A report on the global sporting goods industry

The World Federation of Sporting Goods Industry (WFSGI) and McKinsey & Company have teamed up once again to present our third annual Sporting Goods Industry Report “Sporting Goods 2023 – The need for resilience in a world in disarray.” This year’s report drills down into the dynamics driving performance in the sporting goods market and explores how the industry can boost its resilience to the current storm. As in past editions, we focus on the key trends that have impacted the industry of the past year and will shape performance over the coming 12 months and beyond.

This article summarizes some of the report’s findings.

In many ways, the sporting goods industry is in a fortunate position. Compared to many other industries, the past two years have, in aggregate, been characterized by solid growth, equaling or outperforming pre-pandemic levels. Looking at the mid-term future, there are reasons for optimism especially driven by an increasing awareness of health, fitness, and sports. [1]

In the short term, however, there are clouds on the horizon. Rising costs, the looming threat of a larger recession, and continuing operational challenges are set to create headwinds in early 2023. In response, companies are under urgent pressure to embed resilience into their operations. That will mean going beyond raising prices to boost productivity, managing cash more rigorously, and finding the right balance between saving and investment.

1. Nevertheless, globally, we still face significant health risks relating to higher levels of inactivity. For a broader perspective on global physical activity levels, please read the dedicated section in the Foreword of our report.

Two thousand and twenty-two was set to be another great year for the sporting goods industry: consumer sentiment was improving month-on-month, reflecting looser COVID-19 restrictions in most markets, companies were placing large orders, both in anticipation of demand and to avoid the supply chain challenges of 2021, and performance in the first half of the year was widely positive. In the background,however, storm clouds were gathering. Inflation was picking up due to the impacts of the war in Ukraine (especially in Europe), higher raw material and energy costs prompting some companies to raise prices. Meanwhile, consumer sentiment showed signs of deterioration, and discretionary spending declined. Supply chains gradually became more reliable, but the sudden increase in available product in destination countries paired with declines in spending led to wide spread overstocking.

In the second half of the year, the economic outlook darkened, amid rising concern over geopolitical instability and the trajectory of interest rates—which tightened constraints on both companies and household budgets. The aggregate impact of these factors was a significant weakening in industry performance compared with 2021 (although still in advance of pre-COVID levels). Sporting goods companies were able to raise prices, but not enough to off set declines in units sold. That said, some categories performed better than others, leading to both risks and opportunities for individual players.

With inflation running in 2022 at the highest level for at least 40 years in Europe and the US, just 6 percent of sporting goods companies are confident about their resilience and performance . Indeed, the three words that executives used most frequently to describe expected conditions in the industry in 2023 were “challenging”, “uncertain”, and “unpredictable”. [2] The biggest concerns in the second half of 2022 have been falling demand and excess inventory. Looking to the coming year, 22 percent of decision makers expect both revenues and margins to contract by more than 5 percent.

Consumer sentiment has deteriorated, driven by factors including the war in Ukraine, higher energy prices, and rising interest rate increases,which have reduced household incomes and put pressure on discretionary spending (Exhibit 1).

Exhibit 1

Net intent to purchase in footwear, apparel, and the sports and outdoors category has continuously fallen over the course of 2022. Furthermore, consumers are likely to reduce their sporting goods spending over the coming period. More than 50 percent of consumers say they will buy fewer items, while about 20 percent say they will trade down to less expensive brands. [3]

Our expectation for an upcoming dip is reinforced by recent demand dynamics, which saw peaks in 2021 and the first half of 2022 (with many purchases supported by economic stimulus). After an exceptional performance during the pandemic, durable goods for individual private use, such as sports equipment, are likely to be hit hardest. Pressure on performance is expected to be unavoidable.

2. Source: WFSGI & McKinsey Sporting goods companies survey, September 2022(N=211)

3. Source: McKinsey & Company Europe Consumer Pulse Survey, 9/23–10/2/2022, n =5,156 (France, Germany, Italy, Spain, UK), sampled to match European general population 18+ years

Overall, sporting goods companies need to develop strategies that will help them navigate the current storm. And raising prices will not be the solution in the context of reduced demand—especially given the wide availability of more affordable options. In an inflationary context, a holistic approach will encompass six key action areas:

• Smart pricing and channel management: Data and analytics, for example relating to price elasticity and competitor offerings, can inform flexible pricing strategies and revenue management to protect net margins and limit the impact of volatility. Effective implementation can lead to a 5-15 percent revenue boost.

• Resetting return on investment: Decision makers should conduct atop-down review of efficiency by channel and SKU to invest for growth. We estimate this could lead to a 10-20 percent saving in marketing budgets and enhanced return on investment.

• Strengthening brand communications: Communications should be optimized and refocused on the brand’s core value proposition.Companies can achieve a 2-5 percent revenue uplift.

• Building supply chain resilience: It makes sense to review sourcing and supply chains, and to apply next-generation levers to the cos tbase. Savings of 5-10 percent are possible.

• Foster next-generation organization productivity: An agile approach and innovations such as robotic process automation can lead to longer-term savings of 5-10 percent. Companies could review warehousing and transportation costs to unlock productivity levers,recovering transportation cost as the market slows, and review facilities networks.

• Optimize finance: Companies could focus on freeing up cash and exploring divestments and acquisitions.

Through these commercial, operational, and financial levers, companies can get a grip on recessionary impacts, shape their business model to current needs, and position for a speedy return to growth. The key for decision-makers will be to manage these priorities based on their unique circumstances, while embracing a positive lens that builds longer-term competitive advantage.

