Special Report: State of the Industry — Brand Management
For industry manufacturers, the economic storm may be clearing, but they’re not putting away the foul-weather gear yet.
Additional reporting by Mary Helen Sprecher
Among tennis manufacturers, there appears to be measured optimism that this industry is slowly emerging from the storm. Signs are pointing to business this year that will be at least slightly better than 2009.
The reasons for this feeling that we’ve weathered the worst of it stems from a number of things, among them, that the inventory situation that dogged tennis retail for the last year appears to be clearing up. Racquet sales at pro and specialty shops, while down overall for the year, turned slightly upward in the fourth quarter (as did balls and strings). In fact, at pro/specialty, racquet sales in the fourth quarter of 2009 were up 3 percent in both units and dollars over 2008 Q4.
Also contributing to the sense that the worst may be behind us is that overall player participation hit a 20-year high in 2009, with more than 30 million people playing tennis. This was tempered somewhat by a slight drop in the all-important frequent player category and in play occasions. But at least there’s a bigger base now from which to create more frequent players, and industry initiatives are aiming to do just that.
Manufacturers recognize the challenges the tennis industry, like all industries in this economy, continue to face. According to some research, most sports equipment markets are down 5 to 10 percent in shipments, and some segments, such as fitness equipment, are down as much as 20 percent. But while industry-watchers say tennis is better positioned than most other participation sports to weather this current economic storm, manufacturers still have concerns.
The economy has forced many tennis manufacturers to adjust their business plans and strategies, tightening their belts internally. Some, particularly some of the smaller apparel makers, have gone out of business. Many companies have reduced or shifted staff in efforts to save costs. All are wary of the tight credit situation and what it means for their companies and their retail accounts. And the skittish economy has put pressures on the brands’ relationships with retailers.
Among the issues manufacturers need to contend with are:
- Dealing with product inventory and closeouts.
- Concerns over product life cycles and number of racquet SKUs.
- Maintaining and enforcing Minimum Advertised Pricing policies.
- Concerns about distribution channels and product available
- An erosion of the dealer base.
- A shift in the way consumers communicate and get information.
- The importance of innovations in products.
Nowadays, many manufacturers are willing to talk more openly about challenges they have with pricing policies, closeouts, excess inventory and more. But the biggest issue — the one that may connect some of the dots to a lot of other issues — is something that some manufacturers mentioned provided they remain anonymous:
“We’ve allowed certain retailers to be too big and to dictate too much of what goes on,” says one manufacturer. “Without a doubt, that’s the biggest thing we face, and it’s causing a lot of the problems we have.”
Who Calls the Shots?
“It’s the pink elephant in the room,” is the way another manufacturer put it. “I think there are a few key retailers out there who are powerful and influential and who dictate a lot of the tennis economy. Everyone is chasing sales and trying to get as much top-line sales as they can. But I think it has hurt the overall marketplace.”
Pro and specialty shop owners aren’t so guarded. “Online retailers, large retailers — they really start to just dictate policy, and that’s not what I think should be happening,” says Chris Gaudreau, owner of the Racquet Koop in New Haven, Conn. “As far as I’m concerned, they get first dibs. They can buy as much as they want, and they’ll get it.”
It’s a situation, some manufacturers told us, that the industry itself created. “What it’s done is devalued the size of our industry, average selling prices have come down, and something has to give — and unfortunately that means manufacturers’ and retailers’ margins suffer,” says one manufacturer. “We have ourselves to blame.”
“Think about it,” says another. “People can walk into a major sporting goods chain — and everyone’s to blame here — and buy a really great tennis racquet for half or a third of what the original retail price point was. When you have to compete with that, it makes it extremely difficult to sell premium technology, particularly in pro and specialty stores.”
“As far as the bigger [retailers], do they have influence? Of course they do,” says Dave Haggerty, chairman of Head USA and a past president of the Tennis Industry Association. “But I wouldn’t say they have more influence than others. I know that not every company caters to them, but it’s hard for other retailers to understand or believe that.”
“Are there challenges in some distribution channels? Absolutely,” adds Cory Springer, global business director for performance racquets at Wilson Racquet Sports. “We sell our products to a variety of channels, and so much of that is tied to changing consumer behavior. The internet has had an impact on the way consumers shop. It’s important for all of us to be in tune with that and understand how to communicate and best market our goods to the consumer.”
But, if it’s true that larger retailers are creating a situation that decreases the control manufacturers have, is there a way it can be changed? No one’s sure, at this point. Do you sacrifice short-term sales, with no guarantee that other manufacturers will be willing to do the same thing? It’s a risky proposition.
