What major business stories will we be talking about in 2022? In the past two years we’ve seen the impacts of COVID shake up the footwear business, impacting retailers and brands large and small. Casual and athletic footwear has been hot, e-comm has evolved and inventory/supply chain challenges have been a constant talking point. Here, we look into our crystal ball to forecast five key trends and stories to watch in the new year.

1. Mergers & Acquisitions

More footwear brands and retailers will be acquired in 2022. Surging momentum in M&A activity—a 22 percent year-over-year increase to almost 60,0000 transactions in 2021—is forecast to continue into 2022 and likely for another 5-7 years, according to experts. A KPMG survey of 345 corporate dealmakers suggest the increased activity is being fueled by historically low interest rates, ample investment capital and a rebounding global economy. Transaction levels will remain high largely for two reasons: KPMG respondents suggested companies “need to remain on the offense with the competition” and “feel pressure from investors to raise their own valuations.” Also, one-third of those surveyed believe M&A’s will be used to acquire talent given the widespread labor shortage.

How many of these deals involve footwear companies, however, remains to be determined. But the sector will certainly be touched by M&A activity before year’s end, more likely sooner than later given looming, planned interest rate hikes this year by the Federal Reserve Bank.

In 2021, there were eight major deals in the footwear segment that were split between retail and brands. The latest involved Crocs’ $2.5 billion offer for the $570 million HEYDUDE business, which it hopes to grow to a $1 billion label in short order. Another pending deal of note, also $2.5 billion in size, involves Authentic Brands Groups’ acquisition of Reebok from adidas Group that is expected to close in Q1. On the retail side, large businesses got bigger through M&A activity in 2021. Foot Locker gobbled up WSS and Atmos; JD Sports acquired both DTLR and Shoe Palace; Shoe Carnival increased its door count by purchasing Shoe Station and Fleet Feet bought JackRabbit, and its ecommerce business, in mid-December to create the nation’s largest run specialty retailer.

2. Stronger Bonds Between Vendors and Retailers, Vendors and Consumers

Independent retailers have told us throughout this past year that communication and relationships have been key to their strongest vendor relationships during the course of the pandemic.

This will accelerate if more major footwear brands follow Nike’s Digital-first strategy and pare back their respective rosters of worldwide wholesale partners to chase higher-margin digital and direct-to-consumer sales. Such a development would create more opportunity for newer, small brands or revival labels, such as Etonic and Prince, to forge stronger bonds with networks of smaller independent retailers to increase their fortunes and a create a sense of brick-and-mortar retail exclusivity for their respective labels among consumers.

In what may become a blueprint for other “power” brands, Nike has a different retail strategy — and it does not involve a lot of retailers. The Swoosh, which says it cut its North American strategic wholesalers list by 50 percent since 2017, grew its year-over-year North American digital busines by 40 percent in the quarter ended Nov. 30. More recently, the folks in Beaverton are showing a new coziness with partner Dick’s Sporting Goods along with the retailer’s growing premium footwear departments and focus on women. But Nike is showing seemingly less warmth to longtime affiliate Foot Locker. Meanwhile, Reebok’s soon-to-be parent Authentic Brands Group has already struck a tight bond with U.K.-based JD that guarantees distribution for the Vector brand in 2,800 JD-owned banners, including Finish Line, JD Sports, Shoe Palace and SportZone this fall in North America and Europe.

According to a recent Forrester Research report on 2022 retail predictions, retailers will continue to look for and form new partnerships to diversify “everything from revenue sources to customers and channels.” Also, the same research suggests more retailers will embrace the “circular economy trend” that promotes resale and re-purposed clothing and other items.

3. Retail Sales Will Slow but Few Door Closures on Horizon

Retail sales are forecast to slow a bit in 2022 due to difficult comparisons against 2021 and 2020, the lack of federal stimulus money this year and the likelihood that consumers will spend more on services such as travel and leisure (COVID-19 notwithstanding) and less on consumer goods. While sales will still be higher, surviving retailers will need to work harder and smarter to not only maintain but also grow their top and bottom lines.

