By Thomas J. Ryan and Eric Smith
As the new year gets underway, plenty of questions linger around the active lifestyle, outdoor and sporting goods industries. The writers of SGB Executive came up with, fittingly, 19 questions that are likely to dominate headlines in ‘19, including the future of trade shows, the staying power of the athleisure trend, the effects of the trade war, the impact of channel disruption and much more. Here they are.
- Will trade shows continue contracting? 2019 could be a watershed year for trade shows in the active lifestyle space. Not only did Emerald Expositions cancel Interbike and shorten two Outdoor Retailer shows, but there is grumbling around the outdoor world that three shows—notably Winter Market in November and Snow Show in January—is one too many. However, run specialty events like The Running Event and Fleet Feet’s national franchise conference are doing well. And Paddlesports Retailer, held last summer for the second time ever while making its Oklahoma City debut, garnered plenty of praise from attendees, especially for its rad demo day. Perhaps trade shows need to rethink their format and offer other forms of excitement beyond happy hour beers and other means of education beyond keynote speeches and panel discussions.
- What will Emerald Expositions’ CEO say on next month’s earnings call? Let’s stick with trade shows for the second question. We may know sooner rather than later the fate of Outdoor Retailer. Emerald Expositions holds its quarterly earnings call in February, a few weeks after Snow Show. Will Phil Evans, Emerald’s interim president and CEO, throw OR under the bus? After all, on November 8, during a conference call with analysts following Emerald’s Q3 earnings release earlier that morning, Evans said soft numbers for OR Winter Market led to reduced revenue guidance for the year. Will similar comments be made as the company explains the Interbike decision and assesses whatever happens at Snow Show? Stay tuned.
- Will the athleisure trend cool down? The marketplace is stuffed with brands and retailers chasing the athleisure bandwagon at the risk of overexposure. At the same time, some see a fashion shift back to jeans, sending leggings and tights to the sales rack, and also leading many women to scoop up fashion boots at the expense of sneakers. But stretchy tops and bottoms sure are comfortable and Lululemon’s 17 percent third-quarter comp increase indicates the athleisure trend may have some legs left.
- How will tariffs reshape supply chains? Many brands had been reducing production in China in recent years with rising production and labor costs in the country, but the tariff war now has many scrambling. With valid concerns about access to markets and intellectual property violations, tariffs are expected to eventually hit a broad range of items in the active lifestyle industry. Will shifts to source to nearby regions lead to delays or shoddy quality? Will near-shoring or American production become more critical as promised? Will prices to consumers have to rise?
- What channel disruptions await? In November, Nike began selling through Walmart’s Jet.com website, a year after selling product directly on Amazon. The moves surprised some given Nike’s stated goal of having the wide majority of sales coming from “differentiated” spaces by 2022. On its second-quarter conference call, Nike also again reiterated that it sees greater opportunities to sell in moderate channels. Said Mark Parker, CEO, “We want to leverage some of the platforms that we’ve introduced more completely with more accessible versions of those products for those products within those platforms, as well as actually creating unique innovation that is targeted towards that core, more accessible price point.” Nike is not alone among brands looking to drive volume online and at lower channels while avoiding impacting core channels and their overall brand image.
- Will online shift further accelerate? In the third quarter, online sales vaulted 76 percent for Adidas globally and 35 percent for The North Face. For Columbia, e-commerce sales were up-high 20 percent in the third quarter in the U.S. Lululemon boasted a 46 percent digital comp leap and indicated online revenues represented about a quarter of its business. Nike reported a 41 percent hike in digital sales in its recent second quarter and predicted that online revenue—both from its own and wholesale partner websites—would eventually make up over half of its revenues, up from 15 percent currently. The increased use of smartphones as a shopping tool is just one factor supporting online shopping’s expanding appeal.
- Will experimental retail bring more experimentation? Lululemon holds in-store yoga classes and many run specialty store orchestrate group runs. Inside some PGA Tour Superstore locations, guests can practice their putting on a 1,400 square-foot putting green, and work on their swings in high-tech interactive simulators and indoor driving range. REI regularly holds educational workshops. Millennials place high value on experiences but adding more interactivity or in-store events to stores is seen as a key differentiator to online selling. If it’s just commerce, consumers can likely find it easier and cheaper online.
- Will firearms battle escalate? As of January 1, people under 21 were no longer able to buy semi-automatic rifles in Washington as state legislators push a number of new laws aimed at reducing gun violence. The National Rifle Association promptly filed a lawsuit. Other states have also strengthened their gun laws in the absence of federal action. Will a Democratic-controlled Congress change that?
- Who will be the next company to go outside its lane in pursuit of M&A? Last year saw a retailer (Canadian Tire) buy an outdoor apparel maker (Helly Hansen), and a U.S. company known primarily for one category (Callaway Golf Co.) go outside its core expertise to acquire a brand in a different space (Jack Wolfskin). On top of that, a Chinese sports giant (Anta Sports) bought a Finnish outdoor giant (Amer Sports), while companies like Canada Goose added a new category (footwear maker Baffin). It’s only a matter of time before another surprise deal hits the wire, but the blurring of channels and customer bases will make these acquisitions less surprising over time. Click here to read our M&A recap of 2018.
