Toning Shoes Lead to Lawsuit for This Retailer

The toning shoe phenomenon launched by Skechers (NYS: SKX) three years ago continues to kick retailers in the head.

Discount department store Target (NYS: TGT) is the latest to settle a lawsuit brought by a shopper who purchased a pair of $40 toning shoes from the retailer, allegedly buying into the claims it would improve her muscle tone, posture, and comfort. As the settlements that Skechers, Reebok, and New Balance ended up paying out indicate, such claims were built on a foundation of the very sand the shoes purported to mimic to get you into shape.

Kicked to the curb
Toning shoes became big business real fast. Skechers, as the innovator in the industry, rode the fad far. Its shares went from under $6 each in early 2009 to almost $44 a stub the following year, a 287% annual compounded growth rate. Industrywide sales of toning shoes surged to $252 million over the first four months of 2010 and hit $1.1 billion by year's end as Puma, Keds, and even Crocs (NAS: CROX) -- itself once the poster child of fad footwear -- got in the race.

But the bubble popped just as fast: By the end of 2010, Skechers had lost half its value and followed that with another 50% loss of value by the end of the following year. So far in 2012, the sneaker maker has regained 40% of the ground it lost, but it's also fallen back by 25% from its highs.

One notable footwear company absent from the kerfuffle was Nike (NYS: NKE) , which apparently refused to sully its name by getting into the fad (though perhaps getting kids to part with $200 to $300 for a pair of Jordans is likely profitable enough).

Walk a mile in my shoes
As it became apparent that Kim Kardashian didn't keep her curves as curvaceous as they are because she wore ShapeUps, the Federal Trade Commission stepped in to rule that the claims of health benefits from wearing the shoes were deceptive. Skechers ended up paying $40 million because of its misleading adds, while Reebok was forced to fork over $25 million. New Balance as well paid $2.5 million. Lawsuits galore like those against Target began, and Payless Shoes was giving away $8 certificates to anyone who bought a pair of toning shoes at their stores. While Target's settlement is undisclosed, it did sell some $9 million worth of the shoes.

Obviously the toning shoe dust-up is a small enough part of Target's business that the settlement, whatever it is, likely won't be a material disturbance to its performance. Others, though, continue to be weighed down by the settlements and the lawsuits, though over time I think Skechers will recover. Trading at less than 60% of its sales and under its book value, the sneaker maker still holds real value. For Target, look to the sale of its credit card business to TD Bank (NYS: TD) for a far more important driver of value.

Fleet of foot
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Rich Duprey owns shares of Nike and Skechers. The Motley Fool owns shares of Crocs, Nike, and Skechers. Motley Fool newsletter services recommend 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.

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