Sentiment Improves, but Economy Remains a Top Concern
Boulder, CO – In a survey released today by Outdoor Industry Association (OIA), small businesses reported that while they are still concerned about the economy, their revenue expectations are up sharply in the past three months.
OIA, in conjunction with Piper Jaffray Companies, recently surveyed industry executives with respect to their view of current economic prospects, recovery timeline, cost inflation, and the effect of tighter credit market on near-term business operations. Results of that survey are now available in a new report entitled, The Piper Jaffray Outdoor Industry Survey.
This was the fourth survey conducted by OIA and Piper Jaffray in the past twelve months, and was conducted during late September through early October. This survey continued to reflect a cautious and realistic picture of the economic situation facing the industry.
Nearly all respondents were independent businesses with revenues less than $50M annually, which provides an excellent gauge of the independent channel within the outdoor community. The majority of respondents identified themselves as either vendors or retailers.
Among the highlights:
- Concern is significant, but has eased a bit: When asked to indicate the level of concern surrounding current economic conditions affecting their business, 55% indicated they are “very concerned”, down from 57% this summer. Still, year-to-year, concern is much higher than last fall’s 37%.
- Recovery expectations for the next three months are up sharply: In our summer survey, 50% of respondents expected revenue increases in the next three months while our most recent report shows 68% of respondents are expecting an increase in revenues. In addition to improving revenue expectations, the survey notes an increased desire to take on inventory positions from prior levels as traffic and demand improves at retail. Note: One quarter of all respondents indicated a willingness to increase the inventory position v. only 17% this past summer and 14% in the spring.
- Inventory growth must be managed: Piper Jaffray believes inventory reductions cannot be overemphasized in terms of the ability to preserve gross margins for retailers and help maintain profitability during a period of consumer spending contraction. Fifty-eight percent of respondents said they were planning inventory declines this past summer, but only 42% of respondents now say they will be lowering inventory levels. This indicates that we’re moving back toward a more normalized demand trend at retail. Piper Jaffray believes inventory growth below the rate of future sales trends is critical in the current environment to help maintain profitability and keep price integrity. Faster turns of inventory typically improve profitably and returns on invested capital as earnings can remain consistent on a lower level of investment.
- Employment indicators are up: Employment indicators have turned decidedly positive versus prior results. Over the last three months, about one-fifth of respondents indicated employment had decreased. That’s significantly more positive than earlier this year when up to 40% said they were expecting employment decreases. Fortunately, respondents’ outlook for the future also improved with 29% expecting employment increases v. only 19% in the summer and 18% in the spring. Overall, employment is improving modestly, and we believe improved revenues are giving some confidence to employers to take a chance on hiring more employees.
- Expected conditions index improves: Piper Jaffray notes their expectations index is up by 3.9 points to 52.4 with the only decline coming from price points. Piper Jaffray believes declining expectations of prices makes sense given excess capacity, lower input costs and a decline in consumer appetite in general, as they believe companies will have to reinvest some savings in price in order to drive revenues higher.
- Majority report no change in credit access: Nearly three-quarters of respondents observed no change in their ability to access capital with 16% expressing increased access to capital and 12% seeing a decrease in access to capital. While the numbers did not improve materially from our summer survey, they did not get incrementally worse.
Respondents are clearly indicating an improved outlook on the future and have improved their expectations about the future with an 8.1% increase in our sentiment index by four percentage points. Other findings also underscored that current bookings and future forecasts will remain very conservative and may curb a near-term economic recovery. However, the improved expectations may lead to higher ordering from retailers, which could help accelerate an economic recovery from current levels.
A copy of the full report, as well as all OIA research is available to members at www.outdoorindustry.org.