Industry Execs Provide Outlook for Year Ahead

Although the nation's GDP increased in the third quarter for the first time since the second quarter of 2008, many are paying closer attention to the unemployment rate, which reached 10.2% across the country in October — the highest level since 1983. Hiring typically lags any economic recovery, but this recession appears to be different than other downturns of the past and the recovery promises to be different as well.  Many expect that a larger portion of those jobs aren’t coming back any time soon as companies have learned to do more with less as evidenced through the increase in productivity in the most recent quarter.

According to interviews with many of the top retail executives in the industry as well as a recent survey of SportsOneSource subscribers on the outlook, many are expecting 2010 results to show improvement if only because comparisons will be easy against a brutal 2009 year, especially in the first half. The hope is that if wallets indeed open somewhat in a recovery, pent-up demand will kick in for the many products consumers have been deferring over the last year or two.
“Customers deferred purchases for a year and in some cases two years, consequently with the introduction of new technology and new merchandise designed to deliver better performance for our core customers, they will respond,” said Craig Levra, chairman and CEO at California retailer Sport Chalet. “Even the West Coast lifestyle merchandise should perform better. The “Two-t-shirts-for-$20″ deals are getting old.”

But Levra is also looking forward to 2010 because the marketplace is finally settling down.           

                                                        
“Those that are going to be here are here,” said Levra. “In the Western U.S., we were having economic issues well before the rest of the country. The adjustable rate mortgage program was invented here and some of the largest bank failures occurred on the West Coast well before Lehman Bros.  So since we were first in, we are hoping to be the first out.”

Ken Meehan, president of Dunham’s Sports, said that on the plus side, fitness has been showing signs of coming back a little bit and that will boost 2010 if it continues to rebound. Reduced steel prices are also bringing some lower-priced fitness goods to the market. Meehan also expects more moderate steel prices will support sales of general athletics such as backboards and soccer goals, and other team sports as customers replace equipment that they deferred purchases on this year.

On the downside, the hike in gun and ammunition sales seen in 2009 isn't expected to repeat as the Obama administration and Democratic majorities in the House and Senate anniversary their impact on consumer attitudes (and fears).

Outside of a possible opportunity around Skechers' Shape Ups and other toning shoes, Meehan also doesn't see a strong trend or brand “taking off” as in past years.  A phenomenon such as Heelys and Crocs helped support many shortfalls in past years. 

“The big question is whether people are going to start spending again and particularly will they start buying higher-priced goods,” said Meehan. “We definitely felt that this year. It's really going to depend on the economy and the job market.”

A head buyer at another regional sporting goods chain, who wished to remain anonymous, also lamented the lack of exciting product in the market to entice customers. Consumers are still buying more for function over fashion, typically a smaller opportunity for stores.  “There is nothing that people are buying that they don't need so we are rooting hard for colder weather this year,” the buyer said.  “We don't see any brands or product that will change the buying mood that exists today.”

Jeff Rosenthal, president and COO, Hibbett Sports, is particularly hopeful that footwear will bounce back with some new innovation. 
“We're definitely going to remain cautious around inventories and expenses not knowing what the trends will be,” said Rosenthal. “Hopefully unemployment will come down.”

John Schaefer, CEO at Sportsman's Warehouse, noted that the unprecedented demand for firearms, ammunition and reloading products the industry experienced through 2009 has begun to soften as anticipated. But he still expects accessory categories in hunting, fishing and camping will be solid contributors in 2010. 

“As people take advantage of family activities close to home, fishing and camping should continue to be strong,” said Schaefer. “Our customers, who are passionate about their activities, will get out and enjoy the recreational opportunities the outdoors provide; a trend we see increasing throughout the year.”

At Fleet Feet, comp store growth has been running close to 10% through the first three quarters of this year “so recovery for us began early in Q1,” said Jeff Phillips, president. Both Saucony and Nike have picked up market share on the footwear side for the franchisor.  As in many specialty stores, accessory sales have seen dramatic growth — specifically footwear accessories with Superfeet footbeds and Balega socks — as consumers feed the need to buy even as they defer larger purchases.  Overall accessory sales have grown to as much as 20% of the business in many of its stores.      

But Fleet Feet’s Phillips admits that cautious inventory positions by vendors has made it somewhat more difficult for Fleet Feet to get back into product.  “At Fleet Feet we have been completely re-thinking our approach to inventory management, resulting in a buying strategy that more closely reflects our customer base and how we sell product,” said Phillips. “This strategy will allow us to be more aggressive in placing future orders for 2010.”                     

The Finish Line CEO Glenn Lyon told Sports Executive Weekly that while Finish Line will continue to focus on inventory management, if sales trends improve, Finish Line has the agility to flex stock upward promptly to meet demand.

“In addition, we are strengthening our e-commerce and cross-channel platform to meet customer demand outside our four walls as well,” said Lyon. “On the brand and product side, we are optimistic about the cooperation we are seeing from our vendors, including Nike, Puma, Adidas and others, who work with us on exclusives and compelling performance products. We believe that we will continue for some time to see strength in established categories such as running and that new categories such as toning offer growth opportunities well into the future.”

A buyer at a Northeast outdoor retailer, who wished to remain anonymous, said his store is writing bigger orders with brands that are currently selling within the downturn and canceling orders with brands that have slower sell through.   “With the brands we are staying with, we are requiring them to support us better with programs, product and referrals,” he said.

