SGB Executive talked to Jim Duffy, veteran sell-side industry analyst at Stifel Financial Corp., about the headwinds and tailwinds facing the active lifestyle space, his favorite stocks, the DTC trend, his affinity for covering the active lifestyle space, and the company’s sponsorship of the U.S. ski team.
Duffy joined Stifel in 2010. Based out of its Denver office, Duffy is managing director in the Consumer & Retail space, covering sports and lifestyle brands.
He has been an analyst at Stifel for over ten years, having also been an analyst with Thomas Weisel Partners and Bank of America Securities, and has worked in product marketing and management at software firms and branding while at Young & Rubicam and J. Walter Thompson.
The companies he has covered in the Athletic Outdoor space include Allbirds, Clarus Corp., Columbia Sportswear, Crocs, Deckers Outdoor, Dick’s Sporting Goods, Duluth Holdings, Fox Factory, Gildan Activewear, Hanesbrands, Lululemon Athletica, Nike, On Holding, Skechers, Under Armour, VF Corp., Wolverine World Wide, and Yeti.
What are the headwinds facing the active lifestyle industry? Without question, the biggest concerns are inventory management and forecasting in an uncertain economic environment. The bad news is that many brands and categories are still contending with massive amounts of excess inventory, polluting the selling environment. This is most common in seasonal categories where, last year, spring goods arrived too late for the season, and certain fall/holiday goods were late and susceptible to retailer order cancellations. Retailer inventories are healthy, and the excess is with the brands. To move through the excess, brands are promoting, turning to off-price and carrying over prior season goods to sell in future periods. The good news is that supply chain and lead times are more normalized after the pandemic disruptions. Cautious retailer ordering patterns and the potential for a recessionary environment later this year, however, make forecasting difficult.
What are the tailwinds? Fortunately, the secular tailwinds remain strong. In particular, we remain bullish on growing global concerns for health, fitness and recreation. As part of this, we see increasing global interest in a more holistic view of fitness, including concern for mental well-being. Another highly investable mega-trend is the increasing casualization of fashion, which is expanding the wearable occasion for products from sports and lifestyle brands. The pandemic was a massive accelerant for casualization. Even in my industry of investment banking, sneakers are now acceptable office attire. Like many things with the pandemic, when that door opened just a crack, people pushed through it, and the surge of adoption has been so strong. We don’t see that door closing ever again.
What stocks in the active lifestyle space is Stifel most bullish on? Our stock selection bias in 2023 is weighted toward footwear and apparel brands catering to higher-income households. Stifel’s consumer macro data analysis points to households with income of $100K+ sustaining strong capacity for discretionary spending into 2024. Aligned with health and wellness and the accelerated casualization of fashion, we are constructive on Lululemon, On Holdings and Deckers, which owns the on-fire Hoka brand. Sadly, the data is decidedly less favorable for lower-income households, and data shows this population, in aggregate, is consuming savings and using credit to keep pace with inflation.
One of the more talked-about trends are vendors going direct-to-consumer. What’s your take on that strategy? For the sports and lifestyle brand category, the balance of power between brand and retailer is, and will be, a dynamic topic no matter the decade. I think of all brands somewhere on a spectrum. On one end is the short list of brands that are strong enough that consumers will seek them out directly. On the other end are the brands that need the retailer to provide the conduit to the consumer. At this end of the spectrum, the retailer has the consumer relationship, and the brand’s share is defined by the shelf space they occupy with the retailer. The reality is that most brands are somewhere in between, and the right model for a brand depends on the brand. In recent years, there was a prevailing narrative that DTC was the best model for a young brand. It’s become clear that’s not necessarily true, and good wholesale distribution can be a great means for a brand to reach new consumers, gain authenticity and build scale.
What do you like about covering the active lifestyle space? The people and community of the active lifestyle industry are unmatched. All the amazing brands in this industry were founded by entrepreneurs inspired by a sport or recreational activity and the surrounding community. That heritage and that spirit are what make this industry unique. Those factors are considered alongside the objective for profits across the industry. It’s an industry with a soul, and that draws a lot of great people. That, to me, makes working in this industry so rewarding.
Stifel recently became the title sponsor of the U.S. Alpine Ski Team, the U.S. Cross Country Ski Team, the U.S. Freestyle Ski Team, and the U.S. Freeski Team. How did that come about, and what does it mean for the investment firm? Stifel saw this as a unique way to increase global brand awareness. The U.S. ski team members are phenomenal athletes. Stifel understands the skill, commitment and perseverance it takes for them to excel in their sport. Supporting the team, their training and travel to competitions is a great way to align our brand with these great athletes and raise awareness on a global stage. We also hope world cup events become a venue for client entertainment and relationship building.
Photo courtesy SLBJ/Jim Duffy
