What’s next for athleisure and how are prestige brands taking it forwards?

investment viewpoints

What’s next for athleisure and how are prestige brands taking it forwards?

Juan Mendoza - Lead Portfolio Manager

Juan Mendoza

Lead Portfolio Manager

Athleisure has proven to be a remarkably popular segment of the fashion industry. Prestige brands that are capable of establishing and maintaining a competitive position offer a path to sustainable investment opportunities.

The soaring popularity of athleisure products – loosely defined as sportswear that has been designed to be worn both in and outside of athletic settings – has proven to be a lucrative trend for digital e-commerce/marketplaces and brands alike. It has also opened up new opportunities for brands previously associated with performance sport, as well as for high end names such as Dior, Louis Vuitton, Gucci and Balenciaga1.

There is ample evidence to suggest this trend also has further to run, as more consumers prioritize exercise and their health.

 

What does the future hold for this market?

This market continues to develop which presents a myriad of opportunities for investors. Athleisure has arguably been a defining trend of this decade. According to a recent report from Euromonitor International, demand for these products continues to outpace the apparel and footwear industry as a whole, and the fundamental drivers show little sign of losing momentum.

According to market research company the NPD Group, for example, activewear not only represents 24% of total apparel industry sales, it is forecast to add an extra $61bn by 2021. Separately, Morgan Stanley expects global athletic wear sales to reach $355 billion in 2021, up from $290 billion in 2017.

In an increasingly crowded marketplace, investors would be well advised to focus on those brands with a proven track record and a demonstrable ability to capitalise on a brand identity.

The market is split among many different lines including traditional athleticwear companies and the athleisure pure plays so there are no shortage of players on the field. Canadian retailer Lululemon1 is a particularly prevalent name in the athleisure pure play space and is widely credited with popularizing the category. The company has set itself the goal of growing to $4 billion in revenue by 2020, a part of which will involve bringing sales to men up to the $1 billion mark. The company is also keenly focused on appealing to burgeoning markets in Asia, where it has previously noted that demand is particularly strong. We continue to have large exposure to Lululemon, as well as other athleisure brands such as Athletica, Fila Korea and Li Ning1.

Elsewhere, there are the names perhaps more commonly associated with performance sport such as Nike and Adidas1. Nike is currently focused on what it has identified as a number of growth opportunities, including those in women’s athletic and leisure wear. The company reports that its recent ‘Dream Crazier’ campaign, narrated by Serena Williams, broke several consumer engagement records, as part of a broader strategy to accelerate the women's business.

 

How do shifting demographics support this trend?

In terms of observable global demographic shifts, the outlook is positive. Adults now continue to buy branded items that were previously assimilated to the youngest. This development is good news for these brands. But it is the millennials and Generation Z which are really driving top-line growth in athleisure. Importantly, these are markets which are growing in strength and numbers. By 2020, for example, millennials will represent the largest segment of the adult population. This is a generation that has significant purchasing power and also influences the rest of the market. High end names like Dior, Louis Vuitton, Gucci and Balenciaga1 have established athleisure in their product offering, from apparel to footwear, in order to benefit from this growth and to gain relevance with new customers of the Gen Z and millennial generations. Companies which can successfully align with the needs and wants of this demographic can expect to find themselves on a more sustainable future path.  

 

Demand remains strong in Asian markets

Demand remains strong in Asia where consumers continue to follow the athleisure trend. All major sportswear brands are reported to have registered robust revenue growth in China last year, driven primarily by revenue growth in apparel2. There is a strong foundation for further growth here, given both the country’s expanding middle class – and the subsequent rise in disposable income - and the government’s focus on promoting physical health and fitness.

The outlook may be optimistic for this sector, but it is a fair assumption that the longer it lasts, the more players it will attract. In an increasingly crowded market, those brands with the means to build and defend long-term competitive positions stand the best chance of delivering sustainable economic returns.

sources.

Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or securities. It should not be assumed that the recommendations made in the future will be profitable or will equal the performance of the securities discussed in this document.

UBS Research note 27 February 2019.

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