Cover Story

The Gamechangers

Let’s face it — when it comes to the sporting goods industry, the game itself is changing. Retail closures, consolidation, vendors selling direct, online competition, the new, demanding consumer. These are all challenges in the marketplace. Yet there are retailers and manufacturers out there scoring points. There are ideas, innovations and strategies finding success in the new reality. In this Gamechangers section we examine some of the change agents shaping the present and the future — and yes, we look at a few of the challenges, too.

Pop Culture

“Retailers are carving out space for collectibles.”

Sporting goods and pop culture are having a moment. This gamechanger is not just about the “power” of products such as video games, super hero characters and retro TV series. It’s about their growing presence in the active market. Athletic brands are selling licensed gear that goes outside the realm of sports and way into pop culture. (Pictured above: Puma’s collaboration with Hasbro on Transformers sneakers.) Foot Locker recently opened up a concept shop online and inside its Times Square New York store called Pop by Foot Locker. The Pop shop sells items such as toy LeBron James figurines by Funko, Teenage Mutant Ninja Turtles action figures by Kidrobot, Star Wars socks from Stance, WWE graphic tees by Ripple Junction and Marvel snapbacks by New Era. The shop features exclusive items, too, such as a recent apparel launch that combines the Marvel Black Panther franchise and the late hip-hop legend Tupac in a collab. Foot Locker is just the latest big retailer to carve out store space for pop-culture collectibles. As Bloomberg recently reported, in the wake of Toys R Us’s demise, retailers see an opening to use store space previously devoted to other items (such as CDs and DVDs at Walmart/Target). In October, Walmart debuted a dedicated collectibles section in 3500 of its stores. — Cara Griffin

Experiential Retail

“Experiential Retail can mean exactly what it sounds like — offering an experience to your consumer.”

Ding dong, retail is NOT dead. It is estimated that 80 percent of purchases are still made in brick-and-mortar stores*. And “experiential retail” is the buzz term du jour. Experiential can mean things such as Instagram-ready merchandising or the use of tech such as Artificial Intelligence, Augmented Reality or Virtual Reality. It  can also mean exactly what it sounds like — offering an experience to your consumer. As NPD Group describes experiential retail: “Generally it refers to a store in which stuff happens in addition to selling and shoppers do things besides buying. The idea is that a retailer offers consumers a chance to buy an experience rather than just an object or service.”

When online behemoth Amazon started opening up retail locations, you had to figure there was something about this whole brick-and-mortar retail strategy worth checking out. Not quite an Amazon, but quite influential, the outdoor men’s lifestyle e-tailer Huckberry recently opened a pop-up shop in New York City. Timed to coincide with holiday sales, the store aims to exceed basic retail expectations by making shopping an experience. Online, Huckberry is known for its curation of outdoor offerings. In the store environment, Huckberry looks to curate experiences. Offerings include seven actionable adventures — travel plans, along with the items shoppers should bring on their trips. These adventure itineraries range from a West Village Drinking Tour with Jack Kerouac to 72 Hours In Iceland. Customers get an itinerary as well as insider perks at select stops (savings and VIP treatment). This is cool. But retailers can (and do) kill it with slightly less extravagant experiential offerings, too. We’re talking experiences such as in-store yoga, bike repair classes, group runs and the like. What’s old is new. — Cara Griffin

Gen Z: The New Power Shopper

“Gen Z has its own spending power – $44 billion worth to be exact.”

While many of us are still hyper-focused on how Millennials are transforming the way we all shop and buy, the next big economic gamechangers are already here — they are known as Gen Z.

Born between the mid-1990s and mid-2000s, the oldest Gen Zer is around 22 years old. And Gen Zers are influencing consumer spending in a big way. At 32 percent, Gen Z makes up the second-largest age demographic of tastemakers — according to a 2017 National Retail Federation report, more than 70 percent of Gen Zers said they influence their family’s spending, including clothes and shoes (60 percent) and electronic devices (61 percent). Additionally, Gen Z has its own spending power — $44 billion worth to be exact.

Adyen, the payment platform that works with companies such as Uber, Facebook and Netflix, recently commissioned a survey of more than 2,000 U.S. consumers between the ages of 18-55, to understand the shopping habits, expectations and hopes (and fears) of this up-and-coming generational group.

