From store closures to event cancellations and total supply-chain shutdowns, the COVID-19 crisis has halted operations across industries and has made business as usual an impossibility for most.
Last week, the Federation of the European Sporting Goods Industry (FESI) released the results of an April 14 survey of 1,800 sporting goods manufacturers that represent 85 percent of the sporting goods sector in the region.
The outbreak had strongly impacted business, with 45 percent claiming revenue has plummeted between 50 percent and 90 percent since the virus’ spread began.
According to FESI, whose members include Nike, Adidas, Puma, Speedo, Warrior and Foot Locker, companies with robust omichannel strategies are better equipped to cope with the changing retail landscape, but for the vast majority (85 percent) of respondents, e-commerce represents just 20 percent of their businesses—or less.
While 70 percent said they had e-commerce capabilities, more than half (55 percent) lament that e-commerce did not compensate at all for the challenges of the current situation. Another 55 percent already offer free shipping.
Most depend on brick-and-mortar retail for sales, and mandatory orders from government officials to shut down those operations have taken a toll. When asked how much demand for sporting goods had dropped within the E.U., the average response from manufacturers was about 56 percent.
“The closure of brick and mortar stores all over Europe and internationally, as well as changes of consumers’ behaviour lead to serious drop of sales,” FESI president Neil Narriman said. “Most of our companies are currently struggling to cope with fixed costs (rent, employment costs…), which create significant liquidity shortages.”
Demand for sporting goods made in Europe has also plummeted outside of the region, with companies citing up to 95 percent in losses in that business. On average, though, respondents said they had lost about half of their international demand since the beginning of the crisis.
A shortage of liquidity has presented the biggest short-term challenge for sporting goods companies, 85 percent of respondents said. Sales have largely dropped for their customers due to these store closures, and rent and employment costs are eating up any profits that are coming in, they said.
The majority of respondents said it was difficult to quantify the impacts of upstream and downstream supply chain disruptions, but those who did respond estimated the impacts at between 5 percent and 20 percent.
When asked to identify specific areas of disruption within their overall supply chains, manufacturers said that lack of access to components and materials as well as logistics like container and freight forwarding presented significant upstream challenges.
Closures of production plants and halted textile deliveries were also cited as issues, along with the fact that employees must remain socially distanced from each other in their production facilities.
Inventory was cited as a problem by 42 percent, who said they’ve had challenges getting textiles from Eastern sourcing countries, components for watches and other raw materials.
Most said they perceived consumer demand to be down, too, with shoppers changing their priorities to favor food and essentials over discretionary purchases.
The closing of store operations at the retail level has cut off an avenue for shoppers to purchase sporting goods, and the majority (70 percent) of manufacturers said these conditions had led to to reduced, postponed or cancelled orders.
The global nature of the pandemic has also largely eliminated the ability to substitute inputs from alternative countries, the respondents said. Components and materials from China, India, Pakistan, Vietnam, Cambodia, Indonesia, Turkey, Bangladesh, Egypt and E.U. countries like Italy, Holland, Germany, Hungary and Spain have all been impacted, and 70 percent of manufacturers said it was not possible to substitute these inputs with goods from elsewhere.
Only one-quarter said it would be possible to find alternative suppliers in countries like China, Taiwan, Switzerland, Germany, Slovenia and Hungary.
Disruptions to infrastructure and private and public services have also impacted the sporting goods sector, 55 percent of manufacturers said. Availability of fuel, access to airports and railways, travel restrictions, air freight charges, and cancelled trade shows and meetings have all created wrinkles in operations.
Despite the undeniable disruptions, most European sporting goods manufacturers (80 percent) said that teleworking was possible for their staff, and has helped maintain service to customers. Some downsides to working from home include access to company software, challenges associated with holding large decision-making meetings virtually, and efficient communication between team members, they said.
Almost all (95 percent) of manufacturers said that public funds and unemployment benefits were available to their sector, and three-quarters of that group said they were taking advantage of those programs. Thirty percent said they’d been forced to lay off workers due to business constraints, while one-quarter of respondents said they had not fired workers.
And though many companies have switched gears to make personal protective equipment (PPE) amid critical shortages, just 35 percent said they’re producing pandemic gear like face masks, gloves and hand sanitizer, versus the 60 percent that haven’t.
Governments, respondents said, have taken action, but their efforts have fallen short. Most cited the U.S. as the country whose anti-virus initiatives have created the “most difficulties” or “not sufficient,” followed by the U.K. and Italy.
“In the short term, the sporting goods industry needs strong measures from national governments to address the current liquidity gaps and strengthen their cash flows,” said Jérôme Pero, FESI’s secretary eneral of FESI. “But it is crucial to also start preparing gradual longer-term strategies now, in order to re-launch the economy sustainably in a safe and coordinated manner once the crisis is over.”