SFIA’s 2023 State of the Industry Report finds the outlook for the sports and fitness industry remains strong, although current macroeconomic headwinds and uncertainty have dimmed that optimism slightly from 2020 and 2021 levels.

The report found the U.S. sports and fitness industry grew a respectable 4.3 percent last year, the second-highest growth number since 2010.

However, SFIA said in its study that 2022 was “much more difficult” than many had anticipated after “boom years” in both 2020 and 2021. After exceeding the growth rate of annual current dollar GDP, which does not account for inflation, for two consecutive years, the sporting goods industry trailed it last year by more than 50 percent.

The industry had shown a jump of 15.8 percent increase in 2021 as the country emerged from the pandemic and activities began to return to “normal.”

From a profitability standpoint, 55.2 percent of companies who responded to SFIA’s survey said they increased profitability, down 390 basis points from the prior year, but stronger than five of the last six years since 2015 when it hit 60.0 percent. For a third consecutive year, the number of respondent companies that decreased profitability (28.4 percent) declined although the rate remains higher than pre-pandemic levels.

Inventory Levels Grew Across The Industry
After historically low inventory levels in 2021, 67 percent of companies increased their inventory levels in 2022, the highest number of companies that have increased their levels in the last decade. Year-over-year inventory levels at the end of 2022 were up by their highest percentage in eight years. Some 37.8 percent of respondents described their inventory total as “very or somewhat uncomfortable,” more than the 27 percent who characterized the number of goods they had on hand as “somewhat or very comfortable.”

SFIA’s study found that besides a slowdown in year-over-year consumer spending on key items, for example, bicycles and apparel, the inventory hike can also be attributed to a more normalized supply chain flow that had some firms re- adjusting their seasonal total after operating without enough goods in the year-ago quarter. Also contributing to the year-over-year industry gain were late prior season orders, which were not canceled, that arrived simultaneously with current season merchandise to create instant inventory headaches. The Asian factory shutdowns in 2021 led to some late shipments.

SFIA’s report indicated by most estimates, inventory overhangs are not likely to be resolved until at least the third quarter of 2023. SFIA wrote, “Some vendors have worked diligently with their key wholesale partners to try and limit massive discounting and merchandise margin erosion. Others are tightening the SKU ranges going forward, essentially going narrow and deep with merchandise assortments.”

Inventory levels ranked as a fourth concern in this year’s study after not landing in the Top 15 the prior year.

Generally Positive Outlook Amid Concerns
The report includes a number of attitudinal and forecasting responses from the industry, and the results are positive, including current state of the sports and fitness industry (85 percent strong or average vs weak) and future state of the sports and fitness industry (95 percent strong or average).

The top ten concerns, according to the survey of industry leaders, were the potential economic recession, followed by inflation, slower consumer spending, inventory levels,  liquidity/cash flow management, material cost/availability, labor cost/availability, transportation/logistics, increasing market share, and lack of consumer confidence.

Among the positives, sports participation dropped to rank as the 12th biggest concern down from the top concern in both 2021 and 2019. SFIA’s previously-released sports participation study found the number of physically active Americans grew for the fifth consecutive year, both at the total and CORE measurement levels. Team and fitness club activity rates have not yet recovered to pre-pandemic levels.

Also encouraging is material cost/availability, transportation/logistics and labor cost/availability all lessened as a concern as supply chain pressures have eased.

“Last year was a difficult year to categorize,” wrote Tom Cove, SFIA’s president and CEO, in the report. “Sports and fitness companies continued to meet strong demand for their products and collectively realized healthy annual growth. At the same time, many SFIA member companies reflected high concern around uncertainties in the marketplace that lasted much longer than anyone anticipated at the beginning of 2022.”

Other findings from the study:

  • Fifty-seven percent of companies increased their R&D investments, which was a slight decrease from 2021 but still is the second-highest number in the last five years.
  • Plans to source offshore declined to their lowest level since 2020, while the intent to make more products in the U.S. dipped slightly year-over-year.
  • Plans to reduce manufacturing capacity were attributed to the higher year-over-year inventory levels combined with anticipated slower consumer demand ahead of a looming U.S. recession.
  • Sales sold through third-party online platforms and direct-to-consumer via own websites are expected to be more important throughout 2023. Company-owned stores also could see faster growth than in recent years during the first half of 2023 as part of inventory reduction strategies.

The SFIA 2023 State of the Industry Report is derived from aggregated quantitative data collected from a sample of the manufacturers in various product categories and industry data collected during the year.

Photo courtesy Jupiter