While the sporting goods industry's struggles are far from over, it's not completely bleak, according to findings from the SGMAs 2009 State of the Industry Report. While consumers are choosing less-expensive items or delaying purchases, they're not walking away from playing sports and pursuing an active lifestyle. Moreover, many industry executives interviewed as part of the report see the industry “coming out of this recession viable and stronger, due in large part to Americans sustained interest in sports, fitness and recreation activities.”
In an interview with Sports Executive Weekly, Tom Cove, president and CEO of the Sporting Goods Manufacturers Association (SGMA), noted the industry like the entire U.S. economy — will continue to be affected by plunging consumer confidence. The shakeout of weaker players, especially financially-challenged ones, is expected to continue.
“The nature of this recession is relatively unique in our history and certainly going to hit us because we're a consumer business and people are afraid to buy,” said Cove. He also noted that in interviews with executives, the trade association found a great deal of “uncertainty and caution” that will cause brands and retailers to continue to make very cautious production and ordering decisions. Supply chain and inventory management will be paramount.
“In the past when we've done this survey, everybody was at least projecting an increase in sales. This year they're all projecting a decrease. As one industry exec said, 'Flat is the new up,” said Cove. “We know it's going to get better but we dont know when and how right now. So the uncertainty is making manufacturers more cautious around ordering and marketing and keeping retailers from taking chances on new product or just replenishing. So all that is having a paralyzing affect on the industry.”
On a the more encouraging side, while the 3.2% decline in U.S. sporting goods wholesale sales marked the first decline in manufacturer shipments since 2003, it fared much better than the 7% composite GDP decrease in the national consumer durable goods category. As in the past, the popularity of sports and fitness is somewhat acting as a buffer for the industry.
“Despite the weak economy and rising costs of doing business, there is no indication that Americans are less involved in sports, outdoors, and fitness activities than before the recession and history tells us that giving them up is one of the last sacrifices dedicated participants are willing to make,” said Cove.
For example, Cove notes that although basketball footwear sales were down in the high-teens, basketball sales grew slightly and participation was flat. Said Cove, “What this means is that the inclination for people playing sports is still strong and the likelihood that they'll continue is pretty great. At the same time, it indicates that the days of kids buying a top-of-the-line launch the first day or buying three pairs of sneakers a year is probably not going to happen for awhile. Consumers are going to be selective.”
In the same vein, although tennis racket sales are down and participation has flattened after several years of strong growth, tennis ball sales were up. Cove said this shows, “People are sticking with the sport of tennis. The tennis industry spent a lot of time and effort improving tennis participation and they'll probably benefit more than most sports because you have a fresh commitment there.”
Cove also said that although the team business may come under more pressure as new school budgets are set later this year, alternative sources of funding, whether from parents or booster clubs, is widely expected to support kids participation in sports. The report finds that since 1990-1991, theres been a 62% increase in girls playing high school varsity sports and a 28% increase in the number of boys playing high school varsity sports.
“Common sense would suggest that people are going to find a way to keep kid's playing sports,” said Cove. “Parents might defer a vacation for a year but you can't defer having your kid play lacrosse or on the soccer travel team for a year. That fun they might have had that year is gone. They wont' be buying all the product, but will buy enough to keep the sport going.”
Among key categories, the report indicates that sports apparel sales slid 2.0% at wholesale (to $28.9 billion) in 2008, mainly reflecting consumers opting for lower-priced apparel. The report notes that sports apparel sales have grown by 24.6% since 2000, driven by demand for performance fabric.
SGMA says that athletic footwear wholesale shipments dropped 4.6% to $12.4 billion. Although consumers spent more for each pair, they purchased fewer pairs. The entire category has grown by 37.8% since 2000, according to SGMA. The top three athletic footwear growth categories were outdoor/adventure (up 8% to $580 million), sport sandals/slides (up 6.7% to $167 million), and tennis (up 5.0% to $165 million).
In the sporting goods equipment, SGMA saw big statistical gainers with firearms/hunting (up 10% to $2.54 billion), fishing (up 10% to $1.93 billion), optical goods (up 7.5% to $1.21 billion), ice hockey (up 5.9% to $218 million), and camping (up 3.3% to $1.74 billion). Campings surge was partly due to families substituting this outdoor excursion for a more costly vacation.
Cove said the strength in camping may partly reflect the “whole back to nature thing” to deal with stresses caused by the downturn, but he believe it more largely reflects the overall trend toward families pursuing less expensive pursuits together. “It's easy access and it's cheap as long as you already have all the equipment in your garage,” said Cove. “If you can't afford to go skiing or to Paris, you can go for a day hike.”
That trend was also seen on the participation side as several family/social activities that dont cost much money to play grew nicely. These included ultimate frisbee (up 20.8%), backpacking (up 18.5%), surfing (up 18.2%), racquetball (up 18.1%), court volleyball (up 17.2%), trail running (up 15.2%), indoor soccer (up 11.8%), bicycling (up 10.2%), and tennis (up 9.6%).
On the downside, the SGMA report indicated that fitness equipment sales declined 10.1% to $4.2 billion, reflecting the consumers unwillingness to spend for big-ticket home equipment and the negative impact of plummeting housing starts on the fitness business. Similar to camping, less expensive activities increased ie n participation.
Fitness activities which had statistically significant growth in 2008 were step aerobics (up 21.0%), high impact aerobics (up 8.7%), low impact aerobics (up 7.9%), elliptical motion trainers (up 7.2%), dumbbells (up 6.2%), and walking for fitness (up 2.7%).
In response to a survey by SGMA, many industry executives felt that specialty retailers are faring better than most retailers because they serve dedicated participants. That said, there is great concern that the ongoing credit crunch will threaten all but the strongest and largest retailers.
Survey respondents listed the five hottest sports poised for growth in 2009 will be fitness walking, lacrosse, running, aerobic training, and camping.
Nearly every company surveyed by SGMA stated that product development remains a high priority.
Cove said SGMA sees technology in sports products as a leading driver in creating consumer interest and demand.
“Our report suggests innovative products featuring new technology will be important in restoring industry growth as the overall economy improves,” said Cove. “Further, we believe manufacturers and retailers who best use new media creatively and aggressively to connect with consumers will create a competitive advantage for themselves.”
Cove said while consumers are going “to buy things they trust” rather than pursue the innovative and new products, it remains critical that the industry continues to plow money into R&D and continue to connect with consumers through marketing.
“They'll be a point where people are going to get jobs, they'll stop worrying about the next AIG disaster, and they'll start spending more freely,” said Cove. “And at that point we're going to need new products and ideas to entice them. It's a tough market now. People are going to defer purchases until they can feel confident and then be confident and that has nothing to do with our business.”
The report is free to SGMA members.
