UK market for sports and outdoor equipment retailing

1 Executive Summary

This market report attempts to examine the UK market scenario for sports and outdoor equipment retailing. It begins by breaking down the market environment into its political, economic, social and technological sub-parts and analyses how each impacts the market. This is followed by a discussion about consumer behavior and purchase decision-making in the context of the market for sporting goods and sportswear. It also looks at the various ways in which the current market is segmented and emerging segments.

This report employs the Engel-Kollat-Blackwell model of consumer behavior to simplify and explain the decision-making process. PEST (Political, Economic, Social and Technological) analysis is used to examine the market environment.

The key findings of this report highlight that a growing interest in health-consciousness, beauty and fitness and the ever-changing lifestyles and requirements of a fast-paced society has cleared the way for the market to capitalize on many new opportunities and has allowed new segments to emerge. It also brings attention to an increasingly competitive market, a growing number of specialist and non-specialist competitors and a promising future in this industry. The report concludes with a quick summary and a forecast for this market.

2 Introduction – UK market for sports and outdoor equipment retailing

In the past ten years, sports and outdoor equipment retailing in the UK entered a promising future full of new opportunities driven by a plethora of emerging trends in the market, shaped by an ongoing technological and socio-cultural evolution in our society. The two key players that continue to dominate the UK market for sporting goods retail are Sports Direct International Plc and JD Sports Fashion Plc. While the former has a bigger turnover as of 2017 in the European market, its growth in the UK market has gradually slowed down while JD Sports continues to rise through its growing market share.

The products of this industry are aimed at outdoor physical activities such as cycling, fishing, sports, camping and hiking, and ranges from bicycles, boats and various other equipment to athletic clothing and footwear. The growth of this industry can be attributed to a rising health-consciousness. Especially among image conscious, younger consumers, physical fitness is as important as fashion when it comes to one’s appearance. The crossover between the two has given rise to the athleisure trend which largely drives the growth of this industry today. A research report on this market by IBIS world also attributed its growth to greater consumer confidence supported by a rising household income over the last five years, which has contributed to a substantial growth in revenue. (Ibisworld.co.uk, 2018)

The growth of the athleisure—a portmanteau that means athletic wear for leisure—became an entry point into the market for various non-specialist apparel retailers such as H&M, Primark, Only and even Selfridges. Designer brands like Chanel joined the game by introducing their famous “sporty but chic” couture sneakers. Industry players have stepped up their prestige game by adding celebrity and designer collaborations to their advertising strategies. JD Sports reported a 20% increase in revenue following the offering of collaboration products such as Fenty X Puma and the Yeezy Adidas collection by Kanye West. This has led to an increased competition in a crowded market scene. (Businessoffashion.com, 2016)

Figure 1: Sales value of sports equipment, games and toys in the UK from 1st quarter 2015 to 2nd quarter 2018, based on index number of sales per week

3 PEST – Environmental Analysis of the market

3.1 Political environment

Legal

· The European Union places labelling regulations on footwear and its parts, wherein the labelling must contain information about the material used in parts of the footwear.

· Textile and leather products in the EU market are also subject to restrictions on the use of certain chemical substances.

· Some of the main prohibited substances or mixture of substances listed on the REACH1 regulations are (hse.gov.uk, 2007) —

1. Tris (2,3 dibromopropyl) phosphate, Tris (aziridinyl) phosphinoxide and Polybrominated biphenyls (PBB) in articles of clothing that are meant to come in contact with the skin.

2. Mercury compounds in industrial textiles and the yarn for its manufacture.

3. Nickel in articles meant to be in prolonged contact with skin, such as zippers, buttons, rivets, etc.

4. Aromatic amine releasing Azodyes in textile and leather articles that are subject to direct and prolonged contact with the skin.

5. Polycyclic aromatic hydrocarbons compounds (PAH) in sportswear, footwear, gloves and other clothing that may come in repetitive contact with the skin.

· Import of persistent organic pollutants (POP substances) is prohibited in the EU and unless authorized, use of biocidal products in textile and leather articles is restricted. (hse.gov.uk, 2007)

· Personal Protective Equipment, defined as equipment designed to be worn for protection, such as those used in sports, has to comply with EU regulations to be allowed in the European market. (hse.gov.uk, 2007)

Environmental

· Evidence linking harmful chemicals in sportswear to various health issues and developmental disabilities has become a matter for concern, especially since sportswear is associated with physical activity which enables greater absorption of these chemicals into the body through friction and exposure to heat.

· Adidas committed to becoming 99% PFC-free2 by 2017 after an agreement with Greenpeace—a non-governmental environmental organization—to work towards eliminating harmful chemicals from its articles.

