As the pace and gravity of COVID-19 headlines markedly increased last week, it became clear that a number of spheres of public life in this country will be impacted in the next several weeks, and potentially longer. Daily life has begun to change in healthcare, travel, education, commerce, hospitality, entertainment, and more. Here at Consensus, first and foremost, our thoughts are with anyone who has become sick or been forced to quarantine, healthcare workers, and those with underlying health issues. But as Consumer industry specialists, we can’t help but to also think about how things will change for businesses in the sector. Some segments are clearly experiencing a surge in demand, such as grocery and personal healthcare products, while others are seeing customers evaporate, such as restaurants and airlines. A number of headlines last week left us incrementally more concerned about one segment of Consumer Discretionary in particular: sporting goods.
Much of what sporting goods brands and retailers offer falls into two buckets, both of which are likely to be negatively impacted in the coming weeks and months. The first is sports equipment. As schools and youth leagues across the country suspend or cancel athletic activities, the sports equipment category is likely to suffer. Any cancellations will clearly reduce the need for equipment. If not cancelled, seasons that are shortened will likely also reduce demand (at least marginally due to less wear and tear), and compress the selling season for impacted sports, which could force retailers into margin-killing promotions and clearance.
The second bucket of products likely to be impacted is fan gear. With collegiate and professional sports leagues suspending play across the NBA, NCAA, NHL, MLB, PGA, MLS, ATP, NASCAR, and XFL, and a potential cancelation of the Olympics looming, sports fans will have fewer prompts and less need to purchase merchandise repping their favorite team. Some of this disrupted demand will likely be recouped when the leagues resume activity, but some will be lost permanently.
These headwinds to demand will be felt across the sporting goods industry (so will supply chain concerns, as significant amounts of sporting goods are sourced from China). But demand issues will likely be most acute in brick and mortar retail. While quarantines and voluntary social distancing may prompt some people to pass the time at home by shopping online, physical retail is likely to suffer from drastically reduced foot traffic.
Wall Street seems to agree with this gloomy scenario. On Tuesday, March 10th, Dick’s Sporting Goods reported fourth quarter results that solidly beat analysts’ estimates. Further, management stated on the earnings conference call that first quarter sales were off to a good start, and that the company was seeing no impact to sales from COVID-19, even in the Pacific Northwest. Shares of Dick’s (DKS) surged 12.2% in premarket trading. However, momentum waned over the day, as headlines and speculation about sports cancelations and suspensions mounted. By Wednesday’s market close, the stock was down 20.0% from its Tuesday open. With the cascade of announcements that began on Wednesday with the suspension of the NBA and culminated with the cancelation of the NCAA men’s basketball tournament on Thursday afternoon, the stock dropped another 11.6% on Thursday. It fell slightly more on Friday, despite a broader market rally. In total, from Tuesday morning to Friday afternoon, Dick’s share price fell 29.5%. This compares to a 3.6% drop for the S&P 500 over the same time span.
To end on an optimistic note, however, sporting goods could see an explosion in demand once sports return. If there comes a day when it is deemed that the coast is clear and all sports can come back, especially if that happens all or almost all at once in a simultaneous multisport (Re)Opening Day, the feeling could be jubilant and triumphant. That day may be a long and painful way off right now, but when it comes, many sports-fan consumers may decide to declare victory by spending money. Here’s hoping we hear the words “Play ball” sooner than later.
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