The research reveals that Gen Z is a generation that is even more frugal and price-conscious than its immediate predecessors. More than half of Gen Zers still count on allowance for spending money and nearly 20 percent work full-time. These frugal habits and the desire to stretch their dollars through discounts, coupons and rewards programs could be indicative of how this generation will spend as it grows up.

Gen Zers are constantly digitally connected and they make shopping decisions based on the ease of the process. What Gen Z sees on social media impacts purchasing decisions. Gen Zers crave efficiency. If a Gen Z shopper is going to spend money in a store, they want to make sure they’re making the most of their trip. For Gen Z shoppers, 66 percent would visit a store more if they could check if an item they wanted was in stock beforehand. And once they’re in the store, the Gen Z shopper would opt to pick up the items they need and have the store automatically charge their account. More than a quarter (39 percent) of Gen Z shoppers hope that this “just walk out” technology is ubiquitous in the next 12 months. — Cara Griffin

3D Tech, 4D Tech + Automation

“A good example of a gamechanging use of 3D tech is what’s known as ‘smart’ fashion.”

In business today responsiveness is key, and as such 3D is moving fast into apparel – as well as accessories and footwear – with technology that makes it easier for companies to keep pace with consumer expectations of speed and convenience. Firms are taking a 3D approach to design, as well as to product development and delivery. Having grasped the potential of 3D modeling we are now on the cusp of 4D technology that enables additional built-in product functionalities.

What exactly is 3D tech? In many ways it is automation re-imagined for contemporary manufacturing. 3D tech is revolutionizing the design process by eliminating the need for physical samples and allowing for faster iteration of customized product offerings. It leads to smarter production and increased speed-to-market. It reduces inventory costs, lessens waste, and promotes eco-responsibility.

A good example of a gamechanging use of 3D tech is what’s known as “smart fashion.” For example, UnSpun, a robotics and apparel company is “building” custom jeans for each consumer on demand with digital customization and automated manufacturing. Another example is the company Thursday Finest, which first sparked interest by making customized socks with quick turnaround at its NYC pop-up shop. Individuals could place an order at the shop, equipped with the latest 3D knitting machinery, and within an hour receive a text that their custom-made hosiery was ready. The company has since expanded into beanies and ties, retaining its 3D tech quick-turn model.  

At a recent footwear innovation summit, Dr. Andre West, department head of Textile & Apparel, Technology & Management at NC State College of Textiles, predicted that based on 3D and 4D innovations, “sock patterns could create shoes in a matter of seven to eight minutes.” This clearly has huge ramifications in footwear.

Whether used for digital design or for the implementation of rapid production methods, 3D technologies look to be evolving fast going forward. — Emily Walzer

A Digital Future by Nike

“A good example of a gamechanging use of 3D tech is what’s known as ‘smart’ fashion.”

Three small Swoosh acquisitions over the last 12 months will be gamechanging for the brand and its key wholesale partners in the months ahead, particularly in the way Nike interacts with its young consumers worldwide and sees them make purchases on the fly.

The bottom line: Nike wants to create a long-term differentiated and competitive advantage in the athletic footwear and apparel marketplace in product innovation, brand marketing, digital and speed within supply chain. It is developing new digital capabilities and testing new concepts (Nike Live and the SNKRS app among them) in its own stores, including Nike by Melrose in Los Angeles and its new 68,000-square-foot Nike Experience store on New York’s Fifth Avenue, before introducing them to key retail partners.

The Nike SNKRS app, described by the brand as “the ultimate destination for the releases of highly coveted new sneakers,” does more than just notify consumers when specific in-demand shoes are dropping. Consumers can not only buy in the app, but can also be directed to retail partners that sell the shoe. And the brand is using the app for virtual scavenger hunts and other interactive experiences. Case in point: a recent launch with Kendrick Lamar where fans at select Lamar concerts could use the augmented reality camera in the Nike SNKRS app to purchase a pair of Cortez Kenny III sneakers. At a random moment during the concert, fans received an alert via their SNKRS feed – along with the arena screen – that the SNKRS Stash for the Cortez Kenny III had been activated. With SNKRS Stash Spot activations, product is “digitally buried” in secret locations. The Stash Spot activations are active for as long there are still pairs available.

