Millennial Wave: Athleisure - Investment Theme | 1Q19 - DBS Bank
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Investment Theme | 1Q19
Millennial Wave:
Athleisure
Source: AFP Photo
Source: AFP Photo
CIO INSIGHTS 1Q19 | 98
Investment Theme III:
Millennial wave: Athleisure
Dylan Cheang The rise of Athleisure
Strategist
Millennials – loosely defined as those born between 1980 and 2000 – are re-shaping the
Yeang Cheng Ling world. Born in the Internet age, Millennials are vastly different from Baby Boomers and
Strategist Generation X. First, Millennials are highly technologically-savvy and tend to embrace social
media. Second, Millennials often prioritise healthy-living and wellness. Third, Millennials
value experience more than ownership.
As Millennials enter adulthood and possess higher spending power, this generation will
profoundly impact consumption habits – from retail, to education, food, and leisure.
Companies catering to their needs and lifestyles will therefore be beneficiaries of this
trend.
Athleisure, the “new casual” – It is no longer just about function; It is about style.
We will be launching a series of investment themes that covers the “Millennial Wave” –
which essentially refers to new consumption habits that are unique to this generation. In
this inaugural theme, we touch on the rapid rise of global “Athleisure”, a trend that is
synonymous with Millennials.
Now, what is Athleisure? A combination of the words “athletics” and “leisure”, the term
Athleisure was popularised by female yoga wear which was widely used in gyms during
the early days of the trend. It has since spread to men’s fashion and today, the term
Athleisure loosely refers to fashionable and aesthetically-appealing athletic clothing that is
used for everyday wear – the new causal wear.
Think Lululemon. Think Adidas x Kanye West. Think Puma x Rihanna. The list goes on.
Today, Athleisure is no longer about function. It is about fashion, and a lifestyle. The
growth potential is huge and according to Morgan Stanley, sales are expected to increase
to USD350b by 2020 as Athleisure gains market share from the non-athletic apparels
segment.
Style x Wellness: Why Millennials like Athleisure. The Athleisure craze has taken the
Millennial world by storm. Rapid evolution of Athleisure from sports use to leisure wear can
be attributed to two key factors. Firstly, fashion. Celebrities and social influencers strutting
around in these apparels makes Athleisure a fashionable lifestyle which consumers are
eager to identify with. The rise of social media and online shopping has accentuated this
trend, as evidenced from the enormous growth in followers for Nike on Instagram (Figure
1).
CIO INSIGHTS 1Q19 | 99
Millennials embrace a It is more than that. Millennials want to live healthier and live better. According to a survey
healthy lifestyle and conducted by CreditCards.com, Americans spent more than USD100b in 2017 on sports
Athleisure encapsulates events, equipment, as well as gym memberships (Figure 2). On gym memberships, 36%
that of the respondents aged 18-36 said they have paid for one in the last 12 months, a rate
twice that of the older age groups.
Given the rising emphasis on health and wellness, the cool and effortless style of Athleisure
resonates with Millennials.
Figure 1: Social media is accentuating consumer Figure 2: Sports-related spending among Americans
interest in Athleisure
90 NIKE instagram followers (m, LHS) 7
NIKE Sportswear instagram followers (m, RHS) Sports races 8%
80
6
70
5 Sports-themed video games 12%
60
50 4
Gym membership 23%
40 3
30 Athletic equipment 29%
2
20
1
10 Sporting events 34%
0 0
Jan-15 Jan-16 Jan-17 Jan-18 0% 10% 20% 30% 40%
Source: Bloomberg, DBS Source: CreditCards.com
Rising obesity and interest Rising obesity: A reason to embrace an active lifestyle. According to Nielsen’s Global
in exercising underpin Health and Wellness Survey (2015), 49% of the global respondents felt that they are
Athleisure demand overweight, while 50% replied that they are trying to lose weight on an active basis.
When queried on what the respondents are doing to reduce weight, 75% said dietary
change while 72% said doing more exercises (Figure 3). Taken together, rising interest in
embracing a more active lifestyle is positive for the outlook on Athleisure demand.
