Industry growth is still possible
Beginning with the positives, WFSGI pointed out that the sporting goods industry has proved resilient during Covid. The past few years have actually seen growth in many areas — as consumers discover and rediscover a passion for sports and demonstrate an increased awareness of health. Dr. Florian Forster, country manager Alibaba, reported that the global sporting goods market is expected to grow to €395 billion by 2025. Camping, green commuting and home fitness training are still growing. EOG (European Outdoor Group) reported the European wholesale value of trade in 2021 at €6.2 billion, with apparel claiming a €3.1 billion majority share and a total sell-out value of €12.4 billion.
However, at the WFSGI and McKinsey presentation at ISPO Munich 2022 in late November, which previewed McKinsey’s Sporting Goods 2023 report, McKinsey partner Alexander Thiel cautioned the industry is nearing the end of a very specific period of time. Paradigms are changing, and this will require investment in resilience. In fact, 2023’s full report title is ”The need for resilience in a world in disarray.”
The presentation listed four “horsemen of the apocalypse” for players in the sporting goods industry: Supply chain disruption, geopolitical instability, out-of-control inflation and demand decline.
Brands need to develop resilience
In terms of supply chain disruptions, McKinsey sees the time of globalization as over. In order to stabilize supply chains, the future is going to be prioritizing stability over speed. The discussion included a reference to nearshoring and the need to consider this on a country and product level. McKinsey associate partner Sabine Becker encouraged brands not to see this as an end goal, rather, they should ask, “How exposed am I to risk sourcing here / in this way?” (For more on nearshoring, see our coverage of the ISPO panel discussion presented by NOW Partners)
The main consequence of geopolitical instability — the second big concern as we go into 2023 — is to create a climate of caution which mutes demand. This goes hand in hand with the demand decline caused by a middle class now essentially without savings. In “developing” countries, the consumer wants to buy, but countries aren’t in a position to grow. Underlying all this — in large part due to inflation — is that cash is no longer as cheap.
Given these concerns, McKinsey’s report includes several suggestions for how brands can improve their resilience. The first is to be hypervigilant about how cash as capital is deployed and to ensure there is a short, middle, and long-term plan for managing cash. Brands also need to separate from what Thiel described as “bad complexities” and, in doing so, strengthen their sourcing and supply chain resilience. Smart pricing was also stressed. This doesn’t mean simply pricing a product to take into account increased production costs, nor keeping a price as low as possible. It is a balancing act.
Other resilience measures included resetting the ROI, strengthening brand communications and product optimization (by designing with a design-to-value mindset). This last measure was also reiterated in the ISPO Group Consumer Insights Report presentation, which showed that in times of crisis, 46 percent of consumers intentionally focus on quality over quantity in sports and outdoor topics.
The full McKinsey report will be available in January 2023.
Data is still king in the outdoor and sporting goods industry
Thought leaders and collectives at ISPO continue to stress the importance of collecting data and promoting improved capacities for data management.
EOG, together with Sporting Insights, described data as like “driving with the lights on” in their co-presentation. They encouraged brands to join EOG’s new point of sale service, which will allow for better tracking not only at the category level, for example, rucksacks, but also offers more depth in terms of rucksack size, colorway, purchasing channel and basket analysis: i.e., was the rucksack bought with something else?
In addition to such retail data that brands may be accustomed to collecting, the consumer demand for data concerning a brand’s sustainability credentials was a key theme.
In the ISPO Sports Business Panel “Sustainability in Professional Sports,” Deloitte senior manager Dr. Felix Mutter reported that consumer trust in claims of sustainability is at only 30 percent. Back to McKinsey’s presentation, Becker urged brands not to ignore customer demands for transparency: Brands must back up sustainability claims with data. She went so far as to say that first, brands should create transparency about their emissions and then think about reducing them.
”Retailers also have to be a source of competence for the consumer,” said Anna Rodewald, co-founder of GreenroomVoice and co-organizer of ISPO’s Sustainability Hub. She added retailers need to be able to pass on the data in a way that is transparent, reliable, and authentic to the consumer, pointing to Globetrotter as a good example.
For consumers, sustainability is a non-negotiable
At ISPO 2022, the importance of sustainability in retail was a non-negotiable and featured in many discussions.
In the ISPO Consumer Insights Report presentation, a climate-friendly brand was shown to be the most important ground for switching brands and the only category to grow in importance in 2022, with 38.19 percent of consumers agreeing.
However, Steffen Lindenmaier, senior manager of sustainability for German football team VfB Stuttgart, noted in the ESG Sports Business Panel that two-thirds of those questioned are skeptical of brands’ sustainability credentials.
Deloitte’s Mutter shared figures showing 69 percent of Gen Z expect actors in the sports world to do more for the environment. And from a survey of European consumers, 57 percent expressed a willingness to pay a higher price for sustainable products and services.
The WFSGI and McKinsey presentation called for circularity to go mainstream. A central tenant to this concept is ensuring products stay in the highest value phase (i.e., as a product) for the longest possible time. Florian Forster, country manager at Alibaba, confirmed customers are looking for durability as well as convenience and home use.
(For more information on circularity in retail at ISPO, see our report in The Outdoor Industry Compass)
If the figures on consumer preferences aren’t enough to convince doubters of the importance of environmental credentials, Mutter noted that paying attention to sustainability also makes brands more attractive to the capital market and investors.
Personalization
Another pressing motivation for brands to collect data is to enable personalization: A trend almost all contributors at ISPO 2022 saw as growing in importance for retailers in the outdoor and sporting industries.
For Christoph Beaufils, brand strategist consumer goods ISPO Group: “Without a clear customer-centric mindset, your business will not be successful.”
Petra Balzer, principal digital strategy and marketing at RPC (The Retail Performance Company), noted in her presentation that an overwhelming 71 percent of consumers expect companies to deliver personalized interactions. She suggested this could be done — using collected data — in the form of, for example, celebrating sporting milestones.
McKinsey’s Thiel explained that previously, consumers chose items like technical footwear based on tech specifications. Now their first thought is: “What brand do I want to buy?” It has, therefore, never been more important to promote the value and essence of a brand via engagement. One way for brands to do this is to elevate their digital game.
The metaverse is increasingly important for outdoor and sports industry retail
In terms of predicted trends, it was the metaverse that often took center stage at ISPO 2022. Beaufils observed that the rise in e-commerce goes hand-in-hand with lower footfall and the shift from “bricks to clicks.” In 2022, health and digitization met, and this juncture is likely to carry over into the sports and outdoor fields in the foreseeable future.
In the “Stories to be Told” session, Antje Dittrich, founder of Digital Mentoring, and Anna Pramila Meissner, creative strategist with Demodern, presented figures which argued the data and metaverse cannot be ignored. With 80 percent of info coming visually, she stressed the need for visuality and thinking in pictures, but with a new caveat for brands: There should be neutrality — no more thinking in masculine and feminine colorways. They urged brands to also start thinking in, for example, edutainment models.
Likewise, Balzer, who stressed the need for personalization, argued consumers are not only looking for a product, they are looking for an experience. She pointed to successful examples of blending the physical and the digital together, for example the NFL’s recent use of NFTs.
Successful metaverse strategies will also strengthen brands beyond the level of traditional celebrity endorsement and should be considered in terms of collaborations with brands, for example, the Adidas x Bored Ape Yacht Club NFT.
