Are There Winners In The Sports Apparel Game?

The brand game is heating up and more players are on the

Each year millions of consumers, amateur athletes, sports fans, and workout buffs, search for just the right apparel--everything from T-shirts, sweats, and jerseys to caps, jackets, and sneakers--to help them run faster, leap higher, or look cooler than the average person. With athletic footwear alone generating more than $13 billion in sales in 1999, the leading sporting goods manufacturers are competing for a big prize. Yet, over the past three years (1997-1999), the pace of sales has slowed. The industry leaders, Nike and Reebok, have watched sales drop off as much as 5% to 10% annually during the period.

In this arena the competition is fierce--multibillion-dollar entities like Nike and Reebok, and megamillion-dollar companies like Adidas, Champion, Converse, Puma, and Wilson--have also staked their claim in the sports apparel business, and the list of clothing manufacturers is continually growing. Moreover, product lines are expanding to provide streetwear and off-court wear and accessories, including eyewear and watches, with athletic appeal. And there has been a rise in the popularity and visibility of athletes across a number of sports--golf, soccer, tennis, and boxing--with huge endorsement contracts going to the champs. With the competition heating up, how can any one company stay competitive and establish itself as a leader?

STAYING COMPETITIVE

From the consumer's point of view, it is difficult to learn where each company's specialty lies. Some are known for apparel, others for footwear. And, with the growth of endorsement deals, it would appear that these companies might be taking on much more than they can handle.

"That may be true of smaller companies," says Mark Hampton, president of Nike Team Sports, "but definitely not of what we think are the major brand players. Most of us [apparel companies] have specific divisions or groups that are assigned to tackle these market segments. So, from our perspective, I can honestly say we don't believe we are overextending ourselves." Hampton stresses that Nike did more than $9 billion in sales last year.

Reebok, which had almost $3 billion in sales last year, is far from that mark, says Muktesh Pant, senior vice president of marketing services for the corporation. Explaining that the company has never had a product line that didn't sell, Pant says, "I think there's room to grow even further. The opportunities in apparel are enormous." Reebok does almost $600 million each year in textile apparel alone, which makes up only 20% of its business. Seventy-five percent of Reebok's sales come from footwear purchases (the company is No. 2 behind Nike in footwear sales) with the remaining 5% consisting of exercise equipment and accessories.

Pant says that much of Reebok's business is built on "technical superiority." As an example he cites Hydro Move, a new technology Reebok developed four years ago. A company trademark, Hydro Move is a moisture management technology/treatment given to the fabric that helps the wearer regulate his temperature. The product is popular among pro and amateur athletes, and runners.

While Reebok is running the technology race, Nike is betting on the pros. Hampton credits athletes with helping Nike determine the types of products it should make available to the marketplace. "We've always been committed to the athletes in delivering the best possible product and catering to the athletes first," he says. "I think that if you start with the athlete in understanding what a particular garment needs to do, you will best serve all constituencies in terms of that product's use."

ENDORSEMENTS

For a novice shopper, entering a sporting goods store can be overwhelming. Even before encountering the countless name-brand products that line the shelves, the novice has been barraged by advertisements coaxing him to buy a product so that he can be like Michael Jordan or Tiger Woods, making it difficult for him to decide which brand to choose. But the sports apparel industry knows the value of advertising and branding. The trophy for sales goes to the manufacturer who can attract and pay out hefty contracts to the highest-profile athletes.

Boxers and golfers have endorsement deals as do track stars, tennis, and soccer players; such contracts are no longer relegated to football, basketball, and baseball players. Of course, two athletes that have taken endorsements to new heights are Tiger Woods and Michael Jordan. In their own unique way, each athlete has helped Nike remain No. 1. Tiger's roster of tournament wins and the increasing allegiance of golf fans have served as a credible basis for his reportedly five-year, $40 million endorsement deal with the company. With his recent U.S. Open win, Woods will surely increase Nike's endorsement returns, and broaden the corporation's hold on the marketplace.

Jordan's contract with Nike--he first signed on with the company in 1985--represents another lucrative deal. In fact, the athlete's Air Jordan footwear alone reportedly generated more than $400 million in sales last year. It has become a brand unto itself, with Nike recruiting other athletes from other sports--baseball's Derek Jeter and boxing's Roy Jones Jr.--to propel Air Jordan to the next level.

