January 18, 2022


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More agile supply chains will reshape sporting goods sector | Apparel Industry Analysis

Covid-19 has triggered significant shifts in physical activity levels

Future-proofing sporting goods supply chains requires bold strategies, with a raised bar on agility, stronger supply chain partnerships, and near-shoring among top options being considered by industry executives. 

Along with ongoing market uncertainty caused by Covid-related issues, supply chains remain one of the biggest challenges for the sporting goods industry in 2021, according to a new in-depth study of the sector from the World Federation of the Sporting Goods Industry (WFSGI) and McKinsey & Company.

The research, ‘Sporting Goods 2021 – The Next Normal for an Industry in Flux‘ suggests that in 2020, the sporting goods industry contracted for the first time since the financial crisis – shrinking by around 7% to EUR286bn (US$348bn). 

Most brands, retailers and manufacturers finished the year significantly in the red, despite a bounce-back in activity after the first and before the second wave of Covid-19 related lockdowns. On the upside, they tended to outperform the wider apparel market as the year progressed, with sportswear companies more resilient than the rest of the apparel industry.

“The coming 12 months are set to be characterised by a more positive outlook, albeit amid uncertainty caused by an unfolding second wave and the relatively slow ramp up of vaccination capacity and delivery,” the report says.

Greatest opportunities are seen in the potential return of large sporting events like the Olympic and Paralympic Games and the UEFA European Football Championships, along with the ongoing rise in popularity of outdoor, home, and digital activities, sport and fitness. 

In order to win in the new environment, the industry needs to adapt both its customer proposition and its operational capabilities.

A survey carried out for the research found sporting goods industry executives are cautiously optimistic for the year ahead – with 64% of respondents expecting ‘better’ or ‘much better’ market conditions than in 2020. 

But amid persistent uncertainty around the trajectory of Covid-19, it also makes sense both to build stronger supply chain partnerships and explore alternatives such as near-shoring – with 62% of executives saying they were considering local options.

Future-proofing supply chains

More agile supply chains are another feature on company agendas. In a post-Covid world, characterised by shorter demand cycles, e-commerce, and closer direct-to-consumer (DTC) relationships, they are the minimum requirement in some markets.

The report authors estimate the DTC model vaulted forward by two years in the first months of the pandemic, with e-commerce advancing by as much as four years.

“Higher online penetration calls for faster reaction times and more flexibility,” they say. “Indeed, soaring online activity, and the resulting glut of data, has allowed companies to respond more swiftly to new demand trends such as mass personalisation. By doing so, they have been able to create highly tailored items for specific audiences.”

The net effect is that companies have had to become more nimble, and produce smaller, more frequent product runs more closely aligned with demand. Lead times at Asian suppliers of large sporting goods companies have shortened from 120 days to as fast as 30 days. 

Near-shoring and re-shoring options are also being explored to try to reduce lead times even further, as well as mitigate shipping uncertainty due to trade rule concerns. Automation is another reason for moving production closer to home, as are government incentives and tax breaks to attract manufacturing to domestic markets. 

Alongside exploring near-shoring options, some 73% of sporting goods leaders say they are focused on forging closer relationships with a smaller number of existing suppliers. Some 60% predict consolidation in the supply chain over the coming period. A related emerging trend is co-location with suppliers, supported by bespoke and customised machinery, which can be sourced on timelines as short as one day. 

To make the most of the shifts in supply chain logistics and capabilities, decision makers need to make bold decisions about how they want to play. 

If that means moving to near-shoring, they will require a different mindset and business model, and faster processes in relation to trend identification, production schedules, and supplier contracts. Where existing supplier relationships are set to continue, companies should move away from transactional relationships in favour of deeper partnerships that bring greater agility and accountability.

Trends set to shape the sporting goods industry in 2021

The report presents eight key trends set to shape the sporting goods industry in 2021 and beyond. Most were already emerging ahead of Covid-19, but the dramatic events of the past year have accelerated their introduction and heightened their impact:

#1: Athleisure was a megatrend before Covid-19, but the pandemic has served to further blur the lines between work and free time, and there is a rising acceptance of comfortable wear in previously more formal contexts. More then 75% of industry representatives believe the athleisure market size will keep growing, and 33% believe that growth was accelerated through Covid-19.

#2: Covid-19 has triggered significant shifts in physical activity levels. Around 40% of people are less active, but around 30% are more so – with less affluent households exercising less. Physical inactivity is strongly linked to income: 46% of groups below US$25k were physically inactive in 2019 versus 19% of groups with incomes higher than US$100k. This is exacerbated by Covid-19, with between 8-28% of consumers expecting their income to decline for more than a year.

#3: Sustainability has become an increasingly urgent consumer priority, and companies have responded by introducing more sustainable products. Covid-19 has accelerated the trend. 67% of consumers consider the use of sustainable materials an important factor when it comes to purchase decisions. The number of net new “sustainable” SKUs introduced in the online market grew by 58% per annum between mid-2017 to mid-2020.

#4: The past year saw a leap towards digital fitness, driven by social distancing and stay-at-home requirements. These will not fully replace traditional sports and exercise but rather enhance them in a hybrid model including free and paid apps, livestream and (non-)connected equipment.

#5: The past year has seen a surge in online shopping, and many first-time users will stick with their new habits. The online share of major sporting goods players increased by ~3x between 2019 and H1 2020. Industry experts expect it to decline post lockdown but stabilise around 25% in 2021.

#6: With sporting events cancelled, postponed, or played in empty stadiums, and consumers spending even more time online, sports marketing has shifted from assets with broad visibility (club, league, or event sponsorships) to influencers on social media channels. 43% of respondents to the WFSGI and McKinsey & Company Sporting Goods Survey expect that sporting goods marketing will not be as closely linked with major sporting events in future, compared with just 29% that say the link will be maintained. Some 64% expect the industry will focus more on digital advertising.

#7: Brick and mortar stores were already under pressure pre-Covid. However, lockdown measures have accelerated the crisis. To attract consumers back to stores, retail needs to find new purpose, new experiences, and new levels of convenience that cannot be offered digitally. 45% of survey respondents predict fewer stores over the coming year, with just 7% anticipating an uptick.

#8: More agile supply chains have become a permanent feature on company agendas. 

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