In its second-annual report on the sporting-goods industry, “Sporting Goods 2022: The new normal is here,” The World Federation of the Sporting Goods Industry (WFSGI) and McKinsey teamed up to find the sporting-goods industry experienced a broad recovery in 2021 and is expected to see above-average growth over the next several years. The report also called out five key trends set to shape the sporting-goods industry in 2022.
The 64-page report, which was commissioned by the WFSGI, reviews the trends presented in last year’s edition and dives deeper into a selection of trends that are most relevant for a new reality in 2022.
Industry Shows Recovery In 2021
The report finds that the sporting-goods industry managed to return to pre-COVID-19 levels of growth despite tough economic circumstances and pandemic-related disruptions. During 2020, executives in the industry focused on three key trends—consumer shifts, the digital leap and industry disruptions—and those trends largely remained the focus in 2021.
The report states, “With many people still working from home, athleisure has gained further ground, reflecting new attitudes toward traditional workwear. Increased health awareness has given many people a new perspective on sports and general fitness. E-commerce has thrived, as consumers continue to shop online, even as lockdown measures have eased. Digital forms of individual or community-based exercise and physical activity have become more popular and have created new possibilities for sporting-goods companies. Meanwhile, sustainability is more important than ever, with the COP26 Climate Change Conference emphasizing the need for companies to increase their efforts to decarbonize as they seek to differentiate their offerings.”
Prior to the pandemic, the majority of listed players posted growth in earnings before interest and taxes of 8-to-15 percent as well as 5-to-10 percent growth in annual sales.
In 2020, most sporting-goods companies continued to deliver above-average economic profits with a “few specialized players” notably Anta Sports and Lululemon delivering margins and sales growth soaring to higher than 15 percent.
However, 2021 delivered a “broad recovery.” On a global level, the sportswear market in 2021 almost entirely recovered to pre-COVID-19 sales, fueled by consumers in China (23 percent growth compared with 2020) and the United States (15 percent). Overall, the 14 percent year-on-year growth seen by the global industry in 2021 was more than double the average annual growth rate (CAGR) between 2015 and 2019 (5 percent).
Healthy Outlook For Sporting Goods Industry
Over the next 12 months, McKinsey and WFSGI expect the tailwinds seen in 2021 to continue, despite some uncertainty caused by new viral variants, such as Omicron, and retightened restrictions. Indeed, the medium-term outlook is positive, with the global sportswear market expected to grow 8-to-10 percent a year up to 2025, from €295 billion in 2021 to €395 billion in 2025.
Among regions, the sporting goods industry in the U.S. is expected to expand at a CAGR of 7.8 percent from 2021 to 2025 after declining 19.7 percent in 2020.
Among major countries, China is expected to see the fastest growth, expanding at a CAGR of 13.7 percent from 2021 to 2025 after slipping 1.5 percent in 2020. CAGR rates from 2021 to 2025 for other key regions include the UK, up 5.7 percent; Germany, 4.1 percent; and Japan, 3.0 percent. The Rest of Word is expected to see an increase over that period at a CAGR of 8.9 percent.
Five Themes For 2022
The research suggests five key themes that will guide the industry in the near term. The study stated, “None of these trends is new, but over the past year, they have become even more important, widening the gap between various industry players, with economic profits becoming increasingly concentrated among a small group of players. The implication is that some industry players must speedily adapt their business models.”
The five themes include:
1. Evolving attitudes and behaviors
COVID-19 U.S. Consumer Pulse Survey taken in August 2021 found between 70-to-85 percent of consumers expected to continue using online fitness, wellness and digital exercises. The report stated, “The tumultuous events of the past two years are reminders of the fragility of human life and the ecosystems that support it. As a result, many people have reconsidered their lifestyles, and how these may either support or undermine their own resilience. Sporting goods companies have been able to help, and while uptake has been uneven across demographics, there are signs post-lockdown that changing consuming behaviors are here to stay.”
Consumers are expected to show a greater commitment to digital and community-led exercise often away from traditional sporting venues but also as part of traditional gym-based exercise at home. Looking at future spending, the report finds, younger generations and consumers in China, India and the U.S. are generally more optimistic than older generations and consumers in other geographies in terms of spending. Sporting goods is one of the categories in which they plan to splurge, a positive indication that the 2021 tailwinds will continue in 2022.
