Major shifts are afoot in the global consumer landscape and retail market and, understandably, many outdoor brands are struggling to keep up. As McKinsey noted in their “State of the Consumer 2024” report this summer, “consumers have continued to defy expectations and behave in atypical ways, keeping consumer goods manufacturers and retailers on their toes.” As a result of all this unpredictability in recent years, many brands have found themselves constantly playing catch up to keep up with shifting consumer demand. To be successful, brands have to not only understand what their customers – and retailers – want today, they also need to anticipate what they will want in the future. And they have to be prepared and committed to deliver on it, while also being nimble enough to change course when the circumstances demand it.  

Andrew Barone of Rosenthal & Rosenthal sits down with his colleagues to talk about the current retail environment and its challenges, how consumer demand has impacted outdoor brands and what we hope and expect to see from the retail sector in 2025. Rosenthal’s EVP and head of credit, Anthony Verrilli and two of the firm’s portfolio managers, Derek Sigler (EVP, Northeast Region) and Bertie Pujji (EVP, Western Region), join Barone for a candid conversation about their observations and insights on how clients and prospective clients are pivoting and finding opportunities in the current climate. 

Andrew Barone: What’s the current state of the retail environment? What trends are you seeing and how has the outdoor sector in particular been impacted?

Anthony Verrilli: It is no secret that retail is struggling right now. July 2024 sales were up 1% but that doesn’t factor in that the price per unit has gone up since last July. We have to remember that inflation is cumulative, so with inflation year over year at 3%, that 1% jump in sales is a bit misleading.  

Bertie Pujji: Overall, the retail market for outdoor apparel, accessories, sports gear, and surf companies remains challenging. Although inventory levels have improved a bit compared to last year, the industry is still grappling with higher than usual inventory levels. On top of that, there is a lot of uncertainty surrounding the economy, supply chain issues related to Red Sea disruptions, unrest in Bangladesh, and container shortages, all of which are having an effect on our clients’ businesses. 

Derek Sigler: The retail market appears to be generally flat across the board. However, our largest clients are actually performing quite well because retailers have focused their efforts on fewer, more reliable vendors. Retailers are scaling back their vendor base, choosing to deepen relationships with top-performing partners.

Andrew Barone: How has shifting consumer demand impacted businesses in the outdoor sector this year?

Anthony Verrilli: Right now, consumers are struggling with far less disposable income than they’ve had in the past. Salaries are not keeping up, buying power is decreasing and lower income consumers are being forced to pick and choose what they will buy this week just to make it to the next paycheck. Gas and food are the priority, while going out for a meal (even fast food!) may not be in the budget, let alone gear for a hobby like camping or surfing. Even as you move up the income brackets, we’re still seeing cutbacks and reluctance from consumers. Luxury sales are off track and home buying is down across most of the country. This all adds up to weak consumer demand and a volatile retail environment overall, especially for outdoor products that are not necessarily viewed as necessities. 

Bertie Pujji: Consumers seem to be spending more on experiences than they are on actual goods. Most of our outdoor clients are operating under the assumption that consumer confidence will improve in 2025, once the election is behind us and the Fed continues to reduces interest rates. Barring any unforeseen circumstances, many of our clients are anticipating – and hoping – that consumer demand normalizes by next year. 

Derek Sigler: The surge in outdoor activities during and immediately after the pandemic led to an uptick in sales of camping products like tents, kayaks, and sleeping bags. But as the world normalized and travel increased, demand for these products declined and retailers began struggling to unload excess inventory – and many still are. This dynamic has led to a slowdown in open-to-buy and some of our clients’ volume has declined as a result.

Andrew Barone: With consumer demand lagging so much and such a sluggish retail environment, what are the most successful brands doing to break through and grab the attention of consumers? 

Derek Sigler: One thing we frequently keep hearing from clients is that there seems to be a strong preference among retailers for branded products, which are selling better in stores. Retailers seem to favor more well-known brands because they continue to significantly drive sales. 

Andrew Barone: How has consumer demand impacted client requests or needs?

