Six footwear retailers have caught the eye of analysts.

While some women may still prefer heels, retail shoe sales have remained noticeably flat for the last several years.

The footwear industry is estimated to be a $33 billion annual market by Standard & Poor's. However, the industry has not enjoyed a surge in sales since the 1980s, when the athletic shoe frenzy was gaining momentum.

This year, consumer tastes appear to be changing again. Shoppers are seeking better-quality casual shoes, which they are now wearing as often to work as they are at home and at play. Retailers that have survived the recent rash of contractions are posting healthy sales figures, increasing their market share and finding success by responding to the growing demand for casual footwear.

Outdoor footwear is also gaining in popularity, as recreational-minded adults want shoes to match their lifestyles. Comfort is key, which is prompting many shoe buyers to leave traditional dress shoes in their boxes. "A generation of Americans who grew up in sneakers will not wear stiff wing tips or uncomfortable high heels," says Bill Boettge, president of the National Shoe Retailers Association, Columbia, Md.

An aging -- but active -- America is presenting shoe retailers with some opportunities to change and grow. An older population is putting more emphasis on quality products, contributing to increased sales of higher-priced shoes "which are doing better than the 'also-likes' and 'me-toos,'" Boettge says. The trend toward higher-quality casual shoes more than any other factor could help the footwear industry see "a bit of resurgence in the rest of the decade and into the new century," he says.

But the trend is not yet reflected in overall growth figures for an industry that has seen as many as 10 percent of its stores close in the past two years, according to Standard & Poor's.

Allison Malkin, vice president at Dillon, Read & Co. Inc., New York, reports that 2,000 footwear stores selling private-label footwear have closed over the past two years. She says the footwear market grew by just 1.6 percent last year. Athletic footwear grew at a more brisk rate of 11 percent, as did casual footwear, posting a 5 percent annual gain between 1991 and 1995. The sales surge prompted an increase in shopping center and mall space devoted to shoes, which had been declining in recent years by about 7 percent, she says.

Dillon, Read has identified five shoe retailers -- Kenneth Cole, Hush Puppies, Journey's, Naturalizer and Famous Footwear -- as ones to watch. And Standard & Poor's has tapped Payless Shoe Source as a dominant force in its niche.

Kenneth Cole emerges as a power Kenneth Cole Productions Inc., New York, is winning the battle of survival by selling its products in both its own stores and better department stores. More than 2,500 department and specialty stores carry Kenneth Cole, which Dillon, Read characterizes as "rapidly becoming a power brand."

Besides its presence in department stores, Kenneth Cole operates 26 company-owned retail stores, 11 outlets and its own catalog. Dillon, Read expects the company to generate 20 percent to 25 percent sales and earnings gains in each of the next five years through its shoe, accessory and wholesale business, additions to its company-owned retail stores, and increases in royalty income.

Total revenue is expected to hit more than $425 million per year in approximately five years, up from a 1996 total of $148.3 million. "Kenneth Cole has done an incredible job in offering style and has a strong brand image," Malkin says.

Malkin's report on Kenneth Cole explains that company-owned stores are a great advertising vehicle that have helped, not hurt, sales in department stores by increasing brand awareness. "Once consumers have been made aware of the brand, they are more likely to seek out [that brand] while stepping through the crowded shoe assortments in department stores," the report says. (Department stores on average devote only 9 percent of their space to shoes.)

"Our belief is supported by department stores' success with Kenneth Cole products in the same malls that house a Kenneth Cole specialty store," the report continues, adding that Kenneth Cole specialty stores' profitability tops the industry, with sales averaging $673 per sq. ft., triple the industry average.

Part of Kenneth Cole's winning record comes from its awareness of the new trend toward casual shoes, Malkin says. Dress shoe companies are scrambling to catch up, "broadening their styles and including casual lines," she says. "There are no signs of dress shoes coming back" as more professionals wear casual shoes to work.

Hush Puppies are back in vogue Even if they are going more casual, consumers still want quality and style, which is why many are rediscovering comfort and stability in the venerable Hush Puppies brand, a product of Rockford, Mich.-based Wolverine World Wide Inc. Hush Puppies Classics have seen a rebirth spurred by support from fashion designers who have used the updated classics in runway shows and by their presence on Tom Hanks' feet in the movie "Forest Gump."

