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Tenant Outlook: Sports Apparel Brands Race to Capture Global Growth

November 21, 2022

Consumers who embraced yoga pants and joggers during pandemic lockdowns aren’t willing to give up their comfy clothes even as they return to the office, school and everyday activities. That shift in fashion trends has been a boon for athleisure and sportswear retailers.

“The sportswear sector has really thrived thanks to the pandemic,” said Colliers Retail Services national research manager Nicole Larson. “Consumers have casualized their wardrobes since 2020 and are seeking comfort, as sportswear has quickly become fundamental pieces of their professional wardrobes.” Grand View Research projects that the global athleisure market will expand at a compound annual growth rate of 8.9%, doubling in size from $306.6 billion in 2021 to more than $660 billion in 2030. Lululemon Athletica is one company that is working to double down on its recent boom in sales. The company has grown its revenue from $3.3 billion in 2018 to $6.25 billion in 2021, and its five-year goal is to double that level to reach $12.5 billion by 2026.

The pandemic spurred greater demand for traditional sportswear due to increased interest in health and fitness, sports and outdoor activities. At the same time, sportswear and athleisure have been expanding traditional lines to meet demand for “lifestyle” apparel. “As more people venture back to work and venture back to more formal events, there is still a level of comfort in terms of what we’re seeing in materials and textiles and what people are wearing today,” said Retail Strategy Group principal and founder Liza Amlani. In menswear, for example, sportswear brands that have traditionally focused on sweatpants, joggers and T-shirts have expanded apparel lines to include pants, trousers and button-down shirts. “There is almost a blurred line happening within performance categories where we’re blurring into different parts of the spectrum when it comes to where we’re wearing these clothes,” said Amlani.

Additionally, sportswear no longer is considered to be just for working out. Now, it also borders the line of streetwear culture, added Larson. A handful of luxury brands have collaborated with these sportswear retailers over the years to gain market share and reach more affluent consumers, such as a collaboration between Balenciaga and Adidas.

However, sportswear retailers also face some headwinds, notably sales that could soften if a recession squeezes discretionary spending. In addition, supply chain disruption has resulted in a surplus in inventory that could lead to discounts, which would weigh on revenue. On a positive note, the affluent are less susceptible to inflation due to higher incomes and savings, and they continue to spend, noted Larson.

Tapping New Markets

Sportswear and athleisure retailers are leveraging all channels to connect with consumers: wholesale, digital, direct-to-consumer, and their own branded brick-and-mortar stores. According to Grand View Research, offline channels drove an estimated 60% of revenue in the global athleisure market in 2021.

Nike is one company growing its store base. The company announced in 2020 that it planned to open between 150 and 200 stores across North America, Europe, the Middle East and Africa. Over the past year, the company has added stores in Montreal, Seoul and Cebu in the Philippines, as well as New York City’s Harlem; Boise; Idaho; and Hershey, Pennsylvania.

Store expansion strategies are driven in large part by retailers that are looking for white space in the market. Nike’s entire focus right now is direct to consumer, which involves growing its digital business and its store base to really own that whole customer experience, said Piper Sandler senior research analyst Abbie Zvejnieks, who follows Lululemon, Nike and Under Armour. In addition, some of Nike’s international stores are operated through third-party partners versus directly owned stores.

Companies also are leveraging the consumer insights they’re gathering from online sales to drive store locations. “They are able to capture so much data on where consumers are shopping and how they’re shopping,” said Amlani. During the pandemic, a lot of people left major city centers. Where did they go and where are they shopping? “That’s where a lot of these brands are opening stores because they realize that a lot of these consumers have physically moved. Consumer insights are driving a lot of these decisions around scaling and where stores should be opening, she added.

U.S. sportswear retailers also see big growth opportunities in international markets. For example, Lululemon this year expects to quadruple its revenue from international sales from the 2018 level and expects to quadruple them again by 2026. The company has said that it sees “significant runway” ahead in both new and core markets, focusing especially on scaling and entering new countries across Asia-Pacific and Europe. It opened its first stores in Spain in September and anticipates more growth opportunities in mainland China.

“Expansion in China is an important goal for most of these companies,” noted Zvejnieks. “The big question mark right now with all of these brands is: When does the recovery really happen in China, and what’s the go-forward growth rate that we’re going to see there?” A lot of growth also has been coming out of other Southeast Asian countries, such as Singapore and Malaysia, she added.

Leasing Trends and Connecting with Customers

The branded sportswear and athleisure category is home to a variety of major players that also includes Reebok, Columbia, Athleta and The North Face, and store strategies are mixed. Some retailers are closing or relocating underperforming stores, while others are putting new-store plans on hold because of concerns related to the state of the economy, the supply chain and rising costs, noted Ryan Gurman, a retail/restaurant leasing specialist at CBRE in Los Angeles. “You’re also seeing groups that have seen tremendous success over the last few years that are opening new concepts and testing new markets,” he said.

One strategy that is more common in the current market is retailers that are doing shorter-term deals with longer-term options. A retailer wants to see how a store performs before committing to a longer-term lease. Another trend with sports apparel and athleisure brands is that they want to locate next to other athleisure brands because they benefit from cross-shopping, he added.

Though wholesale still plays an important role for branded sportswear retailers, they also are using their own stores to strengthen their brands and connect with customers. “Especially with footwear, people still really want to go in and try on shoes and see what fits them best,” says Zvejnieks. Running shoes, in particular, is a category where there are a lot of options and it is very specific to the individual, she added.

Sportswear retailers have been testing small-format concepts to optimize their ability to reach customers better. Nike has pursued a direct-to-consumer strategy over the past few years, and its store-concept list has grown to include digital-focused formats like Nike Live, Nike Rise, Nike House of Innovation and now Nike Style, which recently opened in Seoul and Shanghai. Earlier this year, the company also teased that it was planning stand-alone Jordan-brand stores, added Larson.

Nike’s new store formats are an example of sportswear retailers looking to create connected experiences and hyperlocal strategies. Personalization and hyperlocal are about experiences that engage the consumer in a deeper way to build a relationship. Hyperlocalization carries through the store design, merchandising, inventory and sizes and even uses local influencers to promote the brands and store events.

“The goal of all of those stores is to be really connected, have that customer data and know that customer really well and then curate those stores based on what the demographics are desiring from that market,” said Zvejnieks. A store might have more emphasis on women’s apparel, and another might lean more towards a particular sport, such as running or soccer. “The day of just using the U.S. product and spreading that out into the world isn’t working anymore,” she added. “People are really desiring that connection to their specific culture.”

By Beth Mattson-Teig

Contributor, Commerce + Communities Today

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