By Thomas J. Ryan
<span style="color: #999999;">Tom Cove, SFIA’s president and CEO, believes the sporting goods industry is still scrambling to offset the fallout from the coronavirus pandemic. But he also believes many have “settled in a little bit” into how to manage amid the crisis and have started to position themselves to be ready for better business conditions.
Like many Americans, industry executives were stunned by the “jarring disruption” caused by the quick spread of COVID-19 that’s led to across-the-board tumbles in sales as stores closed. The industry’s focus, said Cove in an interview with SGB Executive last Wednesday, remains on cash preservation and that’s led to drastic staffing cuts unimaginable a few weeks before the outbreak. Reports of many publicly-held companies furloughing the majority of their workforce have arrived in recent days, and anecdotal evidence suggests staff reductions have been necessary across the industry to support liquidity.
Said Cove, “It’s gut-wrenching to have to deal with some of the personnel issues a number of our members have had to face, whether it’s pay reductions, work hours, furloughs or even layoffs. It’s tough.”
Also, similar to other Americans, executive teams have had to get comfortable working within social-distancing guidelines as many are glued to their homes amid ‘stay at home’ orders. Cove noted that many executives are used to traveling two to three times a month to meet staff and business partners and leading their teams via one-on-one and group meetings.
Cove believes the overall industry is creating new ways to stay connected while working from home. Said Cove, “Very rarely do we have a situation where what we do in our business life is so directly intertwined with what we do with our family life and what we do with our social life.”
The early impact of the pandemic also led to difficult conversations with suppliers. The industry is reportedly seeing significant order cancellations to support cash conservation. Anecdotally, negotiations between retailers or team dealers with vendors, as well as lenders and other business partners, are sympathetic to each other’s near-term circumstances. Said Cove, “They’re keeping flexible about what they may need and looking to do more with less.”
Cove described many companies moving to operate their business with a skeleton crew while planning to quickly re-hire once conditions improve. HR staffing has generally been retained to manage employee issues as well as staff to handle sales that for many are largely being made online. Executive teams are “hustling to do everything they can to keep things in the best position possible for the next couple of months.”
Cove added, “I do think that our companies have taken the first month and faced tough decisions, conversations, communications, and planning. It’s no easier now, but it’s easier to handle if you made the tough decisions early, and now you’re just working like heck to execute so you can get out of it.”
Cove is generally upbeat that some relief may come from the massive economic stimulus package, particularly the forgivable loans designed to incentivize companies to retain or rehire employees. Industry executives he’s talked with, likewise, appear optimistic about the potential loan benefit.
“There are some positive feelings about its comprehensiveness around incentivizing companies to keep people on and to keep the machine of commerce operating in some structure,” said Cove. “That sounds like a good idea to many of our members as well as how the government has designed the stimulus package to try and make it as simple as possible to apply.”
The support will also place the sporting goods industry, as well as the overall country, “in a better place to start-up” when business conditions improve if companies can keep adequate staffing and don’t fall behind on rent and other necessities of running a business. Said Cove, “When the time comes, you won’t have to bring everybody back and go through that process.”
Other aspects, such as making it easier to apply for unemployment insurance, also promise to ease the strain on consumers to likewise support bringing commerce back.
The problem is that the loans are “flying off the shelves,” and the size of available loans will likely have to increase to meet the demand. Requiring that the loans be obtained through a bank is also likely to “slow things down” because of the sheer number of applicants. Said Cove, “The banks are just not set up to address the overwhelming number of applications, and that’s the challenge that we’re going to face.”
Legislators are planning another stimulus package that Cove hopes will address ways to get funds faster to businesses. Said Cove, “Somehow, they need to address the bottleneck of getting the money out, so it doesn’t take so long that it is too late.”
He expects the next stimulus package will also provide relief to larger companies that have been severely impacted by the pandemic. Loans under the current package are only available to companies with less than 500 employees.
Cove further hopes that the next round of legislation lends support to a broader range of nonprofits. The initial package only focuses on charitable and veterans’ organizations. Beyond trade organizations, such as SFIA and NSGA, such nonprofits may include a wide range of businesses and local community organizations that bring sports to the grassroots level.
SFIA is also lobbying for the next stimulus package to include more assurances of support for independent contractors, which may include fitness trainers who lost their job when gyms closed across the country, as well as coaches.
Finally, with the next package expected to focus more on recovery than the health response and business stabilization as in past packages, SFIA is working to position sports to be part of the recovery efforts as well.
Many tournaments, leagues and seasons were canceled or suspended, at least in the first half of the year, leading to the loss of related money often used to pay parks and recreation staff, trainers, coaches, and league administrators.
