Sports business issue 3007, welcome to pay attention to the leading sports industry information platform
“Community” is a sports business themed dialogue program launched by voice of China’s decisive moment in conjunction with sports big business. With the slogan of “seeking common ground while reserving differences, and talking about sports hot topics of common concern”, it is broadcast every week and every Friday at 10:00 p.m. in the “decisive moment” column of voice of China.
In August, listed companies have successively released their 2022 semi annual financial reports. On the whole, domestic and foreign sporting goods enterprises have seen a decline in profits and even income. On August 26, the 93rd program discussed whether this phenomenon means that the epidemic dividend of the sporting goods industry is fading. The “gossipers” involved were Zhang Wen, a reporter of the voice of China, Zhang Qing, the CEO of the key way, and Tan Liwen, the industrial director of Dawan District, a big sports business.
This article is a review of the essence of this program.
Us sporting goods retailers face challenges
Zhang Wen: 2022 is the third year of the outbreak of novel coronavirus. In the previous 2020 and 2021, in major consumer markets such as China and the United States, the performance of sporting goods enterprises ushered in rapid growth, which is regarded as the result of the epidemic driving the demand for mass sports. But the interim financial reports released by various enterprises in 2022 show that the situation now seems to have subtle changes. Today, we will discuss whether the epidemic dividend of the sporting goods industry has subsided.
Li Wen, according to your inventory, what is the current industry data?
Tan Liwen: several leading sports goods retailers in foreign countries have seen their income and profits decline. For example, Dick sports, the largest sports goods retailer in the United States, had revenue of $2.7 billion in the second quarter of 2022, down from $2.92 billion in the same period last year. The net profit was 260.6 million US dollars, lower than 361.8 million US dollars in the same period last year. The profit of a “small target” disappeared.
Dick Sports
Big 5, another important sporting goods retailer, recorded a revenue of US $254 million in the first quarter of 2002, down 22% from the US $326 million reported in the same period last year, with revenue falling for two consecutive quarters.
The financial report reflects changes in the environment of some industries. The decline of income indicates that the consumption expenditure of consumer sports goods has decreased; The decline in profits is also related to consumers’ reduced purchases and increased costs. This reflects the recent pressure faced by the US sporting goods industry.
“Cautiously optimistic” view of sporting goods industry
Zhang Wen: when President Zhang communicated with the managers of the domestic sporting goods industry, he learned their views on the industry environment in the third year of the epidemic?
Zhang Qing: everyone is cautiously optimistic about the development of the industry. “Caution” refers to the well-known impact of the epidemic, and brands need to deal with it carefully. For example, if the sales performance of offline stores is impacted, the speed of opening stores will be adjusted more stably. Some enterprises encounter inventory pressure and need to buy back inventory to reduce the burden of dealers and help dealers improve the efficiency of capital turnover.
This year’s inventory pressure is more obvious than in previous years
“Optimism” is mainly reflected in the display of market potential. The global epidemic is in the end, the domestic epidemic prevention and control is also commendable, and the constraints on sports development are reduced. There is also a younger generation of consumer groups entering the market to expand the potential capacity of the market.
I personally recall that after the SARS in 2003, there was a wave of growth in outdoor goods in China. Pathfinder, the first listed outdoor products company in China, was listed after SARS. From the communication with the industry, we can see that the lifestyle of young consumers is moving from indoor to outdoor. Their entertainment is no longer only script killing and secret room escape. Frisbee, camping, cycling and other activities are also integrated into their lives. This trend combines people’s attention to health after the epidemic, their enthusiasm for getting close to nature, and the attitude of young people to show themselves on social networks, forming a sports consumption force.
In addition, we can also see that at the macro level, the government’s investment in stadiums and sports facilities has increased the stock of sports venues in the market, thus creating more sufficient scenes for sports consumption.
Three major factors limit profit increase
Zhang Wen: the revenue growth of several famous sports goods brands in China in the first half of this year is very obvious, even exceeding market expectations. However, the profits of some enterprises have decreased, and the situation of increasing income without increasing profits has emerged. Is it because the costs are getting higher and higher that the sporting goods business is a little difficult?
Zhang Qing: I think the cost increase is related to three factors. The first is the cost of raw materials. The price of raw materials is rising all over the world. The price of oil has led to the price of chemical fiber, and the price of chemical fiber has led to the price of cloth, which has been rising one by one. There is also the cost of logistics, which is superimposed on the final product.
The rising price of raw materials has brought cost pressure
The second is the impact on channels. Due to the epidemic prevention demand, many offline stores have reduced their effective operation time, resulting in less efficient stores than before.
The third is the inventory problem I mentioned just now. The closure of offline stores leads to an increase in inventory. At this time, brands often need to take back the inventory to the group headquarters by repurchase, so that dealers can withdraw funds to order new goods and normal business flows. The brand’s self digestion of inventory will naturally increase costs.
Under the combined effect of these factors, there will be an increase in turnover but an impact on profits.
The periodic changes in the epidemic dividend are objective
Zhang Wen: before, we often said that the sporting goods industry “bucked the trend” to grow, mainly compared with the situation of the entire sports industry. In the first year or two of the epidemic, the most important sports competition industry in the sports industry was hit hard. Everyone could not go to the stadium to watch the game, and the revenue pressure was significant. But at the same time, home fitness began to develop, so the consumption of sports goods increased instead.
