The sporting goods manufacturing industry consist of companies engaged primarily in the manufacturing of sporting and athletic goods. This does not include apparel or footwear. The functions of sporting goods manufacturers includes designing samples, buying raw materials, arranging for the equipment to be made from these materials, and marketing the finished products to sporting good retailers and wholesalers. Finished products range from baseball gloves, footballs, and golf clubs to toboggans and playground equipment. (IBISWorld.com)
Currently, the industry is heavily saturated with companies catering to the numerous and various different sports and activities enjoyed by consumers. The total market capitalization is $8 billion and growing. Most of the current companies are large corporate structures with products offered to various different sports (i.e. Nike, Easton, Wilson), while other companies hold tremendous market share and prominence in their respective sport (i.e. Callaway, Schwinn). For the most part, sporting goods companies have two avenues of distribution. First, are wholesalers and retailers, such as Sports Authority, Wal-Mart, and small sporting goods stores. Second consists of company-owned and franchised specialty shops, like Schwinn Bike shops and Vans Skate stores. (Yahoo! Finance)
In order to gain exposure and popularity in the sporting world, the manufacturing companies tend to place their products with the top-rated and/or loved athletes. Sponsorships are commonplace in the industry and provide a win/win opportunity for the companies and athletes. Also, sporting goods manufacturers typically sponsor related major sporting events. (Sports Business Daily)
To summarize, sporting goods manufacturing is a large industry with well-established brand names and vast opportunity to grow with the expanding product lines and technological improvements taking place within all sports.
Porter’s 5 Forces
Threat of Substitute Products and Services
Sports, in general, are easily substituted with a large array of different activities. Thus, the threat of substitutes is very high. For example, consumers may chose to spend their time and money on video/computer games, being a couch potato, watching TV, listening to music, etc. Unfortunately, the US is currently plagued by obesity and unhealthy activities. On a good note, consumers are searching for ways to become healthy and in-shape, and many are turning to sports and fitness. (State of the Industry 2005, p3)
Within the different sports, substitutes exist as well. A consumer can chose to play basketball rather than golf, thus increasing the profits for a company such as Spalding who produces basketballs, and taking sales from Callaway, a company who manufactures and sells golf clubs and balls.
Intensity of Rivalry Among Competitors
Rivalry runs rampant in the sporting goods manufacturing industry and has been doing so for many years. Companies are continuously involved in severe price competition and industry consolidation. In order to stay competitive, companies constantly merge and acquire one another, in an effort to expand product lines and increase economies of scale/scope. For example, in 2004 alone, K2 acquired seven different companies and/or smaller divisions of other companies, while Russell Corporation made six acquisitions. These acquisitions took place in order for both companies to establish themselves as multi-sport brands. (State of the Industry, p5)
Threat of New Entrants
Within the domestic landscape, the threat of entry is relatively low. US sports typically revolve around ball-based games (i.e., baseball, football, golf, soccer), all of which have corresponding goods manufacturers. (www.hotlib.com) In order to enter the industry, the capital needed is much too high with regards to facility costs / machinery acquisition. Also, due to economies of scale, a company seeking to enter with low capital would have no way to compete with big-name brands such as Callaway, Nike, Brunswick, or Easton.
Internationally, lower production/manufacturing costs in overseas companies has allowed upstart foreign firms to begin developing generic product lines for distribution across the world. Also, many US firms have chosen to outsource their production to these foreign countries in order to save on costs. Thus, the threat of new international entrants is moderate. (State of the Industry 2005, p7)
Bargaining Power of Buyers
Retailer demands include lower prices, faster delivery, and increased responsibility for inventory management. The power of retailers has become greater over the years in respect to these demands. Due to “compliance rules” with manufacturers, retailers have the right to administer penalties if the timing, packaging, and coding of deliveries is not adequate or meet their rules. (State of the Industry 2005, p7)
Also, retailers are moving away from offering low-profit items, such as baseballs, bats, and basketballs, and instead devoting shelf-space to private label offerings. This is due to the retailer’s need of providing different products than their competitors.
