SGMA International released its annual state of the industry report at the Super Show in Orlando, Fla. highlighting some key trends and pointing out several challenges the industry will face in the coming year. According to SGMAs calculations the vendor/manufacturer side of the sporting goods industry grew by 4% in 2004, reaching $52.1 billion in wholesale sales.
For the purposes of this report, wholesale sales from the outdoor industry are dispersed across four different categories-Sports Apparel, Athletic Footwear, Water Sports, and Outdoor. Since outdoor apparel and footwear are lumped into broader categories, it is difficult to get a feel for the real performance of the Outdoor industry from this report. The same is true for the Bicycle and SnowSports industries, which are lumped into the Sports Equipment category. In spite of these details, the State of the Industry Report gives a very insightful, broad portrait of the sporting goods market as a whole, and identifies several factors that have a direct impact on the Bicycle, Outdoor and SnowSports markets.
SGMA International asserts that two main factors impact sales of sporting goods in the U.S.-the economy, and participation. With the industrys overall sales increase roughly in-line with the increased GDP, it becomes clear that the industry is benefiting from the improved economic conditions in the U.S., especially when participation numbers are taken into account. Most sports are retaining their core frequent participants but loosing casual participants.
SGMA international estimates that the industry will grow roughly 3.5% in 2005. All estimates in the report are based on several key metrics, including SGMAs State of the Industry Survey of over 80 sporting goods companies; the results of this survey are included in the complete report.
In the outdoor category, which includes equipment for hiking and camping only, wholesale sales were slightly behind the overall sporting goods market with a estimated 2.9% increase to $1.8 billion in 2004. Nonetheless, this shows a marked improvement over the past few years in which the Outdoor category was relatively flat. SGMA attributes this years slight up-tic to the improving economy and innovative product design sparking consumer interest. SGMA projects the Outdoor category will grow 3.1% in 2005.
Sports Apparel wholesale sales increased an estimated 5.5% in 2004 to $24.1 billion, and this category is expected to grow 4.5% in 2005. The Athletic Footwear market grew 2.6% in 2004 $10.0 billion. SGMA projects this category will see low-single-digit growth again next year.
Apart from the reported sales numbers and projections, SGMA also provides some valuable insights into business conditions and the impact of changing sourcing structures, mergers and acquisitions, government funding, and the internet.
One of the biggest changes to take place among vendors and manufacturers in the coming year is certainly the abolition of the import quota system. Many vendors will shift their sourcing strategies, but it is looking unlikely that the predicted stampede to China will occur. 50% of the vendors surveyed by SGMA said that they do not plan to change their sourcing structure while 44% said they will use more off-shore sources and only 6% said they will look inside the U.S. for more manufacturing.
Several other factors were also identified in the survey. 64% of the vendors and manufacturers surveyed said that there would be fewer, bigger retailers in the sporting goods industry in the coming year, and 57% said that manufacturers would be assuming more inventory risk. These two trends are going hand in hand-as retailers get larger and account for a larger percentage of a vendors sales, they can dictate terms more readily.
This phenomenon is creeping up on the outdoor industry. Many independent retailer do not consider mega-stores like Dicks, Bass Pro, Cabelas, and Gander Mountain as competition, but one look at the camping department or shoe wall in any of these stores shows several brands that specialty shops depend upon.
The ski industry has been dealing with big box competition for years, but the TSA- Gart acquisition consolidated two of the largest competitors under one roof. The more recent Dicks – Galyans acquisition also consolidated the industry and brought the possibility of a SnowSports section to Dicks.
The survey also reported that vendors are expecting their sales to mass merchants to increase by 32% next year, while sales to independent sporting goods stores are only expected to rise 12%, and sales to sports specialty stores should go up 11%. This vast difference clearly shows the direction of the market.
The final trend, which is affecting apparel companies in all corners of the sporting goods industry, is the proliferation of private label apparel. All of the major retail chains in the Bicycle, Outdoor, and SnowSports markets say they want private label sales to grow as a percentage of total sales.
REI has always had an aggressive private label program, and this year their efforts were increased. EMS, after its management buyout, announced it would ramp-up its private label sales. Dicks has repeatedly told analysts that Private label will be a bigger part of their business. The goal of these retailers is clear-create competitive advantage by creating a brand your competitors do not have and increase profits by cutting out the middle man.
For apparel companies, this means they have to focus on innovation and brand building-two things that most retail private labels lack. For retailers who are too small to produce private label merchandise, it means they need to support the innovative brands that have a strong and loyal customer base.
The 39 page report goes into great detail identifying both positive trends and challenges in the sporting goods industry. While there are some foreboding signs, there is certainly a silver lining. The report is available through SGMA international at www.SGMA.com
