The outdoor sector has been thrust into the limelight by a raft of deals. What’s made it so fashionable and is the cake big enough to go around, asks Lisa Berwin

mountaineer

While most top retailers were abroad taking a much-needed break, the bosses of outdoor specialists spent the summer doing deals and plotting growth.

Go Outdoors appointed serial retail entrepreneur John Lovering as its chairman as it eyes a possible sale or float, while private equity firm LDC bought a stake in Mountain Warehouse valuing the retailer at £50m. They are just two of a number of sector specialists that have ambitious growth plans and have thrust outdoor retailing into the spotlight.

While market leader Blacks Leisure continues its turnaround battle, there are a raft of players in the field trying to grab market share.

The outdoor sector’s trading landscape has changed in the past few years, buoyed by the rise in popularity of outdoor pursuits, festivals and ‘staycations’ since the recession. But with such fierce competition, can the market sustain so many growing businesses and who will be the winners?

According to research from profile and retail consultant Pragma, the outdoor clothing, footwear and equipment market was worth £1.4bn last year, an increase of 4% on 2008.

And activity holidays in the UK increased by an estimated 11% between 2004 and 2009. The total activity holiday market, including overseas trips, was worth £4.7bn last year.

There are few forecasts about how the outdoor market as a whole will grow but many observers and retailers are convinced that grow it will.

Frederic Hufkens, chairman of outdoor chain Cotswold Outdoor’s parent AS Adventure, says the market is being stimulated by people’s desire to live healthier lives among other factors.

“Older customers are really big for us,” he says. “People at 60 do lots of outdoor activities. People are also more conscious of nature today.”

Kevin Young, marketing director of 20-store Snow+Rock, agrees that healthier living is becoming a big trend. “It is part of a healthy lifestyle drive. In cities people are now running or cycling to work,” says Young.

The popularity of sponsored challenges such as marathons or mountain climbing has also increased. “We have definitely had a huge increase in requests for sponsorship,” adds Young.

And the fashion for Brits to take their holidays at home, part-prompted by the recession, shows few signs of slowing - this summer Prime Minister David Cameron, who holidayed in Cornwall, encouraged people to explore the UK. Hufkens says: “People are trying to discover their own country - Snowdonia, the Lake District and Scotland.”

And Go Outdoors founder and managing director John Graham says: “The UK is so rich in places to go and do outdoor pursuits.”

Go Outdoors operates from big out-of-town sheds and so is able to offer a wide range of products for even the more niche outdoor activities and

Graham sees plenty of potential still to play for. “The market is under-supplied and under-developed,” he says.

The fastest growing demographic in the outdoor market along with older customers is people in their 20s.

Blacks Leisure chief executive Neil Gillis says: “In the case of Blacks we have a much younger customer coming through. People in their 20s are driven by the festival business. Festivals are huge now and it is getting people more interested in the outdoors.”

Although Blacks, along with other outdoor retailers, is expanding its store portfolio, last year it underwent a CVA and shed about 100 loss-making stores. The retailer has battled with a catalogue of difficulties including sliding like-for-like sales as well as a tail of stores that in some cases have not been updated for 10 years.

Gillis, who led a £20m fundraising earlier this year, says his privately owned rivals were able to steal a march during Blacks’ difficulties. “It is easier to grow as a private company than do a turnaround in a public environment,” he maintains. “We were loss-making before the recession began. We started from the hospital bed, they started from the maternity ward.”

Takeovers and walkovers

Blacks also had to contend with a takeover bid from Sports Direct owner Mike Ashley, another unwelcome distraction. The bid, however, was dropped after reports that leading outdoor suppliers including North Face would boycott an Ashley-run Blacks.

The owner of North Face has since built a defensive stake in Blacks, demonstrating that it and similar brands have comparable clout to names such as Nike and Adidas in the sportswear market.

However, Sports Direct does have a presence in the market. It owns Field & Trek, once one of the most highly regarded specialists, which has inserts in many Sports Direct stores and 19 standalone stores.

While the woes of Blacks have brought opportunity for rivals, Hufkens warns that retailers’ expansion could outpace that of the market, despite its growth. “It is a great sector but there is a lot of competition,” he says. “Everyone has been in Sale mode quite early this year. The market is growing and will keep growing. However, the supply of retailers is growing faster.”

