(Updated on March 27, early morning time) We have been making use of our new SGI Europe and Outdoor Industry Compass websites to give you a constant flow of new information on what the industry is doing about the spreading Covid-19 pandemic in a dedicated “Corona Ticker.” We feel that it is important to tell our readers how others in our sector are reacting to this new plague and mitigating its effects on their businesses, their clients and their communities. We find Nike’s coronavirus “playbook” to be very instructive. There are many other important examples of best practices and solidarity in the war against the epidemic, which now has its epicenter in Europe. Here below are some of them, along with a rundown of some of the consequences of the disease, including the cancellation of the OutDoor by Ispo show.
Fesi, the European sporting goods industry federation, called on the European Union and member states on March 23 to provide “swift and bold support” to the European sporting goods industry because it is facing major difficulties in supply, cash flow, rental payments and short-time working for its employees due to the coronavirus outbreak.
Noting that nearly 75 percent of its members are small and medium-sized enterprises, the federation suggested measures such as tax and duty deferrals, rent postponements and concessions, public guarantees to help companies borrow money, export guarantees and the waiving of penalties for delays in honoring public procurement contracts.
Many of these proposals have been taken up by some national governments in Europe because of the emergency. This past Monday, it was the British government’s turn to order a nationwide lock-down, accompanied by promises of financial help and indications that it will enforce a three-month delay on payments of store rental fees. A few days earlier, big department stores like Harrods and Selfridges had voluntarily shut down.
In any case, earlier this month store traffic had already declined sharply in the U.K., dropping by up to 40 percent at certain brick-and-mortar stores. In Spain, during the week of March 9 to 15 that preceded the government’s ban on retail activities, shopping at sporting goods stores had already fallen by 42.7 percent, according to Retail Intelligence.
Meanwhile, in a move that has been welcomed by Fesi, the European Commission has decided to make available €37 billion in “Cohesion” funds to member states to address the consequences of the health crisis. Furthermore, the European Investment Bank will rapidly mobilize up to €40 billion in financing, one-fourth of that for the benefit of small and medium-sized firms.
We can add that the private sector is also playing its part, as shown below.
Uncertainties about future performance
About two weeks ago, public companies stopped predicting their results for the balance of the year because of the uncertainty over the development of the Covid-19 outbreak and its effect on their business. Others, including Puma, Skechers, Wolverine Worldwide, Accell Group and Rapala VMC, had ventured some form of guidance but have withdrawn it since our the last issue of this publication.
On March 24, after the British government ordered a nationwide retail lock-down, JD Sports Fashion said it was closing all its stores in the U.K. as well as in the rest of Europe and the U.S. It also announced that it is postponing the release of its results for the financial year ended on Jan. 31, tentatively to the second half of May. The revised date would allow the group to provide greater clarity about the impact of Covid-19 and its performance in the current financial year, said the company, adding that it was weighing “a number of options to preserve capital across all aspects of its business.”
JD’s big rival, Sports Direct, had initially said that it was going to keep its stores in the U.K. open, despite a recommendation by the government, but agreed to follow after government ordered the lock-down.There is no doubt that the economic mitigation measures announced by several European governments, including the postponement of rental payments, will not be sufficient to make up for the likely loss of sales. Frasers Group, the U.K.-based international sports and fashion retailers previously called Sports Direct International, warned on March 20 that the “significant disruption” in its business will prevent it from obtaining the previously projected increase in Ebitda of 5 to 15 percent for the financial year ending on April 26.
Fighting the cash squeeze
While enacting cost-containment measures and waiting for financial help from state or national governments – whether through subsidies or soft loans – many companies are trying in myriad ways to save money so as to finance their overheads while facing a standstill in their operations, a sharp drop in revenues or the risk of bad debt.
No major new retail bankruptcies have been announced yet in the sector since the recent bankruptcy of Gresvig in Norway, which is merging with Sport 1 as we have already reported it, but XXL, which is also struggling financially, has just announced that it is laying off 1,000 people in the country. Coronavirus aside, Norway is being affected by a recent sharp decline in crude oil prices, which last week helped depress the value of its currency by about 30 percent against the euro and the dollar.