In this year’s report, we deep dive specifically into the two key sporting goods markets:

USA: Data from The NPD Group and insights from its Senior Industry Advisor Matt Powell, show a strong post-COVID recovery in 2021 by the US sporting goods market that in many categories surpassed 2019 performance. In 2022, the US market was exposed to the many forces shaping the global market, leading to unit sales declines of 4-8 percent in the first nine months, compared with 2021 levels (Exhibit 2), which was not off set by higher average selling prices. These unforeseen volume declines led to significant overstocking and heavy discounting in the second half. Athletic footwear and active wear saw revenue declines of 4-6 percent in the first nine months of 2022, driven by weakening consumer demand and conservative assortments. Equipment categories had a hard time beating their record years of 2020/2021. Home fitness equipment saw a 28 percent revenue decline compared with the same period in 2021. The exception was e-bikes,which continued to grow strongly.

Exhibit 2

China: In 2022, the Chinese sporting goods market saw a largely fl at performance, in stark contrast to double-digit expansion over recent years. The key driver was the country’s dynamic zero-COVID policy. Still,in the longer term, we see resilient fundamentals that promise a return to growth. These include government support for healthy life styles under the “Fitness for All” program, the expansion of the middle class (Exhibit 3), and rising female demand (unlike in Europe and the Americas, women spend 15-20 percent more on sports and fitness than men). In general, sports are becoming a more significant part of people’s daily lives, and there is increasing interest in more niche sports such as skiing, surfing, and outdoor activities such as camping. Local brands such as Anta and Li-Ning are competing fiercely, for example, by offering more female-focused products, and are capturing market share. Thus, there is rising pressure on international brands to raise their games.

Exhibit 3

In 2023, we expect four themes to feature high on company agendas (Exhibit 4):

Exhibit 4

Brand relevance increasing: Building brand heat and loyalty is more relevant than ever, especially in a recessionary context, in which consumers tend to rely on trusted brands. The consumer journey is shifting, especially when shopping for lifestyle categories. Whereas previously, consumers were motivated first by factors such as functionality, design, and price, they are now increasingly driven by brand. Notably, the industry’s super-winners in terms of value creation are characterized by high levels of brand equity and loyalty. In the lifestyle apparel category, sporting goods companies are on a similar journey to fashion companies, amid a need to build strong and trusted brands that leverage the direct-to-consumer revolution, collaboration with other brands, and community marketing.

Sustainability, time to deliver on promises: Brands, retailers, and manufacturers have made bold promises of a more sustainable future,but are they up to the challenge (Exhibit 5)? With self-imposed deadlines on the horizon, it is time to deliver. Two priorities should shape their agendas:

1. 1. Plotting the path to net zero by setting CO2 baselines, defining emissions abatement curves, prioritizing decarbonization levers, and planning for the challenges ahead.
   2. Defining the company’s role in the growing circular economy, choosing from a range of business models to scale.

Whatever they do and say, companies need to be careful to deliver against a background in which greenwashing is being targeted by both regulators and consumers.

Exhibit 5

Nearshoring, a potential solution for supply chain disruptions: Supply chain disruptions, higher trade barriers, and geopolitical turmoil are putting pressure on supply chain security and leading to higher costs.

Nearshoring can unlock a range of benefits in a disruptive context: control and de-risking of the supply chain, agility and speed, cost structure competitiveness, protection against trade barriers, and a more sustainable operating model in the eyes of consumers.

Still, nearshoring does not always go to plan, evidenced by the fact that some companies have recently reversed nearshoring decisions.

Whether to nearshore or not should be decided at product level, assessing exposure to supply chain shocks, the need for shorter lead times, and the economics. It is important that the nearshore country meets requirements for raw materials and components, and offers the right capabilities and capacity. A detailed business case should take into account a holistic set of variables to determine financial impact and feasibility, as well as potential government incentives.

Sporting Goods industry, a hot target for private investors: The sporting goods industry has grown strongly over the recent years and is likely to continue on that path, amid rising consumer health awareness, alongside deepening interest in outdoor lifestyles and athleisure apparel. In addition, the industry has proven to be more resilient in downturns, bouncing back faster than others. Furthermore, it comprises many smaller but well-differentiated brands, which make attractive targets for consolidation or growth plays.

These factors have fueled interest among private investors, including venture capital firms, private equity funds, and companies, with the number of annual deals doubling in the past decade. Focus areas have included outdoor categories, connected fitness equipment, athleisure/activewear, and sustainable sportswear (Exhibit 6).

In a market dominated by super-winners, private investment is challenging. We see three key priorities for investors: aspire to build a portfolio to drive synergies; elevate digital, focusing on communities and personalization; and leverage analytics at scale to harness the power of data.

Exhibit 6

Download Sporting goods 2023: The need for resilience in a world in disarray, the full report on which this article is based (PDF–XXMB).

Sabine Becker is an associate partner in McKinsey’s Zurich office, where Alexander Thiel is a partner and Raphael Buck is a senior partner. Achim Berg is a senior partner in McKinsey’s Frankfurt office. Other key contributors: Jessica Genta (project manager, Zurich), Elisa Albella (project manager, Los Angeles), Alice Scalco (associate partner, Hong Kong), Caroline Shi (project manager, Shanghai), Olga Ostromecka (senior analyst, Wroclaw).

The authors would like to thank all members of WFSGI, The NPD Group and the McKinsey community for their contribution to development of the 2023 Sporting Goods report and the many industry experts who generously shared their perspectives during interviews.