Clifford makes the latest contribution to theIndustry Focus mailbag after he wrote in to ask whether declining interest in hunting, fishing, and outdoor sports has been a major factor in the demise of many outdoor and athletic gear retailers.
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On this episode ofIndustry Focus: Consumer Goods, Vincent Shen is joined by Motley Fool contributor Daniel Kline to address the softness in the outdoor sports market. While some traditional pastimes have lost their luster, there is a bright spot for the industry.
A full transcript follows the video.
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This video was recorded on April 11, 2017.
Vincent Shen:Clifford asks, "Hey do you have a source that confirms that the outdoor equipment market is not shrinking? My suspicion is that with the changing face of America, many people just aren't fishing or hunting or camping." At first glance, you consider some of the major challenges we talked about with brick-and-mortar chains, brands that havein general, encountered over the past year or so. Just some examples, Sports Authority, gone, City Sports, gone, Vestis Retail, which operated Eastern Mountain Sports, Bob's Stores, and Sports Chalet, those chains, it declared bankruptcy last summer, reemerged asEastern Outfitters, and just in the past week, Eastern Outfitters announced they will be closing a number of stores. Their bounce back has not been as successful as they'd hoped. It seems like Clifford might be on to something in terms of these outdoor retailers finding themselves facing a smaller market than what we may have previously had. Dan, have you taken your son hunting or fishing at all? Even camping?
Kline:We've gone fishing. Knowing we were going to talk about this, I danced around this a little bit in the last segment. I think it's fair to say that there's some softness in some of these markets. You're right, there might be less hunting. We talked a little bit about that gun sales in general, which were at all time highs due to fears that President Obama might pass some regulations against guns, have softened a little bit, or at least, there is some fear that they're going to soften. So there absolutely could be a lower demand, but I don't see how the lower demand has caught up to the incredible loss of retail capacity. If you'reCabela's (NYSE: CAB), you've seen competitors go out of business or get a lot smaller left and right. So, clearly, theAmazons(NASDAQ: AMZN)and the REI'sand the people who are succeeding in the space --Dick's, to a very small extent -- they have grown. There might be a smaller pie, but there's less people going after that. Absolutely, have I gone fishing? Sure. But how often do you buy a new fishing rod? You bought camping supplies this year, where did you get them?
Shen:I, admittedly, went online for a lot of that, through some companies that do you have a major physical store presence, like REI, like you mentioned, which is privately held, and sometimes, on Amazon or somewhere that's a strict online operation.
I have data here, specifically, from the U.S. Fish and Wildlife Service that shows ongoing declines in the number of hunters and fishermen in this country over the past several decades. In 1970, I think it was 40 million Americans had hunting licenses compared to just 14 million or so today. You have to keep in mind, as well, the country's population has grown in that same time period from about 200 million to over 320 million. So the rate ofparticipation is even gloomier, I would say. Fishing faresa little bit better, withestimates that the number of anglersin the U.S. is about 40 to 50 million. Buteven then, participation among especially the youth, called the next generation of fishermen, and hunters, both these activities show a far less encouraging outlook. But they're still huge multi-billion dollar industries.
I think the bright spot is, Clifford mentioned camping as well. Despite what amounts to a huge number of entertainment alternatives and activities out there that are available to people today -- the internet, streaming, television, video games, school sports,all these activitiesthat keep both adults andyounger consumers and kids busy these days, they haven't really completely abandoned the outdoors. National Park Service actually reported record visitation in recent years with annual visitors topping 300 million. Pretty impressive in that regard. But the last point I'll make, you brought up gun sales and gun ownership.
That's really reflected even in Cabela's results. They have theirhunting equipment, which includes firearms, scopes, archeryequipment and related accessories and supplies. Huntingequipment as a percentage of Cabela's sales went up from40% in 2010 to48% in 2016. This,I would say generallyreflected a huge boom periodduring the administration for President Obama in gun sales. But,when it comes down to it, there'sdefinitely a lot of debatein terms of gun ownership,different surveys, different data,is it actually going down? You have theserecord sales, is it more people buying firearms? But the rate ofownership among households is declining. What do you think, Dan?
Kline:There was compelling pressure,at least in a certain political lobby to, when you had aDemocrat who was perceived as being anti-gun --although he never particularly did anything anti-gun -- in chargeto go out right now and buy guns. And that created a bit of a frenzy,because if you are a gun manufacturer,let's saySturm, Ruger,you're going to be very careful aboutincreasing capacity because,if you build a new factory,which they did, a couple of years ago, butif you build a new factory for short-term demand without factoring in that that demand may cool off, you're going to end up witha lot of excess factory space,and all of the negatives that go with that. So, during this whole peak period, even as there were ebbs and flows in how people felt about Obama, the gun sales were still high because a guygot on the waiting list for a model he wantednine months before and then he got it.
We'restill dealing with the industry shaking some of that off. And I do thinkthere will be a softening, because there is nopossibility of upcoming gun legislation, at least until 2018. Guns are not cheap, so if you already own a few of them, you'reprobably going to back off. Butthe reality is, the Cabela'sand the Bass Pro Shops areso diverse in what they sell,I think the mistake here might be them not shifting their merchandise or their focus based on changing needs. Ifcamping is more popular than fishing, theCabela's I went to in Connecticut pretty regularlydidn't change that much. Theirdisplays, theirallocation of space, was about the same. Maybe that's something that the merged company can deal with. If traditional retailers do a lot more seasonal moving around, thenmaybe some of these sporting goods type retailers --obviously, they deal with seasons, winter, summer -- butmaybe you do need tomassively change how much space you allocate for fishing in certain markets,because it's not as popular. The same with hunting, and the same withall the other categories.
Shen:ForClifford, final takeaways,I think it's interesting to see this balance, withhunting and fishing, with that ongoing decline, you still have what amount to be very significant businesses for these various chains and retailers. I think the best way that you put it, Dan, was shifting that product mix.
Kline:Theyneed to get more sophisticated. Whenyour competitor is Amazon -- andI think we're seeing this withCostcoandsome of the other companies we're talking about,no matter how immune your business is, eventually, the sheerefficiency of Amazon and their one-clickordering, their return process --I just bought something from a third party on Amazon that never showed up,even though they said they shipped it, and within 48 hours, I had acomplete refund. That's where theold world retailers like Cabela's andBass Pro Shops, they'restill thinking like physical stores. Andthey need to go more like Costco andWal-Martand say, "We have this asset ofphysical stores. How do we tie that into, now, we'renot limited to what we have here, wehave this entire world of stores, you can try it here, you can buy one that's there, the size doesn't fit, we have that in another place, you can drop off a return." And they've reallygot to step that up. I would love to seeBass Pro Shops when these companies combine do what Marc Lore from Wal-Mart has said and go out and buy a start-up, go hire some talent and really rethinkhow you approach all of this for the digital age.
Shen:Yeah. And I'll say, too, withfirearm sales, for example, I think that is still a space where thephysical presence is still reallyimportant to buyers, and it makes sense that some of these, during the ObamaAdministration, when sales were really booming, they shifted their product mix. Now,it seems like they'll be shifting againpotentially, if that part of the industry is softening. And as you mentioned, if camping is more popular, especially with,for example, the National Park visitation numbers going higher. But,any other final takeaways from you, Dan, before we wrap up?
Kline:There is noscenario where I'll be camping, but if you'dlike to go shooting sometime, thatseems like a good time.
Daniel Kline has no position in any stocks mentioned. Vincent Shen has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Costco Wholesale. The Motley Fool has a disclosure policy.