Two outdoor-oriented companies, Fenix Outdoor and Thule Group, are proposing to cancel their annual dividend to save liquidity. On the other hand, Thule has just confirmed that its annual meeting will be held as planned in Malmö on April 28.
While postponing its May 14 annual meeting to a still undetermined date for the health and safety of employees and shareholders, the Adidas Group indicated that it will also delay the planned approval at the meeting of an annual dividend of €3.85 a share. “Despite the temporary challenges posed by the coronavirus outbreak, the company remains fully confident about its future growth prospects thanks to its healthy fundamentals and its strong positioning within an attractive industry,” said Adidas.
In releasing its results earlier this week, Nike indicated that it still had plenty of cash to face up to the Covid-19 contingencies. Neverthless, it decided immediately afterwards to boost its $3.2 billion cash pile by issuing a $1 billion debt offering. Moody’s blessed the move by giving it an A1 senior unsecured credit rating, but changed its outlook to negative because of the uncertain duration and severity of the spreading disease.
VF Corp. had previously taken out $1 billion from a $2.25 billion credit facility. Foot Locker said it was drawing down $330 million from a $400 million revolver “to preserve financial flexibility.” While withdrawing its previous financial guidance, Hanesbrands, the parent company of Champion, announced that it was drawing down $630 million from its revolving credit in the U.S. to give it about $1 billion in cash on hand.
Meanwhile, in a generous gesture worthy of note, well-paid top executives at Canada Goose and Puma are surrendering part of their salaries in response to the epidemic. Besides closing all Canada Goose stores in North America and Europe until at least March 31 and the production facilities in Canada for at least two weeks, the company’s chief executive, Dani Reiss, said that he will forego his salary for at least the next three months. The company will use those funds to establish the Canada Goose Employee Support Fund to help employees who are impacted by the closures but are ineligible for government assistance.
To compensate for an expected drastic drop in sales, the executive board members of Puma around Bjørn Gulden, the company’s chief executive, have foregone their full salaries for April. Members of the senior management, including general managers and global directors, have given up on 25 percent of their salaries for the same month.
Puma has placed all of its employees in Germany on a part-time schedule through April 13. They will accordingly be working only 50 percent of their contracted hours, but they will receive their full salaries, according to a statement from the company. The remaining 50 percent of pay will be covered by the part-time allowance of the Federal Employment Agency and a temporary raise from the company. The step has become necessary with the closure of Puma’s stores and those of its trading partners in almost every country.
Vendors and buying groups help retailers
Interesting forms of solidarity between vendors and retailers are emerging in our sector, with many accepting order cancellations, later deliveries or later payments of outstanding invoices. While big international brands like Adidas or Nike can still generate cash from Asia, where the epidemic is subsiding, sporting goods retailers in Europe, the U.S. and other parts of the world have closed down their offline stores voluntarily or by government order.
In an unusual gesture, Oberalp has simply decided that one of its brands, Salewa, will not offer an apparel collection for the spring/summer 2021 season, basically allowing its retail partners, many of whose stores are now closed, to offer only carry-over textiles for the year from now. Salewa guarantees that 75 percent of the products in its spring/summer 2020 collection will still be up-to-date in the following season. All garments currently in the shops and in stock will thus not lose their value. For shoes and hardware, on the other hand, dealers will be supplied with brand-new products for spring/summer 2021. More on this in tomorrow’s Outdoor Industry Compass.
In Germany, as in other European countries, public authorities have pledged to help ensure the wages of employees who are forced to stop working because of the coronavirus epidemic, including store personnel. In a statement issued on March 20, Stefan Herzog said that the German sporting goods retailers federation, VDS, of which he is the head, was joining other retailers’ associations for “quick, pragmatic and unbureaucratic solutions” in this area and for promised bridge loans and rescheduling of tax payments.
In his statement, which was co-signed by Sport 2000 and the Ispo Group, Herzog also called on suppliers and retailers to work together to delay shipments and payments, while making sure that those stores will have the right merchandise on offer when they are reopened.