· A Greenpeace report from 2014 on World Cup uniforms and merchandize showed that PFCs and other hazardous chemicals such as phthalates and dimethylformamide present in high levels in such articles can be a contributing factor in prostate cancer and create many health risks. (theguardian.com, 2015)

3.2 Economic environment

· In 2016, large imports of bicycles and sports equipment led to the United Kingdom recording the highest trade deficit (EUR 1.1 billion) in intra and extra-EU trade in the import and export markets for sporting goods. However, it was the 6th largest exporter of sporting goods in the EU in terms of value. (Ec.europa.eu, 2018)

· In 2016, the United Kingdom along with the Netherlands, Belgium and Malta recorded more imports from outside the European Union than inside, leading to intra-EU imports accounting for 55% of the EU’s international trade of sporting goods. (Ec.europa.eu, 2018)

· Sport related value added in the UK accounts for 1.52% of total added value in the narrow definition of sport and 2.133% in the broad definition. In the EU, this is above average for both definitions. (Ec.europa.eu, 2012)

3.3 Social environment

· A popular fashion trend in sportswear today is athleisure. Athleisure blends fashion and functionality in clothing such as sweatshirts, shorts, trackpants, leggings, tights, sneakers, etc. This trend has driven people to wear activewear outside of the gym, at home, and even at work. This is not just an impact of a movement towards more casual dressing codes in society but also a result of more people prioritizing healthier lifestyles.

· According to Euromonitor, the popularity of this trend has driven the global activewear market from $196 billion to $265 billion in 2015. (Businessoffashion.com, 2016)

· The social status associated with well-known brands such as Adidas and Nike with their loyal customer base and strong brand affinity greatly drives consumer spending in this market. According to Diana Smith, a senior research analyst at Mintel, people are attracted to a good record of product quality even if they do not intend to wear them for sports or exercise.

· Celebrity collaborations by sportswear brands act as a bridge that connects performance-based products to fashion and makes the product image more desirable to the fashion-savvy, general public.

· Consumers that are more performance focused tend to invest in quality products and are attracted by propositions focused on technology and functionality. Sportswear and sporting goods in general comprise a sector where people are less likely to prioritize budgeting over investment in quality products.

1. REACH – Registration, Evaluation, Authorization and Restriction of Chemicals regulations

2. PFC – Polyfluorinated chemicals

3.4 Technological environment

· Innovation and developments in textile technology have made athleticwear especially attractive. The fabrics listed below are particularly desirable in its blend of properties and are commonly used in sportswear

i. Lycra – its stretch ability aids in the fit of the clothing

ii. Mesh – this fabric contains pores in them, which aids in air circulation

iii. Neoprene – popular for its insulation and water-resistant properties

iv. Microfiber – adds shape retaining property to sportswear

v. Sports fleece – provides insulation

· Attempts are being made to make technology invisible by integrating devices into the material of clothing. Smart fabrics are a new and exciting development in the sportswear sector wherein many developments have already been made. For example, watches have been replaced by tech-enabled shirts that measure heartbeat and monitors stress and breathing.

· Brands like Nike, Adidas and Under Armour have already adopted the use of sensors in their apparel. However, companies like Samsung, Alphabet and Flex have developed products that aim to embed sensors in the material of the clothing itself.

· Heddoko is an example of wearable technology that uses sensors to capture human movement and obtain information that can help prevent risk of injuries in sports. Other specialists in textile intelligence such as StretchSense and Notch uses sensors and other wearable equipment to collect data that is accessible to the user through Bluetooth transfer technology. Fields like nanotechnology, plastic electronics and conducting polymers are advancing towards the development of smart textiles with the ability to record biometric data and respond to environmental stimuli. (Cientifica.com, 2016)

Figure 2: Advert by Heddoko on their twitter account

4 Consumer Buying Behavior – Purchase decision model

Consumer buying behavior has been defined as the “behavior that consumers displace in searching for, purchasing, using, evaluating, and disposing of products and services that they expect will satisfy their needs.” (Schiffman and Kanuk, 2007). Sproles and Kendall (1986, p. 268) describes decision making styles as “mental orientations characterizing consumer's approaches to making choices”. Egan (2007) asserts that the awareness and understanding of consumer buying behavior has a direct and positive impact on a country’s economy. A good understanding of consumer buying behavior, when complimented with effective advertising and promotional activities to influence this behavior, can generate purchases.

Many models to understand and summarize purchase decision-making have been proposed to aid marketers in their pursuit of maximizing sales. Most of these models attempt to break down the decision-making process into several simple cause-and-effect steps. This often consists of a problem or a need, an input, a process and a purchase decision, and are influenced by the quality of products and services, the place of purchase, time and purchasing power.

4.1 Engel-Kollat-Blackwell Model

This model was proposed by the researchers Engel, Blackwell, and Kollat (1968) to accommodate a growing body of knowledge about consumer buying behavior and their purchase decisions. It identifies four main stages that ultimately influence consumer behavior.

Stage 1 – Decision process: The first stage describes a five-step decision process that consist of

1. problem recognition

2. information search for all possible solutions and alternatives

3. evaluation of alternatives

4. purchase

5. post-purchase outcomes

Stage 2 – Input information: This is the stage where consumers obtain information about possible solutions to a problem.

