Publish in Special Reports - Monday, November 24, 2014
The FIFA World Cup final between Germany and Argentina was an all-Adidas affair and a huge marketing coup for the brand. (Photo: FIFA)
Latin America sprints ahead in sportswear growth.
BY MAGDALENA KONDEJ
Latin America has emerged as the world’s star performer in sportswear. At US$24 billion it remains one of the smaller regions in terms of value sales, accounting for just 10 percent of the global market but it is blazing a trail in terms of growth.
According to market research provider, Euromonitor International, since 2008 the category has grown by 77 percent – the fastest value growth globally over the review period. In absolute terms $11 billion has been added to the category – almost twice the absolute growth seen in Western Europe, a market more than twice the size of its Latin American counterpart.
With multinational sportswear brands seeking out new markets to compensate for the sluggish recovery in Western Europe and North America, Latin America is the place to look to. Fortuitously enough for sportswear manufacturers, this regional goldmine of opportunity is also playing host to two of the world’s most high-profile sporting events within a two-year period. The 2014 FIFA World Cup, followed by the 2016 Olympic Games, both in Brazil, will certainly play a defining role in driving the performance of sportswear in the region, attracting major investment from the leading global sportswear brands.
EVENTS BOOST SPORTSWEAR
The importance of football in Latin America as a sportswear sales driver can’t be understated: it is the sport of choice across Latin America, Brazil and Mexico in particular. As well as 64 games and 171 goals, the 2014 World Cup saw an epic battle between Adidas, official World Cup sponsor, and long-term global rival Nike. Both brands committed huge sums of money to be associated with football’s crowning glory in a bid to stimulate lucrative sales of replica jerseys and football boots.
Nike – the pretender to the football throne – got off to a flying start, sponsoring more teams than Adidas for the first time ever at a Football World Cup, including the home nation. There was also sponsorship of Brazilian poster boy Neymar. Despite Adidas being the official sponsor, Nike was the brand most Brazilians identified with the World Cup. In the end, however, the Germany vs Argentina final, watched by millions around the globe, was an all-Adidas affair, a huge marketing coup for the brand, which also sponsored the Mexican team.
Despite football’s dominance, independent activities such as running and cycling are gaining popularity with Latin American consumers and exerting a growing influence on sportswear sales. The arrival of the Rio de Janeiro Olympics will bring world-class runners and cyclists to the region and, in all likelihood, further boost the popularity of the two sports, stimulating growth as a result.
BRAZIL LEADS, CHILE LAGS
Latin America was home to the world’s two fastest-growing sportswear markets in 2013 – Venezuela and Argentina – although, in Venezuela in particular, soaring inflation has had a distorting effect on sales and has been eroding consumers’ purchasing power. At the other end of the spectrum, Chile, one of the region’s smaller and less dynamic sportswear markets, is suffering from deflation. Prices have witnessed a decline due to substantial price competition, discounting and a flood of cheap Chinese imports.
At a country level, Brazil accounts for almost half of the total Latin American sportswear market and inflation here is moderate compared to that in Argentina and Venezuela. Worth $11 billion in 2013, according Euromonitor, the country saw sportswear grow by 83 percent over the review period, to overtake the UK, France, Italy and Germany and become the fourth largest global sportswear market. Mexico, Latin America’s second largest market at $4 billion, also turned in a strong performance, registering a total of 57 percent value growth since 2008.
With 80 million people claiming to be actively engaged in one or more sports, and approximately 60 percent of the population being under 30 years old, sportswear in Brazil is a lucrative market even without global sporting events to drive sales. Rising disposable income is also contributing to the strong performance of the sportswear category, as is a wider health and wellness trend. Sporting venues are opening across the country and consumers are increasingly aware of and willing to exercise – something that can only gather momentum in the build up to the Olympics.
Despite this active population and rising disposable incomes, annual per capita spend on sportswear remains relatively low ($55, compared to $114 in Germany, the next largest market) when assessed at a global level, indicating plenty more room for growth in the years to come. In fact, $3 billion is expected to be added to the Brazilian sportswear market by 2018, with only the US and China predicted to see higher absolute value growth.
Brazil is unique in the region, in that performance apparel and footwear rather than sports-inspired clothing is the largest category within sportswear, accounting for 45% of sports apparel value sales in 2013. Whatever their sport of choice, Brazilians tend to purchase performance brands to aid them in it. This is largely a reflection of the level of seriousness with which they take their sport and so are prepared to pay more for high-spec sportswear. It must also be noted, however, that Brazilian consumers, as a whole, are extremely brand conscious, and the kudos behind a big international brand name certainly influences purchase decisions.
