Australians have reached the proverbial crossroads on their morning jog. We’re more conscious of health and fitness than ever, and yet we’re getting fat, fast.
Recent World Health Organisation research shows that Australians’ waistlines are expanding at a faster rate than any other G7 nation. According to WHO, 66 per cent of Australians are already overweight.
While we may be getting fatter, consumer trends show we are increasingly abandoning fast food and sugary drinks in favour of organic food and paleo diets. This shift is negatively impacting some companies, such as Coca-Cola, which has expanded its product range in an attempt to maintain relevance. It has also catapulted the growth of other companies, such as fitness apparel brand Lorna Jane and vitamin and supplement producer Blackmores.
Despite Australians’ keen interest in fitness and the opportunities this has presented the market, the underlying health problems associated with our alarming obesity rate have not gone unnoticed by the government.
In recent years, governments have undertaken a series of measures to provide consumers with greater transparency – in particular ramping up requirements for fast-food chains to publish products’ nutrition information. We expect that further regulatory intervention will have an impact on companies in this sector, particularly on the unhealthy side of the scale.
A new market created by this craze is the wearable fitness tracking device. Leading brand Fitbit floated on the New York Stock Exchange on June 18 at $US20 ($27) per share.
After peaking a few weeks ago at $US51.64, Fitbit shares are now trading around $US42 with price to earnings of 54 times one-year forward earnings, making it one of the most successful initial public offerings in the United States this calendar year. The market capitalisation of the company has grown 110 per cent to its $US8.7 billion.
Fitbit has sold more than 20 million devices globally, priced between $US50 and $US350. The company dwarfs its rivals with around 67 per cent of the wearable fitness device market. The key long-term challenge will be to maintain its research and development efforts to ensure it can continue to add new products with additional features and designs. This focus is crucial to Fitbit attracting new customers as well as maintaining existing ones as the product replacement cycle arrives.
Fitbit must also remain alert to the threat of competition. Garmen and Jawbone are its major rivals, however Apple Watch and other smart watches also hold fitness features that allow them to compete with Fitbit head on. Jawbone is expected to follow Fitbit with a float in late 2015.
In Australia, JB Hi-Fi, Dick Smith and Harvey Norman are the three major players set to benefit from a wearable fitness device craze. In a recent market presentation, Dick Smith announced the fitness category is one of its largest-selling categories. We expect this trend will continue to drive earnings for Australia’s major retailers.
In the apparel space, Australia is also following a global trend towards fitness wear replacing casual wear. Anecdotally, this can be seen in Australian capital cities with the rise in 30- to 50-year-old females wearing fitness apparel as everyday clothing.
This trend is driving sales in active wear brands Lululemon and Lorna Jane through the roof. According to reports, Lorna Jane is approaching $200 million in revenue, growing at more than 30 per cent with like for like sales in the double digits.
Time will tell whether Australia’s recent uptake of the global trend for health and fitness is here to stay or is simply a fad. If it is a fad, it’ll be an expensive one, as consumers have a growing range of products to move through as they look to trim down.