Now it is the third year after the epidemic, and the financial indicators of relevant enterprises have decreased to varying degrees. Does it mean that the dividend of the epidemic is nearing the end?
Tan Liwen: the impact of the epidemic on the sporting goods market can be seen in stages. The first is the mass home-based stage. Everyone can only exercise at home, so online fitness, home fitness and other concepts have become the most concerned tracks of capital and market. The second is the easing of the epidemic. With the relaxation of social restrictions, the retaliatory demand of the public for sports and fitness broke out, which pushed the sporting goods industry to embrace a leap increase. The third stage is the stage of sports consumption returning to rationality. The changes in the economic situation in the post epidemic period and the psychological adjustment of revenge sports consumption will lead to the decline of people’s desire for sports goods consumption.
Some home sports concept products meet challenges
So from the perspective of stimulating consumption by the epidemic alone, it is natural that the dividend of the epidemic will fade at a certain stage.
Zhang Qing: I continue to look at this situation with a cautious and optimistic attitude. In terms of prudence, when people’s expected returns to the current economic cycle decline, their consumption attitude will naturally be more “living within their means”, and they have a mentality of “keeping green mountains, not afraid of losing firewood”. The mentality of young people is also being adjusted. I communicated with a “post-95” last week. He told me that his current consumption attitude and a group of friends of the same age tend to be rational, and they are not inclined to choose things that are overconsumed.
On the optimistic side, we can see that although the profit margins of some sporting goods giants are affected, the turnover is growing in double digits, which shows that the market volume is still expanding rapidly. In addition, we can also see from the frequency and number of people participating in sports that the space for domestic sports goods consumption is far from saturation.
Minority sports are popular, and big enterprises do not blindly follow the trend
Zhang Wen: Mr. Zhang mentioned the “post-95 generation”. This year, many so-called “minority sports”, such as Frisbee, cycling, waist flag rugby, land surfing and so on, have become increasingly popular among young people, thus making them popular with the public. Even if the trend of these movements recedes in the future, they will still accumulate the next batch of continuous consumers. They regularly consume some equipment and supplies, and have entered what we often call a mature market stage.
So, in the current outbreak of minority sports, have large sports enterprises kept up with this trend? Is it preparing for the future maturity?
Zhang Qing: there are certain differences between big brands and some niche brands and designer brands. The latter can quickly respond to the market, but even if big brands are aware of the new trend, the cycle of transforming this awareness into end products is longer than that of small brands. The design cycle and R & D cycle of big brands are usually one to one and a half years ahead of the four major ordering meetings a year.
“Fashion sports” represented by Frisbee are popular with young people
In addition, from the perspective of the overall plate, the scale of clothing or other products driven by these new trends and movements is relatively small compared with the whole product system, so big brands usually do not adjust the direction of their huge enterprise machinery for this small business, and at most cooperate with relevant hot spots in the promotion link and in some regional markets.
The situation of niche brands is quite different. My neighbor makes minority running clothes, which occupy some fixed market shares through more delicate details in the product. After the popularity of Frisbee, he was able to react quickly, slightly adjust the existing products, integrate them into the atmosphere of Frisbee sports, and quickly chase the dividends of this project.
When sports become a lifestyle, cross industry opportunities increase
Zhang Wen: Mr. Zhang’s observation reminds me of the intersection of some industries after the epidemic. Under the influence of the epidemic, sports have become a trend or lifestyle, and are sought after through the fermentation of social networks. Some enterprises that are good at the “fashionable” field, such as fashion brands, also try to touch the cake of sports goods, such as Frisbee for luxury goods.
Tan Liwen: as president Zhang and the host said, after sports gradually become a lifestyle, fashion brands will be attracted to enter this track. The clothes we buy now often have both sports and fashion attributes. For example, yoga pants, which are worn by more and more women on daily occasions, do not need to change special sportswear to participate in some sports, which can be said to be versatile. Such a lifestyle gives fashion brands a reason to do sports.
Zhang Qing: the concept of public dress is also changing. In the past, when buying clothes and shoes, we would consider the occasion, which clothes could not be worn at work, and which clothes were specially worn for sports. But now the boundary of this kind of wearing scene is blurring, driving the so-called leisure or universalization of sports products.
The fashion industry has made more and more explorations in the field of sports fashion
Zhang Wen: we just discussed the situation of many young people. What is president Zhang’s observation on sports consumption of high age groups? Is there anything related to the epidemic behind this?
Zhang Qing: with the change of age, people’s body shape will change, and their needs for clothing aesthetics, tailoring and even functions will also change. At present, there is no clear-cut sports brand in this field that appeals to the elderly. However, some products may appear in the future through the association of sports events or elderly sports scene products.
Zhang Wen: today’s program gives us full confidence. In the final analysis, we learned the importance of a healthy lifestyle through the epidemic. Everyone regards sports as a way of life, which will create more market demand and more sports business. Therefore, we still believe that there are still huge development opportunities in the sporting goods industry. Thank you for participating in this program. See you next time.