Nike is fairly mum about the inner workings of its digital strategy overall, largely for competitive reasons. The digital approach accelerated first with its purchase of the former Virgin Mega, now Studio 23, in the Big Apple followed by the acquisitions of Zodiac and Invertex. Studio 23 is the muscle behind the  SNKRS app, which was scheduled to be introduced in Brazil, Mexico and Southeast Asia during the 2018 holiday quarter.

Nike will spend much of its current fiscal year that ends in May on making more major investments in “the organic development of new capabilities,” senior management told analysts in September. These outlays will zero in on a number of new capabilities. Among them: digital demand sensing, consumer data analytics, connect inventory, digital product design/creation and a new enterprise resource platform to bolster the company’s supply chain. — Bob McGee

Meet the Robots

“A good example of a gamechanging use of 3D tech is what’s known as ‘smart’ fashion.”

Danger, Will Robinson! More than a half-century since the debut of “Lost in Space,” robots continue their steady march into the mainstream, particularly in the supply chain given they can both increase efficiency and lower costs. And some circles suggest the next frontier for these devices will be checkout and in-store pricing.

Recent Pew Research contends the hourly cost of a robot in a manufacturing setting is about $4 versus $36 for a manufacturing worker. At this point, it comes down to how much retailers and vendors want to invest.

Adidas employs robotic arms in its SpeedFactories in Germany and Georgia to produce small quantities of footwear and has promised to increase volume in both locales over time. Likewise, Asics  plans to introduce robots to a plant in Japan to take over a third of the production process at a factory that handles the Onitsuka Tiger line. But in reality, the increased use of robotics industrywide is more likely to be found in a distribution center than in a manufacturing setting.

Consumers’ increased reliance on mobile ordering and higher delivery expectations for their merchandise means large retailers and vendors who sell to them need to have top-notch automation to insure correctly picked orders go out the door as quickly as possible.

Not surprisingly, Amazon was among the first to embrace robotics for its expanding business, acquiring Kiva in 2012 for $775 million and installing robots in its distribution centers. The online behemoth needed to ensure Prime customer received orders within 48 hours. Today, Amazon utilizes more than 100,000 robots in more than two dozen fulfillment centers around the world.

Walmart’s 2018 investments have included the installation of shelf-scanning robots in 50 doors to roam aisles throughout the day and record snapshots of inventory positions, and, in its grocery business, the utilization of Alphabot, a storage and retrieval robot, to pick and ready online orders for customer pick-up. The service is being tested at a 20,000-sq.-ft. micro-warehouse alongside a New Hampshire supercenter. — Bob McGee

Acquisition Action

“Implus is doing an outstanding job understanding market needs and responding to it through more than a dozen acquisitions in recent years.”

Mergers and acquisitions in the sporting goods industry are increasing in frequency — and changing the way the game is played. The overall health of the “mergers and acquisitions” market remains strong, despite potential headwinds from rising interest rates, and should continue into 2019 thanks to tax code and other policy changes. The overall M&A market was up 57 percent through July 2018 to a record $4.8 trillion, according to the Wall Street Journal, with the outdoor and sporting goods markets representing an unspecified percentage of that total.

Joe Pellegrini, managing director for financial services firm RW Baird in Charlotte, NC, says there are two type of players in the industry M&A market — consolidators, such as VF Corp. and Implus, and streamliners, Nike, Adidas and Vista Outdoor to name three, that are fueling the activity. And many factors are sparking M&A interest, including the increasing interest of companies to leverage or build their digital know-how.

Innovation, new comfort features, new materials, new ways of providing the consumer with better product, better styling and better functionality are some of the factors that may prompt a potential acquirer to strike a deal. Pellegrini cites Implus as doing an outstanding job understanding market needs and responding to it through more than a dozen acquisitions in recent years.

Most recently, Implus acquired the kinesiology tape brand RockTape. RockTape’s products will be additive to Implus’ existing suite of health and wellness brands which include TriggerPoint, Harbinger, Spenco, Perfect Fitness, SKLZ and more. “The brand has massive room for growth within our current distribution network,” states Seth Richards, CEO of Implus, adding that the RockTape team’s experience in the Clinical channel “should provide tangible benefits for a number of our other brands.”

