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January 11, 2018

The Shifting Terrain for Outdoor & Enthusiast Retail

MHT Partners  | Consumer Investment Bank

Walking the floor of the Outdoor Retailer (“OR”) conference in Salt Lake City this summer, we were struck by an odd mixture of moods.  On one hand, demand for outdoor products remains strong, feeding the growing $120 billion U.S. market.  On the other hand, a pallor seemed to hang over the event.  These are good times, but an air of uncertainty crept into many of our conversations at the show.  Consumers want these goods, are willing to pay for quality, and the show’s participants are happy to supply them, but the issue of how products get from OEMs into end-users’ hands remains very much in question.

The source of this uncertainty is the explosive growth of the e-tail channel, and specifically Amazon.com.  Americans and consumers the world over have fully embraced online buying with its ease of 24-hour ordering, affordable shipping, free returns, instant insight into inventory, and curated (targeted) marketing and discounts.  Brick and mortar retail has been hammered across the broader economy over the past several years by the growth in ecommerce, and the outdoor recreation sector is no exception.  While the U.S. Outdoor & Sporting Goods segment grew by a healthy 5% last year, Amazon posted growth of 20% in the sector, according to One Click Retail, and clearly those sales are coming at a cost to other channels.  Companies are struggling to balance the allure of greater sales with control of their brands and channels.  Just prior to Summer Outdoor Retailer, Nike announced that it was entering into a pilot program to sell their products directly through Amazon, rather than through 3rd-party sellers.  As one longtime industry veteran and private equity operating partner attending OR put it to us, ‘make no mistake, this is a bellwether moment for the industry.  The biggest sports brand in the world just capitulated, acknowledging that it could no longer entirely control its channels.’

While old economy companies scramble to find their footing on the fluid landscape, the crisis has created opportunity for others.  Up-and-coming brands unencumbered by retail footprints have seized the opportunity to bypass stores, and even platforms like Amazon, and go directly to consumers.  KUIU, a California based company founded in 2010, for example, was founded on just this premise, selling authentic, high-end hunting apparel and gear to enthusiasts almost entirely through its website.  Many other brands have adopted an omnichannel approach, offering goods in big box retailers, as well as through their own websites, on mobile platforms, and through 3rd-party online vendors.

So, what does all this mean for outdoor and enthusiast retail?  Clearly, no stasis has been established, as the sands continue to shift.  But it is safe to assume that brick and mortar retail has seen its apex come and go, and outdoor enthusiasts will gain access to goods through myriad channels, sometimes simultaneously.  We anticipate the growth of smaller, more focused retail locations which cater to the most dedicated, and evangelical participants.  If you offer top-of-the-line fly flying equipment and have an avid, though dispersed, base of loyal customers, why not offer a location or two at fly fishing Mecca’s such as Bozeman or Anchorage (on the way to Bristol Bay)?  Perhaps these locations only exist to match demand during peak seasons – think of a ‘pop-up’ hiking store at the entrance to Glacier National Park carrying the latest and greatest gear.  No matter how things shake out, it is clear that only the most nimble, creative, and technologically savvy outdoor and enthusiast companies will survive the transformation we’re witnessing.

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