In a survey released today by Outdoor Industry Association (OIA), small businesses reported they have lowered revenue expectations, reduced inventory levels, and believe their businesses will rebound later than they expected last fall.
OIA, in conjunction with Piper Jaffray Companies, recently surveyed industry executives with respect to their view of current economic prospects, recovery timeline, cost inflation, and the effect of tightened credit market on near-term business operations. Results of that survey are now available in a new report entitled, The Piper Jaffray Outdoor Industry Survey.
This was the second survey conducted by OIA and Piper Jaffray in the past six months, and reflected a cautious and realistic picture of the economic situation facing the industry.
Nearly all respondents were independent businesses with revenues less than $50M annually, which provides an excellent gauge of the independent channel within the outdoor community. The majority of respondents identified themselves as either vendors or retailers.
Among the highlights:
•Concern has grown: When asked to indicate the level of concern surrounding current economic conditions affecting their business, 98% indicated they are “very” or “somewhat” concerned, up three percentage points from last fall. The level of concern was higher with vendors, where 49% signaled they are “very concerned” versus 36% of retailers. This is a marked increase in the past six months.
•Recovery expectations pushed back: Last fall, the majority of respondents said they expected the recovery to come in late 2009. Nearly half said they believed business would turn in the second half of 2009 and 35% viewed the first half of 2010 as the inflection point. However, based on the results of this more recent survey, that was an optimistic view. Now, only 15% believe the recovery will take place this year. Nearly fifty percent believe the economy will improve in the first half of 2010, one-fourth say the second half of 2010, and 15% believe it will not improve until after 2010.
•Vendors and Retailers are in sync: Last fall, retailers were far more optimistic than vendors about the pace of economic recovery. That disparity has dissipated in this survey with both vendors and retailers having similar perceptions about recovery expectations. This more balanced view is leading to appropriate inventory levels in the channel, which should also lead to improved profitability and pricing integrity as revenues stabilize.
•Businesses prepared for slow-down: Revenue expectations for 2009 have declined since last fall. In the fall survey, more than three-quarters of respondents projected revenues in 2009 would be above 2008. Now, only about one-third expect 2009 revenue to top 2008 and nearly one-fourth expect revenues to decrease significantly.
•Looking Back: The majority of respondents indicated revenues were down over the last three months vs. the prior year. This issue hit retailers harder than vendors, with a majority of retailers saying revenues were down and just over one-third of vendors registering a decline in revenues.
•Looking Ahead: In general, expectations are higher for the next three months, with just under half of respondents expecting revenues to continue declining over the next three months. Overall, we believe a slightly negative outlook on revenues is prudent given that the second quarter of last year was impacted by the federal stimulus package, the personal savings rate is now higher, and the current unemployment rate is higher than in the past.
•Lower sourcing costs: Cost inflation concerns have declined since our last survey as the price of commodities and excess capacity has driven production costs lower.
•Inventory reductions on tap: In response to these economic shifts, respondents report that they have taken appropriate steps in terms of inventory reductions. More than one-half of all businesses are planning inventory levels below last year. Inventory growth below the rate of future sales trends is critical in the current environment to help maintain profitability and keep price integrity.
•Stabilization in the credit markets: There are some encouraging signs in the credit markets with interest rates at historically how levels and some company’s now accessing the market for liquidity. More than three-quarters of all respondents observed no change in their ability to access capital with only a few expressing increased access to capital and 15% seeing a decrease in access to capital.
“This survey reveals that our smaller companies are taking appropriate steps to weather the economic storm,” said Frank Hugelmeyer, OIA president and CEO. “These companies are critical components for our entire industry, and they have made appropriate changes that may accelerate the recovery timeline.”
As the report concludes, “In short, respondents maintain a realistic view of current business trends, sourcing costs, and inventory reductions which should benefit future profitability if sales trends remain stable or improve. While revenue declines are prevalent throughout the sector, for both retailers and vendors, we believe employment reductions; cheaper goods and fewer markdowns will stabilize margins in the second half of the year.”
A copy of the full report, as well as all OIA research is available to members at https://www.outdoorindustry.org.
About Outdoor Industry Association
Outdoor Industry Association® (OIA) is a national trade association whose mission is to ensure the growth and success of the outdoor industry. OIA provides trade services for over 4000 manufacturers, distributors, suppliers, sales representatives and retailers in the outdoor industry. OIA programs include representation in government/legislative affairs, market and social research, business-to-business services and youth outreach initiatives. Educational events include the annual Rendezvous®, Outdoor University®, and the Capitol Summit. Outdoor Industry Association is based in Boulder, Colorado, and is the title sponsor of the Outdoor Retailer tradeshows. For more information go to https://www.outdoorindustry.org or call 303.444.3353.