Clifford makes the latest contribution to the Industry 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.
On this episode of Industry 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.
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 have in 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 as Eastern 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're Cabela's (NYSE:CAB), you've seen competitors go out of business or get a lot smaller left and right. So, clearly, the Amazons (NASDAQ: AMZN) and the REI's and 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 of participation is even gloomier, I would say. Fishing fares a little bit better, with estimates that the number of anglers in the U.S. is about 40 to 50 million. But even 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 activities that keep both adults and younger 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 their hunting equipment, which includes firearms, scopes, archery equipment and related accessories and supplies. Hunting equipment as a percentage of Cabela's sales went up from 40% in 2010 to 48% in 2016. This, I would say generally reflected a huge boom period during the administration for President Obama in gun sales. But, when it comes down to it, there's definitely a lot of debate in terms of gun ownership, different surveys, different data, is it actually going down? You have these record sales, is it more people buying firearms? But the rate of ownership 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 a Democrat who was perceived as being anti-gun -- although he never particularly did anything anti-gun -- in charge to go out right now and buy guns. And that created a bit of a frenzy, because if you are a gun manufacturer, let's say Sturm, Ruger, you're going to be very careful about increasing capacity because, if you build a new factory, which they did, a couple of years ago, but if you build a new factory for short-term demand without factoring in that that demand may cool off, you're going to end up with a 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 guy got on the waiting list for a model he wanted nine months before and then he got it.
We're still dealing with the industry shaking some of that off. And I do think there will be a softening, because there is no possibility of upcoming gun legislation, at least until 2018. Guns are not cheap, so if you already own a few of them, you're probably going to back off. But the reality is, the Cabela's and the Bass Pro Shops are so diverse in what they sell, I think the mistake here might be them not shifting their merchandise or their focus based on changing needs. If camping is more popular than fishing, the Cabela's I went to in Connecticut pretty regularly didn't change that much. Their displays, their allocation 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, then maybe some of these sporting goods type retailers -- obviously, they deal with seasons, winter, summer -- but maybe you do need to massively change how much space you allocate for fishing in certain markets, because it's not as popular. The same with hunting, and the same with all the other categories.
Shen: For Clifford, final takeaways, I think it's interesting to see this balance, with hunting 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: They need to get more sophisticated. When your competitor is Amazon -- and I think we're seeing this with Costco and some of the other companies we're talking about, no matter how immune your business is, eventually, the sheer efficiency of Amazon and their one-click ordering, 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 a complete refund. That's where the old world retailers like Cabela's and Bass Pro Shops, they're still thinking like physical stores. And they need to go more like Costco and Wal-Mart and say, "We have this asset of physical stores. How do we tie that into, now, we're not limited to what we have here, we have 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 really got to step that up. I would love to see Bass 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 rethink how you approach all of this for the digital age.
Shen: Yeah. And I'll say, too, with firearm sales, for example, I think that is still a space where the physical presence is still really important to buyers, and it makes sense that some of these, during the Obama Administration, when sales were really booming, they shifted their product mix. Now, it seems like they'll be shifting again potentially, 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 no scenario where I'll be camping, but if you'd like to go shooting sometime, that seems like a good time.