Activewear: Which Investment Funds Are Taking An Interest?

The global activewear market is expected to reach $216.87 billion by 2025, according to Allied Market Research. This presents a lucrative opportunity for investors, with a number of new activewear brands gearing up to compete with established players such as Nike, Lululemon, and Under Armour. While investing in clothing retailers can be risky due to the unpredictable nature of the fashion industry, the activewear market is underpinned by growing health consciousness and the increasing use of green textiles. Several activewear companies have recently received funding, including Outdoor Voices, Yogasmoga, Carbon 38, and Tracksmith, indicating the interest of investors in this space.

The rise of luxury activewear

Luxury activewear is on the rise, with consumers increasingly blending elements of activewear into their everyday wardrobes. No longer reserved solely for the gym, luxury activewear has become a phenomenon, with brands blending fashion and function to offer longevity beyond sweaty workouts. This trend is evident in the street style of celebrities such as Kendall Jenner, Bella Hadid, and Hailey Bieber, who are often spotted mixing fitness wear with designer accessories.

One notable example of the growing luxury activewear market is the boutique BANDIER, which features a curated collection of fashion-forward luxury fitness designers from around the world. BANDIER has expanded its product assortment, opened a flagship store in Los Angeles, and is rumoured to be merging with Carbon38 under BC Brands, indicating a strategic consolidation to strengthen its position in the luxury activewear market.

The partnership between LVMH and the Paris 2024 Summer Olympics also showcases the intersection of luxury and sports. While the details of the Olympic uniform designs remain unknown, the collaboration has the potential to open new doors of creativity and collaboration across multiple industries, including apparel, beauty, jewelry, and accessories.

The demand for luxury activewear is not limited to women, with men's luxury activewear also experiencing significant growth. Brands like Rhone and Plein Sport have carved out a niche in the market by catering to young, urban males who are focused on health and wellness and want luxury clothing that they can work out in. Rhone, for example, was founded by an ex-NFL employee and a former NCAA lacrosse player who wanted to create athletic clothes that remained odour-free for more than 15 washes, which is the average for mass-market athletic brands.

In conclusion, the rise of luxury activewear is a result of shifting consumer preferences towards hybrid wardrobes that blend comfort and style. This trend has created new opportunities for brands across the apparel industry, leading to the emergence of innovative indie brands and collaborations between luxury fashion houses and sporting events. As consumers continue to seek out stylish and functional activewear, the market for luxury activewear is expected to continue its upward trajectory.

The importance of direct-to-consumer strategies

The rise of e-commerce has helped produce a new sales model: direct-to-consumer (DTC). DTC is transforming the way brands connect with customers and is disrupting multiple industries, from apparel to beauty.

Higher margins and lower prices:

Cutting out the middleman or third parties can increase profit margins for manufacturers and brands. With no wholesalers or retail partners, there is no profit split, meaning every product sold is a full reinvestment back into the company. Higher margins can also be passed on to customers in the form of reduced prices, making a company more competitive in the market.

Owning customer data and the customer experience:

DTC brands have full control over the customer journey and can create one-on-one relationships with customers, including their data. This allows for hyper-focused and transparent marketing strategies, such as targeted email marketing and superior customer service. With direct access to consumer data, brands can also make data-driven decisions to predict shopping intentions and make better product recommendations.

Brand image and authenticity:

DTC brands have full control over their brand image and can nurture their relationship with customers over time. They can leverage digital tools like social media to build loyal audiences based on brand authenticity and high-quality products. Today's consumers find this type of experience valuable and are willing to pay a higher price for it.

Faster route to market and innovation:

DTC provides a faster route to market for new products, reducing the time and effort required for launches. This is especially beneficial for startups, who can move from ideation to product launch much faster than larger, legacy brands. DTC also allows manufacturers to test innovative products on a smaller scale and get direct feedback from consumers, reducing the risks involved with launching new products.

Omnichannel commerce:

DTC brands can utilize omnichannel retailing, providing customers with an integrated buying experience across multiple channels and delivery options. This includes the potential for online stores, exclusive partnerships with retailers, and their own storefronts.

Maintaining retailer relationships:

DTC can benefit both manufacturers and their retail partners. According to a study by Forrester Research, 54% of manufacturers who sell directly to consumers have seen growth in sales via their channel partners. This is because DTC customers are often redirected to retail partners for order fulfillment. Over 50% of manufacturers reported that DTC sales helped improve brand awareness and boost leads and sales for their channel partners.

In conclusion, DTC strategies offer a range of benefits, including increased profit margins, improved customer insights and relationships, and greater control over brand image and innovation. By cutting out the middleman, brands can create more authentic and transparent experiences for today's consumers, who increasingly value these qualities.

The role of celebrity endorsements

Gen X and Millennials tend to buy in herds, and what they see others wear and what they say about a brand or product is essential to a community's formation. What's more, what looks cool on social platforms like Instagram or Snapchat drives the fast fashion industry. Companies such as Get Choosy are launching best-in-category forecasting and manufacturing/design houses, getting consumers wildly talked-about and desired fashions in just two weeks.

In some cases, the celebrity partners with the company to create a new line, such as Fabletics and Kate Hudson, and Beyoncé's Ivy Park. In other cases, the celebrity is hired as a spokesperson to connect with a specific demographic, such as singer/actress Hailee Steinfeld for Mission Athleisure, targeting girls/women aged 16 to 24. This demographic is driving the creation of hundreds of small, emerging activewear lines.