Certainly, other endorsement deals have done well for various companies. The Williams sisters have undoubtedly boosted the interest in tennis among young children and teenagers of all races.

Serena's Wimbledon performance certainly helped increase the value of her Puma endorsement as well as sales for the company. The winner, Venus, who is featured in creative DMX commercials, helped sales for the Reebok line. Pant says that the footwear Reebok makes for Philadelphia 76er Allen Iverson, the Question, and the Answer, are among its top-selling shoes. "If his name were not connected with that shoe," he says, "I don't think they would be doing anywhere near the sales we've been getting. In many cases, the money that is paid to athletes for endorsement contracts is more than recovered by way of the additional sales that come in." Pant adds that having a roster of athletes who endorse products gives credibility to the apparel and that these endorsements are an essential part of the business. "We spend $70 million to $80 million a year on endorsement contracts [internationally]," he says. "Where on the one end, it looks significant, we do almost $3 billion in business. So that's only 2% of our sales."

But is every endorsement deal lucrative? Dennis Rodman's nonstop antics eventually cost him his contract with Converse. According to Hampton, apparel companies constantly evaluate endorsement deals. "My department is involved in trying to leverage those deals and trying to make them work for us," he says. "I think the important thing, at least as it relates to Nike, is that some of those endorsements don't relate strictly to just trying to sell products." He adds that many of Nike's endorsements are brand-related and that the association with key athletes improves its brand position and adds authenticity to its products.

Many would argue that sports apparel companies are, first and foremost, in the business of making money. Aren't financially successful endorsements important? "Surely that's one of the measures you would use," Hampton says. "But in many cases it's the effect the endorsement has in terms of our image brand with the consumer. And that's why you have to constantly evaluate which athletes stay within your portfolio of endorsements because they change.... Obviously their performance goes up and down."

THE CUSTOMERS

One gauge of how customers respond to athletes and athletic wear is the result of a poll conducted by the ESPN Sports Poll, a product of TNS Intersearch in Horsham, Pennsylvania. The company, conducted a poll in 1999 that asked respondents if they owned clothing with professional team logos. This type of apparel, available in sporting goods stores across the country, is manufactured by companies like Champion, Starter, Wilson, and Puma. Of the 24,104 people polled, 42.3% said they owned a piece of pro-team sports apparel. Of those respondents, 50.5% of the men and 34.7% of the women answered yes. Of those, 61.6% were between the ages of 12 and 17, and 52.9% between the ages of 18 and 34. According to Pant, this age group makes up much of his company's target market. "Young people look to sports stars for inspiration as to what kind of sportswear to wear," he says. "It's also important for us to demonstrate that the products we make meet the requirement of peak performance for athletes. That's important to consumers."

CHANGING TIMES

The sports industry has seen major changes between 1990 and 2000. Athletes' salaries have soared. Ticket prices to sporting events have increased. And many athletes have become far more popular than their teams. The general public has embraced sports (professional, collegiate, and recreational) at a higher level, and a greater number of people are exercising. In terms of sports apparel, there are more companies who feel they can meet the growing consumer demand. "The issue is that business has a tendency to cycle," explains Hampton. "The number of participants [apparel companies] has increased over that period of time, and that created sort of a market shakeout. As more people jump in, the competition increases for athletes, and that sort of drives endorsement prices up."

Hampton also notes that many of the major apparel companies have had the opportunity to look at their successes and failures over the past 10 years. These reviews, he says, prompt companies to create adjustments in how endorsement deals are priced. He stresses, as well, that 10 years ago, endorsement deals were a bigger part of an athlete's income. Today, these deals are less of a percentage of their overall yearly take.

As an example of one company's growth, Nike has seen a $7 billion increase in sales during the past decade. Other companies have grown by hundreds of millions of dollars. With much to reflect on, companies are holding on to the lucrative endorsements deals they have with select athletes. But with the increasing popularity of aerobics and running, apparel companies are constantly re-assessing whether they need the same number of assets.

"It's a difficult formula," says Hampton. "I don't think it's easy for anyone to do. But when companies sort of jump on the bandwagon, they find out that it's not as easy as signing someone to a contract to pitch your product. Endorsements have to be part of a total integrated strategy, and I don't think everyone has used them that way."