CrossFit Is Breathing Life and Opportunity Into Activewear for Investors

Activewear presents an opportunity for investors with CrossFit & a new breed of sports

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Oct 17, 2016
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Think about this for a moment. Fitness has taken over YouTube and Instagram with trainers and professionals offering instructions and tutorials on everything from yoga poses to the proper way to do lunges. There are also full-length, targeted workouts are available on these channels for cardio, strength, flexibility and just about any fitness-related quest someone might find themselves on.

This hasn’t happened by pure chance and it has helped to propel a multi-million dollar industry a few decades ago to what is now quickly growing into a multi-billion dollar industry today. Over the five years leading up to 2016, revenue is expected to have grown at an annualized rate of 2.5% to $30.3 billion, including 3.2% growth in 2016 alone.

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Extreme fitness activities like CrossFit have brought the world of fitness to a whole new level. Active wear, support gear, basically anything that can help athletes lift more, go faster and grow strong are gaining HUGE attention in the market right now. Think about this for a moment, CrossFit has 13,000 gyms in more than 120 countries. That's more than the 12,521 Starbucks locations in the United States.

And with 4 million CrossFit devotees, roughly the population of Los Angeles, this fitness program has tapped into something that was missing in the fitness industry. A new trend has begun and many say that it is far from over.

The number of health club memberships in general has grown, as more individuals have valued fitness as being integral to their health. Furthermore, population growth, particularly among individuals aged 20 to 64, which composes the largest gym-going demographic, has spurred demand for health club memberships.

When CrossFit was just starting to gain traction back in 2011, Reebok, a subsidiary of Adidas (ADDYY, Financial), signed an exclusive agreement to partner with CrossFit Inc. It just so happens that this is the actual organization behind the athletic discipline and has been for the better part of ten years. The sport’s popularity has fueled a rebirth of sorts in the active wear and fitness apparel industries. Fortunately or unfortunately, depending on how you look at it, companies are just beginning to grab hold of this new trend and it has all come down to adaptation. Because let’s face it, CrossFit has become one of the most popular fitness programs in the world over the last 10 years.

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Ironically, supposed market leaders like Nike (NKE, Financial) and Under Armour (UA, Financial) have stumbled when it comes to bucking this trend. In fact, in 2015, Nike started to build itself into the CrossFit community, but faced a swift backlash from Reebok, who then ended up banning Nike's shoes from events. And when you are talking cross-fit, the popularity has far outweighed other “trendy” fitness categories like Zumba, Beachbody’s P90X, and even the newest trend from kettlebell exercises.

Nike’s push to explode into the space hasn’t been met with much more resistance from affiliate CrossFit Programs and the release of the company’s Metcon “cross-training” shoes brings a bounce to the fitness company’s offering within the space. Even though the company doesn’t carry the Crossfit branding due to Reebok’s stranglehold on the Crossfit moniker, Nike certainly is attacking the market indirectly by getting some of the biggest names in the sport behind its products. Though Reebok holds exclusivity until after 2020, Nike and others are prepping for this potential change in tide.

EXOlifestyle Inc. (EXOL, Financial) has also employed the “Brand Ambassador” mentality of getting well seasoned, higher profile CrossFit athletes behind their product. Elijah Muhammad, Brooke Ence, Noah Ohlsen and even U.S. Olympian Sarah Robles, have gotten behind the company’s brand of compression sleeves and wraps geared specifically for CrossFit style exercises. The biggest driver for the industry and for companies within it comes down to switching to old age emphasis from general sportswear to one that zeroes in on a specific athletic demographic.

LuLu Lemon (LULU, Financial) practically invented the term “Athleisure” to take the application of yoga pants and distance it from an actual studio and more comfortably placed inside a coffee shop or supermarket. The issue with this is that higher prices and in-store foot-traffic traditionally have driven this brand. With more buyers choosing to stay in their homes while shopping in their yoga-pants in order to buy more yoga pants, LuLu has gotten tripped up in recent quarters in comparison to analyst expectations.

Goldman Sachs analyst Lindsay Drucker Mann lowered her price target for Lululemon to $46 per share from $48 per share while maintaining a “sell” rating. “We expect store traffic will remain negative while the tailwind from pricing fades, and see downside risk that traffic weakens further as LULU’s core customers branch out into alternative brands."

This is where companies that focus specifically on the growing cross-fit niche have gained ground where brand awareness, affordability and, in many cases for investors, profit margins, have played a much bigger role. It also creates an overflow into additional revenue streams from things like hosted events. Crossfit, for instance, generates an estimated $4 billion, so it stands to reason there would be a lot of meat on the bone outside of simply aligning with Crossfit Inc. like Reebok chose to do. Despite potential missteps, Under Armour has made a play on the space via specially designed shoes and has even made a break to replicate its own version of the CrossFit Games via its “Test Of Will”. They call it an “urban fitness challenge” and this year it was held in Singapore, Malaysia, the Philippines and Thailand.

Needless to say, this new trend has begun and may just be getting off the ground. Shifting market trends and a strong “community” atmosphere are bucking this growth. Industry participants like those mentioned will certainly be something to pay close attention to as these kinds of sports begin hitting a more mainstream audience.

Disclosure: The author owns ZERO shares in any company mentioned in this article.

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