Sneakernomics: Predictions for the Sports Business in 2017
Matt Powell, Vice President, Industry Analyst ;
Apparel Sports Footwear
It’s the end of another fascinating year for the U.S. sports business, so that means predictions time! But before we get into that, let’s set the stage by recapping how we did on our 2016 predictions. Most of the predictions I made a year ago came to be true, but there were some surprises along the way.
Overall, the positive sales trend in athletic footwear and activewear did continue, but not quite as strong as I anticipated. Looking at brand performance, Nike and Skechers did not have as great of a year as predicted, but things seem to be turning for both late in 2016. Adidas remained on fire and earned the title, “Brand of the Year.” In terms of equipment, this business was indeed challenged; however, the minimum wage increase did help propel sales growth. Social trends including social fitness were huge influencers over the last couple years, and this remains a critical concept in sports.
Now let’s turn to 2017.
First, get ready for possible price increases in sneakers and other products manufactured overseas. The promises that the President-elect made on the campaign trail can potentially lead to strained relations with China, which may cause prices on foreign-made products to increase. I talked more about the election’s potential impact on footwear sales in my post-election blog.
Given the highly charged political atmosphere, we can expect consumers to focus on ‘ethical shopping,’ giving their business to brands and retailers that share their values and shunning those who do not. Consumers will demand to know where brands and retailers stand on issues and will shop accordingly.
Based on the current retail landscape, the void created by The Sports Authority bankruptcy will have a lingering but diminishing negative effect on the industry. I expect that most of the impact will be over by the end of Q2 and trend should improve for the industry. In the meantime, this vacuum will force brands to be more promotional. The 24/7 Minimum Advertised Price (MAP) policy at Nike will add fuel to an already overheated promotional market.
Looking at the major players, Nike’s trend continues to recover, but it will be slower than it needs to be. While Nike will be a share donor, sales will return to growth. Nike’s direct-to-consumer business will remain robust. Adidas and Puma should stay hot in 2017. Both brands are working hard on diversifying from their narrow base of hot styles. This should keep the trends in a positive direction. Under Armour (UA) will likely hit a soft patch, particularly in footwear, as the fashion headwinds around marquee and performance basketball hit. Footwear brands of UA’s size often seem to stumble on their path to growth. While I agree with the strategy, UA’s expansion in the mid-market will be tricky, especially for the big box partners. I’m confident in the long term trajectory for UA, but 2017 could be a rocky year.
Given the rush to try and capture some of the athleisure business by non-performance brands, we can expect the athleisure category to grow but to be very noisy. The bubble created by all these new, opportunistic brands will burst and the market will return to the core brands and retailers.
Retro will remain the dominant fashion trend, but styles must constantly be updated. Brands that try to drive on style for too long will face markdowns and margin pressure. Casual athletic footwear and sport slides will reap the benefits of the retro trend. Retro in apparel will become even more important.
On the other hand, the performance categories will remain challenged in 2017. One possible bright spot will be the mash-up of retro uppers on performance outsoles. We’ll see the first of these products hit store shelves this spring.
Some have tried to scold certain big brands for a lack of innovation, but this is misguided. We have been on a sturdy trajectory for technical innovation in footwear for the last few years, so it makes sense to now take a pause and let current technologies seek their own level. But, more importantly, much of the technical advances are happening behind the scenes. Advances in manufacturing techniques will make it possible to get shoes to market more quickly and more sustainably. The ability to truly make customized shoes is not that far in the future. Advances in manufacturing will have a far greater and longer lasting impact on the industry than a new cushioning system for shoes.
Brands are also making huge innovation gains in “connectedness” and the “quantified self.” Helping athletes be better athletes and to share their experiences will continue to be a source of growth for the sports industry.
Finally, innovations to the in-store experience will prop up the sinking brick-and-mortar side of retail. Smart stores, contextual marketing, and augmented/virtual reality all have a role to play in slowing the decline of physical retail.
E-commerce, which is already a force in the industry, will continue to rise. According to NPD research, one-in-four athletic shoes were sold online last year. Over time I expect that contribution to rise to two-in-five. The physical limitations of brick-and-mortar stores will continue to drive this growth.
Retailers will quickly figure out that ‘buy online, pick up in store’ will be another way to leverage e-commerce to help save physical stores. Retailers will use this additional store visit to create add-on sales.
We can expect retail rationalization to continue. We still have far too many stores than we need in the U.S. Much of the rationalization will be silent as small chains, specialty, and “mom and pop” shops shut down without much fanfare. This rationalization is both needed and inevitable.
Demographically, I hope 2017 is the year the sports industry finally figures out the women’s business. Women’s sports retail remains woefully underserved, and this has allowed brands from outside our industry to capture significant sales and share. (Hint to sports brands and retailers: “win the bra; win the woman”). Another demographic trend the sports industry must embrace is plus sizes in women’s apparel. Research by The NPD Group says the most common size in women’s apparel is 16. Brands that focus on the S-M-L-XL consumers will never win the women’s business.
Finally, Hispanics remain a great untapped audience for the sports industry. Hispanics are projected to represent a quarter of the U.S. population in a few years. They have a great affinity for all things sports and spend their money on sports products. Brands that embrace this change will win.
In my opinion, 2017 presents many opportunities and challenges for the sports industry. I expect it will be another good though not great year, with trends improving as we move into the second half of 2017.