SMS business ActionWatch is the leading provider of insight to the Surf and Skate industry. Here, ActionWatch President Patrik Schmidle gives a definitive overview of the industry response to and recovery from Coronavirus in the USA.

The results combine data from the ActionWatch retail panel which monitors monthly sales and stock data from a panel of retailers, with SMS USA’s PAC study, which is the most comprehensive study of participation trends in the USA. Over 100 individual sports reports are available for sale from $295 in our research store.

June 2020 US core skate and surf sales grew +15%

When we first saw the preliminary June 2020 sales data for the ActionWatch US retailer panel, we had a hard time believing the results. The first set of data indicated that year-over-year sales grew by 20% or more. By the time we received all the data, the store sales for all categories increased by +15% when compared to last June. This resulted in an almost perfect V-shaped recovery after a disastrous March, an even worse April, and a promising May.

On the surface, this V-shaped recovery is encouraging, not just for the short-term recovery of the core surf and skate channel, but for the long-term health of the industry. While the Covid-19 pandemic forced store closures in March, April, and May, it also had a positive impact. As schools and team sports activities were shut down, kids and adults were looking for alternative ways to engage in sports while adhering to social distancing guidelines. Skateboarding not only fits this description, but is inexpensive and can be done just about anywhere. While water sports tend to require a larger investment in equipment and access to beaches, lakes, rivers, and boats, they are easy to participate in while practicing social distancing.

Once core stores were able to reopen, they found themselves in a perfect position. Malls were still closed, and consumers received stimulus checks. The combination of these factors caused a dramatic increase in the number of skateboarders, surfers, bodyboarders, stand up paddle boarders, skim boarders and wakeboarders, which has fueled an unprecedented demand for the equipment needed to participate in those activities.

Participation rise fuels exponential hardgoods and wetsuits growth

We witnessed more than double the pre-pandemic growth rate for skateboard hardgoods (from 49% in February to 118% in June), more than triple the growth rate for wetsuits (from 28% in February to 94% in May), and more than quadruple the growth rate for surf hardgoods (from 25% in February to 113% in June). The below graph reveals that the pandemic further accelerated growth trends that started prior to Covid-19.

Apparel, footwear, and accessories flat

While these circumstances brought foot traffic to the core stores which resulted in positive impact on consumer spending in other categories, those other categories have not rebounded to the same extent as the hardgoods and wetsuit categories. Aggregate apparel, footwear, and accessories were flat compared to last year, which was an improvement compared to the previous 3 months, but did not come close to the double-digit growth they experienced in February.

Largest, most profitable segments declined

While this recovery is undoubtedly encouraging, it is especially important that the apparel, footwear, and accessory categories fully bounce back to pre Covid-19 growth rates. Not only are these the three largest segments, which, in aggregate, make up more than 60% of the sales volume, but they are also the most profitable with retailer gross margins ranging from 49% (footwear) to 51% (accessories) to 53% (apparel). From a year-to-date perspective, each of these segments have been hit hard by Covid-19, resulting in YTD June 2020 declines of -24% (footwear), -27% (accessories), and -30% (apparel).

Smallest, least profitable segments grew

Conversely, the smallest segments with the lowest margins have experienced incredible year-to-date growth. Despite store closures and stay-at-home orders, skate hardgoods experienced 54% growth, followed by wetsuits with 30%, and surf hardgoods with 29%. Unfortunately, these three segments combine for only approximately 20% of the channel sales volume while commanding only the slimmest of margins. Retailer gross margins for surf hardgoods are the lowest at 36% while wetsuit margins (38%) were not much higher. The most recent skate hardgoods trend allowed retailers to raise average gross margins for products in that segment to a respectable 46%, which is still lower than the margins in the larger segments.

Apparel, footwear, and accessories growth vital to recovery 

In summary, while the V-shaped recovery in June was very encouraging and provided much needed cash flow to core retailers, it is a very uneven recovery driven primarily by the smaller, less profitable hardgoods and wetsuit categories. Hopefully, the increased skate and surf participation rates will continue to drive store traffic and accelerate the upward trend for the larger, more profitable apparel, footwear, and accessory segments, not only for July, but also for the remainder of the year.

Patrik Schmidle

President

ActionWatch