A struggling business despite promising odds

The article was first published in Finansavisen.

The sports industry has all the prerequisites for success in Norway, so why is it in crisis, asked PA Norway’s retail and consumer expert Monica Ødegaard in Finansavisen. 

The sports industry in Norway should be well equipped for success. Norwegians buy the most sports equipment per capita in Europe. On average, we spend NOK 2,383 per person per year, according to figures from the Sports Industry association. This is 45 per cent more per year than the Swedes, who are the second highest spenders in Europe. 

Turnover in sports chains has more than doubled over the last 15 years. This reflects Norwegians’ growing purchasing power, but also the way physical activity has become more important in our lives. This, in turn, has created increased interest in equipment-driven sports such as hill climbing, cycling and cross-country skiing. Another recent driver of growth has been an increased focus on fashion in the sports industry.

Sports shops have become all things to all people

This leads to the paradox that although there has been strong growth in the sports industry overall, there has been, and still is, low profitability. PA Consulting has followed the sector for many years and one of its most prominent characteristics is that few companies have dared to take a clear position in the market.

This is especially true of the largest players such as XXL and Gresvig. The chains have not differentiated themselves and their products from each other.  That leaves the customer with the question of what they should be shopping for in these outlets.

Sports shops are trying offer everything to everyone. They sell the cheapest and have the largest and best selection, while at the same time trying to tailor and provide products and services to a wide range of customers. None have dared to choose a targeted market.

We have identified three different ways sports shops could and should have differentiated themselves:

1. To be a leader on price, convenience and simplicity. This means minimising costs and optimising business processes. If you take this approach, you must deliver a product or service to the customer at a competitive price and with minimal inconvenience to them.

2. To be a leader in products. This means that you always have the latest and greatest products or services. To achieve this, the chains must be set up to be creative, able to innovate quickly and remain at the forefront of developments.

3. To be a leader in customer care and service. This means tailoring and shaping products and services to the customer. In the short term this strategy is expensive but it is about creating and building long term loyalty. You have to think about the lifetime of the customer relationship and not about individual purchases.

These three directions require different business models. Choosing a direction is not the hardest task, what is difficult is to stay focused and drive the strategy throughout the organisation, even when there is pressure in the market and the competitive situation changes.

The industry has been driven by revenue growth at all costs

Unclear concepts and strategies do not improve the bottom line. The industry has been driven by revenue growth at all costs with a major focus on cost reductions, but not on healthy top line growth. When we have an industry that tries to be a bit of everything to everyone, it becomes difficult to secure growth. While the market should be large enough for several large players to succeed,  it is not easy to be optimistic about the prospects in the short term.

After a mild winter, stocks are high. The value of sports equipment in stock was estimated at NOK 6 billion at the beginning of the year, according to the companies' accounts. These products must be moved out, making it buyers’ market. But this will bring a sour aftertaste for the sports chains, driving even lower margins. At the same time, the industry restructuring is in full swing. We still have a sports industry where Norwegians lead the way in both interest in sports and purchasing power. Everything is in place for the retailers that dare to stand out and choose a clear direction to succeed.

Monica Ødegaard is country head and retail & consumer expert in Norway