Athleisure

Industry Overview
Christopher Li, Bobby McKean, Stefano Butti,
Jackson Grayson, Kitipoom Bunterngsook, Sebastian Peña
Executive Summary

Athleisure
Industry Market PUMA Recommendations
Overview and Segmentation Overview
Trends

2
Athleisure Industry
Overview and Trends

3
What is Athleisure?
Definition: Style of clothing designed as athletic apparel but
that is also suitable for casual, everyday wear.

While the term has been around arguably since the late 70’s
and early 80’s, athleisure only recently became a staple in
Americans’ Popular Culture and by extension their closets.
(2013-2014)

Key Point: Athleisure and standard athletic apparel are in fact

synonyms => it is the application that marks the difference.

The Athleisure trend has been hugely successful and does not
appear to be slowing down.

Source: Forbes & Trendalytics keyword search 2017

4
Millennials Love Athleisure
Athleisure is driven by Millennials. (28% of U.S Pop)

Millennials are more health conscious than previous

generations. (73% of consumers prioritise health and
fitness)

Cultural shifts have loosened pre-existing norms

regarding what is deemed as acceptable clothing in the
workplace => People wear jeans!

72% of Millennials prefer to spend money on experiences

over material things!

The concept of athleisure is built around comfort,

practicality, fashion trend awareness, and the outdoors!
Source: Forbes, Morgan Stanley & Womenmarketing
5
Increase Fitness Activities and Spending Power
Increased income per capita amongst athleisure users
=>health-conscious millennials are also likely to be
driven. (100,000k+)

Data shows a rise in fitness centers throughout the U.S

=> credited to both the millennial’s mentality and the
practicality of athleisure wear.

The apparel’s versatility has made it so that athleisure

can be worn in the office, while exercising, and in
social situations.

Source: Multichannelmerchant
6
Social Media is a Huge Trendsetter
Athleisure has slowly been chipping away at
apparel’s market share. (17% market share)

Large portion of its success is credited to pop-

culture and social media.

Several celebrities like Kanye West, Justin Bieber,

and Selena Gomez have marketed athleisure
products on their social media outlets => They
also wear the clothes in their concerts.

Social Media provides a platform with an

immense amount of exposure and reach.

Celebrities are the ultimate trend-setters in the

industry.
Source: Multichannelmerchant
7
Porter’s Five Forces
Buyer power: Threat of substitution:
High => Trends are set by Low => Customers not able
the customer. Low brand to switch to other sets of
switching cost, variety of apparels to workout
choices and pricing
available
Competitive Rivalry:
High => booming
Threat of new entry:
industry many new
Medium ⇒ as several
players battling for
Supplier power: apparels companies in both
market share.
High => Reliance on athletics and casual wear are
sourcing from Asia (92%) riding the wave and entering
the market

Source: Marketline
8
Athleisure Market
Analysis

9
Overall Sportswear Size and Growth
Overall sportswear and apparel market projected
CAGR forecast of 5.8%, from 2017 to 2022.

+5.8%
Footwear projected market size 86.5 Billion and 0.7%
CAGR

Apparel projected market size 203.18 Billion and 6.43%

CAGR

Opportunity
Market Opportunity (Where to play)
● Overall increasing demand across all
● Overall
sportsincreasing
gears. demand across all sports
gears.
● Specifically, pertaining to athleisure
● Specifically, pertaining
sports apparel to athleisure
have higher % amongsports
all
apparel have higher % among all segments.
segments.

Assumption:
To classify, athleisure as similar to sportswear market.
Discussion Focusing on footwear and sports apparels.
Source : Euromonitor International & Statistica 10
Market Segmentation High Profit Margin,
specifically for
companies that
capitalise well on
Competitive
athleisure trend.
Industry
Huge variety
World Market Share Retail Sales Annual Gross Profit Sales Growth Forecast
Positioning
(2017) Margin (Dec,2017) (2018)

Generalists 17.0% 44.58% 7.7%

Generalists 11.4% Strong 50.44% -0.01%

market
Dominance
by #1 and
Generalists
2.2% 47.13% 2%
#2
(Lifestyle)

Performance 1.9% 43.19% 3.9%

Comfort
0.7% 51.69% 13.1%
Activewear

New Niche
entrance,
Source : Companies Financial Report, Moss Adams Capital and S&P Capital IQ, Euromonitor competition
International & Statistica 11 intensifies
Geographic Segmentation (Global)

1. Global Lifestyle Movement

1. North America large USD per capita.

Positive 5.1% CAGR for sportswear
growth, fuelled by both performance
and athleisure demand.

1. Asia pacific driving force for growth,

with CAGR 8.4% , generating absolute
value growth of USD 32 billion.