In Germany, where retail cooperatives are very strong, the ANWR group has decided to offer to its retail members in the shoe, leathergoods and sporting goods sectors the option to apply for a guarantee of up to €250,000 to secure 80 percent of a credit from a commercial bank.
In addition to other forms of financial aid, such as delayed payment of invoices and commissions, one of the German buying groups affiliated with ANWR, Sport 2000, has decided to implement the new sport2000.com e-commerce platform as of next week to help out retail members that have closed their shops to take orders from customers online. The launch is limited for the time being to the German market. Others in Europe will follow.
A German online trading platform, Sportmarken24, is offering affiliated retailers immediate pragmatic cash help during the coronavirus. For two months, the company promises an interest-free loan equivalent to the amount paid out in the previous month. In addition, Sportmarken24 is offering all unaffiliated retailers a fast track to membership. Sportmarken24 is an e-commerce start-up based in Wiesbaden and has been active since spring 2018. The start-up enables local sports retailers to participate in the online business. The products are offered on a variety of channels, including Amazon, Ebay and Real, as well as through the company’s own Sportmarken24 webshop. Currently, more than 150 stores in Germany are already affiliated with the platform.
Online and omni-channel retailers may profit from the closure of brick-and-mortar stores, but a U.S. company wants to share its benefits. The brand Toad&Co has launched an unprecedented e-commerce revenue-sharing program to help brick-and-mortar retailers that run into financial difficulties as a result of the crisis. The brand from Santa Barbara, California, dedicated to sustainable, organic and eco-friendly clothing, will share 10 percent of the e-commerce revenues from first-time customers with its physical retail partners.
Gordon Seabury, Toad&Co’s CEO, explains the workings of the program, which takes effect on March 15: “If a retailer is shut down due to coronavirus, we’ll provide them a special code. When customers come to our website, they’ll put in the code to identify as customer of retailer X. After a sale, that store will get part of the revenue and that customer will be tagged as a customer of that retailer for all sales going forward. Any subsequent online sale will be flagged, and part of the revenue will go back to that retailer, even after the coronavirus outbreak calms down.” Seabury also said that his company wants to expand the program further, perhaps as soon as this week.
In the U.S., on March 13, Patagonia was one of the first brands to announce the shutdown of all its stores, offices and other operations around the world – including even its online store. Many other brands subsequently made the same move on a voluntary basis, starting with Nike, but they continued to take orders from customers online, while keeping open or gradually reopening their stores in Asia.
Making weapons for front-line health workers
LVMH, the big French-based luxury goods group, was among the first to do something practical to fight against the coronavirus diseases. Faced with a scarcity of hand sanitizers, it converted some of its perfume manufacturing operations to make hydroalcoholic gel, which it donated to health authorities free of charge. A Brazilian cosmetics group, Natura & Co., has started to do the same on a temporary basis.
The sporting goods and outdoor industry is now playing its part, in different ways. Salewa has committed to sewing face masks and water-repellent protective coats. The brand’s parent, Oberalp Group, reported that production is taking place at the group’s facilities in Montebelluna and that the products are made from existing waste materials. The first weekly production of 50,000 masks and 800 protective scrubs has already helped the South Tyrolean medical services to overcome a bottleneck.
At the same time, Salewa and its license partner have secured a total of 20 million medical protective masks and 600,000 protective jackets in the Chinese city of Xiamen and flown them in via Vienna in cooperation with Austrian Airlines and the Austrian government. Oberalp is currently pre-financing all the orders for public institutions and organizing the official permits for transportation within China and to the final destinations. The company’s logistics department will take over the distribution of the equipment on behalf of the South Tyrolean medical services.
Face masks have turned out to be a rare commodity in many countries. According to reports in the local media, home-based stitchers of shoe uppers in Spain and small fashion workshops in California have switched to the manufacture of masks, primarily destined to hospital workers and their patients. This is one way to convert the supply chain to better use when it’s bound to stay still because of a slump in consumption.
Initiatives of this kind at an industrial scale are mushrooming. Canada Goose, which has several apparel plants in Toronto and Winnipeg, announced on March 25 that about 50 employees at each facility will make scrubs for nurses and patient gowns that will be donated locally, with an initial goal of producing 10,000 units.
