Key Trends Guiding The Sporting Goods Industry In 2023

Increasing Brand Relevance

Generating brand heat and loyalty is more desirable than ever given the current economic landscape where consumer sentiment is falling. Over half of all consumers have expressed their intention to reduce their purchases, while roughly 20 percent of consumers have indicated a willingness to switch to less costly brands. Those who are trusted amongst consumers are far more likely to succeed in influencing purchase intention than those who don’t.

The trajectory of the consumer journey is undergoing a transformation, particularly in the realm of lifestyle categories. Previously, consumers were primarily influenced by aspects such as functionality, design, and price, but now, brand holds greater sway over their decision-making process.

The industry's top performers in terms of generating value are distinguished by their substantial brand equity and customer loyalty. In the lifestyle apparel sector, sporting-goods firms are embarking on a comparable journey to those of fashion companies, which entails establishing robust and reliable brands that capitalise on the direct-to-consumer shift, partnering with other brands, and implementing localised community marketing strategies.

"Consumers’ ability to influence and push brands is stronger than ever." - Ann Miller, executive vice president, Nike

Delivering on Sustainability Promises

Brands, retailers, and manufacturers have made ambitious commitments for a more sustainable future, but have they actually risen to the occasion? As the deadlines they set for themselves fast approach, it's now crucial for them to follow through and deliver on their promises.

The pursuit of sustainability is not a fixed endpoint, but rather an ongoing voyage. To embark on this journey, brands should adopt a mindset of curiosity and determination. As regulators and consumers alike hone in on preventing greenwashing, companies must thoughtfully evaluate how they follow through on their objectives and commitments.

Adopting circular business models

Companies have the potential to generate economic value and encourage sustainable consumption, ultimately reducing downstream waste. In fact, the reusable packaging market alone represents an economic opportunity worth in excess of $59 billion annually.

Companies can capitalise on the growing consumer interest in sustainability by creating innovative business models, such as clothing rental services, second-hand retailing, and exploring the concept of a modern-day "milkman model" where packaging is collected and reused, resulting in reduced waste.

Minimising the environmental impact of operations

The apparel and footwear sector contributes to 8% of worldwide greenhouse gas emissions each year. To decrease waste and material consumption, the industry can adopt practices such as utilising renewable energy, incorporating recyclable materials into production, repurposing industry by-products, implementing water recycling into production systems, and maintaining leaner inventory levels.

Nearshoring: A Solution for Supply Chain Disruptions?

The fragility of offshoring has been highlighted by the numerous supply chain disruptions that occurred over the past two years. The increase in trade barriers and geopolitical turmoil is creating pressure on supply chain security, which in turn is causing a rise in costs.

In a context of disruption, nearshoring has the potential to offer a multitude of benefits, such as supply chain control and risk mitigation, increased agility and speed, competitiveness in cost structure, protection against trade barriers, and a more sustainable operating model that appeals to consumers.

Although nearshoring is an attractive option, it is also expensive and can take years to fully transition operations. In 2020, reports indicated that the total cost for US and European companies to relocate manufacturing operations out of China could reach $1 trillion over the next five years.

Deciding on nearshoring should be based on product-level assessment of supply chain exposure, lead time needs, and economics. The chosen nearshore country should have suitable capabilities, capacity, and access to raw materials. A detailed business case considering a range of variables, including potential government incentives, is necessary to determine feasibility and financial impact.

Increased Private Investment

Driven by increased consumer health awareness and a growing interest in outdoor lifestyles and athleisure apparel, the sporting goods industry has experienced impressive growth in recent years, with the market valued at $331.4 billion in 2021 with projections indicating that it will grow at a compound annual growth rate (CAGR) of 6.4% between 2023 and 2030. Furthermore, the industry has demonstrated greater resilience during economic downturns, rebounding more quickly than other sectors.

The industry's composition of numerous smaller yet distinct brands has made it an attractive target for consolidation or growth plays. Combined with the aforementioned factors, this has resulted in increased interest from private investors such as venture capital firms, private equity funds, and companies, causing the number of annual deals to double over the past decade.

The outdoor space has attracted the most investment over recent years with 161 acquisitions taking place between 2016 and 2021. The industry as a whole is largely dominated by a few super-brands, the challenge for investors is to optimise the performance of mid-sized companies. In order to succeed, investors must develop a clear growth plan that synergises with their investment horizon in order to compete alongside the industry’s juggernauts.