Exploring the reasons of unprecedented growth of Sportswear category. And it's future.

 

Sportswear Growth Paradox

Overall Retail Growth vs. Sportswear Surge:

While the overall retail growth in India is below 5%, premium sportswear brands are seeing explosive growth rates of upwards of 50%.

Adidas added 1000 cr. with Growth rate of 65%.

Puma added 900 cr. With the growth rate of 45%

Sketchers added 800 Cr with the growth of 80%

This is a landmark year for Indian Industry.

Why is this growth PARADOX ? Is this sustainable for sportswear Brands?

Lets explore !

Indian Economy : Favouring Premium

• Economic 'K' Shape Recovery: Post-COVID, India's economy shows a 'K' shape recovery—meaning wealth increases for some but decreases for others. This impacts how different income groups spend on luxury and essential goods. Premium segment is observing rapid growth, while value segment is becoming even more economical.

• Consumer Savings and Spending: Middle-class savings have halved to 5.5% of GDP in 2023, yet sectors like BFSI, travel, and hospitality are booming, with companies like Indigo Airlines doubling their profits. Costs have increased , income has not. Which means that middle class is left with little to spend on discretionary items like apparel and footwear.

High income group has remained unaffected, rather gained from the surging stock prices and gains from it. One would see it as an evidence, that

As of April 2024, the BSE has grown by 22% in a year, driven mainly by Indian retail investors. Wow !

Hence while the retail is not growing fats enough, sportswear premium brands are.

Consumer Sentiments about Sportswear : Massive Shift

Per Nileson, approximately 45% of Indians engage in activities related to health, a record high, which has led to a 15-16% CAGR in sportswear products.

India has embraced athleisure as a fashionable way to appear athletic while remaining comfortable. Kudos!

This trend is being adopted rapidly. All major Indian brands now include athleisure lines, even traditional formal brands like Louis Philippe. Including this, premium sportswear is growing at a rate of over 40%.

India is witnessing an unprecedented opportunity !

Mintel Report: According to a 2023 Mintel report, there has been a significant increase in spending on health and wellness products among Indian parents, especially fathers (43% in 2023 vs 35% in 2022) and mothers (46% in 2023 vs 26% in 2022). This emphasis on preventive health care is indirectly boosting expenditure on items like running shoes and sports equipment.

Decathlon India's revenues surged by 39% last year. Parents, particularly in cities and towns, are increasingly concerned about their children's health and activities, spending generously on their families and themselves.

This trend appears to be both a fear psychosis and a wake-up call as news spreads about India becoming a capital for heart disease, diabetes, and cancer. This is no minor scare, indeed.. 

• Consumer High Brand Awareness

Real brand following is observed in sportswear brands. They lead with huge awareness and buying considerations. Nike is the leader among all. 

While a research done by Symbiosis school of sports suggest that there is Indian bias towards quality. I feel the real innovation  and the trust about the quality also comes with brand names and price tag. And we must give into the good work on quality management in Vietnam and India.

Brand awareness and presence is interrelated. Hence brands are focusing to open more and more imagery stores. Perhaps, That is why Puma has 29 stores just in city of Bangalore. Which basically means that every 3 km there would be a puma store.

• Consumer and Outlet stores culture

Considering the Indian market preference, outlet stores are experiencing robust business.

Factory second stores located outside urban areas are generating revenues of 50-75 rupees per square foot per day, which matches the performance of prominent mall stores.

This indicates that consumers are indeed motivated to travel to these discounted destinations to shop for their families.

• Consumer and Rapid Ecommerce Growth

Leading sportswear brands report that 35-50% of their sales come from e-commerce, with a significant portion being discounted. 

Marketplace e-commerce platforms are facilitating the entry of first-time buyers and helping existing customers move up to higher price points, with an average selling price of around 3000 Rs. In contrast, brand-specific sites like Nike.com offer new collections at an average selling price of 9000-10000 Rs.

This situation highlights the existence of two distinctly different consumer segments with varied purchasing behaviors. Fortunately, this diversification is expanding the market for sportswear brands.

Novelty : New versions of  sportswear :Tech + Fashion 

• Cutting-edge technology:

High tech imagery

Material Innovation

There's an unprecedented level of innovation in material and design within leading brands, resulting in continuous brand development. 

This trend is particularly unique to the sportswear category.

 Whether it's advancements in top materials, improvements in sole performance, or creative imagery strategies, these innovations are collectively shaping a significant shift in consumer perception. 

This progress is truly remarkable!

• Fashionable : 

Fashion has been a focal point for the past decade, and it has now pivoted significantly towards athleisure. 

This shift is driven by the allure of Korean and Eastern fashion, captivating today's youth who are enthusiastic about street culture. 

As a result, existing brands are expanding their offerings to include more lines in this style.

And new brands like Xtep are emerging which are further building brands on ethos of subtle, eastern fashion. Xtep already has couple of stores in India and rest are opening rapidly.

