Sporting Goods Retailers
COVID-19 Industry Brief
EFFECTS OF THE CORONAVIRUS ON THE Retail Sporting Goods INDUSTRY Updated April 14, 2020
- COVID-19 Impacts: Considered essential critical infrastructure, sporting goods stores have remained open in most jurisdictions, although some stores reduced operations to curbside pickup for safety reasons. Sales were brisk in the last two weeks of March 2020 as stay-at-home and nonessential business orders kicked in and consumers stocked up on survival gear, propane, firearms, and ammunition. Although the sporting goods segment had been trending positively prior to the COVID-19 pandemic, the “essential” designation will assist stores by keeping operations and employee bases mostly intact. However, the likely extension of some level of social distancing well into 2021 will likely weigh heavily on the sector.
- Specific Segments: Although running has been a popular form of exercise during this period due to gym closures, sales of running shoes have been negatively impacted and are trending lower on a year-over-year basis. For the week ending March 21, 2020, athletic footwear sales were down by 65 percent compared to the same period in 2019. Sport lifestyle and skate, the categories that were trending the best before COVID-19 affected the market, each declined by more than 60 percent for the same period.
- Impact of School and Sports Closures: The closure of schools and professional sports has negatively impacted multiple segments including sporting apparel, footwear, and hardgoods.
- Modell’s Going-Out-of-Business Delay: Concerned over the level of consumer traffic in the New York Tri-State area, a bankruptcy court authorized the Modell’s retail going-out-of-business sale to delay commencement for 75 days to allow consumer foot traffic to recover on the East Coast.
- Dick’s Layoffs: Dick’s Sporting Goods, Inc. announced in March that it was reducing executive salaries as well as cutting back on its 2020 capital expenditure plan as a defensive tactic to conserve cash. The company issued a further statement on April 7, 2020, citing specifically that due to fitness club closures and the cancellation of scholastic sports, the company would furlough a significant number of the workforce at its stores, distribution centers, and corporate headquarters effective April 12, 2020, due to the uncertainty surrounding the length of its store closures.
- Outlook: It is possible that scholastic and professional sports events and gym activity, both key drivers of sporting goods sales, will be suppressed for several quarters or longer, which will likely weigh down the segment. It is likely that the online sales share will accelerate as consumers use this channel more often due to retail store closures. Gordon Brothers expects that this will accelerate the growth of this sales channel in the long term.
Date February 2020
- Retail sporting goods store sales decreased 1.9% for the 11 months ended November 2019, following a 6.1% decrease in 2018
- The shift to online retail and an increase in direct-to-consumer (DTC) sales drove retail store sales declines for 2019
- Sporting goods stores’ revenue is anticipated to increase at an annualized rate of 1.2% over the next five years, while the U.S. sports participation rate is expected to increase by 1.8% over the same period
Approximate net recovery on cost
Dick’s promotes in-store experience to offset challenged industry sales: According to Dick’s Sporting Goods’ Vice President of insights and analytics Kristen Boyle, 85 percent of the retailer’s sales occur in person, a remarkable statistic given the increasingly Internet-driven retail landscape. To facilitate in-store purchases, Dick’s has transformed its stores by increasing inventory to allow for last-minute necessary purchases not viable for two-day or overnight shipping; by adding additional experienced retail staff to help in-person customers with sporting gear questions; and by opening up store layouts to include areas to test various sporting equipment like putting greens for golf equipment and batting cages for baseball products. Dick’s recent sales have been positive, with comparable store sales increasing 6.0 percent for the quarter ended November 2, 2019. The company’s net store count was down by six for 2019, reflecting ten openings, eight closures, and the sale of eight Field & Stream stores to Sportsman’s Warehouse.
Additionally, Dick’s has leveraged technology to increase in-store efficiency and customer experience. For example, the Dick’s Sporting Goods’ app allows customers to scan shoes and see all available sizes in stock at their local store. The chain has also invested in streamlining its buy online, pick up in store operations to make the most out of its large brick-and-mortar footprint.
