The Sporting Life

Despite solid sales, the winds of change are blowing in the sporting goods industry, as consolidation on the retail and manufacturing sides of the business has changed the game. According to SGMA International, a Washington, DC-based global business trade association of sports product industry manufacturers, retailers and marketers, manufacturers' sales of sporting goods equipment, sports apparel and athletic footwear totaled $52.2 billion in the U.S. in 2004, a 4.2% increase over 2003. However, in the SGMA report, "The Sporting Goods Industry in 2010," the association notes that in the future, growth will be difficult to achieve because key age groups will not expand significantly (except for baby boomers) and markets will become saturated. One of the reasons for that market saturation is the fact that the sporting goods industry has shifted from a small, entrepreneurial culture driven by enthusiasts to one that is owned and managed by large corporations and driven by the bottom line. As a result, sporting goods' market presence has expanded. More mass merchant retailers, including America's largest retailer, Wal-Mart, sell more types of sporting goods today, often at low prices, which puts pressure on traditional sporting goods stores and specialty shops. On the manufacturing side, recent mergers including the union of adidas and Reebok and Russell Athletic's purchase of Spalding, mean more brands are in fewer hands. In 2003, the merging of The Sports Authority with Gart Sports Co. teamed the industry's two largest retail forces. Other mergers in the past few years, such as Dick's Sporting Goods' purchase of Galyan's Trading Co., have impacted both consumers and the relationships between retailers and manufacturers. "The choice of retail that consumers have is getting smaller, which makes the retailers stronger, which makes the need for a sale price less necessary," says SGMA director of media relations Mike May. "If the competition buys the competition, there's no more competition." Now that larger sporting goods retailers wield more power in the marketplace, manufacturers must work closer with retailers, particularly with full-line sporting goods stores, not only to place their P-O-P, but to better understand what types of P-O-P the retailers want and will accept. "Certainly the biggest trend, especially as it affects P-O-P, is the increase in the number of large-format sporting goods stores, both in general sporting goods and in more specialized lines like outdoor," says Tom Doyle, vice president of information and research for the National Sporting Goods Association (NSGA), a Mount Prospect, IL-based trade association for sporting goods industry retailers/dealers/wholesalers, manufacturers/sales agents and industry associates."The large-format stores are getting to be a much bigger percentage of the sporting goods business. In footwear, the top five athletic footwear chains probably represent 85 to 95% of all footwear sold in specialty channels. So, you're not dealing with a lot of companies, but the companies you are dealing with control a huge portion of business," he says. The Role of P-O-PGiven that more retail channels are now selling sporting goods, P-O-P plays an increasingly important role in marketing sports equipment and apparel. Sales associates in those channels may not have adequate sporting goods product knowledge, so P-O-P helps to fill the gap, attracting and informing the consumer. "The P-O-P display has to indicate that if you try me, I'll help you. I'll make you a better, more successful athlete, and you'll have a more enjoyable time," says May. "Sports are all about repeat business. If someone plays golf once, by golly, he wants to come back and play again. P-O-P displays have to reveal a sense of excitement, to indicate if you try me, you might win, or at least improve your performance. It's a way to reach out and grab somebody." For Carlsbad, CA-based TaylorMade-adidas Golf, P-O-P helps facilitate the sell-in of its products in its three primary retail channels: on-course pro-shops, also called green grass shops; golf specialty stores; and full-line sporting goods stores. "These green grass and specialty stores quite often, if you're going to put your product in, they need a home for it," says Brad Holder, visual marketing manager for adidas Golf, manufacturer of adidas apparel and footwear. TaylorMade manufactures golf equipment, Maxfli golf balls and Rossa putters. "They don't have a massive inventory of racks and display systems, so our sales representatives use the fixtures as a way to help facilitate the sell-in. They have a certain allocation of apparel displays and they can tell a certain customer that if we reach certain volume thresholds, they'll be able to get a display for this product."Secondly, it definitely helps our conversion rates in-store. Anywhere from 70 to 80% of consumers are undecided on their brand choice when they enter the store, so if we can display our product with a certain branded environment and communicate those features and benefits, we feel that the consumer's going to be much more likely to choose adidas Golf products. Without the fixture and signage, we're somewhat at the mercy of the retailer for the presentation and it doesn't always turn out as desired." With all that in mind, adidas Golf leans toward placing permanent P-O-P displays and fixtures, built from higher-quality materials to last up to five years in-store. "We're definitely going with nicer woods, metals, and as far as a color palette, more of a materials choice," says Holder. "We are starting to progress towards a more technical, performance-oriented look and moving away from traditional wood grains that you'd see in certain golf settings, to something that's more performance- and technology-oriented. That lends itself to metals, acrylics and darker or black wood tones." Not all retailers, however, want to use manufacturers' P-O-P. While Moosejaw Mountaineering, an outdoor and wilderness equipment retailer based in Madison Heights, MI, used P-O-P materials from