Hanesbrands revealed that its Latin American factories have become part of a consortium of apparel manufacturers that will make surgical masks.
Meanwhile, Macron, the sportswear firm based near Bologna and the kit sponsor of dozens of clubs across different sports and countries, has announced that it is partly converting its production from team sports jerseys to masks. More than 7,500 people have died in Italy in connection with the Covid-19 outbreak since the beginning of the crisis, just a few weeks ago.
Also in Italy, Decathlon snorkeling masks are being converted into ventilators to help coronavirus patients cope with related respiratory problems. The conversion was prompted by Renato Favero, the head physician at a hospital near Brescia, himself a user of Decathlon’s Easybreath scuba mask. A company called Isinnova has designed a 3D-printed connection between the ventilator and the mask and uploaded to the internet a video with instructions for converting the scuba mask into a functioning ventilator. Hospitals around the world can now buy masks from Decathlon and replicate the process, if they need to. The 3D-printed valve, which Isinnova has called the “Charlotte Valve,” is patented but the initiative is non-profit. Isinnova made it clear that the solution is designed for worst-case scenarios only, when official healthcare supplies are urgently needed but unavailable.
Community spirit, donations
In general, companies have been taking care of the health and safety of their employees as a first priority, promoting social distancing and cleaning up their offices as soon as they discovered cases of infection. Nike, Adidas, Zalando and others acted rapidly. Italy’s Tecnica Group went as far as subscribing to a specific Covid-19 insurance policy for its staff, as outlined in a separate article further below.
According to the Italian sporting goods industry association, Assosport, which pro-actively contacted many of them, many Italian producers of outdoor clothing, footwear and equipment closed down their offices and facilities for a few days even before a nationwide lockdown of non-essential activities ordered by the central government. They resorted to “smart working” (remote working at home) for customer service and other operations. Some others added an extra shift to be able to deliver some orders before closing down.
La Sportiva, the Italian producer of climbing and hiking shoes and clothing, announced already on March 12 the closure until at least April 3 of its head office, store and manufacturing plant at Ziano di Fiemme in Northern Italy because of the coronavirus epidemic. The facilities employ a total of 364 people. Some orders had already been cancelled in Italy and others were being delayed due to new travel restrictions in Austria and France. Lorenzo Delladio, chief executive and president of the company, admitted that this would cause personal sacrifices and losses in terms of sales, profits and market presence, but “will allow us to start up again with more motivation once the emergency is over.”
Another Italian company specializing in climbing equipment, Camp, decided to shut down although it had just received an order from China, where the market has returned to more normal levels. Meanwhile, in Europe and North America, where the health system is less subsidized, many companies have been making donations to their communities.
In February, Canada Goose announced a donation of one million renmimbi (€127,879-$141,355) to the Wuhan Charity Federation, which was collecting funds to help relief efforts in the city where this all started.
In Italy, the European country where the epidemic has caused most fatalities, In Italy, the European country where the epidemic has caused most fatalities, the Polegato family, which controls Geox and Diadora, made a donation of €1 million to the highly impacted Veneto region, and Macron and Technogym have been among the companies that have made donations to local hospitals. Macron, the Italian supplier of replica jerseys, isaid it was making a donation of €100,000 to a local hospital in its hometown of Bologna. Save the Duck, an Italian “animal-free” outerwear company that exhibited for the first time at Ispo Munich 2020, said it would give 20 percent of the proceeds from its online sales since March 2 to the health system in Milan, which has been overwhelmed by the epidemic.
Nike, its foundation and its executives have pledged more than $15 million to various relief funds in the state of Oregon (see below). The New Balance Foundation has committed the extraordinary amount of $2 million in grants to various charities, including Global Giving, No Kid Hungry and the Boston Resiliency Fund, inviting its employees in North America and the U.K. to participate in a corporate matching program.