Figure 3: Athleisure is boosted by rising awareness of health and wellness
Taking medication 7%
Taking diet pills and the likes 11%
Doing exercise 72%
Changing diet 75%
0% 10% 20% 30% 40% 50% 60% 70% 80%
Source: Nielsen
CIO INSIGHTS 1Q19 | 100
Collaborations are Collaborations: The new hype. Collaborations between sports companies and other
generating a lot of hype high-street fashion brands or celebrities have generated lots of hype in recent years. Today,
these days given that Millennials are no longer content with buying regular items off the shelf. Exclusivity is key.
exclusivity is key And that is where collaborations come in.
The “limited edition” nature of collaborations help drive a sense of exclusivity around the
item. Revenue is rarely the consideration. Such campaigns are limited in scale and the
eventual sales revenue will not move the needle for companies involved. Instead, it is all
about generating publicity. Figure 4 lists some of the collaborations that have taken place
in recent years.
Figure 4: Collaborations between sports brands, leisure brands, and celebrities
on the rise
Adidas x Pharrell Williams Puma x Hello Kitty Adidas x Kanye West
Pharrell Williams is an Puma is a German Adidas Yeezy Boost is the
American singer, songwriter, sportswear brand, best official collaboration sneaker
producer, and fashion known for its athletic by Kanye West and Adidas.
designer. A highly-influential apparel and various The Adidas Yeezy 750 Boost
style icon, he entered into a sportswear goods. Recently, “Light Brown” was the first
long-term partnership with the brand collaborated with sneaker release from this
adidas Originals. Hello Kitty. collaboration in 2015.
Source: AFP Photo
Sales of sports leisure Sneakers war: Fashion trumps performance. Sneakers were originally intended to
sneakers have overtaken enhance sports performance and was thus emphasised as a key selling point. But it is no
that of performance longer the case. Research from NPD Group shows that the sales of performance shoes
sneakers have fallen by 10% to USD7.4b in 2017. Sport leisure sneakers, on the other hand, grew
17% to USD9.6b.
The rise of Athleisure over athletics in the sneakers world is best seen in the divergent
share price performances of companies focusing on athletics and those doing a mixture
of both (Figure 6). Clearly, the market recognised that Athleisure is the way to go and
companies that failed to spot this trend will need to play catch-up.CIO INSIGHTS 1Q19 | 101
Figure 5: Sales of sports leisure sneakers have superseded those of performance
shoes
Sales of performance shoes in 2017 (USDb)
12 Sales of sports leisure sneakers in 2017 (USDb)
10 9.6
8 7.4
6
4
2
0
Source: NPD Group
Figure 6: Athleisure-oriented sports brands have vastly outperformed those
focusing predominantly on performance
400 Proxy for Performance-oriented sports brands (Indexed)
Proxy for Athleisure + Performance-oriented sports brands
350
300
250
200
150
100
50
Dec-10 Dec-12 Dec-14 Dec-16
Source: Bloomberg, DBSCIO INSIGHTS 1Q19 | 102
Footwear products: Strong growth ahead. We expect sneaker sales to trend higher in
the years ahead, driven by the following factors:
• Rising popularity of outdoor sports
• The gym and fitness club trend
• Availability of e-Commerce channels
• Urbanisation and shift in lifestyle
• Expansion of the middle-class/rise in living standards
• Millennials entering the work force
• Rising health awareness
• Sports attire becoming a fashion
From a macro perspective, we expect the demand for footwear products to register strong
increase amid rising consumer confidence in the major markets, especially in the US and
China (Figures 7 and 8).
Figure 7: Consumer confidence in US and China
150 US: Conference Board (CB) consumer confidence (LHS) 130
China: Consumer confidence index (RHS)
125
130
120
110
115
90
110
70
105
50 100
30 95
Dec-10 Dec-12 Dec-14 Dec-16
Source: Bloomberg, DBSCIO INSIGHTS 1Q19 | 103
Figure 8: Rising consumer confidence is translating into stronger clothing and
footwear sales
410 US consumption of clothing and footwear (USDb, LHS) 2,300
Dow Jones US Footwear Index (RHS)
400 2,100
390 1,900
380 1,700
370 1,500
360 1,300
350 1,100
340 900
330 700
Dec-10 Dec-12 Dec-14 Dec-16
Source: Bloomberg, DBS
Indeed, the global demand for athletic footwear is on a tear and this is evident from
the combined sales of major brands like Nike, Under Armour, Puma, and Anta, which
registered CAGR of 9% between 2004 and 2017 (Figure 9).
