After more than a decade of economic prosperity, the ongoing credit crunch is having a ripple effect throughout the economy all over the world, and the sporting goods sector is one of the victims of the new situation. It is causing indebted consumers to buy fewer non-essential items – including sporting goods – and leading bankers to pull the plug on highly leveraged companies such as JJB Sports (see the subsequent story) and on new leveraged acquisitions such as that of the Sport Master chain in Denmark (see the News Briefs in this issue).
Sporting goods retailers in Europe and the USA have been complaining about major declines in their business this past summer, in spite of the excitement over the Euro 2008 football championships and the Olympic Games in Beijing. In Europe, the crash of the housing industry caused by the mortgage crisis is affecting even some fast-growing emerging markets or a country like Spain. Sport Panel, our partner in the country in our recently released 300-page study on the Spanish market, has calculated that retail sales of sporting goods fell by 7.21 percent in the country during the rolling 12-month period ended in July.
In the USA, where general consumption is expected to decline during the critical third quarter for the first time in 17 years, the market is also suffering from the low value of the dollar, which is leading to price increases for goods manufactured in the Far East.
In view of these circumstances, the stock exchange valuation of public sporting goods companies didn’t fare much better than the stock market in general during last week’s disastrous slide with the exception of some Asian stocks. An analysis conducted by SGI America last week showed that the main industry stocks fell by an estimated 21.8 percent from Oct. 1 to Oct. 9 worldwide, losing some $19.1 billion in the aggregate value of their outstanding shares (see table below). The number of shares outstanding could not be calculated exactly for every company, however.
JJB Sports and Blacks Leisure, discussed further below, were by far the biggest losers in the retail sector, dropping by 54.4 percent and by 48.5 percent through Thursday, respectively, and their share value has continued to decline since. The parent company of Karstadt Sports, Arcandor, is not included in the chart, but it did not perform much better.
In the equipment sector, major declines in market capitalization were registered by companies with heavy exposure to the outdoor market such as Brunswick, Jarden and Smith & Wesson. Marketers of big-ticket items such as golf and exercise equipment also had a bad week. Apparel-oriented companies instead had easily the best performance of any sector with a fall of only 6.7 percent. The apparel category featured the only stock that recorded an increase at 4.9 percent: the sourcing powerhouse of Li & Fung.
The sports shoe sector registered a relatively modest decline of 16.7 percent, with Asian sourcing companies like Yue Yuen, Feng Tay and Pegasus ending up flat or nearly flat for the week. The industry leader, Nike, suffered a 19.8 percent decline in the period while Adidas was down by just 10.4 percent. Crocs took by far the biggest hit with a 46.9 percent dive.
Overall, European sporting goods stocks fell by 15.8 percent, roughly in line with the 15.7 reduction in Germany’s DAX index and a little more than the 12.0 percent drop in London’s FTSE. U.S. sector stocks were down by 21.8 percent, in tune with the 20.8 percent decline in the Dow Jones Industrial Index and the 21.9 percent decline in the S&P 500.