its suppliers in its early days, as it grew from a more generic outdoor shop into a stronger brand, it realized it wanted a more consistent look. "We have boot tags, for example, that over the last year, we have changed from having all different suppliers' P-O-P on our boot tags, to having our own boot tags," says Robert Wolfe, founder of the company. "Most of our suppliers that we buy a lot from want to come to our store to merchandise their own products and they bring their own P-O-P. We don't let them do it anymore because they make it theirs instead of ours."Instead, Moosejaw works with manufacturers to increase product knowledge among its sales associates by holding clinics on new products, thus replacing the shopper education function P-O-P fulfills in other retail channels. "Our staff has to know the products because we don't have that P-O-P," says Wolfe. "There are obviously times when the staff doesn't know the product and we don't have P-O-P and they have to go grab a catalog, but I would say 90% of our staff are former customers, so they tend to know their stuff before we even have to teach them." Retailer/CPG RelationshipsSGMA's report notes that going forward, power will continue to shift to sporting goods retailers, who will demand more services from the supplier, such as inventory management, merchandising and marketing, as well as exclusives to help differentiate the store as mass merchants expand in the category. Sporting goods stores and specialty shops currently account for a combined 50% of retail sporting goods purchases, with 35% sold by mass merchants and 15% by other retailers.According to Doyle, however, the threat imposed by mass merchants may be less than is perceived. "A Wal-Mart will have some very good merchandise, but not necessarily the same depth as an 80,000 square foot sporting goods store," he says. "It's a matter of finding the differentiation in terms of product selection and price point. I think [specialty stores] are always going to feel that pressure, but they also know that they don't own the whole market and they never will. The percentage of sales in sporting goods stores versus other channels for specific products has been very consistent over time." In some cases, the retailer/supplier relationship may morph into a competitive one, as more retailers add private label brands. According to SGMA, private label brands represented 3% of sales at Gart's and 10% at The Sports Authority, and the goal for the combined company is 15%. "Retailers generally have been in some form of private label for a number of years now, so it does have some effect," says Doyle. "But, typically retailers have to be somewhat careful of that because customers tend to come to a sporting goods store, especially the specialty shops, for performance brands. You can do some private label, but it would have to be in some of the lower-end accessory items." However, it is critical for retailers and suppliers to cooperate in order to track consumer trends and share information. At adidas Golf, sales representatives have developed a number of one-on-one relationships with golf professionals, particularly at green grass shops. "Through those relationships, we get a lot of anecdotal feedback about what's hot, what's going on in the marketplace, and while there certainly are some more quantitative market research methods that we use, that's our finger on the pulse of the golfing community," says Holder.As Moosejaw demonstrates, retailers and suppliers can also work together to improve product knowledge. adidas developed a tool kit this year to allow its sales representatives to work with green grass and specialty golf retail associates. "When we work with our customers, the common goal is definitely to sell more product and to improve the consumer's experience," says Holder. "I think there's different tactics to do that. Sometimes people interpret it as a conflict where vendors or brands want to completely own their space and have 100% control. We simply see it as trying to put our best foot forward and help them create a better experience for the consumers and help them sell more product. I don't think we're going to war with our customers. We're definitely in the same game here." Category TrendsSales trends and changing consumer demand have deeply affected the retail and manufacturing sides of the sporting goods industry. Exercise equipment is the strongest sporting goods equipment category, according to SGMA, accounting for $3.94 billion in sales in 2004; treadmill sales make up 26.6% of that category. It was followed by golf at $2.51 billion, firearms/hunting at $2.03 billion, camping at $1.75 billion and fishing at $1.05 billion. "The fitness category has been growing, but the growth that's there, it's not a huge increase in number of units being sold," says Doyle. "There's some growth as far as increased pricing is concerned. The quality of equipment over the past 10 years has gotten so much better that when people buy something, they have to be really convinced to replace it, because most of the items don't wear out too quickly." Golf equipment and apparel sales remain steady, but have been relatively flat after a surge in interest in the sport when Tiger Woods joined the PGA Tour. "In the last five to 10 years, golf really has been somewhat of a flat category, so it's come down to all the different manufacturers looking to steal share from each other. It's not a growing pie," says Holder. "The real trend we've seen is everyone looking for points of differentiation, so it's key to communicate the features, benefits and technology of your products in-store. Having some type of communication devices, whether it's hang tags, fixture toppers, or other types of signage or displays that help communicate your brand, that's a big trend we see." Sports apparel is the largest segment of the sporting goods industry, with sales rising 4.9% in 2004 for total sales of $23.9 billion, according to SGMA. Activewear tops posted the highest sales in 2004 at $13.6 billion, while swimwear had the highest percentage