In terms of the industry overall, Creditntell recently noted that two specific trends have led to weaker store sales in the sporting goods sector: the shift to online sales and manufacturers increasingly selling direct to consumers. They add that these changes have “had a specific negative impact on footwear and apparel sales.” Retail fallout for 2019 included Olympia Sports, which closed over 30 stores as part of its acquisition by running and active lifestyle brand retailer JackRabbit in October. DTC sales now comprise approximately 35 percent of Nike and Under Armour’s total sales, and Nike is forecasting that its Nike Direct business will reach $16 billion by the end of fiscal 2020, representing a 54-percent increase over fiscal 2018. For sporting goods retailers with a large store base and significant borrowings, these trends bear watching as we head into 2020 in a late-cycle economy.
Nations’ largest hunting retailers drop firearm sales: According to Small Arms Analytics & Forecasting, an estimated 1.4 million firearms were purchased in November 2019, a 1.4 percent increase over the same period in 2018. The estimate, based on data from the Federal Bureau of Investigation’s National Instant Criminal Background Check System, is part of a larger trend that sees the holiday season as one of the busiest times for gun sales. That being said, two of the countries’ largest gun and ammunition retailers, Walmart and Dick’s Sporting Goods, have reduced the availability of both products nationally.
In early 2018, Dick’s announced it would stop selling high capacity magazines and assault-style weapons in its 850 Dick’s branded stores and 35 Field & Stream stores. In the same year, Dick’s also removed hunting gear from 10 of its stores, and in March 2019 the company removed hunting gear from another 125 stores, asserting that eventually it would attempt to remove hunting gear from all locations. To that end, Dick’s sold eight of its Field & Stream stores in October 2019. In the same month, Dick’s CEO announced that the company would destroy, at a loss of approximately $5 million, its assault weapons inventory.
Walmart, which according to The New York Times controls approximately 2.0 percent of the U.S. firearm market and an impressive 20 percent of the nation’s ammunition market, stopped selling assault style weapons in 2015 and in 2018 raised the minimum age to purchase guns and ammunition to 21 across all stores. Following shootings in 2019 in its own stores, Walmart decided to stop selling assault and handgun ammunition, limiting its own market share in the ammunition market from 20 percent to 6 percent. And although guns sales are down because of the Trump administration’s conservative presidency, both of these retailers have lost market share to hunting- and fishing-specific chains like Cabela’s and Bass Pro Shops, which are largely benefiting from Dick’s and Walmart’s hard stances. But Walmart and Dick’s claim to have largely recovered lost profits from those categories in other areas of their businesses.
Nonetheless, market shares in ammunition and gun retailing are up for grabs for independent and privately held sporting goods stores, as the big two retailers have begun to exit the market altogether.
High school sports participation falls for first time in 30 years: Sporting goods stores rely on sports and athletic participation from adults, children, and teenagers to generate demand. Although athleisure wear and sports participation for adults have been increasing over the last few years, the Annual High School Athletics Participation Survey conducted by the National Federation of State High School Associations noted that participation in high school athletics declined between 2018 and 2019 for the first time in 30 years. The alarming trend for sporting goods retailers saw over 43,000 fewer high school students participating in sports over the 2018 to 2019 academic year.
The largest decline, and perhaps the most concerning for the industry, is in participation in basketball and football. This is the fifth consecutive year participation has fallen for football, the result of continued health concerns over concussions and their role in greatly increasing the risk of players contracting chronic traumatic encephalopathy, a neurodegenerative disease cause by repeated head injuries. Basketball participation saw declines from both boys and girls. Girls’ basketball participation dropped to a total of 399,067, the lowest since the 1992-1993 school year.
Even though the decline is an alarming trend for sporting goods retailers, the report also showed that, even though overall participation dropped, the 2018 and 2019 academic year still had the third-highest number of athletes the study has ever recorded.
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Reference sources: FRED, IBISWorld, the motley fool, First Research, mit management sloan school, nbc news boston, retail dive, creditntell