Even Gaudreau thinks it’s unlikely to change. “Quite frankly, they’re so set in the way they’ve been doing business that they probably can’t change,” he says, then adds: “But the bigger manufacturers can take small steps, implementing different policies to make sure that smaller retailers are still here 20 years from now to sell their products.”
Related to this is the issue of “secondary wholesalers” — companies that buy large quantities and resell to “authorized” dealers. Many retailers utilize such companies when they need a specific item they may have sold out of, so these secondary wholesalers often provide a valuable, timely service in helping retailers keep customers happy.
“We understand the challenges of the small retail pro shop in this industry and this economy,” says Pat Shields, president and owner of Fromuth Tennis., ”Their size prevents them from carrying too much inventory, so we assume the risk and carry it for them. And we emphasize customer service and same-day shipping, so the retailers that use us can give their customers exceptional service.”
But who is an “authorized” dealer, able to buy from these secondary wholesalers? In an economy where every sale can be vitally important for a small business, some brick-and-mortar tennis retailers question whether those able to buy at the lower prices from these secondary wholesalers are legitimate dealers. “Teaching pros, coaches, ‘pseudo’ retailers,” as one retailer puts it, can buy at reduced prices and then resell. And for a small pro/specialty shop, losing even half a dozen sales every few months could have a major impact.
“Anybody who gets a wholesale account from us is approved by the manufacturers — they have to submit their account numbers and then we get clearance from Head, Wilson, Prince, Nike, etc.,” says Shields. “We don’t want unauthorized accounts and we won’t risk our relationships with suppliers for one or two accounts getting product the wrong way.”
Policing this can be a tall order for manufacturers. “I think each company has its own way to try to handle it,” says Haggerty. “But it’s hard, you can’t be checking every account. I know that Head and other companies, when we find out, we try to enforce our dealer agreements.”
One of the biggest problems of recent months, excess inventory, now seems to be clearing up. Racquet sales at pro/specialty stores for all of 2009 were down vs. 2008, although the good news is that for the 2009 fourth quarter, numbers turned slightly positive, giving manufacturers reason for optimism going into 2010.
Since racquets were moving slowly, retailers bought less, leaving manufacturers with much more inventory than they had planned for. “Retailers are afraid they’ll be stuck with inventory,” says John Embree, president of Prince Americas, “so they’re expecting the manufacturers to hold that inventory for them. But we’re not going to do that. We have to manage our working capital just like they do.”
“The reality is a lot of consumers haven’t been consuming the products,” says Jon Muir, worldwide general manager of Wilson Racquet Sports and president of the TIA. “They were delaying their purchases, or buying at a lower price point. Apparel got hit hard. String was less impacted because participation has been up. Tennis balls overall were almost flat. The strength to that dynamic is that it creates a bit of a ‘demand boomerang’ that I hope will affect this industry this year and next.”
“We do know that people have been putting off purchases of all types of sports equipment, not just tennis,” says Keith Storey, vice president of Sports Marketing Surveys, which does extensive research in the tennis industry and for other sports, too. “Sports equipment should start to bounce back a little bit based on the number of people who have put off buying.”
Muir cites a “destocking/restocking” effect: Retailers ran their businesses using less inventory. “From a manufacturer’s standpoint, this destocking effect had an impact,” he says. “When a lot of retailers at all levels brought inventories down, manufacturers then pushed to bring their inventory down.
“My sense now is that it bottomed out in late third quarter, and now retailers are feeling, maybe not confident, but a little more comfortable carrying more inventory. We are seeing signs of it.”
Muir says that going into 2010, Wilson is in a “clean inventory position,” adding, “I expect there will be less closeouts and less discounted inventory in 2010 vs. 2009 overall, for all retailers.”
Jim Baugh, a former president of Wilson and past president of the TIA, says that the recent problems the industry experienced were because, “We were overselling our player base. The player base from 2003 to 2008 went up 12 percent, but units went up 44 percent. That’s not sustainable or realistic. We’re just overdue for this correction. We’re going through an industry correction that was unavoidable.”
“As a result of what happened in 2009,” says Embree, “all manufacturers learned some lessons. At Prince, we changed the management process on our end to align with the economy and what’s happened in the marketplace. We’ve looked at how we manage our inventory, purchase product, the life cycle of racquets. As a brand, we made a conscious effort to reduce the number of SKUs this year.”
“This economy means that we need to be careful like everybody else,” says Susan DiBiase, Babolat’s U.S. marketing director. “Credit has tightened up for everybody, including retailers. We need to be careful with our credit limits and be fiscally responsible.”
