DC Discusses: ICAST reels in the latest for the US Sportfishing sector

Participation in recreational fishing is on the rise

Over 54.5 million Americans went fishing in 2022, a net increase of 4% from 2021 and only slightly below the record 54.7 million set in 2020[i]. Notably, more Americans fish than play golf (25 million)[ii] and tennis (23 million)[iii] combined. Based on recent industry data, we are seeing a wave of first-time participants (4.1 million in 2022[iv]) and increased participation from younger and previously underrepresented demographics – 19.8 million women went fishing in 2022, the highest number since tracking began in 2007[v]. By category, saltwater fishing grew 4% YoY and fly fishing grew 2% YoY, with freshwater fishing drawing the most participants (41.8 million in 2022, up 2% YoY)[vi]. As participation in recreational fishing increases steadily, with 99% of participants in a recent report planning to fish next year[vii], the sport is set to continue expanding and appeal to more and more of the US population.

Industry participants buckle down for what may be a challenging second half of the year

In the first half of 2023, we observed the fishing industry struggle to match consumer spend, which had surged during the pandemic, with many industry participants now benchmarking performance to 2019 pre-Covid levels. For example, Rapala, a global manufacturer of fishing products, reported a 21% decline in global sales and a 16% decline in US sales in the first half of 2023 compared with the same period in 2022 [viii]. The report cited high inventories at the distributor and retailer level leading to discounting and reduced replenishment sales. Similarly, Pure Fishing, the largest manufacturer of fishing equipment in the world and widely considered a bellwether for the industry, reported revenue declines of 14.6%[ix] YoY in 2022. We believe that given the outsized growth the past few years, a reset was virtually inevitable for companies across the board.

Overall, discretionary consumer spend remains challenged given the current economic climate, and economists expect this to persist throughout the year as the consumer remains under economic pressure [x]. However, given the varying levels of consumption for equipment in the space, durable purchases such as rods, reels, and marine electronics will likely feel this pinch more, with more consumable categories like lines, lures and terminal tackle performing better. Digital marketing costs remain elevated, leading to the inability of retailers to “spend their way” out of lukewarm consumer demand. As industry participants buckle down for what may be a challenging year, increasing participation and engagement provides a bright spot that we expect to drive longer term growth in the category.

Apparel continues to net results

There is continued consumer interest in softline brands as an essential part of the fishing experience, with consumers increasingly choosing to wear technical apparel and footwear both on and off the water. Columbia recently partnered with streetwear brand Kith as part of its PFG (Performance Fishing Gear) collection, a clear example of the category’s lifestyle crossover appeal[xi]. Similarly, L.L. Bean and Orvis continue to invest in the sector, with L.L. Bean reporting a 5% increase in sales in the fishing category in its 2022 end of fiscal year report[xii]. Pure-play brands such as Huk, Simms and Pelagic are also reeling in consumer demand in recent years. Notably, we continue to see strong consumer interest[xiii] in more “authentic” commercial grade manufacturers such as Helly Hansen Workwear, Grundens and XtraTuf, with Helly Hansen’s revenue up 20.6% in Q4 2022[xiv]. Recreational anglers are increasingly looking for products that match form with function, opting for items that are waterproof, breathable, and lightweight with UV protection to enhance the overall fishing experience.

Supply chains recovering but inventory challenges remain fishy

Shipping rates from Asia to the US West Coast have dropped by more than 80% following the peak in April 2022[xv], as labor shortages and other supply chain bottlenecks dissipated and consumer demand eased. While this is positive for consumers as goods become more accessible, businesses face the challenge of adjusting pricing and promotional strategies in an evolving operating environment. This has led to a higher level of discounting this year, as firms clear out their backlog of older product models and excess inventory. Consequently, any marginal gains from supply chain improvements will likely be given back in the form of discounts, markdowns and vendor credits. While many industry participants are expecting significant reductions in operating income this year, players with efficient inventory management and revenue visibility that can maneuver the current environment should remain attractive to buyers.

M&A activity has slowed down but buyers remain ‘hooked’ on sector

After the frenzy of M&A activity in the Sporting Goods and Outdoor Recreation space over the past two years - 92 strategic M&A and sponsor buyout deals completed at the peak in 2021 and 85 finalized in 2022[xvi] - it seems that activity is now slowing down. With economic headwinds and uncertainty, sellers and buyers are approaching transactions with increased caution compared to previous years, but their interest remains. There have been 37 deals completed in the first half of 2023 – down 46% from the same period last year[xvii] – comparably, overall US M&A volumes are down roughly 30% YoY[xviii]. A recovery in topline consumer demand combined with improving margins will likely be catalysts for increased deal making over the next twelve months.

Consumer growth in fishing and outdoor pursuits gives cause for optimism

The remainder of 2023 is likely to be challenging as retailers, wholesalers and manufacturers work through excess inventory and look for ways to address rising costs and softening demand. As consumer participation in fishing and other outdoor recreation areas continues to grow, the mood is cautiously optimistic that there will be light at the end of the tunnel. We believe 2024 will bring a return to increased consumer spend and an overall better operating and deal-making environment.

To discuss any of the themes explored, get in touch with the Consumer, Leisure & Retail team here >

This article has been prepared solely for information purposes and is not intended to function as a “research report.” In particular, this means that it is not intended, nor does it contain sufficient information, to make a recommendation as to the advisability of investment in, or the value of, any security. Additionally, this article does not constitute or form part of, and should not be construed as, an offer to sell, or a solicitation of any offer to buy, or any recommendation with respect to, any securities. You should not base any investment decision on this article; any investment involves risks, including the risk of loss, and you should not invest without speaking to a financial advisor. For additional important information regarding this article, please see our insights and publications disclaimer.

DC Discusses: Reeling in the latest for the US Sportfishing sector

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