Despite certain supply chain risks, there’s still a solid runway for growth ahead of the sportswear sector.
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Credit analysts at ratings firm S&P Global Ratings said gains will be fueled by the increasing number of women in sports, the casualization of dress codes and continued expansion in the Asia Pacific (APAC) market.
The factors fueling growth
Women will account for 50 percent of the athletes at the Olympic Games in Paris this summer, up from 40 percent when the games were held in Athens in 2004, according to the report. Sportswear firms are addressing the trend by increasingly focusing on women’s footwear and apparel. Separately, the ongoing work-from-home and hybrid-work trends continue to foster consumers’ gravitation toward more comfortable apparel options.
Analysts also expect volume and product innovation to drive growth in 2024. In particular, the direct-to-consumer channel, including e-commerce, will remain a key focus for brands, ensuring visibility and proximity to consumers. E-commerce accounts for about 30 percent of the sportswear market, the same as in 2020, when the Covid-19 pandemic struck, which was up from 20 percent in 2019. But stores will remain a key sales driver as the physical retail environment helps brands establish and maintain brand awareness, according to S&P.
The value of the global sportswear industry within the retail sector was close to $395 billion in 2023, with a compound annual growth rate (CAGR) averaging 4.5 percent between 2009 to 2023. APAC accounted for 26 percent of the global sportswear industry last year, with China representing half of that volume.
S&P’s expectations are that APAC will be the fastest growing region between 2024 and 2028, with CAGR close to 10 percent. Growth in China is backed by government initiatives to encourage active participation in sports.
During the same period, the popularity of athleisure is expected to propel growth in the North American and European markets, with a CAGR rate of 6 percent and 4 percent, respectively. Latin America, as well as Middle East and Africa region, each have a forecasted CAGR of 2 percent.
Supply chain and the risks ahead
There are a number of challenges in 2024, some likely short term, S&P wrote.
One issue is the continuation of geopolitical tensions and conflicts, which can pose risks to the efficient functioning of the supply chain . The global value chain for the sportswear industry is both expansive and complex, with more than 80 percent of suppliers located in APAC.
Disruptions in the Red Sea earlier this year created temporary product availability issues, which led to delays in shipments—on average by two-to-three weeks—and increased freight costs. For the most part, larger brands were able to circumvent the challenges, either through alternative routes and/or existing carrier agreements that enabled them to mitigate cost increases.
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As for inventory levels, 2023 saw big markdowns as brands and retailers sought to reduce some overhang. While inventory is expected to normalize in 2024, the credit analysts expect normalization will occur more quickly in Europe and China than in North America.
The analysts also emphasized that sportswear brands will need to increase their focus on sustainable products by prioritizing eco-friendly materials. Strategies around environmental and social impact will be central to sportswear companies’ ability to preserve their licenses to operate and protect their brand reputations, they concluded.
Environmental risks can also hamper the function of supply chains. Most production occurs in countries highly exposed to climate change and extreme weather events, such as India, Bangladesh, Pakistan, and Vietnam. Polyester, acrylic and nylon-based textiles are key contributors to microplastic pollution and the scourge of textile waste, which disproportionately impacts developing countries.
Social standards should be a major focus for sportswear companies, which must closely monitor their suppliers’ labor standards amid new regulations and greater transparency efforts.
Challenges at retail
Another hurdle, possibly on a shorter-term basis, will be the recovery of consumer confidence, S&P wrote. Moreover, the analysts noted that the brands’ wholesale partners will play a critical role in attracting a diverse consumer base and managing apparel sales.
“Competitive pressures will remain high, from local brands such as Anta in China, newer brands such as OnRunning and Hoka, and well-performing brands like Lululemon and New Balance,” the report said.
The analysts noted that Nike continues to increase its market share because of its established position, marketing and innovation capabilities. In contrast, the decline in market share for Adidas and Under Armour is due to increased competition in North America, although both brands have said they will counter that by resetting their product portfolios.
According to S&P’s data, Nike was the top sportswear brand last year. Rounding out the top ten were Adidas, Puma, Skechers, Lululemon , Under Amour , New Balance, The North Face, Anta and Li-Ning. The North Face’s sibling Vans was ranked number 13. Both are VF Corp. brands. Looking back to 2018, Nike was also ranked number one. Ranking second through tenth, respectively, were Adidas, Under Armour, Skechers, Puma, Vans, Asics, The North Face , New Balance and Anta.
Sports footwear last year saw a major market shift as it outpaced sports apparel. Apparel sales were hurt by high inventories, while footwear benefited the most from the casualization trend. S&P believes that in the sports sector, footwear will continue to grow at a slightly faster pace than apparel. While both categories will see growth driven by outdoor sportswear, apparel faces wider competition from fast-fashion, leisure and general apparel retailers.
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