Excess inventory often is at the heart of closeouts and the “was-is” phenomenon of discount pricing, as too much product is chasing too few dollars. “This industry can be its own worst enemy,” says Doug Fonte, a longtime industry veteran who is the retired president of Prince NA and a founder of the TIA.
“‘Was-is’ happens quickly, and that plays right into degrading the whole price structure of the industry,” Fonte adds. “If a retailer has sizable buying power, there’s no question that they’re looking for bargains. But when Minimum Advertised Pricing goes by the wayside, it’s open war for those larger retailers to buy up what’s not covered by MAP. This hasn’t been a major profitability issue for a lot of manufacturers up until now, when the market has condensed.”
“If we make a large closeout buy, we take the risk in making that investment,” says Don Hightower, president of online retailer Tennis Warehouse. “There are times when we’re sitting on product for a long time.”
“Unfortunately manufacturers have created this self-fulfilling prophecy that we’re going to launch the new stuff and expect you retailers to promote and sell this stuff, then in one-and-a-half to two years we’re going to dump it into the next series of distribution channels at lower prices,” says retailer Steve Vorhaus of Rocky Mountain Racquet Specialists in Boulder, Colo. “In a perfect world, it would be really nice if we could depend on longer product shelf life and stable pricing policies.”
“For the most part, retailers are right” regarding closeouts, says Kevin Kempin, CEO and president of Head USA. “It’s not enough to just throw a bunch of racquets out on the market and see what sticks, and if it doesn’t stick, move away from it.”
But there’s always the other side to it, he adds. “I think there’s also an impatience at the retail level. If it’s not hot right away, we’ll sometimes see manufacturers and retailers cut bait too early on a product.”
Product life cycles can often put manufacturers in a no-win situation with retailers. For some retailers closing out a product can be a smooth transition in which they’re left with minimal demand for the old product and minimal excess inventory to sell at a discount. But for other retailers, the timing could just be wrong — they have racquets on the wall that didn’t sell and now they’re forced to take reduced margins and carry old product. Plus, they have to compete with larger retailers who now may be able to sell the same product at a steeper discount.
“Retailers tell us not to turn over product as often,” says Kai Nitsche, general manager of Dunlop Racquet Sports. “But the problem you run into is that it’s the new stuff that sells, that’s what dealers and consumers are asking for. So there has to be a balance in trying to support the retailer and making sure you’re competitive and launching new product at the right time. You do find a lot of consumers looking for new product every few years.”
Closeouts, though, can also end up being a good deal for retailers. “You never want to have closeouts,” Muir says, “but it is a good opportunity for retailers to get a great value.”
One of the frustrations that some manufacturers mentioned is seemingly retailer apathy when it comes to manufacturer promotions that are designed to help both brands and retailers.
“Sometimes, retailers just don’t pay attention when we do a promotion, and I think that hurts them,” says Babolat’s DiBiase. “They’re so busy trying to keep their businesses up and running, but they don’t have time to look at a program and initiatives that help them. We’re trying to be a better partner, but we want them to work with us.”
Sticking to MAP
Minimum Advertised Pricing, or MAP, something that wasn’t at all prevalent in the tennis industry 15 to 20 years ago, is now a key for retailer survival. Manufacturers and retailers alike recognize that when products on a MAP policy are sold for less, or when products are taken off MAP, retailers can be affected by lower margins and lost sales.
In general, most manufacturers say that before taking a product off MAP or changing the MAP structure, they’ll try to give retailers at least 60 days notice so they have time to sell what they have at current margins.
“Having a MAP policy I think has been a key that has allowed for improved profitability on those products,” says Muir. “It ensures a level of profitability for dealers of all sizes and in all trade channels.” Wilson, he adds, is extending its MAP policy to include not just racquets, but also bags, strings and balls.
Products off MAP, though, in most cases seem to be up for grabs, and that’s where smaller retailers seem to suffer more. Manufacturers always maintain that certain products will never be “was-is,” says Vorhaus, “but that never happens. All the major manufacturers are doing this — with the exception of Babolat.”
Babolat, maybe because it’s a family-owned business that built up its racquet business slowly in the U.S., comes in for praise from retailers for how it’s able to maintain its pricing and distribution standards, refusing to bow to larger retailers and thereby putting pro and specialty tennis shops at ease. Off the record, some U.S. manufacturers credit the French company as having hit on a formula that allows them to avoid some of the distribution and retailing challenges other brands face.
