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McKinsey sporting goods report 2023: 'Preserve demand and build resilience'

By Simone Preuss

23 Jan 2023

Business

The athleisure boom has been a runaway success for the sporting goods industry. Image: Allbirds

The World Federation of Sporting Goods Industry (WFSGI) and McKinsey & Company have teamed up once again to present their annual sporting goods industry report. Its title highlights the need of the hour - “Sporting Goods 2023 – The need for resilience in a world in disarray”.

The third edition of the report looks at the dynamics driving performance in the sporting goods industry, starting with areas in which companies have outperformed and faced challenges in the past twelve months. It also takes a deep dive into the largest global markets, the US and China, and looks at how the industry can boost its resilience to the current storm of rising costs, the looming threat of recession and continuing operational challenges.

“That will mean going beyond raising prices to boost productivity, manage cash more rigorously, and find the right balance between saving and investment,” cautions the report.

Key trends

The report also examines the key trends shaping the industry, including the enduring power of brands to create value, a growing pressure to deliver on sustainability promises, the strategic case for nearshoring and the rising attention of private investors. “Through these lenses, we see an industry that is in excellent health but must work hard to build resilience in the months ahead,” states the report.

Unlike other industries, the sporting goods industry is in a rather fortunate position with the past two years having overall been characterised by solid growth, equaling or outperforming pre-pandemic levels, due to one of the lasting effects of Covid-19, a general increase in health awareness and a focus on wellbeing.

The report is supported by expert interviews, among them Decathlon’s CEO Barbara Martin Coppola, Under Armour CEO and interim president Colin Browne, Columbia Sportswear CEO Tim Boyle, Nike’s chief legal officer and executive vice president Ann Miller, Sport 2000 International’s chairman of the board Holger Schwarting and Adidas’ senior vice president for global sourcing Hoa Ly.

Branding

In terms of branding, the report concludes that leading companies need to use five levers to build a strong brand, namely a direct-to-consumer approach, collaborating with high-
end fashion brands, tapping into the power of community, using social media from celebrity endorsements to influencer marketing and working with wholesalers
and retailers.

Jumping on the athleisure bandwagon: Desigual x Christian Lacroix capsule collection autumn/winter 2021/22. Image: Desigual x Christian Lacroix

“In the current economic environment, customer loyalty is being tested by increasing uncertainty, so trust is more important than ever. Brands need to adapt quickly to this changing environment and make brand building a priority. Indeed, many sporting goods companies understand this and, despite pressure to cut costs, are adding to their brand building budgets… Fifty percent plan to increase spending by more than
5 percent,” finds the report. 


Sustainability

Alongside other industries, sporting goods companies have to act sooner rather than later when it comes to sustainability and need to both accelerate decarbonisation and scale circular business models. “Only through a combination of these levers will they transform their businesses and reach their goals,” sums up the report. Efforts like recycling of products, their repair and refurbishment, equipment and clothing rentals and secondhand offers are currently on the forefront.

“It starts with the design and raw material selection. ... The next stage is how we build the product. We need to develop products that are easy to recycle ..., and we need the brands to collaborate and drive this,” confirms Rakhil Hirdaramani, director of the Hirdaramani Group. “The sporting goods industry will only exist and thrive if our playing field, the planet, is respected and protected,” agrees Decathlon CEO Barbara Martin Coppola.

First athleisure set made from recycled materials in 2019. Image: P.E. Nation

Nearshoring

In an era of supply chain disruptions, geopolitical considerations, trade tensions and rising labour costs in Asia, more and more companies are turning to nearshoring with its potentially faster time to market as a core element of their supply chain strategies. However, decision makers need to do their research and carefully balance potential challenges and rewards before starting closer to home.

According to WFSGI and McKinsey’s latest executive survey, about 75 percent of sporting goods companies plan to expand their nearshoring activities by 2025 as a result of these dynamics; 8 percent are already doing so. Examples would be ski specialist Salomon with its Advanced Shoe Factory 4.0, which was opened in 2021 in France, Decathlon’s largest European bike factory in Romania and New Balance opening five factories in Maine and Massachusetts.

The report advised to take four key variables into account when considering nearshoring. From the product perspective, these would be lead times, risk exposure in terms of supply shocks, parameters like labour costs and skill requirements and the sustainability and CO2-footprint. In terms of country choice, companies should consider capacities in different countries, capabilities in terms of work force, accessibility of raw materials and the regulatory situation in each country.

“I believe you need to start with a merchandising and assortment plan. Which portion of my assortment is predicated on speed, cost premium and full-price sell-through? Which part is instead based more on scale and volume, which I prefer to source from the global network?,” comments Hoa Ly, senior vice president for global sourcing at Adidas.

Private investment

The success of sporting goods brands has attracted a wave of private investment. The report advised to focus on a portfolio strategy of complementary brands, an elevated digital interaction with consumers and analytics at scale to assure that funds are most likely to maximise their portfolios’ potential.

“If you are constantly buying businesses, pumping them up, and selling them after five years, are you going to make investments in those key areas of sustainability that a longer-term holder would?,” poses Andy Rubin, deputy chair of the Pentland Group.

Outlook for 2023

Expecting a challenging economic environment and continuing subdued consumer sentiment in 2023, the report advises sporting goods companies to focus both on preserving demand and building resilience.

“However, companies must go beyond price adjustments and formulate a holistic response to the headwinds they face. This will mean assessing and optimising all options that will not put demand at risk, including sourcing and supply chain, productivity, operational efficiency, and cash flows,” sums up the report.

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Athleisure
Decathlon
McKinsey
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