a possible recession ahead.
Those concerns were raised after Trump announced reciprocal tariffs, with double-digit increases, on April 2. That was followed by a 90-day pause on the increased duties for most imports on April 9 to allow for trade deal talks.
The exception was China-made imports, where many footwear manufacturers are based, which saw duties upped to 125 percent on April 9, effective immediately. In general, the 90-day delay — which includes imports from Vietnam, which is a manufacturing hub for sneakers and athletic performance footwear — isn’t doing much to assuage fears over the potential for slowing growth ahead.
And economists at Wells Fargo disclosed on Tuesday that its Animal Spirits Index (ASI) for March fell below zero to -0.34 for the first time since October 2023, indicating that tariff uncertainty has shaken investor sentiment. ASI measures the rise and fall of investment prices based on five cognitive and social psychological human emotions that include confidence, corruption and money illusion.
According to Morgan Stanley’s equity analyst Simeon Gutman, a possible 2025 to 2026 recession, if it were to materialize, would likely be consumer led. That’s due to increased disruption and tariff costs imposed on retailers, particularly those dependent on China-sourced merchandise, coupled with inflation in the price of discretionary goods.
U.S. apparel and footwear spending in past U.S. recessions showed “earlier, deeper, and longer declines relative to broader consumer spending” categories, Straton said. The two categories tend to be among the first to deteriorate during a recession, and they also appear to have a longer recovery timeline —twice as long as other nondurable categories during economic downturns — when it comes to consumer spending.
Between the two, footwear is more resilient because it decelerates less than most consumer categories on average, or down 1 percent versus down 3 percent for department store sales and down 7 percent for apparel and accessories stores. Core retail sales average a decline in sales by 5 percent, according to data from the U.S. Census Bureau and Morgan Stanley Research.
“While apparel sales deceleration typically begins immediately when a recession ensues, we highlight footwear retail sales declines did not begin until three quarters in on average,” Straton said. She also expects specialty retail to underperform during a recession, and off-price retailers to outperform on revenue and operating margin due to the trend towards consumer trade-down.
Looking ahead, fashion firms this time around could be more disadvantaged versus prior downturns, with one factor possibly higher operating cost structure or fixed cost base than in previous downturns. But higher inventory levels currently also could provide some benefit as they’re not burdened by the new tariff expense.
As for when the economy — and consumer spending in fashion and footwear — might show signs of improvement, keep an eye on fashion stocks. Textiles, apparel and luxury goods stocks “meaningfully underperform” other consumer discretionary stocks in the 12 months leading up to the start of prior recessions. Straton noted that stocks in the sector also begin to outperform 6 to 12 months following the start of a recession, even though broader consumer spending in apparel and footwear continues to lag for another 12 months. After the 12 month lag, fashion stocks tend to outpace other consumer discretionary industries.