All eyes will be turning to Russia in the coming days when the Winter Olympics get started in Sochi. The event is also helping to stimulate the Russian sports market, by far the largest of four markets covered in our latest series of market research reports, along with Ukraine, Poland and the Czech Republic.
Available for your perusal in a draft version at our stand at Ispo Munich (EW03, between the West Entrance and Hall B1), the report provides many facts, figures and analysis on these four markets, on aspects ranging from sports participation to market size and retail landscape, as well as a more detailed description of five selected market categories: running, fitness, team sports, snow sports and outdoor sports.
The four markets together amount to a retail turnover estimated at about €9.3 billion to €9.5 billion. The Russian market alone has become the eighth-largest in the world, based on estimates by the NPD Group. But the dynamics of these four markets are entirely different, and so are their prospects.
With its 143 million people and growing consumption, the Russian market has been drawing the most abundant investment and expanding at double-digit rates for the last three years. Several factors will likely support that expansion in the coming years, from growing sports participation to a prospective reduction of import duties (as part of Russia's commitment when it joined the World Trade Organization) and improvements in infrastructure.
The rise of the market in the last three years has generated soaring sales for the leading international apparel and footwear brands, as well as a few retailers. While Russia has no major sports brand, the Sportmaster retail chain has turned into a sprawling group with 350 multi-brand sports stores and sales estimated at about $2.5 billion (including an estimated turnover of $1.8 billion for Russian sports stores alone). The second-largest retailer is the Adidas Group, with an estimated 850 own stores making up more than 95 percent of its Russian turnover.
Others bemoan the vertical integration in the market, since Sportmaster abundantly sells private labels. The same applies for Trial Sport, the largest Russian retailer for sports equipment with 80 stores and exclusive distribution contracts with many important brands, as well as several weighty players in more specialized parts of the market, such as Alpindustria and Kant. Faced with this constraint, brands from Puma to The North Face and from Salomon to Jack Wolfskin have started expanding their own retail facilities. They all contribute to brand-building, which should help to stimulate the sports market.
The rise of weighty regional players in sports retailing, like Vishaya Liga from Krasnodar and Champion from Ufa, should be equally helpful. The process is accompanied by marked improvements in infrastructure in the Russian provinces, be it for transport, warehousing or retailing. Many brands are relying on this consolidation to improve the quality of the market in the coming years, and to reach new middle-class consumers outside the relatively developed markets of Moscow and Saint Petersburg.
Another encouraging factor is investment in sports participation, beyond the frenzy of the Olympics. The numbers have been growing since the government adopted a strategy to more than double Russian sports participation to 40 percent of the population by 2020, up from 15.9 percent in 2008. The government is eager to get its citizens moving, as it worked out that about 60 percent of them have health issues.
The expectations about Russia are in sharp contrast with the situation in the Ukraine, where the sports market has been nearly paralyzed by economic and political upheavals – even before the eruption of the latest protests.
While the numbers still point to robust participation in a few sports such as football and fitness, overall participation has shrunk to the same rate as about ten years ago. Spending per capita on sports products is by far the lowest of the four countries in the study - not even half of the Russian number - and the prospects of improvement are more than uncertain.
Many suppliers have been on standby for two or three years in the Ukraine, chiefly aiming to stabilize their business amid the turbulence. They are most likely to invest in CIS countries such as Kazakhstan and Belarus, also on the back of their customs union with Russia.
Yet still, our report also shows that several companies have managed to build up sizeable distribution amid this Ukrainian disarray, in categories such as outdoor and winter sports. They are mostly relying on specialist distributors who are directly involved in the development of sports in the Ukraine, building up the market and their brands as they go along.
Poland is another market that has been growing in the last years, with a resilient economy and rising participation. This is stimulating sales of performance sports products, led by football and running. The country has seen a particularly spectacular hike in running in the last three years.
Ten years after its accession to the European Union (EU), the Polish sports market as a whole is still strongly under-developed in terms of consumption per capita, and it remains strongly price-driven. Yet the companies that operate across the eastern part of the EU are most upbeat about the potential of this market, due to its population of 38 million and the positive dynamics at several levels.
Among the most significant developments is the belated concentration of retailing. The five largest accounts are estimated to make up less than 30 percent of the market so far, but that is changing. The spread of Décathlon, by far the largest sports retailer in Poland ahead of Intersport and Go Sport, has already had strong repercussions on some categories of the market. Martes Sport, a distribution company, has built up a chain of 68 stores and nine outlets within five years. And several regional retailers are steadily adding to their networks.
Suppliers are less upbeat about the development of the Czech market, which is already much more structured. Czechs are far more active in sports on average than their Polish neighbors, with buoyant participation in sports such as cycling, climbing and, increasingly, running.
By most estimates the market has been stagnating for the last three years, chiefly due to pressure on consumer spending. This has led to baffling discounts that are badly hurting independent retailers, in a market with many price-driven consumers.
The price battles have been led by Hervis and Intersport but even more so by Sportisimo, a remarkably sharp local chain that reached sales of €155 million with 68 stores in the Czech Republic alone last year. The competition should be further exacerbated by the expansion of Décathlon and the arrival of Sports Direct, which recently acquired two stores in the Czech Republic and is searching for more.
However, Czech demand for sports products remains strong, and most of the protagonists have little doubt that the market will improve once the economic situation stabilizes. They regard the Czech Republic as a relatively small but sustainable market with an appetite for performance sports products, and with growth prospects in several sports categories.