Anthony Verrilli: Decreased consumer demand may pose an over position on unsold existing inventories. In those cases, sales may result in decreased margins and/or a decrease in credit quality of new buyers. Both situations obviously impact liquidity and profits so a re-evaluation of future production would be in order.

Bertie Pujji: With consumer demand slowing, the operating performance of many of our clients has been impacted negatively, which has resulted in tight cash flow in some cases. We are seeing more requests for advances against inventory and short-term overadvance requests at times. As a non-bank lender, we have been able to provide prudent and flexible solutions to help our clients during this challenging period. So many of our clients are also relying more on our expertise and insight into customer credit to navigate this tough retail environment.

Andrew Barone: Inventory – especially excess inventory – has been a major complicating factor for retailers, especially those operating in the outdoor segment. How have retailers responded to these challenges and what can brands expect as retailers continue to grapple with what to do with inventory that is difficult to move?

Derek Sigler: Major retailers like Walmart have adjusted their buying patterns and are requesting that vendors bring in inventory a month or two earlier to accommodate ongoing supply chain disruptions. Capacity shortages and fewer ships have also increased freight costs, which are further compressing margins. In addition, many retailers are no longer providing confirmed purchase orders as far in advance as they used to. Vendors are now often required to stock goods based on customer forecasts and plans, making inventory management more speculative and challenging. 

Bertie Pujji: Consolidation in the outdoor sector also continues to have a big impact, especially when it comes to inventory. For example, the Authentic Brands Group acquisition of Boardriders Inc. last year directly affected demand for many of our growing and even more-established surf industry clients. The deal pushed the industry’s biggest brands like Quiksilver, Billabong, and Roxy into a licensing model. This quickly led to heavy online discounting of Boardriders brands, ultimately looping back into the cycle with retailers having difficulty unloading all of their excess inventory. 

Derek Sigler: We’ve also seen outdoor companies prioritizing goods that do not contain PFAS in their plastic products. While a seemingly positive trend, this shift has contributed to an overstock of older inventory that companies are now forced to unload through discount retailers. That glut of discounted inventory is negatively affecting full-price retailers that are struggling with reduced margins due to the influx of discounted products in the market.

Andrew Barone: Is it all doom and gloom for the foreseeable future or should we be optimistic that circumstances will improve in 2025 and the retail sector will stabilize?

Anthony Verrilli: While I don’t see the retail landscape changing all that much for the fall season, it’s certainly not all doom and gloom. The hope is that the interest rate reduction by the Fed will be the start of a slow build of increased consumer spending. But with uncertainty around the election and other geopolitical disruptions happening around the world, my sense is that consumers will remain relatively cautious for some time. 

Bertie Pujji: Although I don’t expect things to change much this year, there is some hope for next year. Consumer confidence is expected to improve after uncertainty around the election subsides and the Fed lowers the interest rate, which should boost consumer demand. Most of our clients are expecting 2025 to be better than 2024.

Derek Sigler: One of our clients recently met with the CEO of a major outdoor retailer and reported that the CEO sensed a notable shift in consumer behavior on the horizon. He noted that consumers are now more price-conscious than ever before and much more inclined to pursue bargain or discounted products, even at the risk of sacrificing quality. In this tough environment, customers appear to be willing to compromise on quality in exchange for lower prices. 

Andrew Barone: What advice do you have for outdoor brands, both established and growing businesses, that are looking for an edge and want to be successful in this challenging climate? 

Bertie Pujji: My advice would be to create a well-designed omnichannel sales strategy and have a lean business model to get a competitive edge in this market.

Anthony Verrilli: I would look to the overall retail market, whether existing customers or not. Differentiate sellers that are successful from the ones that aren’t performing well. Review online presentations and physically walk brick-and-mortar locations. It’s never bad to pick up some good ideas and perhaps drop bad ones.

Editor’s Note: Andrew Barone is senior vice president at Rosenthal & Rosenthal, a factoring, asset-based lending, PO financing, DTC and e-commerce inventory financing firm in the United States.