The American Image and Trends in the Sporting Goods Industry; The Post 9/11 Marlboro Man Is Reborn Hard

By: Kellyann Davis
CEO, BlackSand Research


According to the National Sporting Goods Association, running, trips to the gym, mountain biking, basketball, recreational boating, hunting, skateboarding, hiking, and weightlifting enjoyed significant increases in participation last year. Other activities including camping, paintball, cheerleading, cross country skiing, scooter riding and baseball lost active participants. It's more than putting down that Razor scooter in favor of a skateboard, even the makers of the Razor saw that coming; we see interesting trends toward activities that we can enjoy closer to home like a day trip to the lake or quick hikes on a local trail rather than a cross country ski trip or a wilderness camping trip. Americans are staying closer to home and their recreation reflects this trend.

Another interesting spike in the numbers lies in a recent increase after a long and hard decline in the number of persons enjoying target shooting, bow hunting, and hunting with firearms. Could this trend, in conjunction with what we see overall in last year's trends reflect America's current mood? Maybe. The data indicate that Americans are making different choices about their recreation that probably reflect our post 9/11 reality. How can sporting goods manufacturers and retailers keep pace with these trends and move with them rather than against the tide? If more people are interested in running this year, and growth was in the ten percent range then how can the industry make sure it reaches those new customers with shoes, apparel, food, and other products related to supporting their new activity. The same is true for target shooters, and bicycle riders both enjoyed more than a million new participants last year. More than 12 million persons decided to start lifting weights last year, the largest increase over all of the measured categories.

So what does this really tell us about trends in the sporting goods industry? Americans adults want to be bigger and stronger, leaner, and better at hitting their targets when they shoot their guns. Oh, and they like to spend a day out on the boat a bit more too. In fact, this trend is reflected in the food industry in the increase in consumption of red meat while consumption of dairy and grains falls. Is this trend a rebirth of the meat and potatoes American man [and woman] with broad shoulders and a steady gun? Looks like the Marlboro Man [and woman] tossed the smokes, road his bike to the gym, and picked up the weights... all so he could look better on his new boat that he plans to protect with a gun that his wife really knows how to shoot. Sounds a lot like the image the Republican party worked with to reach the millions of NASCAR Dads and Soccer Moms during the 2004 Presidential campaign. Okay, maybe they kept the Mom with a gun image in their bag, but not too far in. Yes, this sounds a little bit glib, but gun or no gun, image is key to maximizing sales in this industry. We must pay attention to image that Americans are striving for, it's more important to their purchases then who they actually are in their day to day lives. How American want to see themselves and their children has a huge impact on how they spend in the sporting goods industry.

And speaking of their children, in the past 15 years, "extreme" sports have gained 50 million [mostly young] participants. They spend billions on equipment, food, TV shows, apparel and music successfully targeted directly at them. In fact, this reflects an overall trend among youth away from team sports and headlong into individual sports such as boarding and mountain biking. It isn't just a category of sports either, this is a lifestyle with all of the accessories. And for those of you interested in emerging markets like China, a nice boy named Danny Way recently jumped his skateboard over the Great Wall with an 8 Chinese TV stations and several international stations looking on. Keep in mind that China has 1.3 billion people and birth policies have led to a rather unbalanced ratio of "only child" boys to girls. That sounds like an interesting target market.

In fact, wages in the industry are expected to grow more than 25 perecent by 2014 due to rising demand. That is more than 10 percent faster than the rest of the economy. Where will all of those new customers spend their money? Based on our American image theory, Dad is buying a boat, Mom is headed to the gym, Daughter is running and Son is grinding an edge on his skateboard. And somewhere in China a mother is buying her only son a snowboard.

In the next installment, we'll look at the demographic breakdowns in purchasing patterns of sporting goods. Sneak peak: Surprise, surprise more women than ever are buying guns and women like to practice shooting them at targets. Also, stay tuned to learn about new diet trends that are sure to bleed into the sporting goods industry.

Doing Business in China: Is the Big Mac Index Going Down the Commode?

By: Ben Vickery
VP Research, Asian Markets
Blacksand Research





Part I: How Many Burgers Can They Buy?

When we consider both the opportunities and challenges of doing business in today’s global economy, it is often useful (and at the very least, interesting!) to employ comparative indices. These range from using comparative wages to get a better understanding of labor as an input for production costs to employing more complex indices that analyze qualitative and quantitative data to rank the best countries to do business in. Based upon my recent visit to China, perhaps I can suggest a new index as well: the Toilet Index.

First, let’s look at comparative wages. Low-cost production is obviously a primary competitive advantage that China and other nations have leveraged over the last decade. However, how much really is the average wage in China these days?

One of the better studies I’ve come across on this topic was published in the Bureau of Labor Statistics’ August, 2005 Monthly Labor Review. Judith Banister’s “Manufacturing Compensation in China” found that, based on 2002 earnings data, China’s 30 million urban manufacturing employees made approximately 95 cents per hour, while the reported 71 million manufacturing employees outside the cities made about 41 cents per hour. Taken together, the average Chinese manufacturing wage came out to 57 cents per hour, which is about 3% that of U.S. manufacturing wages. Additionally, Newly China’s newly industrialized Asian neighbors had labor costs roughly ten times that of China, and Mexico and Brazil’s manufacturing wages were roughly four times that of their Chinese counterparts.