Figure 9: Global footwear sales have been seeing consistent growth
30,000 Combined sales of selected footwear brands* (USDm)
25,000
20,000
15,000
10,000
5,000
-
2004 2006 2008 2010 2012 2014 2016
* Footwear revenue of Nike, Under Armour, Puma, and Anta Source: Bloomberg, DBSCIO INSIGHTS 1Q19 | 104
Equally, the robust top-line expansion for sportswear companies is translating into strong
bottom-line growth. The combined earnings for leading sporting footwear and apparels
companies (Nike, Adidas, Under Armour, Skechers, Columbia, Lululemon, and Anta)
are consistently rising and have more than doubled since 2011. This, in turn, justifies
the premium valuations of the sector (Figure 10) as returns on equity and on assets are
compelling, at forward readings of 35% and 18%, respectively (Figure 11).
Figure 10: Rising earnings of sportswear companies Figure 11: Sportswear companies offer compelling
lend justification to the valuation premium shareholder returns
33 Forward P/E (LHS) Estimated EPS (RHS) 0.7 Forward ROE (%, LHS) 22
31 Forward ROA (%, RHS)
37
29 0.6 20
27 32
0.5 18
25
23 27
0.4 16
21
19 0.3 22 14
17
15 0.2 17 12
Dec-10 Dec-12 Dec-14 Dec-16 Dec-10 Dec-12 Dec-14 Dec-16
Source: Bloomberg, DBS Source: Bloomberg, DBS
Athleisure’s resilience is Athleisure – More of a staple, less of a luxury. From an investment standpoint,
underpinned by attractive Athleisure is classified under “Consumer Discretionary”, which in theory, could see softer
product price points demand in times of an economic slowdown. We do not think this is the case. Unlike
higher-priced and bigger-ticket luxury goods, the price points for Athleisure is within the
affordable range for consumers. As this segment gradually evolves and dominates the
everyday lives of consumers, we believe that sales and demand in Athleisure will stay
highly resilient in the coming years.CIO INSIGHTS 1Q19 Disclaimers & Important Notes This information herein is published by DBS Bank Ltd. (“DBS Bank”) and is for information only. This publication is intended for DBS Bank and its subsidiaries or affiliates (collectively “DBS”) and clients to whom it has been delivered and may not be reproduced, transmitted or communicated to any other person without the prior written permission of DBS Bank. This publication is not and does not constitute or form part of any offer, recommendation, invitation or solicitation to you to subscribe to or to enter into any transaction as described, nor is it calculated to invite or permit the making of offers to the public to subscribe to or enter into any transaction for cash or other consideration and should not be viewed as such. The information herein may be incomplete or condensed and it may not include a number of terms and provisions nor does it identify or define all or any of the risks associated to any actual transaction. Any terms, conditions and opinions contained herein may have been obtained from various sources and neither DBS nor any of their respective directors or employees (collectively the “DBS Group”) make any warranty, expressed or implied, as to its accuracy or completeness and thus assume no responsibility of it. The information herein may be subject to further revision, verification and updating and DBS Group undertakes no responsibility thereof. All figures and amounts stated are for illustration purposes only and shall not bind DBS Group. This publication does not have regard to the specific investment objectives, financial situation or particular needs of any specific person. Before entering into any transaction to purchase any product mentioned in this publication, you should take steps to ensure that you understand the transaction and has made an independent assessment of the appropriateness of the transaction in light of your own objectives and circumstances. In particular, you should read all the relevant documentation pertaining to the product and may wish to seek advice from a financial or other professional adviser or make such independent investigations as you consider necessary or appropriate for such purposes. If you choose not to do so, you should consider carefully whether any product mentioned in this publication is suitable for you. DBS Group does not act as an adviser and assumes no fiduciary responsibility or liability for any consequences, financial or otherwise, arising from any arrangement or entrance into any transaction in reliance on the information contained herein. In order to build your own independent analysis of any transaction and its consequences, you should consult your own independent financial, accounting, tax, legal or other competent professional advisors as you deem appropriate to ensure that any assessment you make is suitable for you in light of your own financial, accounting, tax, and legal constraints and objectives without relying in any way on DBS Group or any position which DBS Group might have expressed in this document or orally to you in the discussion. If this publication has been distributed by electronic transmission, such as e-mail, then such transmission cannot be guaranteed to be secure or error-free as information could be intercepted, corrupted, lost, destroyed, arrive late or incomplete, or contain viruses. The sender therefore does not accept liability for any errors or omissions in the contents of the Information, which may arise as a result of electronic transmission. If verification is required, please request for a hard-copy version. This publication is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.
