European sports buying groups hoping for a better 2007 after dismal end to 2006

My, how things change in a year. Last year as the two key buying groups in Europe, Intersport and Sport 2000, presented their just-finished year along with a forecast for the coming year to the press on the first day of the winter ispo sporting goods show, everyone was aglow. 2005 had ended on a "picture-perfect" note, as it was called, and with high-profile sporting events in the Euro-zone for 2006, hopes were high for the coming year.
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My, how things change in a year.

Last year as the two key buying groups in Europe, Intersport and Sport 2000, presented their just-finished year along with a forecast for the coming year to the press on the first day of the winter ispo sporting goods show, everyone was aglow. 2005 had ended on a "picture-perfect" note, as it was called, and with high-profile sporting events in the Euro-zone for 2006, hopes were high for the coming year.

"This year, things look a little different," said Hartmut Froehlich, CFO for Intersport at that group's press conference on the first day of the 2007 winter show. Finishing the year showing even a 4 percent increase in sales among its members was considered reason to celebrate.

Sport 2000 didn't have even that much of a thread of an increase to hang its hat on, trying to underplay a mere 1 percent uptick. "A fairy tale summer and a nightmare-ish winter," the group called the last calendar year.

In fact, most groups sizing up the economics of the last year showed sales figures plummeting as the much-anticipated snow and cold of a winter season failed to materialize.

With growth figures swimming around the low single digits, Siegfried Passreiter, member of the board of directors of Germany's national sporting goods association (BSI), pointed out in a separate presentation that the low single digit figure is "only about the rate of inflation."

"We have to stay flexible," said Passreiter, also addressing concerns expressed about global warming. "We also have to figure out how to reduce our reliance on winter sports."

Indeed, said Werner Haizmann, president of the German association of specialty sports retailers (VDS), in the same presentation as Passreiter, "The future will certainly be interesting."

Fairy tale summer, nightmare winter

What was, of course, striking when looking at month-by-month sales figures shown by the two groups was how the year went from woo-hoo to oh-no. For example, Intersport showed sales up 15 percent in January 2006 (that's the woo-hoo), but down a dreary 11 percent for December 2006 (oh-no). On a positive note, its retailers showed an increase in margins of 0.6 points, and costs remained stabile, said Intersport executive Klaus Jost.

The positive return overall of 4 percent (actually, only 1 percent off its forecast a year ago of 5 percent) meant an increase of euro 80 million (USD $105.4 million), a jump to euro 2.32 billion (USD $3.1 billion) from the prior year's euro 2.24 billion (USD $2.95 billion). Sure, skis and winter hardware sales were way, way down, but running, walking, swimming, fitness and non-winter-dependent goods were selling really well, the groups agreed.

"But," as Jost said, "it can't make up the difference."

Sport 2000 too had only forecast about a 2 percent growth for 2006, leaving it off a mere 1 percent also. But what a roller coaster of a year, with January 2006 showing a 14.6 percent increase in sales over the year earlier, ending with a thud in December 2006 as sales dropped by 10.9 percent, a slide that began in November when sales were off 3.8 percent.

Still, even eking out some small plus considering the challenging sales year 2006 turned into was a good sign.

"Specialty sport retail really has nothing to complain about," Jost added.

Indeed, the biggest concern last year was the implementation of the increased VAT by 3 percent in Germany on Jan. 1, 2007, and how that would affect manufacturers' selling prices, retailers' selling prices, margins, costs and, in the end, the consumers' willingness to open their pocketbooks. (Click here to see our Dec. 11, 2006, SNEWS® story, "German VAT set to jump Jan. 1, Eurozone retail growth up overall.") As it turns out, the huge falderal in the press and discussions at the ispo show in January 2006 in panels and in the aisles were pretty moot.

"It's meant nothing at all at retail," said Sport 2000 executive Jens Fischer. "It's as if nothing happened. Close-out sales still happened in January too."

Winners and losers

Last year, of course, the groups pinned huge hopes not only on the Torino Olympics but also on the Soccer World Cup. Plus, at the ispo show in January 2006, Intersport said it foresaw fitness as a bright spot, partly based on a German survey out in December that showed 44 percent of respondents were going to take part in more fitness and sport activities the next year.

Sport 2000 said it still sees fitness and wellness as a coming bright spot, partly because of the way the two are being wrapped together and how much of a strong role women play in this area. Overall, outdoor and running are the two biggest drivers in sporting goods, however. Running is, as Intersport said, something you can do year-round, "and if you can't ski, you can run," said Jost.

Nordic walking took a nose dive since interest has begun to plateau after a couple of years of outreach and corresponding growth. That means that pole companies such as Leki and Exel found their position in supplier rankings dropped significantly after two years of huge gains.

Haizmann, president of the German association of specialty sports retailers, noted an overall drop of about 2 percent in the Nordic walking market, with apparel sales saving that from being much lower since there are only so many pairs of poles that can be sold. For example, Intersport rankings showed pole specialist Leki dropping from 23rd to 31st, while Exel dropped from 30th to 56th. Sport 2000 had Leki as 24th, down from 18th, while Exel didn't appear on the 2006 top 50 list.

In general, biggest winners in the top 20 among Intersport suppliers (those that gained in overall ranking among members) were Schoeffel, Jack Wolfskin, Amer Group, the VF Group (The North Face, Eastpak), Salewa and Esprit. Kettler dropped from 13th to 16th, and Polar dropped from 40th to 47th.

Among Sport 2000 suppliers, biggest winners in the top 20 were Amer Group (going from 10th to 5th), Jack Wolfskin (12th to 9th), VF Group (28th to 18th) and Mammut (21st to 19th). Kettler rounded out the top 20 list, but had sunk to 20th from 16th. Among this group, Polar on the other hand had gained, jumping to 28th from 38th.

Internet sales growing

Sales on the web are growing significantly and will continue to make their mark on the market.

"It will only get bigger," said Sport 2000 executive Andreas Rudolf, who cited an increase in 2006 of 35 percent. Figures cited in the Germany-based trade newspaper SAZ showed web sales in 2006 in Germany for the first time cracking euro 10 billion (USD $13.175 billion), after showing 25 percent less than that in 2005 and 25 percent less than that in 2004.

The global sporting goods market as of 2005 (latest figures available) is worth about $235 billion, according to research by the NPD Group on behalf of the World Federation of Sporting Goods. North America accounts for the largest portion of that with a 45 percent share. Europe is third at 30 percent, and Asia as a continent registers 19 percent of global sports sales.

For 2007?

On the heels of a year that came to a stuttering finish, the sports executives are being cautious for 2007, but aren't being completely pessimistic either.

"Growth is doable," Rudolf said, "but only for those who are willing to break new ground. Sport specialty dealers must become independent of weather and season."

With that, the Sport 2000 group forecast a small single-digit growth of 1 percent as realistic, but also said that would also include better margins for its retailers.

Intersport noted 2007 would be a "year of self-motivation," since there was no world cup or Olympics to fall back on. It said this year would likely be status-quo with a stabile turnover that would find its equilibrium at +/- 0 percent. He also noted that Germany is one of the tougher markets for sports specialty retailers to survive, with British and Scandinavian retailers laughing aloud at the Germany retailers' situation.

"You can't survive over time," Froehlich said, "and we have lost many members over this, especially the small and middle-sized retailers."

Added Jost, "It's just a fact that specialty retailers just don't make money here."

Overall, Passreiter, of the sporting goods association, said his group is forecasting a 2 percent growth for 2007, with some hopes hanging on the fact that Easter comes a bit later this year.

Added Haizmann, "So far, this year could still come around."

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