- What will be the big consolidation story of 2019? Will private equity continue to invest in the active lifestyle, sporting goods and outdoor industries? Will strategic deals ramp up as brands look to acquire growth in hopes of supplementing organic sales? Will any industry experience a truly market-shifting deal, a la Anta Sports and Amer? Speaking of which, that deal will be fun to follow as a major Chinese player—who most of us don’t know much about—takes on the U.S. and European outdoor markets and takes over such iconic brands as Arc’teryx, Salomon, Suunto, Wilson and Atomic.
- Which brands will take a political or social stand—and will the rewards outweigh the risks? The political landscape shifted as of January 3, when Democrats took control of the House of Representatives, but many of the same battles that brands have been fighting for two years—such as access to public lands, gun control and fairness for people of color—continue to rage. Some of the brands (e.g., Patagonia, Dick’s Sporting Goods, Nike, Yeti) that took action in 2018 succeeded in their stances while others stumbled. As they learned, being political can create an equal number of brand loyalists who buy your gear and brand detractors who burn it on social media.
- How will brands differentiate? If someone were to hang every backpack being showcased at Outdoor Retailer on a wall next to one another and remove the labels, the packs would be impossible to tell apart. That’s how more than a few people have described some of the outdoor gear and sporting goods being made and sold in today’s marketplace, and the same could be said for numerous softgoods and hardgoods categories. Product is cool and all, but companies create a competitive advantage with their business acumen—savvy marketing, supply chain optimization, smart sourcing (especially as the trade war escalates), true sustainability (not greenwashing), authentic messaging, an ability to recruit and retain the best talent, and a sound channel strategy. The companies that focus on these factors (while also making awesome gear, of course) will be the ones that take share.
- Where will innovation go next? Associations are rightfully honoring the innovations happening across their industries. The Sports & Fitness Industry Association hosted its third annual Start-Up Challenge (see more on this below), while Outdoor Retailer hosted its inaugural Innovation Awards, with Product of the Year honors going to PrimaLoft’s new insulation, Bio. The awards could help overcome the stigma that some in the investment banking community have shared about a lack of innovation in the industry. Or maybe it’s just a perception that brands outside the “ingredient” category—such as waterproofing and insulating layers—are lagging behind. Either way, an emphasis on innovation, and the messaging that goes with it, will earn capital investment and spark top-line growth for leading-edge brands.
- What’s the next big idea in sports and fitness? The Sports & Fitness Industry Association held its third annual Start-Up Challenge at the Industry Leaders Summit last September (read about it by clicking here). The winner was Nix Biosensors, creator of high-tech sensors that are capable of measuring and managing a person’s hydration status via sweat to optimize safety and physical and cognitive performance. The company beat out five other innovative startups, which were chosen from a field of many more innovative entrants. The event signals a positive step for the industry and an investment vehicle for a private equity community that is seeking new products and services to deploy capital.
- Will concussion concerns widen? While NFL ratings improved this season, youth participation in football continues to decline and that’s largely traced to concerns over concussions. NFL and NHL lawsuits, a number of scary studies and new protocols to track and treat sport-related concussions kept concussions in the headlines in 2018 and pose a threat to other collision sports, including hockey, soccer, lacrosse, wrestling and even cheerleading. Smart helmets and other concussion-detecting and prevention technologies can’t arrive too soon.
- Will department store channel stabilize? Mastercard reported holiday sales increased a healthy 5.1 percent but department stores finished the season with a 1.3 percent decline from 2017. That followed two years with subpar growth below 2 percent, some of which can be attributed to store closings. Last year, Bon-Ton Stores liquidated, Sears filed for bankruptcy, and J. C. Penney’s stock closed the year at $1.04 amid losses and executive turnover. Macy’s and Kohl’s are performing better but many on Wall Street remains concerned overall about multi-brand retailers with many brands increasingly selling direct to consumers.
- What’s next for Me-Too? The Me Too movement against sexual harassment and assault caught a number of firms in the active-lifestyle industry, including Nike, Lululemon and Under Armour, Some articles wondered whether industry executives were only bringing the locker-room culture they were brought up on to the workplace. The movement also faced some backlash. But evolving attitudes may in the end help reduce the challenges women have faced around fair pay and career advancement in the workplace.
- What will happen in active lifestyle, sporting goods and outdoor media? Active Interest Media/SNEWS is launching The Voice at Outdoor Retailer Snow Show this month after losing the contract for the show’s official publication, The Daily. Day 1 of Show Snow will have a media battle of sorts happening outside the Colorado Convention Center as reps distribute both pubs to incoming attendees. Which one will get the better pickup rate? More importantly, which one will brands spend their advertising dollars on? Meanwhile, SGB Media has some big plans we’ll be unveiling in the coming months to elevate the role that the trade press plays in the industry.
- Can Vans stay on track to hit $5 billion in annual revenue by 2023? The VF Corp. flagship brand announced a lofty sales goal at its annual investors meeting last summer, and each quarter will give shareholders (and curious media) a chance to see how—and if—the brand is meeting its targets. An economic slowdown could throw a pebble under Vans’ skateboard wheels, but the company’s leaders are confident in its goals, as are shareholders. Also worth watching is whether the fate of Vans, if it’s up or down, has any bearing on VF’s other brands, something CEO Steve Rendle told SGB is bound to happen (read our interview with Rendle and CFO Scott Roe by clicking here).
Photo courtesy Outdoor Retailer