gain, jumping 9%.The popularity of sports apparel among Americans who've never set foot in the gym but purchase it as everyday wear because they prefer its look and feel presents both a challenge and an opportunity to manufacturers and retailers that wish to capture sales from both serious enthusiasts and casual wearers. "I'd say 70% of all sports apparel is purchased for non-competitive sports reasons," says May. "People are buying sports apparel because they like the affiliation, they like the lifestyle and they want to be connected. If they can't play like Tiger, they want to look like Tiger." "We definitely choose our consumer, and our brand is targeted and speaks to serious golfers who are about performance," says Holder. "That's a voice that we go to market with, but certainly our product is extremely fashionable. There's great styles, great colors, and so even though our number-one brand attribute is performance, we're obviously going to hit a much larger spectrum of consumers." For Moosejaw, specialty business has turned into a lifestyle business in some consumer segments. "When we first opened, North Face didn't make daypacks or school bags," says Wolfe. "Now, you cannot walk down the street at the University of Michigan without seeing 100 of them. It used to be you were buying the stuff we sell if you wanted to climb a mountain, but now, you're buying it for everyday use." Moosejaw counts among its customers hard-core outdoor enthusiasts, families embarking on adventure travel and high school and college students who want a brand-name daypack, and walks a careful line when marketing to the very different expectations of these customer groups.The company has found a successful solution through humor with a tactic they call "Moosejaw Madness." The quirky brand attitude includes cheeky product descriptions, humorous sayings on its website and a willingness to laugh at itself that helps it appeal to all its major customer bases. "Last year, pink was the hot color and we overbought a pink North Face jacket, so we sent out a mailer offering a sale on that pink jacket," says Wolfe. "We knew the hard-core user would not think Moosejaw offering a sale on a pink jacket is cool. So, the e-mail blast we sent out said, 'Pink jackets on sale,' and we literally wrote underneath the tagline, 'If you're really climbing a big mountain, we know this isn't cool so don't be offended by it.' We were so over-the-top about it that the hard-core customer got a kick out of it instead of hating us for it." Among the categories registering the largest gains were snowboards, up 11.3%, firearms/hunting, up 7.4%, scuba and skin diving, up 7.1%, paintball, up 6.9% and archery, up 6.9%. Targeting the IndividualIn traditional team sports, the three leading categories in 2004 were baseball/softball, with $489 million in sales, basketball with $383 million and soccer, which accounted for $252 million in sales. Team sports are one of the sporting goods industry's smaller categories, which may be because people are turning more to individual sports. "People who've been turned off by competitive team sports are turning to extreme sports like in-line skating, snowboarding, trail running and skateboarding," says May. "Things like that are appealing to Americans who are younger or are disenfranchised or disinterested in team sports." Demographic changes are also affecting the popularity of some sports, and in turn, sales of sports equipment and apparel. "We're an aging society as far as participation is concerned, so we're looking for more low- and no-impact activities to keep ourselves fit," says May. "That includes things like Pilates, fitness walking, swimming, yoga, tai chi and bicycling." However, that doesn't necessarily mean the over-50 demographic wants to be marketed to as such. "If you're a senior golfer and you're a good golfer, you're a golfer. You don't look at it as 'I'm 50-plus,'" says May. "For those who play, who like to compete, they like to think of themselves as 21 again. There's the athlete in all of us and we all like to be treated as if we're on the verge of being world champions." Key Selling Points: Technology & Performance In a market where consumers may face, for example, an entire wall of running shoe choices, product differentiation is critical. As such, technology and performance play a major role in the design and marketing of sporting goods. Examples include Nike Shox running shoes, which have a spring-like heel designed to reduce impact; Under Armour "performance apparel," a line of microfiber clothing that wicks perspiration away from the skin to keep the user cool and dry; and Spalding's Infusion basketball, which features a built-in micro-pump. "In footwear you're seeing an emphasis on performance and technology," says Doyle. "As far as equipment goes, traditionally, the top brands have always emphasized performance, such as Callaway Golf or Prince tennis rackets, or in baseball, companies like Rawlings or Easton. The emphasis has always been on technical performance, and that's what drives the higher price points." For adidas Golf, performance and technology are not only integrated into its promotional message, but also into a new fixture program it's rolling out in January 2006. "Every fixture that will be on the floor, whether it's a shoe shelf or an apparel fixture, there's always going to be a home on there for product information," says Holder. "It'll be, let's say, a topper on the end of a hang bar or on the front of the shoe shelf, and they're going to have features and benefits communicated right there below the shoe. We've made attempts in the past to incorporate some features and benefits, but it wasn't as integrated into the fixtures, so quite often a retailer would get the display and the graphics we intended to go with it would get tossed out or misplaced. Our new system is a lot more seamless and we're going to have a much higher success rate of actually getting the signage up because there's just such a clear home for it."

The Sporting Life

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