2. From social media to social commerce and digital ecosystems
Researchers found more than 80 percent of consumers use online channels to search for products. The study stated the study, “Amid growing user numbers and relentless expansion of its capabilities, social media is taking its place at the center of many brands’ e-commerce strategies. As growing numbers of companies experiment with new strategies, leaders are taking the art to a whole new level creating powerful blends of social interaction and e-commerce.”
Researchers stated that influencers and digital communities are fostering a closer connection between consumers and commerce, and leading players are tapping into this growing trend. Companies in 2021 that were able to streamline this connection between engagement and sales were found to be able to boost profits significantly and even build digital consumer-engagement ecosystems, spanning from company websites to owned app and retail stores, using the generated data to inform areas such as product development and demand planning. The social media space is expected to continually evolve. For example, the use of livestreaming as both a promotional tool and a shopping channel is now well-established in Asia and is expected to expand around the world. The study stated, “Early adopters among sporting-goods players are trying to get a foothold in this ‘metaverse’ arena, and others are expected to follow suit.”
3. The sustainability imperative
Researchers found that two out of three consumers said the promotion of sustainability was an important buying factor when purchasing apparel. The study stated, “Climate change has steadily climbed consumer agendas over recent years, and the impact of the COVID-19 pandemic has accelerated its progress. People, now more than ever, understand the strong connection between their choices and the world they will leave for future generations. Sporting goods companies are naturally aligned with these values, but brands must do more to enable their customers to make sustainable choices.”
The study said that as consumers’ expectations in this area increase, the bar for companies to differentiate themselves is rising fast. Researchers wrote, “Leading companies will focus even more on sustainable materials, circular business models, and helping consumers make choices that reflect their values.”
4. The future of channels
McKinsey and WFSGI’s data showed that 45 percent of sales in the past year came through online channels even after stores reopened after lockdowns. The study also found digital penetration in sports apparel has sustained at about 45 percent over the past two years. It wrote in the study, “The COVID-19 pandemic has drastically boosted online shopping, with many previously resistant consumers now fully converted to e-commerce. Still, the longer term will be about more than digital. In a post-pandemic future, distribution will be omnichannel, with customers able to move seamlessly and instantly between digital and physical. Leading sporting goods companies are already seeking to position themselves in this changing environment.”
McKinsey and WFSGI said industry players were observed shifting toward offering direct-to-consumer (DTC) models, creating a stronger online presence, and consolidating their retail-partner model. New players arriving in the space are expected to prioritize DTC and will continue to focus on partnering with select retail partners. Meanwhile, retail stores will seek to establish a clear edge for brand names in order to keep them from leaving. Brands that do leave, however, will open up space for smaller brands to move in. The study stated, “Many players will repurpose physical locations as experience- and service-driven elements of an omnichannel offering.”
5. Solving the supply chain puzzle
The industry has faced a 7-to-10 times increase in shipping prices due to demand/supply imbalances resulting from the pandemic. The study stated, “The sporting goods industry faces twin supply chain challenges. First, they must grapple with the short- and medium-term impacts of the pandemic. These include tricky imbalances between supply and demand, soaring shipping costs, and the impacts of lockdowns on manufacturing hubs. The second challenge is longer-term and more structural, emanating from the industry’s pivot toward e-commerce. With these trends set to persist through 2022, brands need to adopt a strategic mindset to keep stocks flowing.”
McKinsey and WFSGI noted in the study that while issues related to demand volatility, production bottlenecks and rising raw-material and transport costs may be short-term in nature, consumers’ expectations for fast and convenient delivery require long-term solutions. The study stated. “Players will want to review their supply chains strategically so that they are better prepared for an uncertain future.”
The report also includes interviews with Kasper Rorsted, CEO, Adidas; David Allemann, co-founder, On; Philipp Rossner, chief strategy officer, SIGNA Sports United; Jorge Casimiro, Nike chief social & community impact officer and Nike Foundation president, Caitlin Morris, VP, social & community impact, Nike; Steve Evers, CEO, Intersport; Mateja Jesenek, chief retail officer, Intersport; and Duncan Scott, VP strategic sourcing & quality, New Balance.
To read the full report, go here.
Photo courtesy McKinsey And WFSGI