Stage 3 – Processing of information: At this stage, the consumer reacts to all the information available, and perceptions towards various brands is created in the mind of the consumer.

Stage 4 – Variables: This stage consists of individual and environmental variables that influence the decision-process. This includes culture, lifestyle, motives, reference groups as well personal situations.

Figure 3: The Engel-Kollat-Blackwell Model of consumer behavior

4.2 Applying the model to the market for sporting goods

Changing lifestyles and cultural influences have the greatest impact on customer buying behavior in the market for sportswear and sporting goods. Health issues may influence buyers to move towards a more health-conscious lifestyle. This can be brought about by new commitments such as joining the gym or joining a yoga class which will ultimately drive consumers to invest in sportswear. Body-image issues are common among younger consumers and the desire to fit into a certain body type is a major force driving the fitness industry. To achieve their body goals, consumers not only invest in sportswear but also many sports drinks and nutritional supplements. This creates the problem for which consumers then seek solutions and alternatives.

With the advent of athleisure, sportswear is now part of a trend in fashion and tends to be more status-driven. Consumers that buy athleticwear for aesthetics rather than actual participation in sports typically turn to brand image when it comes to considering alternatives. Nike and Adidas are two brands with a history of brand reputation. Designer brands are also considered desirable alternatives for this purpose. In this case, personal preferences and previous purchase decisions greatly impact successive purchase decisions.

In-store experience can have a huge influence on purchase decision and is therefore very crucial for retailers. Especially among fashion-driven consumers, in store experience entails more than just products and prices but the entire presentation of what is being offered.

5 Segmentation for the UK market for sporting goods

A Mintel report from 2015 revealed that one in six consumers in the UK exercise up to five times a week and 53% of them take part in a sport at least once a week. According to this report, 45% of the sporting goods purchases in the previous year were related to running or jogging and 28% for gym related activities while 23% of the purchases were for cycling. (Mintel.com, 2016)

A more recent research by Rakuten Marketing involving 2000 consumers across the UK revealed that the average of the most expensive purchases in activewear stands at £141, and £187 in London. Running was found to be the most influential sport when it comes to activewear purchases, influencing the purchase decisions of 24% of the surveyed consumers. The second most influential activity was gym. Both of these activities are most popular with younger consumers, aged 16-29. (Rakutemarketing.com, 2018)

Market segmentation can be defined as the process of “dividing a market into distinct groups of buyers who have distinct needs, characteristics, or behavior and might require separate products or marketing mixes.” (Armstrong and Kolter, 2005, p. 54). A market can be effectively segmented by profiling customers using various demographic, geographic, psychographic and behavioristic variables. The most common approach to segmentation is demographic segmentation. This is the process of segmenting a market using basic demographic variables such as age, gender, ethnicity, religion, occupation, income, family size and social class. This is often followed by geographic segmentation in which buyers have different tastes, needs or purchasing power depending on their location. For example, a Londoner would typically spend more than consumers from other parts of the UK. Further segmentation can be done by taking one’s personal motives and lifestyle into consideration. In the market for sporting goods and apparel, this is often the most effective segmentation approach.

The athleisure segment is more attractive to a largely female, fashion-conscious and younger group of consumers. Women are therefore often a more valuable target for sports apparel retailers. Their needs are accommodated by expanding the range of products, features and improving in-store experience as well as organizing events oriented towards women. Men, on the other hand, are more likely to gravitate towards niche segments in sportswear which are more sport-specific. In a study by Global Industry Analysts in 2017, the market worldwide for sports and fitness related clothing is estimated to surpass US$ 230 Billion in value by 2024. The growth is largely attributed to athleisure; however, performance sportswear was named the biggest segment in this market.

Amidst the traditional segmentation approaches, another new segment has sprung up—the online customer segment. This segment is characterized by online buying behavior of consumers. In this approach, customer profiling can be carried out more effectively using online data management systems and is often done on the basis of time spent online by customers, the kind of sites and pages accessed by them and the average time spent on these sites.

Personalization of products can also be considered a segment where each buyer can create their own, unique product. An example of this are Vans Custom Shoes where customers can customize and design their own shoes. (Cbi.eu, 2016)

Figure 4: Sporting goods retail market evolution (2008-2013)

6 Conclusion

Healthy appearance, body positivity, and healthy lifestyles are some of the hot trends on social media today. This has contributed greatly to an ever-growing interest in health-conscious activities among consumers in the UK. Health and fitness related pursuits take up a large proportion of consumers’ daily lives. These trends drive sales in the sports and activewear sectors of the market for sporting goods. By extension, they also influence other closely related markets such as beauty and nutrition.

According to the CBI, Ministry of Foreign Affairs, the United Kingdom is the “fastest growing national market in Europe” for sportswear and the sports apparel market is predicted to reach a total value of € 99.2 billion globally by 2019.

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