While some indicators are offering some hope that the economy's slump is bottoming out and a recovery is around the corner, many participants in the sporting goods industry aren't yet buying it. Sports Executive Weekly explored the industry's outlook in a recent e-mail blast to subscribers. Given the continued high unemployment figures and possibly more to come, many said they were expecting flat sales or at best a meager uptick in the second half. Many believe the meaningful pickup wont come until 2010 and a few aren't holding out any hopes for a bounce back until 2011.
But some of nearly 40 responses delved into how the industry may be transformed by what many are calling the worst downturn in over 50 years. From an operational standpoint, the industry has been through a long period of retrenchment with a focus on controlling inventories and relying more on fill-ins to preserve margins and cash. With any recovery, many are wondering to what degree the industry will get back to rebuilding inventories, chasing sales and experimenting more with new product to drive demand.
“The retail inventory pipeline needs to be re-filled at some point,” said Bob Puccini, president of Mizuno USA. With retail inventories having been reduced more aggressively in many categories than consumer sales have declined, Puccini believes a period of readjustment will be required.
“As consumer demand rebounds, even if slightly-which I expect-the pipeline will need to be re-filled, creating the inverse relationship of industry shipments to consumer sales in the short term,” continued Puccini. “The new inventory risk tolerance levels, which will be lowered, will need to be dealt with by all being accountable in the future. There will be a new norm.”
A president of an athletic shoe manufacturer who wished to remain anonymous expects a slow move by the industry back to growth mode. “Retailers will keep inventory tight and chase business when they have to for fall and Holiday 2009. Spring 2010 will show some signs of improvement, but the real picture will clear up in Fall 2010 when they are cleaned out of old inventory, credit will ease up and fresh product will be needed.”
The other major concern is whether consumers will maintain their frugal ways and markdown appetites long after the economy shows some pick up.
“This financial problem cut deep into the consumer psychology and it would be naïve to think that consumers will just go back to old ways,” said Robin Smith, principal at Sport Ventures LLC, an M&A and investment firm. Smith said although much depends on region, sport and product category, there will be clear winners and losers in the sporting goods space.
“Survivors will understand the sea-change in spending and participation and find new ways to get people to pay full price for innovation, quality, and the special feeling that sports-inspired products bring,” said Smith. “I also expect that the feel-good aspects of sports will make it an early growth category candidate in the recovery.”
Andrew Curran, a director at L.L. Bean, believes there may be a shift in the attitude toward consumption that may linger for some time to come. He said, “For many folks, this has been a wake-up call that the excessive consumption that had been going on was irresponsible and unhealthy. That could be a good thing for the sports and outdoor markets since these companies offer cost efficient ways to spend time with family and friends.”
Indeed, many believe the sporting goods industry will continue to fair better than many other sectors as families look for less expensive sports activities and head outdoors instead of traveling afar.
“Summer is the season to spur a turnaround for the Outdoor sport category if new products with lower price points are there,' said James Nunziati, VP of sales & marketing at Street Surfing LLC.
While the overall trend in the market is down for most companies, there are some experiencing growth.
J.R. Fabry, VP of sales at Saranac Glove Co., said its team and retail Reebok NFL Equipment glove orders are up double digits this year. “Athletic activities in general and youth team sports are relatively inexpensive pastimes compared to vacation travel and other large ticket purchases which have taken a brunt of the downturn,” he said.
Matthew Dipretore, store manager at Road Runner Sports in Paramus, NJ, said the specialty running industry “has seen some strong sales through these dark economic times” and he expects the sector will again see better sales levels in the second half “based on the customer looking for top-notch service.”
Added Kenn Shepherd, owner at Easy Riders cycling shop in Brainerd, MN, “In our opinion, the news and print have made the market bleak. Our daily goal is to go out and make every opportunity wild and successful. With this goal, our business had its best year in 2008 and is on track to break that record again in 2009.”
But many admitted they were hurting. An owner of a Midwest soccer and lacrosse store was particularly worried about any drop in travel soccer registrations. The owner said, “From a retail perspective I anticipate our sales to be down at least 10% through the rest of the year and unfortunately this would be an improvement from the first five months.”
Jim Cyr, president of The Cyr Group, a consulting firm, said the high number of unemployed will restrain overall spending.
“While there should be a seasonal uptick for BTS and Holiday sales, employed consumers will continue to be very cautious,” added Cyr. “I expect to see a variety of creative incentive to get consumers to buy. I think we will be suffering a hangover from this well into 2010.”