(State of the Industry 2005, p7)
The good thing for manufacturers is the contracts and agreements they have with suppliers. Although, the buyer may have more of the bargaining power, the manufacturer has security in the fact that the retailer has to purchase for a number of years. (Outlook 05 Sports, p1)
Bargaining Power of Suppliers
Most suppliers are firms in foreign countries, namely China, Taiwan, Canada, and Mexico. The bargaining power they have is relatively low due to the fact that manufacturers can chose which country they want to import from, depending on how much they want to spend (labor costs, tariffs/taxes). Most labor-intensive jobs are outsourced to these suppliers in order to keep costs low for the manufacturers. (Outlook 05 Sports, p5)
On a side note, sporting goods manufacturers should be more accurately titled “sources”. Most sporting goods companies do not actually manufacture the goods sold to buyers. They simply receive a good from a supplier and place their name on it. Thus, manufacturers are more like a middleman. This ties back to the retailers who may, at some point, start working with suppliers exclusively, thus leading to no use for companies such as Nike except for their brand name/recognition. (State of the Industry Report 2005, p7)
After evaluating the Porter’s Five Force model for the sporting goods manufacturing industry, I would not recommend entry. Currently the industry is well established, full of numerous recognized brands, and a hard place to survive for young upstarts. My recommendation would be to develop a certain sports product or product line and sell the rights and design to a related, big-name company. For instance, use research and development to improve the spin rate of today’s high performing golf balls and then sell the design to a company such as Titleist or Callaway.
The Driver’s of Change in the Industry and the Impact They Will Have
Technology
Within the competitive sporting world, new technology pops up on a daily basis. This leads to a need for new products and product lines. Without a certain piece of equipment, athletes cannot compete on the same level as others who have the new equipment. For example, “in speed skating, it is impossible to win, or even place, without using the newest ‘clap skate'”(Katz p14).
Today’s athletes have grown up and are living with an abundance of available technology. From a coaching standpoint, incorporating athlete’s basic understanding and use of technology into the individual sports will help break records, win games, and obtain success. (Katz p17)
Also, in order to improve safety, new improvements are constantly taking place to ensure the good health of athletes. In the last five years, protective equipment in football has been greatly improved. The helmet, shoulder pads, and mouth guards have all been researched, tested, and reformed to cut-down on concussions (helmet), overheating (shoulder pads), and impact (mouth guards). (Sport Journal)
Within in the tennis world, as the athletes have become bigger and stronger, so have their rackets. Though, at the same time, these rackets have also become lighter. The athlete’s physical prowess and their equipment improve and change almost simultaneously, as they do in most other sports. For instance, in cycling, the rider’s can now travel much farther and longer due to the new engineering of lighter metals and composites in their cycles. (Sport Journal)
In conclusion, technology leads the way in all forms of human life, especially in the sporting world. Whether it be top-performing professional athletes looking for the next best product, or a new entrant to the sport, technology has made sports easier to excel at and more enjoyable. This will obviously continue as long as athletes strive to be better.
Consumer Lifestyle/Preference Change
In the United States today, consumers are constantly searching for ways to improve their health and fitness. Obesity has taken over in the nation as a leading health concern, so doctors and patients are looking to change eating/work-out habits to combat their growing waist lines. Sports will definitely play an important part in the fight against “the fat”. Research has shown that previous involvement in sports leads to less risk of obesity in later years. As this information is passed along, more parents should instill in their children the importance of being active and enjoying sports, both organized and play. (Calvagna)
As consumers become involved in sports, their need to purchase sporting equipment will increase with involvement. Unfortunately, participation has been on the decline for the past 20 years. To eliminate this decline, many industry segments have begun starting programs to foster and encourage increased involvement in sports again. In 2004, golf launched player development programs to target the younger population. Following in their footsteps, similar programs have been started for baseball, hunting, fishing, and camping. (State of the Industry 2005, p8)
“In addition, many sporting goods companies are working at the grass roots level to increase sports participation and physical activity. Often, they are doing this in cooperation with local government agencies, community organizations and health care groups.” (State of the Industry 2005, p8)
Long Term Growth Rate
As the economy improves, so does the disposable income of consumers. The Sporting Goods Manufacturers Association (SGMA) has posted positive results for the overall sporting goods industry in the past few years, since the downturn following September 11th. (CNY Business Journal)
In regards to long term growth, the fitness category has shown substantial improvement in the face of increasing sedentary lifestyles of America’s youth. Reverting back to consumer lifestyle, if people want to get healthy they can turn to only a few choices: (1) surgery (2) change in eating habits (3) involvement in fitness and sports. Consumers are working out more often and spending more on equipment to enable their work-outs and sport involvement. (Gale Group)
In conclusion, this trend should continue, thus leading to higher sales and profits for the sporting goods manufacturing industry. The reasoning for the continuation is, most consumers are aware of the health concerns surrounding obesity and that will not go away. As long as there is fear of sickness or death due to unhealthy lifestyles, a large number of consumers should turn to sports and fitness to decrease the consequences of obesity.
