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Sports Industry Spotlight 12.07.20 Newsletter

Welcome to BSBA's installment of Sports Industry Spotlight, which aims to highlight a specific market within the sports business industry. We hope to showcase a market that is on the rise and shows no signs of slowing down any time soon. This week's article will focus on the trend of "athleisure", which has increasingly dominated the retail and fashion space, allowing companies like Nike and Lululemon to soar past their competitors.

The Appeal of Athleisure

According to The NPD Group, a market research company, athletic-inspired casual sneakers will surpass fashion as the largest footwear category in 2020 and drive U.S. footwear sales growth through 2021. The firm's Retail Tracking Services measured that sport leisure footwear grew 7%, while performance footwear fell by 7% in a twelve-month period ending in August 2019. The shift away from performance and fashion footwear can be attributed to nature of fitness changing within the US, which has directly altered what consumers are looking for in their shoes. Consumers are committed to a healthy lifestyle, but do not want to be defined by their athletic activities, hence they demand a more versatile shoe for everyday wear.

Growth in sports leisure footwear has been driven by running and basketball inspired styles, with sports clothes being increasingly used for daily activities. Additionally, Morgan Stanley expects global athletic wear sales to reach $355 billion in 2021, up from $290 billion in 2017. This growth has been seen in global powerhouses like Nike and Lululemon who have emphasized their style to suit the versatile needs of consumers. In 2018 alone, InfluencerDB analyzed 5.5 million Instagram posts and found that Nike was the fifth best-performing brand in influencer marketing with Earned Media Value (EMV) of over $168 million. By simultaneously stepping into the world of fashion and fitness, companies are poised to take athleisure to incredible heights.

Dominance of Nike

A large part of Nike's continued dominance over competitors is their commitment to embracing the athleisure trend. Nike has capitalized on this trend with their online sales, which have been buoyed by a 50% demand increase in its SNKRS App. The SNKRS App is widely popular among sneakerheads for its limited-edition shoe drops, expanding its reach to 22 countries. In the third quarter of 2019, the SNKRS App saw “almost triple-digit” gains to become the largest and fastest growing platform in Nike portfolio, according to CEO Mark Parker. On top of this, Nike’s profit in the quarter jumped 25% to $1.4 billion as demand across all geographies drove sales higher by 7% to $10.7 billion. Even their gross margin, the percentage of sales left after the cost of goods has been subtracted, improved by 1.5% to an impressive 45.7% during this period of time.

All of these metrics serve as a testament to Nike's successful approach to selling athleisure as a lifestyle, rather than marketing products. For example, Nike’s Air Max 270 React line of shoes, which come in bright colors including pink and red, drove the quarter’s largest shoe revenue gains. These shoes were billed to help consumers “lounge wherever you go” and aimed to create "a unique look that doesn't sacrifice comfort". Nike is determined to expand their market with inclusive initiatives, such as testing the fit of their products for a plus-sized line, which requires being extremely attune to their customers. Nike utilizes their investments in tech startups to measure demand, which allows them to consistently create products that their consumers will covet after. As they continue to adapt their company strategy to the trend of athleisure, it's clear that Nike will compete more head on with the likes of Lululemon and other apparel brands, as sportswear apparel rose at least 10% for the 22nd straight quarter.

success of lululemon

With the onset of the coronavirus pandemic, many people have been forced to work at home, allowing retailers like Lululemon to flourish. People have traded in their jeans and office-wear for more comfortable alternatives, such as yoga pants or sweats, that are well suited for long days at home. Despite Lululemon's temporary closure of stores, their sales increased by 2% to $903 million during the quarter ending on August 2, compared to the same quarter a year ago. Lululemon was able to successfully combat these retail closures with an influx of online sales, which grew 157% last quarter. While their sales in suits and dress shirts sank from March to July, these months also saw increased sales in shorts, sweatpants and sports bras. Particularly in women's sales, the company's shorter inseam bike shorts and other shorts styles were strong drivers of sales growth.

The data shows that with more people at home, there is a greater emphasis to dress in comfortable clothing that can adapt to living an active and healthy lifestyle. With people pursuing health and wellness more seriously, athleisure has become the newest avenue for people to adorn themselves with athletic apparel to match their fitness goals. In the same way that people want to take care of their bodies with the best quality foods and nutrients, apparel companies like Lululemon allow them to treat their body to clothes of great comfort and versatility. Lululemon is able to cast such a large net of consumers because their clothes can be marketed to anyone who desires a healthy lifestyle, regardless if someone works out a couple days a week or is a professional fitness instructor.

athleisure moving forward

With its links to the health and wellness movement, as well as a growing focus on inclusivity, the evolution of athleisure is clearly far from reaching the finish line. According to the Global Athleisure Market Report from Allied Market Research, athleisure is indeed still on the rise. In 2018, the athleisure market size was valued at $155.2 billion, and by 2026, it is expected to reach $257.1 billion. Everyone from Nike to Primark to Eres has launched athleisure lines to cash in on this $44 billion market (in the US alone), according to NPD Group. During confinement due to Covid-19, Gymshark’s US sales went through the roof, increasing by over 150% year-on-year in July and August. And in the first week of July alone, its year-on-year sales rose by a whopping 856% according to data from Earnest Research.

The presence of athleisure in mainstream fashion has also been boosted by the support of influencers and celebrities on Instagram who use their platforms to create a replicable aesthetic. These sponsorships develop commercial growth of athleisure companies, but a significant key to athleisure success is the immense focus on serving their clients. Athleisure technology is continually improving to make fabric lighter and quicker to dry, while also developing a less traditional range of sizes to aim for inclusivity. These adaptations allow their customers to feel involved in the modern movement of body positivity and buy into the exclusivity of such brands. As its companies remain on an upswing, athleisure will continue to use technology and messages of empowerment to create a customer base that aligns with the image of health.

I hope that you enjoyed this week's edition of Sports Industry Spotlight and look forward to putting out more from the world of sports business! Have a good week everyone! -PD