This Article was originally published by Motif Investing.
More than 105 million
Americans gathered in front of their televisions on February 28, 1983, to watch the series finale of “M*A*S*H,” the popular
television drama about the Korean War. While it might have been unusual for that many people to devote themselves to a single
episode, the event was more unusual in that it represents the only entry on the 20 most-watched U.S. television broadcasts of all
time that’s not a Super
Bowl.
About 90 percent of all Americans watch sporting
events, either live or on television. The people most likely to be sports fans earn more
than $75,000 annually. The three most popular
sports in America – pro football, baseball and college football – are all team sports.
And yet, these are not the best of times for the sporting goods industry. City Sports, a privately held Boston retailer with 26
stores on the East Coast, went
bankrupt in October 2015. A decade ago, Sports Authority was the biggest sporting goods retailer in the U.S. The
company abruptly declared bankruptcy in March, then announced it would close all its stores.
Vestis Retail Group, the owner of the privately held Eastern Mountain Sports chain, filed for
bankruptcy in April and closed all of its Sports Chalet stores.
It’s a paradox: The sports industry continues to grow, becoming an economic
behemoth worth more than $60.5 billion. Yet sporting goods stores aren’t shaping up as a champion in any investor’s
portfolio.
Last Retailers Standing
When Sports Authority shuttered its stores over the summer, it was assumed that Dicks Sporting Goods
Inc (NYSE: DKS), the
Pennsylvania-based owner of more than 600 U.S. stores,
had won the war. Dick’s, founded in Binghamton, New York, in 1948 (with the help of $300 from Dick Stack’s grandmother’s savings
account), reported $7.3 billion in net sales
during 2015.
Yet several competitors remain in the general sporting goods sector. They include the privately held Modell’s, which has more
than 140 retail stores and annual revenues estimated at $765 million.
Dick’s is currently suing Modell’s, claiming the company’s chief executive impersonated a top Dick’s
official to get confidential company information.
Other players in the space include Champs Sports, a subsidiary of Foot Locker, Inc. (NYSE:
FL) that has 547 stores; Academy, a Katy, Texas-based retailer owned by private equity firm Kohlberg Kravis Roberts
& Co.; and Big 5 Sporting Goods, a chain that operates 432
stores in 11 western states and reported $1 billion in sales in 2015 sales.
Individual Sports
One of the chief advantages of retail sporting goods stores was their ability to sell supplies for equipment-intensive team
sports, such as baseball, football or hockey. Yet while Americans love to watch team sports, participation has become a separate issue. The number of children playing in an
organized football league fell 5.4 percent between 2008 and 2012; the percentage playing league basketball dropped 8.3 percent over
the same period.
Meanwhile, “fitness” sports, such as running and swimming, have climbed to a six-year high, according to the Physical Activity Council. About 17
million runners finished a race in 2015. Millennials also are fueling the growth of studios for cycling,
CrossFit, ballet barre and boot camps; services such as ClassPass allow members
to attend different fitness classes in 39 cities for a monthly fee.
The emphasis on individual sports may be a major reason why Americans spend more on sporting-related shoes and clothing, rather
than equipment. Slightly more than one-third of people surveyed by the Physical Activity Council spent money on sports equipment in
2015, but more than 40 percent spent money on clothing or
shoes for sports.
This is good long-term news for clothing manufacturers like Nike Inc (NYSE: NKE), VF Corp (NYSE:
VFC), Under Armour Inc
(NYSE: UAA), and Lululemon Athletica
inc. (NASDAQ: LULU). While Nike
stock, for example, has taken a beating lately from analysts for weak wholesale orders, its direct-to-consumer sales are
growing and are now responsible for about a quarter of the Beaverton, Oregon-based company’s sales.
VF Corp. also is taking advantage of the trends. The company, whose brands include North Face, Timberland, Wrangler, Vans, Lee
and Nautica, has increased its quarterly dividend rate every year for the last 43
years. Under Armour, the No. 2 sports apparel company in the U.S., also has been moving into the casual athletic wear market, as well as
high-end clothing.
While many of the people who buy so-called “athleisure wear” may not ever enter a race or even step
into a gym, investing in the sporting look may pay dividends for
investors. Americans spent about $44 billion on “active wear” in 2015; Morgan Stanley
(NYSE: MS) predicts that number could almost double
to $83 billion by 2020.
© 2017 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.