The past couple of days have been filled with the news of Trump’s new tariff policy. The main themes of my discussions with people are around the level of uncertainty – will these stand as is, how does it impact the macro economic environment, and how does it impact our specific market of events (endurance in particular).
So I wanted to spend some time thinking about how it could impact the endurance market in particular. These are somewhat random topics, but hopefully it helps others think about things.
Direct Impact of Tariffs – Cost of Shoes, Shirts, Medals and Swag Items
Most shoes, shirts, medals and other items that are giveaways or store items used in endurance events are made in Vietnam, as well as China, Cambodia, Sri Lanka and the Philippines. Trump announced tariffs of 44-54% on most of these countries on April 2.
Of course one of the questions is whether these tariff rates will stand as Trump negotiates “deals”, as was publicized on Friday with Vietnam (note this is not a “done deal” yet). This helped Nike recover $Billions in market share as seen in this chart. Nike is still down 9.5% at the end of the week (because it is not a done deal).
Potential Impact on Running Shoes and Running Stores
Running stores have the biggest potential downside if these rates stay in place. Their inventory and the shoe company’s inventory might allow prices to remain the same for a while, but the economics look pretty ugly for these mostly very small businesses who really do not make much profit (I know because I used to co-own a running store).
Quality running shoes cost about $150 in store. Stores typically pay about half of that to the shoe company – so the cost is about $75 for the shoe companies to make money. A 40% tariff on that would increase the wholesale price to $105 – a $30 increase. If the shoe company and store pass that all along to the runner, that is now $180. And given that sales will likely drop at that level, running stores might need to increase their per shoe margin.
Running store owners are hearing rumblings of price increases from $5-40. Maybe rolling price increases as they work thru about 90-180 days of inventory in store and in the shoe company’s warehouses.
The running store owners I’ve talked with in the past couple of days have said they have to fundamentally adapt their businesses – sell more close out and older shoe models, bring in lower cost options, and potentially diversity their businesses. Maybe bring in $100 price point shoes for appealing to high school runners.
There are a number of running stores who have robust race management and timing businesses, and we will likely see more running stores exploring this option.
Running stores serve as a hub for many local running communities, and I fear the impact these tariffs will have on these small businesses and the follow on effects. On the other hand, they may shift their business models to be more service based – putting on races, offering race management and training programs.
From a RunSignup perspective, we are prepared to help running stores make a transition to more services. We have many, many running stores who already do this. And we have a full set of products to help stores offer these services, from membership to race registration to ticket events for training tracking to full a full race day suite of technology.
From an overall endurance market perspective, this has a negative potential of upsetting current balances of business between existing races and timers and stores as a new entrant as a potential competitor. It has the potential positive impact of encouraging and promoting the event, club and training which may cause growth in the overall market.
Potential Impact on Races
High tariffs will have a lower impact on races. As an example, our Scott Coffee Run has about 650 people and shirts cost us about $7 each. However, that $7 includes the costs of shipping, screen printing, and profit margin of the local company we use. So the cost of the shirt is likely closer to $3, so even a high tariff only moves the cost by $1-2. For a $40 race, this is less than 5%. We wrote an article about ways to pass the tariff costs on to participants, and to avoid taking the heat as a race.
Our Annual Trends report shows the 2024 price increases of 2-5%, yet we saw an 8% increase in participation on a per race basis. This implies that there is some room to increase prices for races, especially given the relatively small impact of a tariff on the overall costs of the race. Certainly tariffs do not have the same potential impact as they do on running shoe stores.
Past Economic Shocks Impact on Endurance
The 2008 financial crisis and the 2020 Covid crisis are useful to see what happened. In both cases, running stores did well as many new runners came into the market shopping for shoes. Either because they had the time, or needed a stress relief, or could not afford other activities. In both cases, a couple of years after each shock, races saw an increase in participation. Perhaps the new runners were now confident enough to participate in front of others, or were ready to test their limits.
I am not as optimistic about this tariff war if it continues at the rates indicated so far for running stores. I am more optimistic about races, as the % cost difference in the business is relatively small and there is some elasticity in race prices.
Impact on RunSignup Business
We feel fairly optimistic about our business.
As discussed above, we do not see this having a big impact on participation rates. Given our strong 50%+ market share, leadership product offering and lowest price, we expect to continue to pick up market share. We also have growth in our P2P and ticket businesses which allows us to be diversified. The fact we are employee owned, have no debt and a strong balance sheet and have solid profitability provide us with stability.
In fact, there could be economic pressures on some of our competitors who might be seeking another round of funding, or are dependent on a shoe company for funding. If there is some contraction in participation rates, then it could expose some of the smaller vendors. Enmotive’s closure of its registration business last year likely won’t be the last among vendors.
To sum our position up, we are kind of feeling a bit guilty as we will likely emerge well from this time of uncertainty, while many of our partners and customers and the endurance community as a whole may have some struggles. We will try to be as helpful as possible.
Uncertainty
The one thing that seems certain is a level of uncertainty has entered our businesses. My suggestion – be ready to adapt. And go for a run to help with your stress…