Pellegrini notes that “Implus saw a need at retail to marry more innovation, better merchandising and customer service for the retailer to professionalize the performance accessory market.”

Pellegrini also cites recently gone public Yeti, known for its premium coolers, for “re-inventing a tired, old category.”

As for the banker’s advice to those retailers or companies considering an M&A strategy today, he urges them to not “try and time the market.” Instead, Pellegrini suggests these interested parties should zero in on building their respective organizations, digital experience and financial reporting skills.

“Stay focused on building a durable brand and business. And that will be recognized over time,” he says.  — Bob McGee

Technology that Sneaks up on You

It’s the bottom of the shoes that’s turning heads with innovation.

Innovation is still the Holy Grail in the sporting goods industry. Sometimes it’s overt, sometimes it’s eye-catching and sometimes it sneaks up on you. In the outdoor footwear market, as flashy as footwear can be, it’s the bottom of the shoes that’s turning heads in 2019. Of note is the expansion of Vibram’s new Litebase technology into more styles from the likes of Scarpa, Dynafit and Salomon. Litebase is one of our picks as a gamechanger because it not only improves the product for the consumer, but also makes an impact for the design team and on the eco impact of products. What is it? Vibram Litebase is a high-performance outsole construction that allows a reduction in the thickness of the material used. It results in a 25 percent savings in weight without losing any performance or protection, according to Vibram, and it allows for a reduction of about 40-50 percent in thickness, from 1.7 mm to 0.5/0.9 mm depending on the type of sole. The result is a very light sole that retains the characteristics of traction, duration and wear resistance. — Cara Griffin

Stand Out and Break the Mold

Altra and Hoka One One are change agents in running.

Make innovative product, market it right, price it right and distribute it in an intelligent manner and you may find success. Wait, does that sound like an old-fashioned rule of thumb? Perhaps, but it’s one way brands such as Hoka One One and Altra have managed to break into and excel in the competitive performance running world. Next to keep an eye on: both Hoka and Altra are making moves into the hiking boot world. These young brands are change agents in their category. Hoka One One was founded in 2009 and first grabbed attention for its oversized “maximal” outsoles, but just as the brand has seen some of its designs moderate, it has also seen others in the industry follow its “max” design philosophy. The brand was acquired by Deckers in 2013. Altra, founded in 2009, has made its mark as a “zero drop” specialist. It was acquired by VF Corp. this past April. ICON Health and Fitness had previously acquired Altra in 2011. Both brands are favorites of trail runners and hikers. In Fall 2019, Altra will launch its first hiking boot, the Tushar, expected to weigh in at 16 ounces and retail for $199. Also of note is Altra’s Superior 4 for Fall 2019, the lightest version of the brand’s popular Superior trail shoe yet at 7.9 ounces for men and 6.6 ounces for women. Hoka One One’s 2019 offerings include the Sky Series, with styles ranging from a superlight hiking boot to a high-top trail run shoe. Sky Series styles include the Sky Kaha boot for maximal hiking; the Sky Arkali for vertical hiking; and the Sky Toa for fast hiking. — Cara Griffin

Trade Uncertainty

Observers hope trade tensions thaw enough to prevent the escalation of tariffs.

Escalating trade tensions between the U.S. and China that have persisted throughout 2018 aren’t likely to melt away anytime soon, but market observers hope they thaw enough to prevent the escalation of 10 percent tariffs on $200 billion worth of China-made goods to 25 percent on January 1.

A prolonged U.S.-China trade war would undoubtedly raise prices on impacted merchandise categories, including sport coolers and sport chairs, and force vendors and retailers to pass along their higher costs from the higher duties or lose margin by maintaining pricing.

Ahead of the Nov. 30-Dec. 1 G20 Summit in Buenos Aires where Pres. Trump and China Pres. Xi were scheduled to talk, many companies had already begun establishing contingency plans for a lengthy trade battle between the world’s two largest economies.

According to a U.S. Chamber of Commerce survey, less than 3 percent of companies are considering an outright withdrawal from China as a supply source. Instead, look for other countries in Asia, namely Vietnam, Malaysia and Cambodia, to become bigger manufacturing hubs and lessen the reliance on China.  It would take 3-5 years for a company to engineer a complete withdrawal from China. — Bob McGee