Investors have given shoe stocks the boot this year.

Over the past 12 months, a group of shoe companies tracked by

Baseline

has retreated 15%, compared with a 51% gain in the

S&P Retail Index

.

"Where people are shopping, there are not a lot of shoes being sold," says Marcia Aaron, an analyst with

BT Alex. Brown

. "And you have a lot of excess capacity in footwear."

While major players are still struggling with changing trends and slackening demand, some analysts and investors say the worst may be behind these companies. Take

Nike

(NKE) - Get Report

. Last week Faye Landes upgraded the sneaker giant to buy from hold -- a significant move considering the

Salomon Smith Barney

analyst was one of the first to warn of a sneaker slowdown in the spring of '97. Her firm hasn't performed any underwriting for Nike. But rather than being grounded in a string of improving fundamentals, Landes' upgrade was based mainly on the premise that business can't get much worse.

"The bad news is probably all out, and any good news might be viewed as an upside surprise," Landes wrote. But she added: "We think the company's prospects for both near- and long-term top-line growth are fairly limited."

There's no easy answer as to why people stopped buying shoes. But a combination of oversupply and changing fashion tastes has left the group in shambles. Here's a look at some of the major players in various categories and where they stand.

Athletic Shoe Blues

The problems in the athletic sector stand out most sharply at

Venator

(Z) - Get Report

, the retailer that shed its five-and-dime stores to focus on athletic shoes and apparel at its

Foot Locker

stores. Today Venator is one of the largest players in the athletic retailing business, which makes it a good barometer for the health of major suppliers like Nike and

Reebok

(RBK)

.

In Venator's most recent quarter ended Oct. 30, inventories climbed 26%, even though same-store sales declined 5.3%. Gross margin for the period declined to 25.1% of sales from 33% a year ago, mainly because of markdowns to clear inventory.

With Venator's inventories bloated, it's unlikely that the retailer will increase purchases from manufacturers in a meaningful way any time soon. Plus, as Venator slashes prices to clear its inventory, it places pressure on other athletic retailers to do the same. In this way, the whole group suffers.

That leads John Shanley, an analyst with

JW Genesis Capital Markets

, to lend a cautious note to the long-term buy he has on Nike. "I'm not convinced they'll ride out cancellations from some of the big retailers unharmed," he says. His firm hasn't performed underwriting for Nike.

Nike didn't return a call seeking comment.

Reebok too is struggling with slow demand in the athletic sector. But this company also has internal problems to mend. Reebok, which revolutionized the sneaker with its popular aerobic shoes nearly 20 years ago, lost focus in the '90s. Today, the company is retrenching from an expensive program of superstar athletic endorsements and focusing more on technical innovations. Its

DMX

running shoe, which introduced air cushions that move with the runner's foot, has been winning over consumers. A Reebok spokesman notes that sales of DMX shoes increased 45% in the third quarter ended Sept. 30, compared with the same period a year ago.

Reebok intends to build on that success by introducing a shoe in January called

Fusion

, which combines DMX technology with another innovative shoe, the

3-D Ultra Lite

.

"DMX is the brightest thing they've got on their merchandising front," JW Gensis' Shanley says. But he adds that the shoe isn't likely to help Reebok overcome its other problems with its apparel business, as well as cancellations for the

Rockport

line of brown shoes and mounting losses in Latin America. Shanley rates Reebok a hold. His firm hasn't performed underwriting for the company.

The Reebok spokesman says the company has scaled back its use of superstar athletes to endorse products and has let its contract to clothe certain teams in the

National Football League

expire, because the deals were unprofitable. Reebok also will be absent from this year's

Super Show

, a major trade show in Atlanta for athletic footwear and apparel.

"It was a tremendous investment in financial resources with very little impact on our business," the spokesman says. Instead, Reebok will be using those funds to better market women and kid's shoes.

As for Rockport cancellations, the Reebok spokesman would only say that Rockport is more of a "fill-in line than a feature item. The impact of cancellations isn't critical to the company, but may indicate a softness in the brown-shoe category."

Brown Shoes Gone Soft

As bad as the athletic front appears, the brown-shoe market is worse, Shanley says. "Our contacts said the brown-shoe category is presently one of the worst-performing soft lines in the department stores," Shanley wrote in a research note. "We heard at the

New York Shoe Show

that forward orders are being canceled for brands such as

Timberland

(TBL)

and Rockport."

The problem is twofold: Sturdy brown boots don't wear out fast. Kids who bought brown boots last year don't need another pair this year. And as the popularity of wide-leg jeans has given way to a more classic look, teens are moving to less chunky shoe styles.

A Nine West Shoe in Every Closet

At

Nine West

(NIN)

, the

Gap

of shoes with a store on nearly every corner, overexposure combined with lack of focus caused problems for the company. Turning away from its classic roots, Nine West began featuring more fashion-forward shoes that didn't always hit home with customers. At the same time, it began a major brand extension, placing its name on everything from jewelry to leather jackets.

In its most recent

Securities and Exchange Commission

filing for the October quarter, Nine West says soft consumer demand has resulted in "excess inventory at the retail level and corresponding heavy promotional pricing activity in the company's wholesale and retail businesses." It expects these difficulties to impact sales and margins through its fourth quarter ended in January.

Nevertheless, one value investor has begun buying shares. Jonas Gerstl, portfolio manager with

Egs Partners

in New York, says Nine West is cleaning house by closing facilities and consolidating products. While he doesn't expect a turnaround for at least six months, he says once Nine West gets its act together it will have a major impact on the industry, because they are a "category killer and most department stores need Nine West" to drive their shoe departments.

"The worst is behind them," he says.

Perhaps that's the first step toward recovery.