But he also said his store is constantly promoting itself with the customer to gain share.  “We will never go down this road of recovery ever again, so we are doing whatever we can to take out competition going forward,” the buyer continued. “We have a laser focus on retail prices, adding value, and taking out anybody we can.”
Indeed, a few big and smaller players said they are using the downturn to gain ground on the competition.

Adam Blumenfeld, chairman and CEO of team goods supplier Sport Supply Group, noted that certain industry participants will be forced to remain cautious in 2010 until demand improves and cash flow improves.   “Companies with scale, I think, are generally better situated to weather the average economic storm – and this is no average storm,” said Blumenfeld. “So, in turn, I think this unprecedented economy magnifies the benefits of scale more than usual – and I think those companies will tend to take the most advantage of purchasing opportunities.”

Nonetheless, Blumenfeld said substantial budget challenges driven by city and state budget cuts, particularly in California, Florida, Arizona and Massachusetts, will cap overall growth in the team space. But he also sees a few organic drivers.  “The continued growth of lacrosse as a nationally recognized sport aids growth,” said Blumenfeld. “Women’s sports participation continues to increase and this can present opportunity. More year-round agility and strength training as kids specialize in sports of choice drive fitness and conditioning demand. Federal funding to help fight the growing obesity trend in America is a positive tailwind. And finally, as stimulus money eventually trickles into the city and state coffers, I think there is probably a replacement cycle for CAPEX items – and while it may not happen in the next 6-12 months, I suspect that it will happen in the next 6-24 months, and the demand should be pretty strong.”                                                

 

At Golfsmith, Chairman and CEO Marty Hanaka said, “With exciting new products coming from Callaway, TaylorMade, Nike Golf, MacGregor and others, several new store openings and some exclusive “top secret” events that we have in our plans, we’re well prepared to continue to expand our market share.”

Added Landy Shropshire, owner of Athletes Locker, “I think the consensus among most dealers is to remain lean on inventories and conservative toward new and more risky products. I feel that 2010 will be a great year to do just the opposite. I plan to test several new lines in the running specialty and comfort footwear categories.”

Barry Goldware, president of Retail Concepts, which owns Sun & Ski Sports, Ski Chalet and Ski Stop, said he remains “cautiously optimistic” regarding 2010 for two reasons.

“First, we’re seeing a slight pick-up in sales over the last couple months and sales were so bad this year, especially in the first quarter, that we feel it has to look somewhat better next year,” said Goldware. “Second, the biggest part of the business is snow sports. We have a big Spring Break business in March and that's an easy trip to cancel. It's really a discretionary decision and we had a really poor Spring this year. So we think there could be some pent-up demand and we hope we can certainly beat those poor numbers. A break in the weather would also help. We're supposed to be getting an El Niño pattern and that usually means a lot of snow.”

Ken Lombardi, CEO of Lombardi Sports, said premium brands such as Icebreaker, Patagonia, Arctery’x, Under Armour, Trek, Burton and Nike continue to drive its sales and separate it from local competitors. “However, we must keep a watchful eye on the Internet and how it is affecting our margins on commoditized products we sell,” said Lombardi.
Some were more pessimistic.

“I'm battening down the hatches, believing brick and mortar retail sales will suffer,” said Scott Truett, owner of Adventure Bikes & Boards. “Online deals/steals will be everywhere as retailers liquidate inventories/create cash-flow by all means possible. It is bad out here.”
Lee Rogoff, owner of Rogers Trading Co., doesn't see a real recovery until 2010. 

“2010 will be a moving target,” said Rogoff. “Unemployment will remain too high for a REAL recovery nation wide.”

David Joseph, VP at Rocket Dog, said even with a healthier economy, the constant off-price selling will have consumers continuing to look for brands at moderate price points.  “Department stores such as Macy's, Bon-Ton, Nordstroms and Bloomingdales, for example, will continue to struggle as the discount chains such as Target, Walmart and Kohls will continue to inch out growth and penetrate new geographic territories,” said Joseph. “Brands such as Nike, Adidas, Skechers, and Timberland will have to look at the economic landscape and reinvent themselves in order to remain competitive. The biggest winners in 2010 will be the brands that capture the magic price points of $29.99-$49.99.”

Jennifer Mull, CEO of the Backwoods outdoor chain, said that although traffic has picked up in her stores, cautious spending by consumers will likely last for awhile.  “They are still evaluating their spending and considering the value of what they are purchasing,” said Mull. “In recent weeks, there has been more conversation in the stores about travel and the fact that the consumer is beginning to “want” to buy things again. Last year was a stark contrast to how most of them had been living. So are we back to 2007? No. Are we back to moderate, thoughtful spending? All signs point in that direction in our part of the country.”

Paul Gagner, an independent consultant and former president of Sierra Designs & Ultimate Direction, said that in today’s environment, the consumer associates with companies that share their values.
“I’m bullish on the outdoor specialty and sporting goods spaces – but not for everyone,” said Gagner. “It may be a cliché, but it’s also true: Differentiate or die, but do it in a way that provides value to the consumer. Work on creating and communicating value, values, innovation / differentiation and community. For the product brands and retail brands that do these things the future will be rosy.”

At the end of the day, the consumer will respond to “newness” when the economy really turns.  If there isn’t enough inventory or every store looks the same, it will be tough to get them motivated.