The sportswear industry is at a pivotal juncture, poised for a dramatic clash between challenger brands and well-established incumbents. As we approach 2025, insights from the BoF-McKinsey State of Fashion report reveal that this showdown will compel both sides to innovate and engage consumers like never before.
The dynamics of the sportswear market are rapidly shifting. By 2024, challenger brands such as Deckers (owner of Hoka) and Asics are set to account for over 50 percent of the segment’s value, marking a significant milestone. For the first time, these challengers will surpass the economic profit of the traditional “Big Four” in sportswear—Nike, Adidas, Puma, and Under Armour—according to the McKinsey Global Fashion Index.
The aggressive growth of challenger brands can be attributed to their ability to outperform incumbents in revenue and profitability. From 2020 to 2024, these challengers are expected to witness a staggering 18 percent annual growth rate, a full 14 percentage points ahead of their larger rivals. This growth trajectory does not stop at revenue; profitability is also on the rise, improving by 4 percentage points during the same period, while incumbents are experiencing a decline of 2.4 percentage points.
One notable success story in the challenger category is Lululemon, which achieved a remarkable $6 billion in sales by addressing the previously overlooked market for women’s athletic wear. This played a significant role in diversifying the athletic apparel landscape, as sales for women were reported to represent less than 25 percent of wholesale sales for Nike and Under Armour in fiscal 2023.
Delivering Visible Innovation
Challenger brands are rising to prominence due to their focus on delivering visible and meaningful innovations. Incumbents, often relying on incremental advancements to performance technologies, have seen their appeal wane. In contrast, innovative products from brands like Hoka—with its oversized midsoles for enhanced cushioning—and On with its distinctive CloudTec® soles provide a clear differentiation.
This commitment to innovation is not limited to footwear. Brands are actively targeting specialized categories, focusing on niche markets often overlooked by larger companies. For instance, outdoor sports brands like Arc’teryx and Salomon have successfully targeted specific sport communities, enhancing their market presence through tailored marketing strategies.
Cultural Marketing and Grassroots Connection
Challenger brands have also mastered the art of cultural marketing, using partnerships with celebrities to enhance their authenticity. Stars like Jack Harlow and Kendall Jenner have been instrumental in elevating brands such as New Balance and Alo Yoga, connecting these labels with youthful consumer bases. Conversely, incumbents face challenges with authenticity as they appeal to broader audiences.
Brands like Vuori and Gymshark have effectively cultivated grassroots connections, engaging with local fitness communities. Hoka, too, has engaged running clubs and collaborated with influential cultural platforms, further building a reputation grounded in authenticity and community.
Filling Wholesale Whitespace
While the late 2010s saw incumbents shift their focus towards direct-to-consumer (DTC) channels and distance themselves from wholesale partners, challengers have capitalized on this gap. They have actively pursued partnerships with popular retailers, driving between 65 and 70 percent of their sales through wholesale strategies.
The statistics underscore the preference for sportswear: up to 90 percent of companies predict steady or increased sales in the coming year, highlighting the resilient demand for athleisure. The boundary between fashion and activewear is increasingly blurred, with a substantial portion of Millennials and Gen Z wearing athleisure multiple times a week. With a strong global focus on health and wellness, the growth of sportswear continues to surpass the broader fashion market, particularly in regions like China, the US, and Europe.
The Evolving Competitive Landscape
As we dive deeper into the competitive landscape, both incumbent and challenger brands must diversify their offerings to maintain relevance. For example, Alo Yoga, typically associated with athleisure, has expanded into performance running shoes, while Lululemon plans to double its men’s business in performance categories like golf and tennis by 2026.
Material and product innovations are critical to building credibility. However, the industry has seen a decline in breakthrough innovations, with a 55 percent drop in patent grants between late 2021 and 2023. The strategic use of celebrity endorsements, such as Zendaya’s partnership with On or Rosé representing Puma, will be pivotal in forging brand narratives that resonate with consumers.
Convergence of Sports and Local Culture
As the influence of sports and culture amalgamate, brands recognize the importance of connecting with local audiences. For instance, New Balance’s collaboration with local artists during the 2024 Paris Olympics showcases a commitment to local culture. Similarly, Adidas is tailoring its efforts in China to foster a deeper connection with youth through localized initiatives.
The future holds significant promise for brands that successfully navigate the balance between DTC and wholesale. While On and Hoka continue to expand into DTC, Nike and Adidas are renewing their focus on wholesale after facing challenges with missed sales targets.
Looking Ahead
The expectations for 2025 are high as the sportswear market prepares for intense competition. Executives must prioritize core innovations, build genuine community connections, and strategically leverage DTC and wholesale channels to thrive in this competitive environment. As the landscape continues to evolve, brands must not only catch up to the trend but lead it, ensuring they resonate with both their existing customers and new market entrants.
In this battle of brands, only those that innovate meaningfully and connect authentically with consumers will come out on top.
