After recording a widely positive performance in 2021, the sporting-goods industry has seen multiple challenges in the past year, including the threat of global recession, war in Europe, continued supply chain challenges, and rapidly rising interest rates—all contributing to a world in disarray. Resilience will be key to tackling the highly uncertain environment and preparing for the next wave of growth.
In many ways, the sporting-goods industry is in a fortunate position. Compared with many other industries, the past two years have, in aggregate, been characterized by solid growth, equaling or outperforming prepandemic levels. Looking ahead, in the medium term, there are reasons for optimism that are especially driven by an increasing awareness of health, fitness, and sports. 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.
In the short term, however, there could be clouds on the horizon. Rising costs, the potential threat of a larger recession, and continuing operational challenges might create headwinds in early 2023, putting companies under urgent pressure to embed resilience into their operations. That will likely mean going beyond raising prices to boost productivity, managing cash more rigorously, and finding the right balance between saving and investment.
2022 was set to be another great year for the sporting-goods industry: consumer sentiment was improving month over 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, challenges were accruing. Inflation was picking up due to the effects of the war in Ukraine (especially in Europe), and higher raw material and energy costs were prompting some companies to raise prices. Meanwhile, consumer sentiment showed signs of decreasing optimism, and discretionary spending declined. Supply chains gradually became more reliable, but the sudden increase in available products, paired with declines in spending, led to widespread overstocking.
A report on the global sporting-goods industryThe World Federation of Sporting Goods Industry (WFSGI) and McKinsey & Company have teamed up once again to present our third annual report on the sporting-goods industry, Sporting goods 2023: The need for resilience in a world in disarray. This year’s report focuses on the dynamics driving performance in the sporting-goods market and explores how the industry can boost its resilience to the current challenges. As in past editions, we focus on the key trends that have affected the industry over the past year and will likely shape performance over the coming 12 months and beyond.
This article summarizes some of the report’s findings.
In the second half of the year, the economic outlook took a downturn 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 prepandemic levels). Sporting-goods companies were able to raise prices, but not enough to offset declines in units sold. That said, some categories performed better than others, leading to both risks and opportunities for individual players.
Colin Browne, interim president and CEO, Under ArmourI believe it will take some time for demand and supply to right themselves, especially as I suspect the economic conditions may well continue to worsen as we go into 2023, with impacts on consumer confidence.
With inflation in 2022 reaching its highest level in at least 40 years in Europe and the United States, just 6 percent of sporting-goods companies are confident about their resilience and performance. 2 World Federation of Sporting Goods Industry and McKinsey & Company Sporting-goods Companies Survey, September 2022, n = 211. Indeed, the three words that executives used most frequently to describe expected conditions in the industry in 2023 were “challenging,” “uncertain,” and “unpredictable.” 3 World Federation of Sporting Goods Industry and McKinsey & Company Sporting-goods Companies Survey, September 2022, n = 211. 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 is falling, 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).
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. 4 McKinsey & Company Europe Consumer Pulse Survey, 9/23/2022–10/2/2022, n = 5,156 (France, Germany, Italy, Spain, United Kingdom), sampled to match European general population 18+ years.
The 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 most affected. Pressure on performance is expected to be unavoidable.
Overall, sporting-goods companies need to develop strategies that will help them navigate current challenges. And raising prices may 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 considers six key action areas:
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.
United States: Data from the NPD Group and insights from its senior industry adviser Matt Powell show a strong postpandemic recovery in 2021 by the US sporting-goods market that surpassed 2019 performance in many categories. In 2022, the US market was exposed to the many forces shaping the global market, leading to unit sales declines of 4 to 8 percent in the first nine months, compared with 2021 levels, which was not offset by higher average selling prices. These unforeseen volume declines led to significant overstocking and heavy discounting in the second half. Athletic footwear and activewear saw revenue declines of 4 to 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 and 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 flat performance, in stark contrast to double-digit expansion over recent years. The key driver was the country’s zero-COVID policy. However, in the longer term, factors such as the expansion of the middle class (Exhibit 3) and rising demand from women (unlike in Europe and the Americas, women in China spend 15 to 20 percent more on sports and fitness than men) may promise a return to growth. 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 and surfing, and outdoor activities, such as camping. Local brands such as Anta and Li-Ning are competing fiercely—for example, by offering more women-focused products—and are capturing market share. Thus, there is rising pressure on international brands to raise their game.