In other words, China indeed enjoys a significant advantage of low-cost labor when it comes to production, not just when it comes to U.S. manufacturing, but also compared to China’s Asian rivals and other nations that have tapped into low-cost labor in the past as a competitive advantage. While manufacturing wages are rising in China urban centers, particularly along the East Coast, the nation’s 1.3 billion-person labor pool, as well as Chinese efforts to plan and grow new manufacturing clusters in the nation’s interior (is, China’s “Go West” program), means that this should be a Chinese strength for at least the short to mid-term future.

There have also been various efforts to compare the cost of living on an international basis. My favorite is the “Big Mac Index,” produced by the Economist. To quote from their online site:

“Burgernomics is based on the theory of purchasing-power parity, the notion that a dollar should buy the same amount in all countries. Thus in the long run, the exchange rate between two countries should move towards the rate that equalises the prices of an identical basket of goods and services in each country. Our "basket" is a McDonald's Big Mac, which is produced in about 120 countries. The Big Mac PPP is the exchange rate that would mean hamburgers cost the same in America as abroad. Comparing actual exchange rates with PPPs indicates whether a currency is under- or overvalued."

The most interesting thing about the Big Mac index is that, as noted above, it helps one understand the degree to which a given current maybe under- or overvalued. In the case of China, as of a few months ago, a Big Mac is about $1.30 versus the U.S. price of $3.15. This means that the yuan is 59% undervalued. (As a personal aside, I must report that during my time in China, I never actually dined at McDonald’s among my epicurean ramblings, though I must have spotted literally hundreds of locations in Beijing, Shanghai, and Hong Kong.)

In Part II of this Blog entry, I’ll discuss indices that can be used to consider business strategy, such as Michael Porter’s Business Competitiveness Index. Plus, I have a new index in mind that I’ll “keep the lid on” for now…

BlackSand Blog from the Foreign commercial Service China Business Conference

BlackSand Research supports the U.S. Foreign Commercial services China Business Conference.



"With China's accession to the WTO in 2001, this fastest growing economy in the world offers abundant opportunities to corporations and businesses of all sizes in the West. China is predicted to become the world's second largest economic power by the year 2030. Education is the crucial first step on your journey toward success in developing business relationships with China."

The thing on everybody's mind centered around how best to produce in China under the circumstances... They asked members of the Executive panel, the session that finished the conference, questions about political and social environments, how to protect intellectual property, and where to go to find contract manufacturers. Members of the panel that included Bill Reinsch from the National Foreign Trade Council discussed risk but stressed reward. Bill quipped that if companies weren't willing to take on a little risk, they wouldn't be at the conference in the first place.

And Bill iwas right, and so was the rest of the panel in discussing first and foremost the risk a company must assume when playing in a market like China where laws and just as importantly local custom plays a role in success. Companies interested in growing into such markets need a guide, not just market reports, but real people on the ground who know the character, the customs, and of course the laws that will come into play there.

Once a company is ready to move into a foreign market, the U.S. Commercial Service can provide people on the ground, market reports, and will even set up meetings with potential clients and/or partners. They know how markets behave, who is there, and how to connect you to resources in that market.

BlackSand Research was proud to be a supporting organization of the U.S. Commercial Services China Business Conference. We look forward to working with our clients and the Commercial Service to maximize returns on export strategies for years to come.

BlackSand

What about the Creative Class? What Your Business and the American Workforce Need to Know About The Future of Globalization

By: Kellyann Davis
CEO BlackSand Research

In our thinking about globalization, let's take a moment to consider the works of Richard Florida and Tom Friedman. What they are trying to tell us about the future of globalization. If they [or at least one of them] turn out to be right, how can you exploit that knowledge? What should you be worried about?

Florida's research indicates that creative people tend to cluster in certain places, geographically speaking, that have certain characteristics such as abundant hiking trails and art museums. Great, so now you know where to go to find them, or join them. By the way, Florida seems to insinuate that if you don't join them, you're not creative, or you are but you can't keep up with a whole community of your ilk. Friedman's work [seemingly to the contrary] indicates that the world is getting flatter in the sense that anyone, anywhere can participate in the global economy, from purse makers in the Andes, to product innovators in Bangalore. Notice that both refer to geography when they display their data on how the world is changing and American opportunities shift to other parts of the world.

Richard and Tom seem to be engaging in a little "tough love." Both seem to be telling it like it is, and telling Americans what fate has in store for them and particularly for their children. If you're creative, you'll probably live on one of the coasts in a city like San Diego or Boston. If you don't get an education, a good one that continues throughout your life, you may just end up in a trailer, the American version of a mud hut.

From a business perspective the news about globalization is not bad at all, it means that there are new opportunities out there if you're willing to look for them. The flatter economy means that you can lower production costs by moving those less-efficient operations to low cost countries like China and India. And because creative groups tend to cluster together, it also means that you know where to find innovators regardless of where you're located.

Textile companies and automotive suppliers have moved much of their simple production to low cost countries, they had to in order to remain competitive. So have furniture makers, although many simply succumbed to market pressure and lost to businesses based in low-cost countries. That's the world getting flatter, many countries have low cost labor to offer, and are well on their way to offering high wage, high skill labor as well.

If you're an American worker, don't worry, America is still the most creative place on earth. Creative people and companies in cities like Minneapolis, San Francisco, New York, and Washington, D.C continue to produce ideas that change the world. Now, we have some competition, and that may have the power to drive us even faster toward a better future.

Next time, we'll talk about the future, how things could change drastically by shifting away from a pertroleum based economy to an alternative like hydrogen.