“Babolat protects its dealers,” says retailer Gaudreau. “They make sure everyone is on a level playing field and they are willing to shut down anybody who is not playing by their rules.”
Are There Too Many Racquets?
Ask manufacturers if there are too many racquet models in the marketplace, and most will say yes. “We have 12 premium racquets that try to address different player types and we feel that is a good, healthy number for a racquet range,” says Dunlop’s Nitsche. “There are others who have a much wider range, so when you add up all the offerings to retailers and consumers, it can be a bit overwhelming.”
Tecnifibre, which is fairly new to the racquet game in this country, has six SKUs in the U.S. “We don’t go in wanting to sell all six,” says Tecnifibre’s Paul Kid. “We want to focus on one or two models in a store, so we can get the retailer to support that model and push it. Retailers can’t take a large amount of inventory these days. And we don’t offer discounts, so we’re able to control our mass pricing.”
Most manufacturers say they’re looking at about a two-year life cycle for products. Tecnifibre, however, is shooting for longer. “Our goal is to design a racquet that will be around for seven to 10 years,” Kid says. “The product may evolve during that lifespan, with maybe a new cosmetic or new material, but we want it in our line for two to three years without making any kind of change. We really want players to enjoy that racquet and get behind it.”
Wilson, like other major manufacturers, has reduced its number of racquet models in 2010, says Muir. “For Wilson, being the largest market share in racquets, we have the most consumer segments. It’s fueled our growth, but it has also contributed to this feeling that there is a high number of racquets out there.”
At Vorhaus’s store in Boulder, Colo., “We’ve watched our racquet wall creep around the corner so that we can try to have all the offerings from these different manufacturers,” he says. “There are way too many racquet models.”
But there also is a shift in what retailers are looking to stock: fewer power racquets and fewer frames in the $200-plus category. “More players are going to smaller heads, heavier racquets, less powerful, in that quest for more control,” says Vorhaus.
Vorhaus says he believes the internet has contributed to the large number of models available. “People start doing research on the internet and with all this data, they almost want to custom-design a frame.” What happens, he says, is they end up searching for frames with specific characteristics, then more and more manufacturers have to make those specific racquets.
The internet, though, is a key for not only manufacturers, but retailers and consumers, too. Part of the new economy involves shifting trends in how consumers communicate and get their information about products and services.
“With social networks, people tend to trust their peer groups more than a manufacturer or association,” says Wilson’s Springer. “That’s a huge shift in the way consumers educate themselves. It wasn’t that many years ago that they relied on the manufacturer, but today they seek out the opinions of others.
“In today’s marketplace, the best products and services will win because people will share that information,” he continues. “It’s a wonderful opportunity for all segments of our industry to understand that quality matters.”
Eroding the Dealer Base
Of concern to the industry is whether brick-and-mortar tennis shops — local “touchpoints” for tennis in a community — simply can’t make it financially and are closing their doors. “There is a feeling that retailers have been closing,” says Muir. “The TIA is still trying to quantify it so we can better understand the situation.”
“A lot of brick-and-mortar stores do seem to be struggling,” adds Jolyn de Boer, executive director of the TIA. “Yes, it’s a tough environment to sell high-end tennis racquets because it’s a discretionary purchase, and people are more careful with their discretionary dollars. But I still think brick-and-mortar stores have a huge advantage over everybody else. They need to focus on their strengths: providing a level of service no one else can.”
“We’ve seen some retailers closing,” says Babolat’s DiBiase. “Two years ago, we said this was probably going to happen. People on the borderline financially, some will go under. In the long run the ones that survive will be healthier, and hopefully, as we come out if this, everyone’s healthier.”
“Clearly, there’s going to be some consolidation out there, and that’s not healthy for the industry,” adds Embree. “The erosion of our dealer base is a huge concern for all of us. Retailers are the most critical link, and we have to support them and help them sell more merchandise. But they have to help themselves, too.”
Opportunities and Frequent Players
Many manufacturers realize that they can reap benefits when they get behind programs and initiatives to increase play.
“I think a real opportunity is in QuickStart Tennis products,” says Springer. “Some of the QuickStart products, such as transition balls, can be used by adults. The key is getting them widely distributed and in communicating that this is the way to start playing.”
Kurt Kamperman, the USTA’s chief executive of Community Tennis, agrees. “Manufacturers can clearly help by making the QuickStart Tennis equipment — foam balls, nets, racquets — more readily available. Our industry is desperate for home kits. We have to get that out there for tennis.”