“So, inflation, in some ways, does help retail sales,” D.A. Davidson analyst Michael Baker told Yahoo Finance Live in early January, “because it is additive to the sales dollars. We do expect a slowdown in units, however. And again, some of that is a little bit less stimulus supporting the consumer wallet, as well as, if you need to spend more on groceries and the like, you’re probably going to buy a little bit less discretionary goods.”

2022 “will mark a shift from possibilities to priorities” for retailers, proclaims Carol Spieckerman, a retail consultant and president of Spieckerman Retail. “Now as retailers make acquisitions, forge new partnerships and build internal solutions, so many options and capabilities are open to them,” Spieckerman said. “So, they need to shift their focus to identifying priorities and acknowledging that each retailer’s priorities will be unique…There aren’t any templates anymore.”

4. Inflation and Consumer Reaction to Higher Prices

Research and recent trends point to higher prices for footwear in 2022, certainly by the Back-To-School season in June/July 2022. But it remains unclear how consumers will react to them. Will there be pushback, or will shoppers buy-in completely if it’s a highly coveted silhouette they want? What retailers will be forced to eat merchandise margin to satisfy customers? Does the higher product price landscape and overall rising U.S. inflation put smaller retailers at more risk in 2022?

In Fall 2021, senior executives at publicly traded shoe companies were suggesting price hikes would likely be strategically placed, not across-the-board, and that there had been little consumer resistance to increases instituted to date. Large retailers, it appears, have responded to these expected price hikes by their branded partners, by developing lower-priced, private label alternatives in both footwear and apparel. Lesser-established branded labels could also fill lower retail price point voids this year.

Nike will undoubtedly rise prices in 2022, most likely at the start of its Q1 on June 1. In late December, Swoosh senior executives confirmed to analysts that costs are on the rise due to “higher macros input costs” and spiking supply chain outlays. Dr. Martens management has confirmed that price hikes for its products, averaging more than $13 a pair, are coming on Fall/Winter products in the U.S. and Europe due to higher transportation and raw material costs. Adidas, meanwhile, which expected to lose capacity of 100 million units in H2/21 due to closed contracted factories, says its price increases will average mid-single digits this year.

Meanwhile, 91 percent of respondents to the Footwear Distributors and Retailers of America (FDRA) Shoe Executive Business Outlook Survey for Q4, said they would likely need to raise prices over the first six months of 2022 due to higher operating costs, port backlogs, higher landed costs, and a tight labor market.

Of course, the end of persistent supply chain woes could come to an end in the back half of 2022, perhaps flooding markets with more products, long unavailable, and re-igniting promotional pricing that would ultimately lead to lower margin rates for retailers and vendors alike. To date, no one wants to publicly address this possible scenario. But its likelihood bears watching.

5. Sustainability Will Grow in Importance with Rising Influence, Purchasing Power of Millennials, Gen Z

While retailers, manufacturers and suppliers continuing to grapple with how to best remove the price barriers associated with sustainable products, the issue of sustainability remains a front-and-center issue for today’s young consumers who expect their brands and retailers to be socially and environmentally responsible with sourcing, packaging and delivery. Combined, Millennials and Gen Z consumers today represent some $740 billion in spending power.

“Companies that don’t have sustainability as part of their core value proposition need to act now to protect against future reputational impacts and loss of market share,” says Shikha Jain, author of a Oct. 2021 study on sustainability and a partner at Simon-Kucher & Partners. The group found that the importance of sustainability during the purchase process continues to rise with sustainability an important purchase criterion of 63 percent of consumer goods buyers.

The sustainability efforts in footwear run deep with nearly every major brand making it at least a stated focus, and select innovators truly pushing the envelope with terms such as circularity and zero waste becoming serious goals for eco-conscious leaders. Newer brands built on sustainability stories finding strong success — such as Allbirds (which went public last year) and Rothy’s (recently receiving a major investment from Alpargatas) — are further proof of eco viability.

A July 2021 survey by First Insight and Wharton’s Baker Retailing Center of 1,000 U.S. consumers found 68 percent willing to pay more for sustainable products versus 58 percent in 2019 with the improvement attributed to more awareness of the sustainability issue by older generations.