CIO INSIGHTS 1Q19
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Glossary of Terms:
Acronym Definition Acronym Definition
ADAS advance driver assistance system GDP gross domestic product
AI artificial intelligence GFC global financial crisis
ASEAN Association of Southeast Asian Nations GMV gross merchandise volume
ASP average selling price GRE government-related entity
AxJ Asia ex-Japan HDB Housing and Development Board
bbl per barrel HY high yield
BI Bank Indonesia IG investment-grade
BOJ Bank of Japan IMF International Monetary Fund
bpd barrels ber day IOT Internet of Things
CAGR compound annual growth rate IPO initial public offering
capex capital expenditure ISM Institute for Supply Management
CAR capital adequacy ratio IT information technology
CASA current account saving account JGB Japanese Government Bond
CDS credit default swap LNG liquefied natural gas
CEO chief executive officer LTV loan-to-value
CET1 common equity tier 1 M&A merger & acquisition
CAA CIO Asset Allocation MAS Monetary Authority of Singapore
COC change of control mmbbl million barrels
CPI conusmer price index mmbpd million barrels per day
DM Developed Markets MRO maintenance, repair, and operations
DPS dividend per share NAV net asset value
DPU distribution per unit NIM net interest margins
DXY US Dollar Index NPL non-performing loan
EBITDA earnings before interest, tax, depreciation and OECD Organisation for Economic Co-oporation and
amortisation Development
EC European Commission OEM original equipment manufacturer
ECB European Central Bank OPEC Organization of the Petroleum Exporting
Countries
EM Emerging Markets OPM operating profit margin
EMEA Europe, the Middle East, and Africa P/B price-to-book
EPFR Emerging Portfolio Fund Research P/E price-to-earnings
EPS earnings per share P/TB price-to-tangible book
ETF exchange-traded fund P2F passenger-to-freighter
EU European Union PBOC People's Bank of China
EV electric vehicles PCE personal consumption expenditure
FCF free cash flow PET polyehtylene terephthalate
FDI foreign direct investment PLM product lifecycle management
FFO funds from operations PM portfolio manager
FX foreign exchange PMI purchasing managers' index
FYP first-year premium POE privately-owned enterpriseCIO INSIGHTS 1Q19
Acronym Definition Acronym Definition
PONV point of non-viability SD standard deviation
QE quantitative easing SEC Securities and Exchange Commission
QSR quick-service restaurants SKU stock keeping unit
R&D reseach & development SOE state-owned enterprise
RBI Reserve Bank of India SST Swiss Solvency Test
REIT real estate investment trust TAA Tactical Asset Allocation
RevPAR revenue per available room TEU twenty-foot equivalent unit
RM relationship manager TLAC total loss-absorbing capacity
ROA return on asset TP target price
ROE return on equity TSR total shareholder return
ROI return on investment UCITS Undertakings for Collective Investment in
Transferable Securities
ROTE return on tangible equity UST US Treasury
RRR reserve requirement ratio VNB value of new business
SAA Strategic Asset Allocation WTI West Texas Intermediate
SASAC State-owned Assets Supervision and Administration YTD year-to-date
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