Trends in the world of sports

Compared to many other industries, the past two years have, overall, been characterized by solid growth, with performance equal to or better than pre-pandemic levels. Looking ahead, in the medium term, there are many reasons for optimism driven particularly by the growing awareness around health, fitness and sports.
However, in the short term, there may be clouds on the horizon. Rising costs, the potential threat of a major recession, and continued operational challenges could create headwinds as early as 2023, putting immediate pressure on companies to flex their operations. This will probably mean going beyond raising prices to increase productivity, managing cash more tightly and finding the right balance between saving and investing.

2022 review
Companies were placing large orders in anticipation of demand and to avoid 2021 supply chain challenges; And performance in the first half of the year was broadly positive. However, challenges were arising in the background. Inflation was rising due to the effects of the war in Ukraine (especially in Europe), and the high cost of raw materials and energy was prompting some companies to raise prices. Meanwhile, consumer sentiment showed signs of waning optimism and discretionary spending declined. Supply chains gradually became more reliable, but the sudden increase in available products and decline in spending led to massive overstocking.
In the second half of the year, the economic outlook deteriorated amid geopolitical instability and growing concern over the trajectory of interest rates – which tightened constraints on both companies and household budgets. The overall effect of these factors was a significant weakening in industry performance compared to 2021 (although still ahead of pandemic levels). Sporting goods companies were able to raise prices, but not enough to offset the decline in units sold. That said, some categories performed better than others, creating both risks and opportunities for individual players.

dealing with recession
With inflation set to reach its highest level in at least 40 years in Europe and the United States in 2022, only 6 percent of sporting-goods companies are confident about their resilience and performance. In fact, the three words executives used most to describe expected conditions in the industry in 2023 were “challenging,” “uncertain,” and “unpredictable.” The biggest concern in the second half of 2022 is a decline in demand. And there has been excess inventory. Looking ahead to the coming year, 22 percent of decision makers expect both revenues and margins to decline by more than 5 percent.

Consumer sentiment is falling, driven by factors including the war in Ukraine, higher energy prices and rising interest rates, which have depressed household incomes and put pressure on discretionary spending.
Net purchase intent in the footwear, apparel and sports & outdoors category has consistently declined throughout 2022. Additionally, consumers are likely to reduce their sporting goods spending in the times to come. More than 50 percent of consumers say they will buy fewer items, while about 20 percent say they will trade up to less expensive brands.

Expectations of an upcoming decline are reinforced by recent demand dynamics, which saw peaks in 2021 and the first half of 2022 (with many purchases supported by economic stimulus). After exceptional performance during the pandemic, durable goods for individual personal use, such as sports equipment, are likely to be most affected. Pressure on performance is expected to be inevitable.

How should the industry respond?
Overall, sporting-goods companies need to develop strategies that will help them overcome the current challenges. And raising prices in a context of low demand may not be the solution – especially given the wide availability of more affordable options. In the context of inflation, a holistic approach considers six key action areas:

Implementing smart pricing and channel management.
For example, data and analytics related to price elasticity and competitive offerings can inform flexible pricing strategies and revenue management to protect net margins and limit the impact of volatility. Effective implementation can lead to 5 to 15 percent revenue growth.
Resetting return on investment.
Decision makers should consider a top-to-bottom review of efficiency by channel and SKU to invest for growth. Our analysis shows that this can save 10 to 20 percent of marketing budget and increase return on investment.
Strengthening brand communications.
Communications can be optimized and refocused on the brand’s core value proposition, helping companies achieve 2 to 5 percent revenue growth.
Building supply chain resilience.
5 to 10 percent of potential savings can be achieved by reviewing sourcing and supply chains and implementing next generation levers on cost basis.
Promoting Next Generation Organization Productivity.
An agile approach and innovations such as robotic process automation can lead to long-term savings of 5 to 10 percent. Companies can review storage and transportation costs to unlock productivity levers – recovering transportation costs due to market downturns – and review the network of facilities.
Optimization of finances.
Companies can focus on freeing up cash and exploring disinvestments and acquisitions.

Through these commercial, operational and financial levers, companies can hold on to the effects of the recession, shape their business models to current needs and position themselves for a rapid return to growth. The important thing will be for decision makers to manage these priorities based on their unique circumstances while adopting a positive approach that builds long-term competitive advantage

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