Outdoor Voices is another growing company that is very active in hiring social media influencers. Very few activewear companies are not in the influencer business. The best execution and growth by far, though, are Gym Sharks and Revolve. These brands have revolutionized how brands work with influencers by creating events and hosting lavish trips for them.

When these collaborations with multiple influencers are hired not just to post in their activewear but to showcase the lifestyle through video and still images, it creates incredible engagement and, ultimately, sales for the brand.

That being said, price point, comfort, and design will ultimately close the deal for any customer. The cost of influencers and celebrities in this marketplace can range from a few thousand dollars to hundreds of thousands of dollars.

The impact of fluctuating raw material costs

Impact on Profitability and Pricing

Fluctuations in raw material prices can directly affect the overall production costs of activewear manufacturers. When raw material costs increase, manufacturers may need to pass at least some of these additional costs on to their customers to maintain profitability. This can result in higher prices for consumers, potentially impacting demand for activewear products.

Supply and Demand Factors

The law of supply and demand plays a significant role in raw material cost fluctuations. Events such as the COVID-19 pandemic and the Russia-Ukraine conflict have disrupted global supply chains, making it harder for manufacturers to secure raw materials. When supply cannot meet demand, prices tend to rise. Additionally, factors such as world events, economic disruptions, and climate and environmental factors can further impact the availability and cost of raw materials.

Strategies for Mitigating Risk

To manage the impact of fluctuating raw material costs, activewear companies can employ several strategies:

• Financial modelling: Analysing and projecting the costs associated with acquiring and using various raw materials can help companies make informed decisions and create hedging opportunities.
• Strategic sourcing: Evaluating suppliers based on factors such as quality, reliability, pricing, and stability of supply can help identify the most cost-effective and reliable sources of raw materials.
• Agile supply chain: Improving inventory management, reducing costs, and enhancing supply chain visibility can help manufacturers mitigate risks and adapt to changing market conditions.
• Manufacturing process optimisation: Companies can explore ways to reduce their reliance on specific raw materials or find more cost-effective alternatives.
• Dynamic price management: Pricing processes must be adaptable, transparent, and effective in reacting to changing market conditions, including fluctuations in raw material costs.
• Adopting sustainable practices: Embracing environmentally friendly practices, such as waste reduction, recycling, and resource efficiency, can help minimise raw material consumption and reduce environmental footprint.

Impact on the Activewear Market

Fluctuating raw material costs can have both direct and indirect effects on the activewear market. Directly, it can impact the pricing and availability of activewear products, potentially affecting consumer demand. Indirectly, it can influence the strategies of market players, such as encouraging mergers and consolidations to strengthen their position in the market, as seen with the potential merger between BANDIER and Carbon38 under BC Brands.

The growth of the women's activewear market

The women's activewear market is a rapidly expanding sector characterised by its significant size, diverse scope, and robust growth prospects. Expected to reach USD 70.89 billion by 2030, up from USD 17.5 billion in 2022, the market is forecast to undergo a CAGR of 19.11% from 2022-2030. This dynamic sector encompasses a wide range of industries, from biotechnology and renewable energy to artificial intelligence and advanced manufacturing. The rise in health consciousness, sports and fitness enthusiasm among women, and unique advantages of activewear are key drivers of market growth.

The women's activewear market's growth is underpinned by several factors. Firstly, the rise in health consciousness among consumers due to sedentary lifestyles and the prevalence of diseases has led to an increased demand for activewear. This is coupled with a growing trend towards an active lifestyle, with more women participating in sports activities and fitness pursuits such as walking. The unique advantages of activewear, such as quick-drying, thermal resistance, breathability, and chemical resistance, further enhance its appeal. Additionally, the holistic approach of female consumers towards athleisure wear presents lucrative opportunities for market expansion.

The women's activewear market is diverse, with a range of products, fabrics, distribution channels, and price ranges. The product segment includes tops, bottoms, sweatpants, shorts, skirts, yoga pants, leggings, outerwear, jackets, hoodies, and swimwear, among others. Fabric types vary, with polyester, nylon, cotton, neoprene, polypropylene, and spandex being commonly used. The distribution channels are primarily online and offline, with the former expected to grow due to the convenience it offers. In terms of price, the market caters to a range of budgets, with price segments ranging from below $20 to above $60.

Geographically, the women's activewear market has a broad reach. North America, led by the US, currently dominates the market due to the increasing adoption of activewear as casual and sportswear. However, the Asia-Pacific region is projected to experience the fastest growth during the forecast period due to rising disposable incomes and changing lifestyles. Europe, the Middle East, Latin America, and Africa also contribute significantly to the market, each presenting unique opportunities and trends.

The competitive landscape of the women's activewear market is dynamic and includes well-known brands such as Hanesbrands Inc., Adidas AG, Columbia Sportswear Company, Under Armour, Mizuno Corporation, ASICS Corporation, Nike, PUMA SE, and Gap Inc. These companies continuously innovate and adapt to leverage growth drivers effectively. Their strategies include revenue analysis, forecasting, and capitalising on emerging opportunities while navigating regulatory complexities and economic uncertainties.

Overall, the women's activewear market is experiencing unprecedented growth, driven by evolving consumer preferences, technological advancements, and a shift towards sustainable practices. With a CAGR of 19.11%, the market is expected to reach new heights by 2030, presenting numerous opportunities for industry leaders and stakeholders.

Frequently asked questions