What in the fire sale is going on?
It’s the peak of the camping and backpacking season, yet major outdoor brands are running deep, unprecedented discounts on core products like tents, backpacks, and sleeping bags. Independent retailers are upset, taking to LinkedIn to air their grievances and opine about brand management and the undermining of pricing integrity.
Unless you have been involved in soft goods product management for the past four years, you might be confused about where this aggressive discounting comes from.
The answer is a four-year history of COVID chaos, risks in supply chain management, hasty public policy, and a trade organization that walked a tightrope between the business interests of its members and the good of the environment.
Part One: COVID Demand Chaos
2020 got off to a rough start. In January news hit of the first coronavirus patient in the US. By March the country was in lockdown, retailers were closed, and the outdoor industry collectively assumed the economy and camping season were cooked. Brands were cutting orders with suppliers and laying off employees. For a few short months, the future looked grim.
By May of 2020, the industry realized COVID had caused an explosion in consumer demand. Families were substituting their canceled Disneyworld vacations with paddleboarding, cycling, camping, and every imaginable outdoor activity. Even Rollerblade experienced its first positive sales shift in over a decade.
What followed between Q2 of 2020 and Q1 of 2023 was a global, frantic chasing of demand. While nearly all brands grew in sales, the brands that dominated were those who could deliver products. Brand strength, quality, and innovation took a back seat to supply chain prowess. Nielsen estimated that consumer products brands lost $82B in 2021 due to an inability to fill orders.
On the international manufacturing side, COVID outbreaks caused a constant start-and-stop disruption to daily operations. Combined with the unprecedented surge in demand, the industry faced unmanageable backorders. Some factory lead times reached 18 months.
The biggest competitive threat to any established outdoor brand was a desperate retail buyer turning to an up-and-coming competitor to get product – any product – to fill their empty retail shelves. Line review meetings were littered with statements such as “…you are up 20% year-over-year, but the category is up 35%”. The underlying message from retailers was this: Keep up with consumer demand or risk losing placement.
Brands responded with speculative purchase orders, committing to inventory and raw materials a full year before their annual sales and planning cycles would typically begin.
Part Two: The COVID Bubble Burst
In Q1 of 2023, demand for outdoor products took a nosedive. Summer travel was back on, retail sales declined for the first time in three years, and news headlines were dominated by stories of excess inventory at retail. Retail buyers started canceling orders with no indication if and when future purchase orders would be issued.
As news of forecast reductions made their way to suppliers in Asia, factories responded in kind with information about massive raw material inventories. Hundreds of thousands of yards of technical fabric worth millions of dollars sat in warehouses in China, Taiwan, and Vietnam.
That new backpack product line you were planning on launching in 2024? Forget about it. Not only did brands have to figure out how to consume their raw materials obligations, but retailers were entirely uninterested in new product introductions thanks to slow sales and the excess inventory on shelves and in distribution centers.
Part Three: California Drops a PFAS Regulation Bomb
In September of 2022, Governor Gavin Newsom signed into law California’s AB 1817, banning the manufacturing, distribution, and selling of apparel and textile products containing PFAS chemicals in the state of California beginning January 2025. Over the next several months, other states including Colorado, Maine, Maryland, Minnesota, New York, and Vermont followed suit with similar state laws.
The acronym PFAS stands for “Per- and polyfluoroalkyl substances”; thousands of chemicals commonly used to make textiles resistant to water, oil, and heat. In 2022, most technical fabrics that offered waterproof, water-resistant, or stain-resistant properties were treated with some type of PFAS chemical. PFAS chemicals are commonly referred to as “forever chemicals”, are found throughout American soil and waterways, and are known to cause certain types of cancer and other health problems.
Upon the passing of AB 1817, legal experts advised that not only could brands no longer ship products containing PFAS chemicals into the state of California, but those products could not be found on retail shelves come January 2025. Public enforcers could fine brands $2,500 for each violation. Larger lawsuits could come through private plaintiffs. National retailers responded with hard cut-off dates. Some announced that they would no longer accept receipt of products containing PFAS chemicals as early as April of 2024, allowing themselves the back half of the year to clear their inventories of all PFAS products.
The biggest e-commerce retailers would also refuse to accept or sell PFAS products beyond December 2024, even though they had the technical ability to restrict the shipment of products to states with PFAS laws. The financial and legal risk on the part of retailers – regardless of location – was simply too great. The California law was interpreted by many in retail as a defacto regulation for the entire country.
As understanding of AB 1817 spread throughout the consumer products landscape, brands were faced with an inventory liquidation crisis. By the end of 2024, whatever PFAS products and raw materials remained in inventory would be a legal and financial liability. The likelihood of thousands of metric tons of PFAS materials ending up in landfills and incinerators was very high. The choice by 2024 had become clear: discount heavily or write it off.
Food for Thought in the Aftermath
Proactive evolution versus regulatory responsiveness
In September of 2022 when AB 1817 was signed into law, the list of outdoor brands who had proactively eliminated PFAS chemicals from their product line was very short. Two brands that had successfully made the transition were Fjällräven and Keen. Even Patagonia, a brand I consider to be at the forefront of proactive environmental stewardship, had not yet replaced the PFAS chemicals used in its product line, even though it had been researching solutions as early as 2015.
In June of 2023, I attended the ISPO Outdoor Show in Munich where I listened to a discussion on PFAS elimination with two executives from Fjällräven. The company introduced its first PFAS-free water-resistant fabrics in 2012 and began phasing out PFAS from its product line in 2015. Now, the company was advising an audience of outdoor brands about the technical, operational, financial, and legal challenges they too would face in the coming years.
In hindsight, the forward-thinking, proactive steps Fjällräven took to eliminate PFAS from their supply chain were genius. By the time regulations hit, they had already solved the puzzle for their business and could focus on other areas of innovation. However, I imagine the financial and operational costs must have appeared extraordinary when they began the process over a decade earlier.
Maximizing sales versus choosing slow-growth
The outdoor industry will likely never again see a spike in demand as we saw between 2020 and 2022. However, the pressures to meet retail-buyer-metrics will always be part of the industry equation.
When faced with double-digit growth, it is the responsibility of business leaders to ask themselves (a) whether the growth rate is sustainable, and (b) in the event of a plateau or negative growth, what the impact will be to their supply chain and the environment.
Unpopular as the idea may be, perhaps there are merits to applying a maximum year-over-year growth rate to your business. Maybe disappointing your merchant with a more gradual sales curve is okay. Perhaps we should remind ourselves of the operational and environmental perils of out-of-control growth.
The role of a trade organization in an environmentally-minded industry
Traditionally, trade organizations were designed to look after the economic interests of member companies. The Outdoor Industry Association (OIA) is somewhat unique in this regard. As an organization built around the enjoyment of the natural world, the OIA puts environmental stewardship at the forefront of its mission statement:
A member-based collective, Outdoor Industry Association (OIA) is a passionate group of business leaders, climate experts, policy makers and outdoor enthusiasts committed to sustainable economic growth and climate positivity while protecting – and growing access to – the benefits of the outdoors for everyone.
What is the role of the OIA as it stands at the intersection of business interests and environmental regulations? Perhaps the OIA should be a better watchtower for the industry, giving ample warning of pending legislation. Perhaps the OIA should partner with academia and fund materials development research that small member companies could not fund on their own.
For years, the key benefit brands enjoyed with their OIA membership was better access to the Outdoor Retailer trade show. Now that the OIA has parted ways with Outdoor Retailer, it is critical for the organization’s survival to bring relevancy and value to its members.
KP