Source : Euromonitor International & Statistica

12
Geographic Segmentation (Market Share)

Market Opportunity

1. Puma to maintain market leader

Fragmented
and highly in India Market.
competitive
local brands
1. Gain larger market share in US
market
a. Continue Puma’s Existing
Current strategy in China

1. Localisation of brand, brand

awareness and differentiation
Dominant
market by #1 critical in competitive sportswear
Nike & Adidas Puma #1
Market market
leader in
india

Source : Euromonitor International & Statistica

13
Geographic Segmentation (US)

Driving Forces :
1. High spending per capita in
US
2. Rising Fitness Centres across
US (Euromonitor)

Source : Euromonitor International & Statistica 2018

14
US Market Statistics

US in Numbers 2017

Additional Market Expansion

Considerations
1. Dominant players (Nike, Adidas)
2. Brand awareness is important
among US consumers.

Source: Puma Capital Markets Day Presentation Deck 15

Target Customer Segmentation (US Branding)

#1 Market leader - Nike at

27.51% (even though most
expensive)

Puma Rank Low among US

consumers at 1.31% (even
though cheapest)

Ability to premiumization
closely relates to brand
equity value

Source : Statisa Survey, ID 630846 16

 Target Customer Segmentation (US Branding)
Legend - + indicate product profit margin (2017)
1. Higher Price, higher profit margin
+44.58%

+51.69% 1. Increasing companies leaning towards

$100 style component, but no apparent market
leader.
+50.44%
+44.47%
$80 1. Premunization for style, especially
athleisure trendwear
Median +43.19%
Price of
Brand $60 Overall Market Key Opportunity (Where to play)
Product
as of 2017
(US +47.13%
● Apparel Market Growth
dollars) $46
● Premunization leads to better financial
standing

● US Market remain attractive to gain larger

market share, continue existing strategy in
$0 other market.
Style /
Athleisure Performance
17 Source : Datafiniti ID 828403 , companies financial report (2017)
18
 Overview of PUMA

Source: Puma Capital Markets Day Presentation Deck 19

 EBIT was consistently declining for over a decade

Poor Sell-Through

Poor Distribution

Lack of Clear Stories

Lack of Brand Heat

Lack of Commerciality

Source: Puma Capital Markets Day Presentation Deck 20

 PUMA created a new strategy to come back

● Strategic priorities 1 - 5
have been successfully
implemented and
yielded results.

● Reentering Basketball is
on-going, but no reason
to believe it will fail.

Source: Puma Capital Markets Day Presentation Deck 21

 EBIT has shown significant improvement in 2015

Adjusted to EUR
310-330 million
based on
performance
through Q2

Adjusted from original forecast of EUR 205 million

22 Source: Puma Capital Markets Day Presentation Deck; MarketWatch
 Key Drivers of EBIT Improvement

Sales have grown

across all regions
and product
segments

Source: Puma Capital Markets Day Presentation Deck 23

 Stock growth outpaced main competitors over the past 2 years

Source: Yahoo! Finance 24

 PUMA operates at a global level

Seeing
accelerating
growth and
dominance in e-
commerce

PUMA has a healthy split in regional sales, positioning them as a truly global brand
Source: Puma Capital Markets Day Presentation Deck 25
 PUMA breakdown by product segments

All three product

segments saw healthy
growth in 2017

Footwear is
performing very
strongly pointing to
successful strategy
execution along with
recognition and quick
adaptation to changes
in market trends

Source: Puma Capital Markets Day Presentation Deck 26

Puma, when compared to industry leaders, has a low revenue
margin

Source: Marketline & Statistica

27
Puma does not yet compete against industry leaders in sales

Source: Marketline & Statistica

28
Puma’s Core Competencies

29
 SWOT Analysis

Strengths Weaknesses

Diversified product portfolio Significant dependence on Asia

Strong innovation capabilities for sourcing
Revenue growth Limited scale of operations

Opportunities Threats

Growing global footwear Intense competition

market Foreign currency risk
Strategic partnerships Increase in counterfeit
products

30
 Puma depends on Asia for sourcing

Significant dependence on a single geographic region for sourcing exposes PUMA to risks
associated with social and economic factors
Source: Marketline
31
Recommendations

32
 Recommendations

Growth Enablers Fast Business for Fast Looking Forward

Production

33
Growth Enablers

● Raise Prices
● Millennials believe that quality
comes with increased price
● Build off current success
● Puma was in Fashion Week but
prices do not reflect that quality

34
Growth Enablers

Example

● Zara

○ Prides themselves on speed of

adjusting to trends in the market
○ Allows consumers the ability to
determine what types of clothes
work and what clothes will not
sell
○ Has ability to make clothes based
on their need because stores are
close to factory
35
Fast Business for Fast Production
“ Faster Business Processes for Faster
Business Solutions ”

● More sourcing closer to United

States
● Moving to Mexico decreases
shipping time
● Increases ability and speed of
adjusting to trends

36
Fast Business for Fast Production

Why Mexico?
● Wages in Mexico is cheaper
than China
2018 wages:
❏ Mexico: $2.30 per hour
❏ China: $4.86 per hour

37 Source: https://tradingeconomics.com
Fast Business for Fast Production

Why Mexico?
● Mexico has a higher
productivity than
China, 21 and 15,
respectively.