Companies in the Strongest/Weakest Positions
Brunswick Corporation
One of the oldest sporting goods companies in the United States, Brunswick has built an image of being involved in everyone’s free time. Currently, they offer product/service lines in boating, marine engines, fitness equipment, recreation centers, and sporting goods. (Hoovers, BC)
Brunswick has positioned themselves as the leader in all segments they are involved in. They achieved this by identifying and using leading-edge technology to differentiate their products from the competition while improving operational efficiencies. Also, they stay true to their brand image as a caring, nurturing company by listening to their customers before, during, and after a sale. (Life Fitness)
Easton Sports, Inc
Started in 1922 by Doug Easton, the company has grown from a maker of custom wood bows and arrows to a leader in the baseball bat world as well as softball, hockey, archery, cycling, and tent-making. They are expected to merge with Riddell Bell Holdings, makers of top-of-the-line sports helmets, in 2006. (Hoovers, ES)
Currently, Easton is right in the middle among competitors in sales and profits. They do, however, have product offerings in many segments, as mentioned above, which have helped to establish a multi-sports brand image among core sports athletes.
Easton prides themselves on their use of research and development to design innovative products for their various sports segments. The introduction of the aluminum bat in 1969 was revolutionary and led the way for competitors, such as Louisville Slugger. They continue the trend today with improvements incorporating carbon fiber and rubbers. (Easton)
Adams Golf, Inc
Adams is a relatively small company with fewer than 100 employees, yet they made segway in the late 90’s with their introduction of Tight Lies golf clubs. For a while, they were the club to have when you were in the rough out on the course, but quickly were thrown to the side by big names such as Callaway, Titleist, and Taylor Made. (Hoovers, AG)
On the stock market, shares trade between $1-2, and their 2005 free cash flows took a negative turn when compared to 2004. (Market News)
A problem with Adams may lie in their inability to expand into other aspects of the golf segment, whether it is apparel and shoes or maybe golf balls. It seems that the profitable winners in sporting goods also tend to diversify the sports in which they cater to.
Key Factors for Competitive Success
Ability to Adapt with Technology
As with most industries, a firm has to go with the flow in terms of technological changes. In the sports world, new products and equipment are constantly being developed and reformed in order to facilitate athlete’s success. For instance, the introduction of the aluminum bat by Easton took the bat making segment in a new direction, which left Louisville Slugger (a leader in wooden bats) in the dust for some time.
Over time, this key factor will only become more and more important and should not vary among the segments included sporting good manufacturing. The reason is simple; to stay in business you have to keep up with what’s new and most sought after.
Overall implications of this evolution are great and many, varying between the different sports. A new durable, lightweight plastic may revolutionize the kayaking segment, while improved aerodynamics in golf ball design will lead to longer, straighter shots and lowered scores. Thus, the firms with the new technology will reap the benefits and steal the market because, athletes want to win and will do/buy whatever they can to ensure that.
Diversifying the Firm
In the sporting goods business, it seems apparent that the big name companies are involved in many different sports. Brands like Brunswick, Spaulding, Easton, and Wilson all have various products/lines in sports ranging from baseball, golf, basketball, soccer, bowling, billiards, and on and on. Not saying each company has products in all those sports, but they have all diversified in order to reach consumers and athletes in more than one segment.
This key factor does seem to vary by segment. When dealing with ball-based sports, many of the manufacturers of the goods involved have stakes in many of the sports. For instance, Spalding makes baseballs, basketballs, footballs, volleyballs, and soccer balls. (Spalding) When looking into the individual sports (cycling, kayaking, mountain climbing) the manufacturers are sport-specific and tend to focus on making the highest quality goods for their intended sport.