NIKE LEADS, LOCALS STRONG
Nike leads the way in the country, accounting for 11 percent of the market and benefitting greatly from rising disposable incomes – in particular in sports footwear. Sports shoes that once were objects of desire are now, thanks to an increase in purchasing power, part of many middle-class Brazilians’ wardrobes. Nike’s momentum is likely to continue backed by its aggressive “Twenty Twenty” marketing plan announced in 2012. The plan aims to see Nike doubling its Brazilian sales by 2020. In October 2013, Nike opened its online store with the announcement that customization of team shirts and football shoes would soon be available on the website – a savvy move in football-obsessed Brazil. In second and third place are local brands Mizuno and Olympikus with 7 percent and 4 percent shares, respectively. Both have benefitted from mid-price positioning, strong distribution and – more recently – products that cater for runners.
Running has become the country’s second most popular sport, with 4.5 million runners training regularly either outdoors or in gyms. On the whole, dedicated runners are happy to invest in performance sportswear, including special footwear, fast-dry T-shirts, compression shorts and anti-UV caps, and there remains plenty of opportunity for development. Cycling is also growing quickly in popularity – in Sao Paulo a section of the streets are closed every Sunday specifically to play host to cycling competitions – and, again, there is much room for further growth.
Of course, every country has its risks and Brazil’s difficulties are something that must be taken into account. By far the main concern is its consumer credit bubble. Brazil’s economic growth has been propelled forward by consumption as opposed to investment. Accessibility to credit has been a major driver of expenditure growth, with many Brazilians paying in monthly instalments for their sportswear. Any reining-in of expenditure by debt-laden consumers is likely to have a major impact on growth. Furthermore, many higher-income Brazilians opt to buy their sportswear – and apparel in general – overseas to avoid the country’s high import taxes. Finally, counterfeiting remains a problem, although the impact of sales is difficult to measure. That being said, while lower-income consumers have no option but to opt for the counterfeit, as a whole, Brazilians much prefer to buy the real thing.
MEXICO: GOVT ENCOURAGES EXERCISE
Like Brazil, Mexico is seeing sportswear sales benefit from rising disposable incomes and a growing health and wellbeing trend. The Mexican government has launched several initiatives to improve the health of its citizens, such as taxes on soft drinks and campaigns encouraging people to exercise more. These government initiatives have boosted interest in sports and exercise and their positive impact on sales of sportswear will continue in the years ahead.
As is the case in Brazil, football dominates the sporting landscape and competition for sponsorship deals with sports teams is strong, but running is also gaining in popularity and races sponsored by sportswear brands are cropping up with increasing frequency. The Mexico City Marathon had around 10,000 participants in 2013 and 20,000 in 2014. While Mexicans as a whole are less brand conscious than their Brazilian counterparts, the popularity of running, in particular, has driven sales of performance footwear, which recorded the highest value growth of all sportswear categories in 2013. While Mexican runners are still happy to forgo performance apparel, instead opting for cheaper, more basic t-shirts and shorts, the right footwear is a necessity to cover the miles. As is usually the case, sports-inspired apparel accounts for the majority of apparel sales, drawing from a wider consumer base that wears the clothing for day-to-day activities.
Nike and Adidas are the leading sportswear brands and both have a long-standing presence in the country and high brand awareness, again particularly because of their association with football. Local players have a much lower presence in Mexico than in Brazil, but that is not to say that the likes of Nike and Adidas are free to proceed without challenge. Of late, Mexico has seen a boom in arrivals of international apparel brands, first in a wave of high-end, luxury brands and then, more recently, fast fashion brands that also have an eye on the sports-inspired market. H&M, for example, has recently launched its sportswear line in the country.
Nike and Adidas represent the more premium end of the market from a price perspective; however, with these brands priced too high for Mexican consumers, space remains in the economy and standard segments of the market where fast fashion brands can potentially capitalize. With price still remaining a barrier to branded sportswear for many, the arrival of lower-cost sportswear from fast fashion brands may receive a favorable reception from consumers. As it stands, sportswear in Mexico is growing quickly enough that there is room for both bona fide sportswear brands and fast-fashion sportswear offerings to grow side by side. That being said, the impact of this fresh competition on the market is certainly one to watch, as the danger that specialized brands might see their consumer base shrink can’t be ignored.
GOLDEN GROWTH WILL CONTINUE
Looking ahead, Euromonitor International predicts that
the Latin American sportswear market will expand by a further 28 percent to 2018 – the fastest value growth of all the
global regions – adding $6.8 billion to the category.
While not without country-specific risks, the region’s booming middle-class, young population, interest in sport, health and wellbeing, make any challenges worth confronting for any sportswear manufacturers gunning for a place on the winner’s podium.
Magdalena Kondej is Head of Apparel and Footwear Research at Euromonitor International. This article was written for Latinvex.
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