Source : https://www.conference-board.org/retrievefile.cfm?filename=TED_1_MAR20181.xlsx&type=subsite

38
Fast Business for Fast Production

Why Mexico?
● Gas price is relatively cheaper in
Mexico which leads to lower cost
of logistic from Hub to store.

39 Sources : https://www.globalpetrolprices.com
Fast Business for Fast Production

Why Mexico?
● Government Policies
SEZs, a first special economic zone of
Mexico, providing tax incentives, trade
facilities, duty-free customs benefits,
infrastructure development prerogatives,
and easier regulatory processes. The first
section will be operated no later than
November 30, 2018.

40
Profit Margin Improvement

Growth Enablers Fast Business for Fast Production

Premiumization More production in Mexico

Increase price Increase

Lower cost
price

Increase Profit Margin

41
Looking Forward

● Capitalize on current success

and growth of footwear
● Bring apparel along with
footwear
● Use success in Women’s
Apparel to succeed in Men’s
Apparel
● Continue to use partnerships to
bring Apparel to become a
competitive advantage for
Puma 42
Conclusion
Where Comfort Meets
Industry Outlook A Shift in the Lifestyle Work hard, Play Hard
Cool
DSD DSD
DSD

Where To “Play” Premiumization AUS Market Apparel Market Growth

DSD DSD

Fast Business for Fast

How to “Win” Growth Enabler
Production
Looking Forward
DSD DSD

“Spike” Competitive Increased Improved Production Capitalising on Growth

Advantage Financial Standing Efficiency and Capability Trend

43
Q&A
 “

Appendix
 Puma has a diversified product portfolio

Football Running Golf Motorsports

Geographic Segmentation (Asia Pacific)

1. Strong Growth in Asia

Pacific

1. Highest CAGR
reported in india

1. Large Market Size

opportunity in China

Source : Euromonitor International & Statistica

Geographic Segmentation (China)
Driving Forces :
1. Booming Middle Class in China
2. China Government push for active
lifestyle
3. Rising social media platforms
(TikTok, Wechat)

Additional Market Expansion

Considerations
1. Counterfeit products and
proprietary infringement
2. Local Domestic Brand Challenge
(FeiYue, Li-Ning)
3. Trade War Uncertainty, affecting
supply chain (Considering most
athletics brands source from China)

Source : Euromonitor International & Statistica

 Geographic Segmentation (India)

Market Opportunity

● 6,714.3 USD Million

● 16.6% CAGR
● 5.14 USD capita

Driving Forces :
1. India Prime minister push for fitness school,
activities and lifestyle.
2. Rising standard of living.

Additional Market Expansion Considerations

1. Low profit margin available, per capita
spending for sportswear per unit $USD 5.14, as
of 2017

Source : Euromonitor International & Statistica

 ROS/RMS compare profitability
High ROS
20% compared
to RMS Market
Leader

15%
Return
on
sales
10%

(EBIT/ To gain
REVEN Market
share
UE)
5%

0%

0 5 10 15 20

Relative Market Share

Source : Companies Financial Report 2017 50
Apparel growth is lagging behind other product segments
Source: Marketline
Reference
● https://www.conference-board.org/data/economydatabase/index.cfm?id=27762
● https://napsintl.com/manufacturing-in-mexico/mexico-vs-china-manufacturing-comparison/
● https://tradingeconomics.com/mexico/wages-in-manufacturing
● https://www.forbes.com/sites/themexicoinstitute/2016/07/05/mexicos-special-economic-zones-white-
elephants/#7ca12edf1177
● https://www.taxand.com/wp-content/uploads/2018/04/Mexico-Special-Economic-Zones.pdf
● https://www2.deloitte.com/content/dam/Deloitte/cn/Documents/international-business-support/deloitte-cn-ibs-mexico-
tax-invest-en-2016.pdf
● https://www.lexology.com/library/detail.aspx?g=de749a72-c104-45e1-a7f1-eb712743f67e
● http://jobs.puma.com/wp-content/themes/aboutPUMA_theme/media/pdf/2013/puma_se_01_2014.pdf