The Future of Sports brands – To sell direct or not……..that is the question

The face of the UK and global sporting goods industry continues to change and evolve at pace.

As the boundaries between sports brands and sports retailers become more and more blurred so retailers become brands and brands become retailers.

But what does this mean for the future of sports retailing and when and how do brands looking to make the transition from wholesaler to direct seller make the shift.

THE BACKGROUND

When Sports Direct purchased Donnay all those years ago little did we know that the evolution of the “in house” brand strategy would influence the UK market place as much as it has.

It is now common place for our leading High Street, and Online, retailers to own a stable of brands and to use them to maximise their margins and to draw consumers in with attractive discounts.

Many of these brands, such as Dunlop and Slazenger, have built global brand equity and,as such, this enhances the value of the sales proposition in the consumers eyes.

These in house brands are core business drivers sitting alongside the premium brands who draw the consumers in but dont necessarily drive the volume of sales.

So where does that leave these the sports brands who are not retailer owned and how will they compete in the future.

Will they be happy to merely act as the “sprat that catches the mackerel” or will they advance their own retail strategies to wrestle an element of control back.

THE OPTIONS

The large global players are already well advanced in the development of their own retail strategy with, for example, adidas group stating – “Our Retail segment’s strategic vision is to become one of the top retailers in the world……….retail plays an important role for the growth of our Group and our brands.”

However the secondary or more specialist brands are slower to address the issue.

There is undoubtedly an underlying concern from these brands that, by selling direct, they will undermine their existing distribution channels and retail partners and risk losing that business.

The decision is dependent on a number of factors relating directly to the brand including factors such as the strength of the brand in their relevant sport/niche and the brand positioning; whether the approach is via retail and/or eCommerce, and whether the approach is for long term commercial gain or a short term sales and marketing strategy such as a pop-up shop.

We are already very familiar with the approach that many have take in recent years within the Outlet centres where the channel provides additional brand exposure but allows protection of clearance/closeout activity and for the company to still satisfy margin requirements by selling direct.

This is a relatively “clean” approach as, often, the products have been previously offered to retail partners first before they end up in the outlet store.

Another interesting development is the opening stores close to or within sporting events to further enhance the brand links with that sport. Prince, for example, have recently opened a stand alone store in Wimbledon and plan to roll out store openings in every major city where a Grand Slam tennis event is held.

Flagship stores have, in many cases, also been around for a period of time and allow the brands to maximise their marketing messages alongside the retail upside. This strategy is often the precursor to a more aggressive store opening plan

Nike’s global strategy, for example, outlined in 2010 at the company’s investor meeting held in New York, detailed plans to open approximately 250-300 new Nike-branded stores (mix of branded stores and factory outlet stores) worldwide over the next five years

Another interesting factor in the evolution of brands selling direct is the growth of the Chinese market place and the Chinese brands. The “Western world” approach has historically been built on a wholesale basis with, only in recent times, the retail element becoming more relevant. The Chinese brand model however has been historically built on the reverse.

The result is the evolution of brands such as Li Ning with over 4000 stores either directly owned or franchised which has created a critical mass allowing them to expand into the global sporting goods market.

THE DRIVING FORCES FOR CHANGE

Whatever the approach there are some key fundamentals that are driving these changes and key factors that need to be addressed if you are a sports brands looking to role out a “direct sell” strategy:

Margin – First and foremost direct selling allows the brand to realise manufacturer to retailer margin.

Build brand equity – the brand can broadcast the key marketing messages without fear of dilution or competitor intrusion.

Showcase the entire product range – inevitably retailers cannot carry the entire brand product range. A branded store selling direct can.

Retail pressure – as retailers further drive their own brand strategy brands must react by driving their own retail strategy.

the growth of eCommerce – eCommerce allows the brand to have a global platform combining the latest key marketing messages with the opportunity to purchase the latest products and, perhaps, alternative exclusive products.

the challenging economic climate – with some aspects of the global sporting goods market suffering brands are looking to mitigate their risk and be less beholden to retail partners who are looking to further dictate terms and erode brand equity and prices.

the need to get closer to the end user – the closer the brand is to the end user the more the consumer feels engaged with the brand and the easier it is to communicate in both directions.

THE CONCLUSION

The developments we are seeing in the marketplace look set to be with us for a while and thus any brand must consider the implications of these changes.

Our leading retailers look set to continue to grow and brands must review where they currently sit, and where they are likely to sit in the future marketplace and review their direct sell strategy accordingly.

There is no “one size fits all” strategy, however many believes that, in future, brands with a 100% wholesale strategy may become vulnerable -so perhaps it is time that those brands do indeed become retailers.

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