New  Business model : Licensing :  Reebok, Lotto, More to come

In December 2021, ABFRL acquired the distribution rights for the Reebok brand in India and Southeast Asia for INR 100 crores. 

ABFRL currently manages over 175 Reebok stores across India. With ABFRL's robust backing, Reebok is poised to become one of the largest brands in India, aiming to expand to 300 stores soon. 

As Indian manufacturing quality improves and political pressures affect Chinese supply chains, many brands are turning to Indian suppliers. For instance, Adidas India now sources over 60% of its merchandise domestically.

Given these developments, it is increasingly viable to introduce well-known brands to the Indian market through licensing agreements. Such arrangements grant comprehensive rights to the Indian partners, making local sourcing a cornerstone for cost-efficiency and pricing strategies.

April 24

Lotto recently entered into an agreement with Agilitas to introduce a new line in India, with a significant portion of this line expected to be manufactured domestically.

Under the leadership of Abhishek Ganguly, the company has already secured funding of 500 crores across two rounds. It will be intriguing to observe whether other brands follow suit and opt for licensing agreements to enter the Indian market.

Major Contributor to growth :Apparel 

Apparel now accounts for approximately one-third of sportswear sales, with women's activewear emerging as one of the fastest growing segments.

These products appeal to both highly active individuals and those who want to present a healthy, active lifestyle. 

Additionally, a variety of Western wear and athleisure items have recently been incorporated into Indian lines.

Colour is critically important, as Indian consumers prefer vibrant colours over the typical greys and blacks.

This category may soon surpass men's apparel and possibly even footwear in market share.

Skechers initially entered the Indian market with its comfortable walking and running shoes. Now, it is focusing on expanding its presence in both footwear and fashion apparel. The brand is being rejuvenated with the help of Kriti Sanon, whose gym-oriented imagery is helping to attract a younger demographic.

Family Mass value retail : Decathlon

To maximize value, Indian customers frequently combine trips to Decathlon stores with family outings. Decathlon has established itself as the premier, most sensible destination for value-priced, mid-quality, family-oriented activewear. 

Last year, the store experienced a growth of about 40% and reached a revenue scale of 4000 crores.

It is likely that more stores of this format will emerge soon, given the extensive market for this price range in India. However, low operating margins present significant entry barriers, which, in my opinion, need to be addressed and overcome.

Increasing women-wear component in sales : One third.

Footwear for women, characterized by vibrant colors and neon accents, now comprises approximately one-third of the men's footwear market. E-commerce has significantly contributed to attracting women to fashionable shoes. 

Sneakers, sandals, and running shoes are the most popular categories, often paired with denim, making them a favored option among Indian consumers.

Brilliant marketing : Influencer Driven.

The sportswear category has been exceptionally innovative in its marketing strategies. This includes initiatives such as sub-brand licensing such as One8 or the Rolling Stone, as well as impactful celebrity endorsements like Milind Soman for Puma, Kriti Sanon for Skechers, Malaika Arora for Reebok, and Surya Kumar for Reebok, among others. 

Additionally, partnerships like the one between Playstation and Puma, or sponsorships of cricket teams like RCB, have been instrumental in creating strong visibility and brand imagery.

A notable example is Adidas signing a 5-year deal worth 350 crores with BCCI, reminiscent of deals Nike secured a few years ago. The influx of substantial marketing investments in this sector has contributed significantly to the overall growth and enhancement of brand presence and sales.

New emerging category : Yoga

Yoga is evolving into a revered aspect of national pride, a fashionable trend, and a distinct category on its own. As India holds a prominent position as the hub of yoga, dedicated brands are poised to enter this domain. 

Alo Yoga has successfully carved out a niche in global markets by combining quality and style in yoga apparel. 

Various versions of Yoga brand are accessible through direct-to-consumer e-commerce platforms. It will be intriguing to observe how and when Indian retail fully embraces yoga as a significant category.

New Phenomenon : Focused Brand creation

The rise of Hoka as a leading running brand, Skechers as a walking brand, Puma as a fashion brand, and others has solidified the connection between brands and specific activities. 

This natural progression occurs as the market matures and consumers associate brands with their distinct identities and purposes. 

In my view, with time brands would have to take their definitive spaces and build further on them. Generic brands would feel the heat.

What next ?

In my opinion, this category will continue to experience growth for several more years due to the reasons mentioned above. New entrants will find the space appealing and will enter with their unique positioning. 

Sportswear is advancing rapidly and has become a benchmark for many other categories to learn from and adopt.

Some globally popular brands will also enter the Indian market. Additionally, we should closely observe how a leading global brand like Nike plans its comeback in India. What strategies will they employ locally and what marketing plans will they implement? How will they leverage e-commerce to expand their business?

Nike currently operates at a 1000 crore mark, but it has the potential to become a billion-dollar brand, especially considering Adidas is already halfway there.

Therefore, with both established and emerging brands contributing, this category is expected to maintain a growth rate of over 30% CAGR. Remarkable, isn't it?