Keen Footwear has pledged to donate up to 100,000 pairs of shoes, worth about $10 million, to the workers on the front lines and the families at home dealing with the coronavirus crisis. The program is called “Together We Can Help.” As reported on snewsnet.com, within 24 hours of the program’s launch, Keen received 14,000 orders from around the globe.
Disruption and economic worries
More and more companies in Europe have been closing factories and/or retail stores. Vibram suspended production in its factory in Albizzate, in the Italian province of Varese, but restarted its production in the Far East Far East as well as the Vibram Tech Center in Guangzhou, China.
While the production apparatus has fortunately been set in motion again in China, we are now receiving reports of disruptions in manufacturing in countries like Cambodia and Myanmar due to the lack of fabrics and other inputs from China. We also hear that concern is building in China that foreign residents coming over to supervise the supply chain may be infected in turn, possibly leading to reverse travel restrictions.
Experts feel that more flexibility and resilience should be introduced into the supply chain now and in the longer run to cope with this sort of emergency as well as with unilateral government measures like Brexit or the U.S. tariffs on Chinese goods. Brands, distributors and retailers should accept temporary delays in deliveries without penalties.
Some studies indicate that, with warmer weather conditions setting in, we should get over the current pandemic by the summer, if not sooner, at least in the Northern Hemisphere, depending on the containment and mitigation measures taken by governments, companies and individuals.
Anyway, there is no doubt that the global economy will slow down, raising the specter of a possible recession, although the sporting goods sector showed a certain resilience as compared to other sectors during the previous 2008 economic crisis. According to the United Nations Trade and Development Agency (Unctad), the recent shortfall in Chinese production alone is likely to cause a 2 percent drop in global exports this year.
Reacting to the gloomy economic outlook, the Federal Reserve in the U.S. has again slashed the benchmark interest rate and the U.S. government has finally issued a big financial aid package that has lifted stock exchanges worldwide.
More shows are canceled or postponed
We have already reported on the cancellation or postponement of many industry trade shows, and we have just learnt that exhibitors who had booked space for the Ispo Beijing trade show in February have been refunded.
Early this morning, Messe München announced the cancellation of the OutDoor by Ispo show, which was going to start in Munich on June 28. It said the decision was taken after concertation with the Bavarian government and the European Outdoor Group (more on this soon on the website of our Outdoor Industry Compass and the subsequent newsletter). Information about related events such as the Ispo Digitize Summit will be provided at a later date.
So far, the organizers of the Outdoor Retailer Summer Market in Denver have maintained its previously scheduled dates of June 23–25, but we would not be surprised if they will soon do the same.
Performance Days, the first show of sports fabrics for the spring/summer 2022 season, was still going to take place in Munich as scheduled on April 22-23 because the Bavarian government’s official ban on public events is due to expire on April 19. However, its organizers have now decided to cancel it “after extensive internal and external consultation” and to replace it with digital alternatives. More information will follow soon, but buyers will of course have a problem because the touch and feel of a fabric is important. The next session of the show is still planned for Oct. 28-29.
The Taiwan External Trade Development Council (Taitra) has announced the cancellation of the new combined Taipei Cycle+ and Taispo+ trade shows, which were scheduled for May 14-16, as the government of Taiwan has restricted international travel and events despite its relatively successful containment of the coronavirus epidemic. The trade shows were originally scheduled for early March but subsequently postponed. A virtual exhibition with online meetings is due to be organized in its place.
On the other hand, the second edition of the Paris’ Velo Show took place as scheduled on March 6-8, escaping the wave of cancelations and postponements that are sweeping away the majority of trade shows and other events. The French bicycle show attracted about 6,000 visitors and 75 exhibitors, with some 100 brands on display.
Separately, Efttex, the international fishing tackle show, confirmed on March 19 that its next event will take place as planned in Prague on June 11-13, but we wonder whether it will actually happen. Pitti Uomo, the big international menswear show in Florence, where many sports brands exhibit, is still going to take place on the planned dates of June 16-19, as long as the Italian lock-down doesn’t continue beyond the end of May. The organizers have started to evaluate alternative measures, however.
Please read the subsequent articles and check our website frequently for other news about the Covid-19 situation!
Photo by Brian Mc Gowan on Unsplash