Cove also noted that the 2009 recession again showed that budget-crunchers often view sports programming as a place to save money, and the massive amount of government spending coming in now will likely lead to calls for stringent budget cuts in the coming years.
<span style="color: #969696;">Another source of sports funding at risk in a more challenging economic climate is philanthropic giving, which can range from programs that support inner cities and Native Americans to major initiatives aimed at reducing obesity in kids.
One path to support both sports and fitness that SFIA continues to lobby for is the PHIT Act, which offers tax incentives for gym memberships, yoga classes, athletic equipment, and other items in support of the health benefits of staying active.
Funding, as part of the coronavirus stimulus bill, is a “sensitive” topic because funds, foremost, should focus on saving lives, Cove stressed. But, he expects “demand is going to be pent up and strong” once social distancing guidelines are relaxed enough to explore sports participation, and a support system needs to be in place to bring back sports quickly.
“We want to be careful to never be in a place where we’d be perceived as competing for the same money or attention with ventilators or hospital beds,” said Cove. “But, we do believe that returning to sports and physical activity and community connections through sports is going to be an important part of the recovery.”
Indeed, Cove said the sports industry is already playing a critical role in supporting the nation’s recovery.
Vendors are stepping up to create masks and garments for health care professionals. Some of the more unique applications are coming from companies like Cascade Maverik Lacrosse, which is manufacturing plastic face shields to protect medical staff and Life Fitness, which has taken on the task of building hospital cots. Said Cove, “We’ve seen great creativity.”
Providing meals for the local hospital staff, orchestrating blood drives and funding food banks have also been part of the industry’s response.
Home-bound Americans are being inspired to be active indoors with vendors such as Nike and Asics sharing their workout apps for free amid the crisis. And a wide range of companies in the fitness space are offering their streaming content for free.
Cove believes the industry will wind up playing an essential role in supporting the nation’s physical and mental health by inspiring people to stay active.
“I would modestly say we’re a lot different than other industries because, as we often say, we’re part of the solution when it comes to health,” said Cove. “This is a health crisis. We can play a significant, practical and inspirational role in keeping our families, our communities and our nation healthy in this time.”
The unknown question is when Americans will be able to get back to sports activities. While anecdotal evidence is showing that running, walking, biking and even skateboarding can be performed outside in line with social distancing guidelines, the vast majority of activities have been deemed too risky. Cove believes experiments in loosening social-distancing restrictions will first take place at work and schools before sports, although it’s still uncertain when the overall lockdown measures will ease.
“The $64,000 question is when it’s all going to happen,” said Cove. “The only facts that we know for sure are that this is unprecedented and no one knows how long it’s going to continue.”
Still, Cove said the industry could play a significant role in setting up the foundation that brings back sports and fitness. A first step will be to bring back the “supply of people,” such as the fitness trainers after it’s safe to reopen gyms. The industry can also take a leading role in helping test and quantify health risks, particularly around sports that involve close contact.
Said Cove, “We can play a creative, positive role as we have done for years. Now is the time we need to work together. Everybody needs to be working in the same way.”
Cove noted that the spirit of cooperation in the industry is evident in the conversations between retailers, team dealers, vendors and other business partners around canceled or delayed orders, payment re-negotiations or deferrals.
Unlike past collapses where one company may have over-aggressively expanded too quickly and faced liquidity constraints, the current challenges are “no one’s fault” and “everyone is facing a cash strangulation situation” to some degree.
In some cases, such as with smaller retailers, local team dealers and soccer organizations, no money is available to pay for an order. But even with larger firms, negotiations are said to be focused on helping each other persevere through current hardships. Said Cove, “There’s a real effort to be more flexible.”
SFIA itself has had to cancel events and absorb “serious mitigation” steps to ride out the pandemic. The organization has also shifted priorities to put its foremost focus on providing information to members on a wide range of complex issues created by COVID-19. The steps have already included webinars on the stimulus package with more planned on other issues. Said Cove, “People are thirsty for knowledge in an uncertain time.”
Overall, Cove agreed many in the industry have embraced a “cautious optimism” a few weeks into the pandemic. He believes the industry has been encouraged by favorable news such as the recent signs that New York is flattening the curve of the spread of the virus, and executives have, to some degree, confidence in the steps they’ve taken to manage through the crisis.
Said Cove, “People have spent the last two to three weeks zeroing in on running their companies and doing what they need to do to protect their long term viability and create contingencies. Now they’re starting to think about how do we come out. We know we will economically, societally and physically, but we don’t know when. Now folks in the industry see that, and it’s a more positive thing to work on. How do we prepare to be a positive component in the recovery?”
Lead photo courtesy The Aspen Institute Project Play