Will sporting goods fragmentation continue if major brands pivot back to wholesale?
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Will sporting goods fragmentation continue if major brands pivot back to wholesale?

The major brands have been pushing into direct-to-consumer (DTC) channels for the past 5+ years, giving deeper customer relationships and higher margin routes to market. However, this has opened the door to smaller brands in wholesale channels and the fragmentation of demand is resulting in some heritage brands losing share and having to accept lower margins in some markets (notably China). 

As a result, the major brands may be leaning back into premium Wholesale to protect share and access demographics that DTC does not reach. A leading brand recently held a meeting at its headquarters for its 24 most prominent and differentiated wholesale customers, and we expect other major players to follow suit as they strive to rebuild brand momentum

Sporting Goods is inherently cyclical, and the category’s principal vulnerabilities are the long lead times, inflexible supply chains, and reliance on 3P distribution. Coupled with logistics issues and US$ strength, the last couple of years have been very challenging, and 2023 will remain so with volatile demand, rising costs, and excess inventory to clear. As a result, caution regarding brand turnarounds is warranted.

We introduce our “Digital Dozen,” 12 sporting goods brands that demonstrate various products, positioning, and routes to market but have all shown high growth over recent years. We believe their success is in part due to brand building via social media, wholesale channels opening up to smaller brands, and consumer demand for individuality in an increasingly ubiquitous category. However, some may struggle in a market where funding is harder to find and if the major brands are less generous, freeing up space in Wholesale.

China is arguably the best example of a market where demand has fragmented. We analyse the changes and conclude that western brands are unlikely to replicate the excess margins they enjoyed in the past. In addition, digital will still be the key channel for the major brands, and we analyse the progress to date of the major brands. With the major brands anchored in footwear, we also look at what makes the category different and the chances of success for new entrants. 

Simon Irwin 

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