Amer Sports, the Finnish sports company, told investors at a “capital markets day” in Helsinki a few days ago that it was on track with its strategic plan outlined one year ago – calling for swift expansion in apparel and footwear, as well as moves into new categories and structural investments to support its growth.
Footwear, which has been the group's fastest-growing category in the last quarters, is meant to reach sales of more than €500 million in the medium term. This compares with sales of nearly €220 million in 2010, although this figure relates mostly to Salomon outdoor shoes, whereas the footwear unit now also encompasses Wilson tennis footwear. Since Wilson footwear makes up less than 10 percent of Salomon's outdoor footwear sales, the target of €500 million still calls for the footwear unit to roughly double its sales. It excludes equipment-related footwear such as ski boots and clip-on cycling shoes.
While focusing on Salomon's trail-running and outdoor performance products, the company wants to add another pillar to the footwear category with outdoor casual products, probably like those marketed by Salomon at last week's GDS shoe show in Düsseldorf. Furthermore, it is studying the launch of more footwear ranges, for example for the Arc'teryx brand or for badminton under the Wilson brand.
Jean-Marc Pambet, president of footwear at Amer Sports, also said that he wants to expand international sales of the group's footwear unit, which are still made at about 80 percent in Europe, the Middle East and Africa (EMEA). He particularly wants to accelerate distribution in the U.S. market, Russia and Northern Asia.
To support this planned expansion, the footwear unit will establish regional product development hubs, with diversified sourcing. While China made up about 95 percent of footwear production for Amer in 2008, that share should be reduced to about 20 percent by 2012. The rest will be mostly split between suppliers in Cambodia, Vietnam and India.
Apparel is another category that is budgeted to achieve a turnover of more than €500 million in the medium term, up from about €157 million in 2010. Salomon made up about 47 percent of this turnover, compared with 46 percent for Arc'teryx and 7 percent for Bonfire. Wilson and Mavic apparel are reported under the ball sports and cycling categories.
Andy Towne, Amer's president of apparel, displayed figures from the NPD Consumer Panel estimating the global sports apparel market at about €91.3 billion at the retail level in 2010, up by 2.8 percent. This includes a share of €45 billion in North America, €24 million in Europe, €16 billion in Asia and only €3 billion each for South America and the Middle East and Africa.
The figures appear to spell opportunity: While Amer has built up a considerable share in the global sports equipment market, its share in apparel amounts to only about 0.4 percent. So far Towne has focused on building the platform for expansion, with improvements in product, sourcing and distribution. More brands and categories will be launched in two years.
Overall, Amer's strategic plan calls for organic growth of 5 percent in constant currencies each year. Heikki Takala, who took over from Roger Talermo as chief executive of Amer Sports in April last year, said the company had already become more consumer-driven, for example with the launch of regional consumer units in Asia and the Americas.
Part of the expansion is to be driven by company-owned retail outlets as well as online retailing. The brands marketed by Amer Sports had 150 stores after the opening of 13 own stores and 17 partner stores last year, as well as the launch of an online store in France. The group added another 30 stores this year, divided evenly between own and partner stores, while its online retailing operations for Salomon, Arc'teryx and Suunto have all been expanded to more countries.
Other units in the group, from winter sports equipment to ball sports, cycling, fitness and sports instruments, have a stronger focus on profitability. With Amer's earnings before interest and tax (Ebit) amounting to 6.2 percent of its sales last year, the group still has a way to go to achieve its target of an Ebit margin of at last 10 percent.
The group has been taking many measures to safeguard its gross margins in the face of growing pressure on sourcing costs. Amer estimates that cost increases will have a negative impact of 150 to 200 basis points on its gross margin, excluding mitigation actions such as consolidation in sourcing and price increases. Labor makes up only about 9 percent of the cost of goods sold by Amer Sports, but it should also be hit by expected inflation in the price of plastic, which represents 14 percent of its costs, as well as polyester, rubber and textiles.
Last year Amer reduced the number of its SKUs by 19 percent. It launched measures to make its operations more efficient in winter sports equipment, which should fully impact Amer's results in 2013. The same applies for the consolidation of its sourcing deals. For the longer term, the company is evaluating options for more European sourcing and own production.