The surprising success of the line "has opened new doors" for Wolverine, Malkin reports, and the brand is being sold in upscale department stores such as Sak's Fifth Avenue and Barney's as well as Nordstrom and JCPenney. Dillon, Read predicts that Hush Puppies can continue to grow sales at an 18 percent to 24 percent rate since the brand, like Kenneth Cole, is selling through multiple distribution channels under the same brand name. Wolverine shut more than 250 Hush Puppies retail stores in the past six years and now operates 51 outlet and seven full-price specialty stores, a level that is expected to remain constant in coming years, Malkin says.

Teen market fuels Journey's Consumers' desire for brand names has been heard clearly by Genesco Inc., a Nashville, Tenn.-based company that owns and licenses footwear brands including Johnston & Murphy, Dockers, and Nautica shoes, as well as Laredo, Code West, and Larry Mahan boots. Its retail store formats include Johnston & Murphy, Jarman, Journey's, Factory to You, and Boot Factory. Genesco operates 407 retail stores, with the focus on men's footwear in both dress and casual styles.

Malkin says Genesco has successfully restructured its operation, exiting unrelated businesses and closing unprofitable retail stores. She says she is particularly excited by the firm's mall-based Journey's stores, which posted 23 percent comparable store sales gains in the first nine months of fiscal 1997.

Journey's, which currently operates 109 stores in the United States and Puerto Rico, is geared to the teen market, complete with trendy styles, video monitors and telephones. Since teenagers visit malls more than other age groups, the chain offers strong growth potential. According to Dillon, Read, Genesco expects Journey's to reach 200 stores and exceed $160 million in revenue over the next four years.

Brown Group re-emerging Brown Group Inc., a $1.5 billion international footwear company based in St. Louis, has emerged from a decade-long restructuring program, eliminating unprofitable businesses and upgrading the quality and style of its footwear, reports Dillon, Read. The firm is positioned to increase its market share by increasing its department store presence and expanding its retail stores under the Naturalizer and Famous Footwear brands. It also could gain by acquiring new brands, the report continues.

In 1981, Brown acquired Famous Footwear, a chain that targets middle-income women. Typical Famous Footwear stores are 5,000 sq. ft. and offer branded merchandise at 10 percent to 50 percent below list price, according to Dillon, Read. The chain is benefiting from the default of other moderate-priced chains, and Dillon, Read expects it to operate up to 1,500 stores in the long term, opening approximately 34 new stores in 1997.

Brown's Naturalizer segment, a 60-year-old brand, "is expected to regain a high quality and stylish image by improving its product line, targeting baby boomers, remodeling stores, and advertising these changes to customers," Dillon, Read reports. Naturalizer operates 40 outlet stores, 313 retail stores in major malls and shopping centers throughout the United States, and 96 stores in Canada. The stores offer women's footwear in dress, casual and athletic styles.

Payless remains value-price king Segment domination has been one of the keys to success for Payless ShoeSource Inc., which clearly reigns over other value-priced merchants and has benefited from closing nearly 500 unprofitable stores last year alone (and opening 171 new ones), according to Brian Goodstadt, industry analyst at Standard & Poor's Equity Investors Services, New York.

The Topeka, Kan.-based firm has "taken advantage of the consolidation in the industry," says Goodstadt, noting that Fayva, Thom McAn, Shoe Town and others have fallen out of the market. With so many discount shoe merchants folding, the chain's biggest competition comes from national general merchandise discounters such as Kmart and Wal-Mart, which rely less on shoes for profit and offer a limited footwear selection.

The largest U.S. footwear retailer, Payless was spun off by May Department Stores in May 1996. Since then, its shares have risen steadily (from around $20 per share at issuance to about $45 currently).

The chain operates 4,236 stores in all 50 states, Puerto Rico and the U.S. Virgin Islands. About 748 locations are Payless Kids stores. The core stores average 3,400 sq. ft. and carry about 10,000 pairs of shoes in approximately 600 styles at an average price of just more than $11 a pair, according to Standard & Poor's.

Goodstadt reports that Payless' same store sales are up 10 percent through March 1997, outperforming the 1996 total increase of 3.6 percent. The retailer plans to open 50 new stores this year and 100 stores per year during the next five years.

In addition to strengthening its discount business, Payless has expanded into the medium-priced market by acquiring J. Baker's Parade of Shoes division, which sell women's shoes in a self-serve format. According to Standard & Poor's, Payless plans to expand Parade from 186 stores and $113 million in revenues to 800 stores and $600 million in revenues in the next five years.

Consumers are perceiving that value-priced shoe sellers are offering a better quality product. Combined with a decline of the moderate-priced segment, this has helped the lower-priced shoe sector to double its overall share of the shoe market in the last 15 years, Goodstadt says.

James B. Frantz is a New York-based business writer specializing in commercial real estate.