In order for firms to grow larger, the trend seems to be mergers and acquisitions. As said before, this takes place in order to expand product lines and brand awareness. Over time, this trend should continue as the larger companies keep gobbling up the smaller upstarts.
Brand Strength
Brand strength will always contribute to success, no matter what industry is analyzed. In sporting goods manufacturing, brand strength comes through quality products, overall breadth of products in various sports segments, and who’s using the firm’s product.
Every segment includes companies who try desperately to bring consumer awareness to their product. The best way of doing this is through sponsorships. Brands like Nike would never have been as successful or strong if it was not for spokesmen like Michael Jordan and Tiger Woods, athletes who use their products exclusively while in competition.
Over time, the focus on brand strength will only increase as brands compete against one another for market share and consumer preference. Some brands will be merged and/or acquired in order to gain an increase in brand strength from the original companies’ consumers.
The implications of this evolution may lead to over saturation of a brand’s name in the market, and ultimately to lower demand for the brand’s products. Today’s marketing stance is to emblazon your logo on everything and get everyone using your equipment. This may cheapen the brand image and strength if and when an athlete loses in competition or your logo is placed on products that are not meeting consumer’s demands.
Industry’s Attractiveness and Prospects for Long-Term ProfitabilityFuture Growth Potential
Sporting goods manufacturing depends on consumer involvement in sports. Currently, projections show that people should start participating in fitness-related activities on an increasing rate. As this happens, their purchasing of sporting goods should increase as well.
Will Competitive Forces Strengthen
Yes, competition will strengthen among the brands as they reach out for more market share. As mentioned numerous times, the use of acquisitions and mergers, plus price competition and industry consolidation, will lead to bigger, stronger companies who can control more of the market and go head-to-head with companies of similar size while acquiring or destroying smaller firms.
Will Driving Forces Increase/Decrease Profitability
In terms of technology, the newer products are generally more expensive to produce, or at least design, but their selling price is higher as well. Technology should lead to more efficient products, which companies can sell to athletes at fair prices while increasing their profitability.
Lifestyle changes can go either way for sporting good profitability. Simply, if people get active again and buy sporting goods, the companies will increase sales and profits. Conversely, if the consumers stay on the couch or behind the computer, sales will remain stagnant and profits will fall.
Which Company’s Strategic Position Will Improve/Decline
The company who stays up-to-date with technology and consumer preference, and sadly who has the biggest name and market share will survive. Callaway Golf will continue to improve strategically due to their use of R&D; and sponsorships.
The company who chooses to stay planted in one sport or one aspect of a sport will probably soon be taken over by companies who sell products for many sports. Adams Golf is a good example. They produce a distinct type of club, yet Wilson Athletics (a brand in many sports) can copy their club design fairly easily and sell it for much less.
How Can Firms Insulate Themselves From The Unattractive Forces in the Industry
Follow an example like Brunswick. Stay true to their purpose (Brunswick: their business is everyone’s leisure time) while constantly looking for the opportunity to expand into other sporting segments and beyond. Do not become too big of a company in your customer’s eyes, listen to them and show that you are listening.
In terms of low-participation rates in sports, there is not much that can be done. It is comparable to autos and gasoline. When gas is high, nobody drives. Thus, when no one is participating in sports, no product is being sold.
Degree of Uncertainty and Severity of Problems Confronting Industry
The degree for both factors is high, but in good and bad ways. In terms of technology, a company never knows what’s right around the corner, thus they never know when they could be at the right place at the right time. They could be a first-mover on a product technology and revolutionize the segment.
For the problem of low-participation, it could end up devastating the industry in the future, especially if consumers stop participating in watching/attending sporting events, thus leading to less demand for professional teams. It could work its way all the way up and down the chain from the amateur “t-baller” to the top-paid professional.
Which Types of Firms/Strategies Seem To Be Most Lucrative
Once again, the strategy of merging and acquiring. It leads to bigger companies with their hands in many markets of the industry.
A strategy that does not seem to be taking place is the vertical integration of the firm. Most manufacturers are simply sources who receive an almost finished product, stamp their logo/name on it, and ship it off to retailers. If companies could bring more of the production/distribution in-house, this may prove more lucrative.
Is This An Attractive Industry In Which To Participate
For the small upstart who wants to design baseballs: No. For a large company who has plenty of capital and good alliances with firms already in the industry: Yes.