But Mountain Warehouse founder and managing director Mark Neale argues otherwise. “There has certainly been room for expansion so far. All the growing companies are doing well financially,” he says.

“It is such a fragmented market, with lots of independents, so there is still room for top companies to grow.”

Gillis agrees. “It is a growing market with room for more people to come in. A lot of independents are still there - well over half the market is small independent stores,” he says.

However, the fragmented nature of the market means consolidation by acquisition is unlikely, says Singer analyst Matthew McEachran - the diversity of the plethora of small shops means many are simply unsuitable to buy.

Louise Ramsey, chief executive of the Outdoor Industries Association, says there are more than 1,200 outdoor stores in the UK belonging to between 250 to 300 retailers.

A road to consolidation?

But Ramsey believes the market’s make-up could lead to consolidation eventually. “There has been recent growth by all medium to large retail players in the outdoor industry and given the limited market capacity this will ultimately drive further consolidation.”

She adds: “There has also been in recent years a growth in ‘non-outdoor’ retailers such as supermarkets and department stores now offering entry-level outdoor products. This has posed both a threat in terms of serious pricing issues yet is also a positive in helping attract even more consumers to experience the outdoors.”

Neale also includes a wide variety of retailers among his competitors.

“I don’t subscribe to the view that it is such a tightly defined market - we compete with the likes of Fat Face and White Stuff,” he says.

Fashion has changed in the past few years notes McEachran, and people want to look good in their best North Face jacket even if they are just walking their dog. “Not everyone who wears North Face goes up a mountain,” says Gillis. “Style has changed in the last five years. More people wear it every day.”

Another big shift in the market is online, which retailers are only just getting a real grip on.

Ramsey says: “The biggest shifts have been - from a consumer perspective - the internet and expansion of different retail channels, which has meant consumers research their products online much more extensively before they buy, and while they are still brand/quality led, price has become a much more serious consideration in choosing where to buy.”

Blacks has just relaunched its eponymous website and hopes to improve its customers’ experience online with videos planned from store staff on technical aspects of its products.

Go Outdoors has invested in a new platform for its website and Graham says its online business has doubled since it plans to put its entire offer of 47,500 products online eventually.

Complementary businesses

McEachran maintains that another growth avenue outdoor retailers may want to pursue is buying up complementary businesses. “Running, cycling, mountain biking - they’re all good complementary areas to grow into,” he says.

Just last week Snow+Rock, which also runs bike specialist Cycle Surgery, bought running specialist Runners Need.

“We have had great success in the trail running market but have never been able to sell more traditional white trainers,” says Young. Blacks is also moving more into the runners’ market with a growing offer that it says works well with its customers.

Gillis believes that the sub-sector will polarise in the coming years. “The basket in outdoor is going the way of airlines - people either want low-cost value for money or really premium branded product. Mid-market is where sector is getting squeezed,” he cautions.

That may force some of the retailers in the middle to define their position more distinctly and some specialists have already carved out niches, be it Go Outdoors with its out-of-town proposition, Cotswold Outdoor with its upmarket offer, or Mountain Warehouse with its value own-brand proposition.

Ramsey says that there will continue to be pressures on the outdoor market in common with the retail sector generally, including the VAT rise, exchange rate worries and rising business rates.

But she adds: “The thing that can make the biggest difference to outdoor retailers, regardless of the economy, is the weather.” And that - as all retailers know - is one thing they can’t control.

The outdoor retail market

  • £1.4bn Value of the outdoor market in 2009
  • 1,200 Number of outdoor stores in the UK, belonging to between 250 to 300 retailers
  • £50m Value of Mountain Warehouse after private equity firm LDC bought a stake in it this summer
  • £4.7bn The value of the activity holiday market, including overseas trips, last year

Outdoor pursuits: Retailers go for growth

  • Blacks
    After closing stores earlier this year is planning new shops in key locations such as London’s Regent Street
  • Go Outdoors
    Wants to grow from 25 stores to 50 by 2012, and thinks there is capacity for 100 stores eventually
  • Mountain Warehouse
    Plans to double store numbers to 200 in the next few years, after LDC’s investment
  • Cotswold Outdoors
    10 new stores planned for this year, adding to its 56
  • Trespass
    Plans to grow from 72 to 250 stores in the next four years