For at least one manufacturer, holding inventory in QST equipment has given them an advantage. “Gamma is one of three manufacturers the USTA has chosen for QuickStart,” says Chuck Vietmeier, the company’s product manager. “Having inventory has helped us with the program. We’ve been able to fill orders that others couldn’t.”
But for all manufacturers, there’s a huge potential if more kids get into tennis. “As QuickStart starts to take hold, we have potentially hundreds of thousands of frequent players,” says Kamperman. “And they’ll constantly need new equipment, larger racquets, shoes and clothing as they grow and improve.”
All segments of the industry agree that frequent players hold the key to potentially unlimited growth in recreational tennis. When you consider that the 5.3 million frequent players (those playing at least 21 times a year) represent 18 percent of total players but 68 percent of total spending, you can see how important it is to create more of them. Frequent players take more lessons, buy more equipment, restring their racquets, spend for court time and participate in leagues regularly.
“A player is not born a frequent player,” says Kempin. “At some point, they had to be an infrequent player. So the feeder system is critical. If we’re trying to pump up frequent players, they have to come from the infrequent player base.”
“Our retention of people after getting them into a tennis program is good, but we need to stay focused on it,” says Baugh. “Tennis should be very proud — there’s no sport in America that can claim what it has: ways for kids to come into the sport, adult programs — we have the tools to grow this.”
Innovation and Education
A couple of tools that manufacturers can use to grow the sport, and their businesses, are innovation and new technology.
“One obvious thing manufacturers need to continually do is offer innovative products,” says Muir. “At the end of the day, what drives business is consumers wanting to buy something and wanting to spend more for something that is innovative. What every retailer should be pushing every brand to do is to make innovative products. As a manufacturer or a retailer, you need to offer product that meets and exceeds consumer expectations.”
Next, says Muir, is for manufacturers to “continue to work on the best possible service. It’s not just inventory levels, it also involves communicating what is available and what is not available. From a Wilson perspective, we try to be consultants to retailers, providing education, knowledge and service.”
Tecnifibre’s Kid says that for his company’s string account base, “We’ve grown our market share over the past four years by being close to our loyal customers. We try to provide them with more education about our products, so they can pass on correct information to consumers. We set out to educate the stringer and align ourselves with these loyal customers.”
Good News Ahead?
On the whole, tennis appears to be better positioned than a lot of other sports to pull out of this economic morass. Just released research by the Physical Activity Council once again shows tennis far ahead of all other traditional sports in terms of participation growth from 2000 to 2009. The gap between tennis and the No. 2 sport in the survey has widened even more, while virtually every other sport is showing a participation decline since 2000.
Possibly even more important is the collective effort by the industry, led by the TIA and USTA, to improve things for all. “I’ve never heard of any sport coming together, top to bottom, with such unity, ever,” says Mike May, the longtime director of communications for the SGMA. “The united aspect of tennis at all levels is unprecedented. It’s a model for other sports to follow.”
For its part, the TIA is plugged into the concerns of manufacturers, retailers and others in the industry. “We had a series of summit meetings over the last year to pinpoint things we can do,” says the TIA’s de Boer. The TIA’s Frequent Player Growth Task Force has a goal of helping to create 7.5 million frequent players by 2015, and 10 million by 2020.
The TIA also created an Economic Growth Task Force to better define the economic impact of the industry and to identify ways to impact growth. “One of the main things we do is use research to identify and try to stay ahead of issues, such as issues dealing with manufacturers’ inventory control,” de Boer says. “We’re also forming a retail panel to better work together with manufacturers and other groups.”
The TIA also created a Careers In Tennis initiative (CareersInTennis.com) that it hopes will help bring new people, along with new ideas and new enthusiasm, into the industry. “A lot of us have been around a long time,” says Tecnifibre’s Kid. “We’re not getting a lot of new blood in, which is a concern because you want new ideas so that we all can grow.”
But at the end of the day, it’s simply about people buying tennis products. “We have to work harder and support efforts to drive consumers to retail stores,” says Embree. “The business is different today. It’s a different dynamic right now than even two years ago.”
“It’s about building more tennis consumers,” adds Wilson’s Springer. “That’s where the health of our industry lies.”
This is the first in a series of articles about the tennis industry’s changing landscape. Future topics will deal with retailers, teaching pros, participation, court construction, pro tennis and more. We’d like to hear your comments and concerns, too. Email them to email@example.com. Please put “state of the industry” in the subject line.
Balls — 2008 to 2009
Strings — 2008 to 2009
Racquets at specialty stores — 2008 to 2009
See all articles by Peter Francesconi
About the Author
Peter Francesconi is editorial director of RSI magazine.