The sporting goods industry — like every other sector — is trying to carve a new path due to the impact of the coronavirus.
To try to get a better handle on the numerous challenges businesses are facing during the COVID-19 shutdown and to help them navigate those obstacles, the World Federation of the Sporting Goods Industry is conducting a monthly pulse survey to assess the global impact. More than 300 companies — including brands like Nike, Adidas, Puma, New Balance, Asics and Under Armour — as well as manufacturers and retailers like Intersport, Sport 2000 and others are members of the Switzerland-based group. Through various federations, the WFSGI reaches an additional 45,000 companies, including local ones.
Athletic companies have been scrambling in the wake of the coronavirus shutdown with many, like Under Armour, Columbia Sportswear and Dick’s Sporting Goods, furloughing thousands of their workers. Earlier this week Adidas warned that its second-quarter revenues could drop up to 40 percent, with up to 70 percent of its store fleet closed. Compounding the situation is the fact that many athletic and active people are confined to their homes, due to self isolation edicts.
Major and minor league sports have been suspended, as have collegiate ones and other broadcast-worthy competitions. Tuesday brought word from Tokyo 2020 Olympic president Yoshiro Mori that the Summer Games, which have been postponed until 2021, would not be rescheduled a second time should that be needed. Sporting goods companies are not only dealing with the postponement of the Olympics, but also this year’s UEFA European Football Championship, a big moneymaker for Nike, Adidas and Puma.
In an interview Tuesday, WFSGI president and chief executive officer Robbert de Kock noted how the pandemic is unlike the 2008 financial crisis, when stores remained open, travel was unrestricted and companies could continue to sell their goods. While the current health problem of the coronavirus caused governments to shut down nonessential businesses, companies’ fixed costs continue to run. He said, “Let’s be very honest, a Nike on fixed costs for salaries and etc. will be close to $2 billion. If not over $2 billion. So your cash is going out like hell and nothing is coming in.”
The WFSGI leader estimated that if the $400 billion industry could finish with a 15 percent-to-20 percent decline, that would be “a pretty good job,” given the current challenges. Apparel accounts for about 39 percent of that figure. “That’s definitely not what we were hoping for. But seeing everything that is going on now, that’s not too bad,” he said.
The April survey indicated that manufacturers are planning for a 50 percent drop in business in the next month. Europe appears to be the most affected region, with 95 percent of respondents seeing a fall-off, followed by North America, with a 77 percent decline. Companies in Asia and Latin America were planning for smaller declines — 30 percent and 18 percent, respectively.
Needless to say, they are being hit throughout the supply chain. Manufacturers also are dealing with slashed orders, driven by customers in Europe and North America. More than 86 percent of the respondents have low cash flow, due to such factors as extended payment terms and order cancellations. Interestingly, while half the companies indicated they will hold off on investments, 40 percent said they will invest in software and people, and nearly 30 percent will invest in infrastructure.
De Kock raised some concern about the health of people in the U.S. as companies start to reopen, due partially to the rate of obesity. Hopeful signs of the economy coming back can be found in China, where Chinese consumers are buying again and nearly 90 percent are up-and-running, he said. In Germany, sporting goods stores that are under about 8,000 square feet are allowed to reopen, de Kock said. (However, media reports indicated that the reopening of businesses has increased the infection rate in Germany.) E-commerce sales in China and in Europe are bright spots, de Kock said.
But sporting goods manufacturers face many challenges. “What would you buy? Every sports facility is closed. The only thing I can do is walking, jogging and biking. No swimming pool is opened. If you live next to a lake, maybe you can swim in it. But the lakes are very cold so I would not advise that,” he said. “Even the playgrounds for children are closed.”
Shortages in materials and labor are also complicating the supply chain situation, according to the survey. Seventy percent of the respondents have material shortages due to the closure of their suppliers and 60 percent, due to forced company closure. Consolidating and expediting production, worker retrenchment and automation were some of the ways that manufacturers are responding to the pandemic.
In an effort to bring the industry together, the WFSGI has opened the survey to all companies, not just its members. All results will remain anonymous and none of the companies will have their data shared. Having reeled in 350 respondents for the April survey, the organization aims to reach more with its May one.
Sporting goods retailers and brands are also trying to adjust to the changing tides. As expected, nearly 80 percent want to increase online sales. Nearly 47 percent will reduce their demand by shifting orders. About 40 percent will clean out all inventories to maintain their cash position and exploit market opportunities in the recovering Asian markets, according to the survey.
Inevitably in any financial crisis, there are companies that won’t survive, but in other financial crises other companies would step in to offer them support, de Kock noted. “The problem right now is that everybody is in a financial challenge. Even the Nikes and the Adidas-es of the world need extra support to be able to run their businesses. At this time, it’s hard to defend that you are going to buy a few competitors or other companies.”
Mergers and acquisitions may be a possibility in 2021, when business slowly comes back to normal. “At the moment, most companies are not spending money, hiring freezes, etc.” de Kock said.
Despite the grim outlook, there were signs of post-pandemic opportunities. With most gyms, health clubs and boutique fitness clubs closed around the globe, running has gained popularity while many self-isolate. Seventy percent of the April survey respondents expect running, as well as outdoor activities, to be the most appealing sports after the pandemic.
Less than half of the April survey respondents predicted walking to be a fitness trend after the pandemic, and to a lesser degree basketball and soccer. Cycling is also expected to see an uptick among participants — perhaps driven by commuters in search of non-public transportation.