Rising costs, the looming threat of a bigger recession, low consumer confidence, and continuing operational challenges are set to create headwinds for the global sporting goods industry in 2023, as per the industry executives interviewed and surveyed for a report by WFSGI and McKinsey. In response, companies are looking to embed resilience into their operations by going beyond raising prices to boost productivity and finding the right balance between saving and investment.
In many ways, the sporting goods industry has been in a fortunate position. Compared to other industries, the past two years have been characterised by solid growth, equalling or outperforming pre-pandemic levels, according to the WFSGI and McKinsey latest annual report ‘Sporting Goods 2023–The need for resilience in a world in disarray,’ in collaboration with The NPD Group.
In 2022, consumer sentiment was improving month-on-month, reflecting looser COVID-19 restrictions in most markets, companies were placing large orders, both in anticipation of demand and to avoid the supply chain challenges of 2021, and performance in the first half of the year was widely positive. However, inflation was picking up due to the impacts of the war in Ukraine, with higher raw material and energy costs prompting some companies to raise prices.
In the meantime, consumer sentiment showed signs of deterioration (with -40 per cent consumer’s net intent to purchase sporting goods items), and discretionary spending declined. Supply chains gradually became more reliable, but the sudden increase in available product in destination countries paired with declines in spending led to widespread overstocking.
In the second half of the year, the economic outlook darkened, amid rising concern over geopolitical instability and the trajectory of interest rates—which tightened constraints on both companies and household budgets. The impact of these factors was a significant weakening in industry performance compared with 2021 with a 4-8 per cent sales decline in US in Q1-Q3 2022 versus 2021 across main categories.
Against this backdrop, 2023 is expected to be a challenging economic environment with continuing subdued consumer sentiment. This will require a holistic approach from sporting goods companies to focus both on preserving demand and building resilience.
In 2023, the four key themes that are expected to shape the industry are brand relevance, sustainability, nearshoring, and investments in the industry–sporting routes to profitable growth in private investments, added the report.
Sporting goods companies are among the most effective brand builders in the world. As consumer expectations rise and brand relevance deepens, brand building is expected to become more important.
Accelerating decarbonisation and scale circular business models will be key for sporting goods companies to meet their aspirational sustainability targets. In an era of supply chain disruption, more companies are likely to turn to nearshoring as an element of de-risking and speeding up their supply chain strategies.
The success of sporting goods brands has attracted a wave of private investment. This is especially true for complementary brands, brands with an elevated digital interaction with consumers, and analytics at scale.
“2022 started off extremely well for the sporting goods industry. The war in Ukraine and rising inflation dampened consumer sentiment and led to a reduction of discretionary spend impacting the sporting goods industry. Measures of resilience will be key to staying strong during the recession and prepare for the return,” said Alexander Thiel, McKinsey partner and leader of the sporting goods practice in EMEA.
“The sporting goods industry has been an industry that outperformed others in the past years showing significant recovery and growth in 2021 and into the first half of 2022. Unfortunately, 2022 brought a new multitude of challenges that we believe the industry will need to master through resilience. Together with our partners at McKinsey, our third annual sporting goods industry report reviews the market environment facing sporting goods players and goes on to closely analyse four trends for 2023. We aim to help the industry prepare and formulate a plan for success despite the approaching headwinds. We thank our McKinsey colleagues for the continuing excellent collaboration in developing and delivering this third annual report. We hope that our combined efforts continue to be a valuable contribution for WFSGI members, the wider sporting goods industry, and its stakeholders,” said Robbert de Kock, president and CEO of WFSGI.
For the international study, the consulting firm and the industry association conducted several in-depth interviews with industry executives from Decathlon (CEO Barbara Martin Coppola), Under Armour (interim CEO Colin Browne), Columbia Sportswear Company (CEO Tim Boyle), Nike, SPORT 2000 International, Hirdaramani Group, Riese & Müller, Adidas, and Pentland Group.