When looking back at the words written here one year ago, Sports Executive Weekly talked of a slowing merger & acquisition market and the challenges ahead as the sub-prime mortgage mess impacted the broader market.
Yes, one year ago (SEW_0801), we were already talking about the potential impact of risky lending practices, but there were few that could have predicted the kind of year the market saw in 2008. It is perhaps a lesson in just how connected the global economy is now, as the world watched as the sub-prime mess — essentially people buying more house than they could afford - wreaked havoc on economies from Syracuse to Shanghai.
The year-in-review issue last year spoke of oil surging past $100, a weak U.S. dollar and the largest first week dive on Wall Street in eight years and SEW found few reasons to raise a glass of cheer as we moved into 2008. Fast forward and SEW wonders how the world wasnt better prepared since all the warnings signs were there for everyone to see.
There were few winners for the year, just those that perhaps lost less than the other guy. Even the Asian factories that were benefiting from the wholesale shifting of manufacturing from the U.S. and Europe into China took a major haircut in market cap terms. At least 2009 has started off with energy.
There were few acquisitions of any major significance in 2008 as most of the serial consolidators of the past re-trenched and focused on consolidating within their acquired assets to wring as much cost savings as possible. SEW saw more of this as the year came to a close and companies looked for ways to cut expenses and build cash for the bumpy year(s) ahead.
Sports Executive Weekly editors and analysts are asked weekly about how long this current economic trend will last. The answer will have a lot to do with a nations psyche after a new President takes office, but SEW does not see a near-term end to the pain. In fact, we may be dealing with the new reality of a new economy based on need not want.
It is a new world out there and every business in this market is already making preparations for business-not-as-usual.
Unfortunately, the shift may be more permanent and lasting than most hope. SEW believes the U.S. consumer has taken a fundamental lesson from the last year and habits have changed. Conspicuous consumption is no longer in vogue, except perhaps in the ethnic urban markets. Excess is out and saving is in. A market tour during the holidays found more people working the aisles at Marshalls, Wal-Mart and even Goodwill, people that previously spent like mad at Nordstrom and other luxe destinations. The club store business, which not long ago mirrored the trends in the luxury business, is now a clear shopping destination point. It is now cool to shop discount. Fad or trend?
A well-respected retailer recently suggested that the sporting goods market could lose between 20% and 25% of the specialty business this year. This business, supported by the so-called “NPR Consumer,” finally hit its wall in the third quarter as Wall Street came crashing down. Until September, the specialty consumer seemed, for the most part, unaffected by the increased cost of gasoline or the foreclosures that were crippling the lower end of the market. In fact, the jump in fuel prices simply prompted many to buy a more expensive Hybrid vehicle or buy a new bike.
The specialty business actually improved. The year ahead will see more of these consumers run a few more miles in their current running shoes, forego a new tent this year and perhaps hold off on any new golf or fitness equipment for the foreseeable future. Kids will get a new glove, a new pair of baseball pants and other items they “need,” but the market for products they “want” will be impacted.
Analysts hoping for a mid-year turnaround may be disappointed. This is a fundamental shift in how people shop, which impacts how retailers buy and sell, that in turn has the obvious effect on how suppliers make and sell product. A retailer or vendor that doesnt attend a particular trade show this year for the first time may think they didnt miss anything.
Retailers stocking the shelves with “sure bets” may think they have their bases covered. Brands that re-trench to the basics may find a market for their goods, but stymie long-term development. The risk this market takes is just how far it goes to pull back in an effort to keep the powder dry. Do we risk losing the edge that has made this market so dynamic for the last three or four decades? A new brand or concept missed at a trade show could be the next UGG. Only relying on the top brands will curtail innovation from the specialty brands that fuel much of the market. Focusing on price-point basic product will result in the further degradation of the sporting goods business to a commodity business not unlike office products and hardware. The market must find the balance.
