The sports trade in the UK is polarised between those getting it right and those struggling to recover, claims new market research.
“Now that the storm is lifting, we have been able to assess the damage left behind,” says David Pattison, senior analyst and author of the 2011 Plimsoll Analysis.
“217 companies are in a parlous state and starting the new year clinging on for dear life. We have rated them as ‘Danger’ accordingly.
“Falling demand was the final nail in the coffin for many. The mistake they made though was to not make those painful cuts early enough to protect their business.”
However, the green shoots of recovery are starting to appear, with the number of companies rated by Plimsoll as ‘Strong’ rising to 220.
Pattison explains: “We rated these companies as ‘Strong’ in our latest report, and I have to congratulate them. In fact, many of them retained a Strong rating throughout the recession.
“They have managed to be commercially successful without jeopardising their financial stability. While others fail around them, they are in pole position to capitalise in 2011.”
When pressed on what these contrasting fortunes mean for the UK sports and leisurewear industry, he offers the following four points:
• Getting back to growth will be paramount this year as costs and overheads continue to increase.
Without growth companies will have to reduce overheads dramatically.
Companies need to look to beat the current average profit margin of two per cent if they are to cover costs and invest in other growth areas.
• Identifying these growth areas will be vital as the market grows slowly. A group of 103 companies are leading the way with growth of over 10 per cent. With bank funding still scarce, fast growing companies will have the resources and business model to further exploit new opportunities.
• The 217 companies with a ‘Danger’ rating will be increasingly squeezed out of the market as they are simply not competitive in the current economic environment.
Even their attractiveness as an acquisition is diminishing as new growth areas look more exciting. Watch out for a wave of corporate failures among these companies in 2011.
• Mergers and acquisitions will continue, but the profile of companies involved will shift.
There will still be distress sales this year, as companies buy struggling competitors on the cheap. However, there will be a return of more strategic acquisitions as larger companies look to buy into growth areas in the market.
The new Plimsoll Analysis has named 84 distressed companies that could be bought for a discount, and a further 51 fast growing companies that are sure to attract the attention of the larger players in 2011.
