GAM European Equity "Vibe Check"

We have generally been cautious on consumer exposure as many companies prioritised short-term profitability over brand positioning during the last five years.

10 October 2025

As is now widely flagged (see our 'Pricing fatigue' article), categories including luxury goods, spirits and branded foods saw price increases of 30-60% cumulatively, significantly above real wage growth in key markets. The response from consumers has been a mixture of purchase refusal (or at best deferral), reduced consumption and downtrading to cheaper alternatives (think supermarket own-brand products).

In some cases, the drive to protect margins also led companies to reduce advertising and promotional spend. This is now being reversed. Nestlé, for example, has committed to raising Advertising and Promotional spend to 9% of sales, alongside investing in innovation (new and better quality products) in order to win customers back.

We believe sportswear - and in particular footwear - is in a much healthier position as a consumer category

Price increases have been moderate

Average selling prices across key sports footwear categories show a mixed development but overall lower cumulative price impact than other consumer products. Between 2019 and 1H25 we have seen the following price developments:

• Classic court (Tennis shoes like Adidas Stan Smith) – 20% lower
• Running (eg Nike Pegasus) – 15-20% higher
• Retro basketball (think Air Jordan)– around 25% higher
• Skate & Terrace – around 40% higher (driven by the surge in popularity in 2023/2024 of the likes of Adidas Samba and Gazelle)

In summary, consumers can still buy a pair of trainers for roughly $100-150, keeping them comfortably within reach as an occasional, style-led purchase rather than a price-sensitive staple.

Marketing support has been consistent

The major sportswear brands have generally maintained strong levels of marketing support over the last ten years:

• Nike: "Demand Creation" generally close to 10% of sales, with a dip to circa 8% during 2022-24, but now having been lifted above 10% to support the recovery
• Adidas: Marketing spend consistently above 12% of sales

Major sportswear retailers such as JD Sports and DICK's Sporting Goods provide additional marketing support through the wholesale channel. DICK's spends around USD 500 million in advertising, or ~4% of its sales. The wholesale channel - which is receiving renewed focus from brands - accounts for roughly 60% of sales for the likes of Adidas and Nike.

In other words, a pair of trainers retailing at USD 150 has received well over USD 10 of marketing support.

The World Cup effect - 'Soccer' has grown substantially in US since World Cup '94

We think the FIFA World Cup 2026, the first in the United States since 1994, could be a meaningful demand stimulus for sportswear. Football (or "Soccer" to our American cousins) has grown exponentially in the US over the last 30 years. Morning Consult estimates 1 in 3 Americans now consider themselves Soccer fans. In the '90s, the sport barely registered, with 2% of Americans naming Soccer their favourite sport. In 2026, 11 US cities (alongside Canada/Mexico) host World Cup games and >50 million Americans are expected to watch the final, >3x the 1994 level. Adidas is a lead sponsor for the World Cup and the company estimates it could generate EUR 1 billion or more in business for the company (versus EUR 24 billion of sales in 2024).

We express our positive sportswear stance through Adidas and JD Sports

We are expressing our preference for the sportswear category through Adidas and JD Sports in our European equity funds:

Adidas: The business is trading well with the Terrace retro-style shoe trend continuing to grow (counter to fears of an imminent slowdown) and areas of new innovation starting to come through nicely in Performance and Running, for example. We also expect a more limited tariff impact than currently guided to by the company.

JD Sports: The company is essentially a wholesale partner for Nike (40% of revenues), Adidas and the likes of ON Running and New Balance. In recent years, growth has been lower-than-historical levels (flattish versus 6-8% historic sportswear growth). This has been because of a soft consumer environment together with a tough product cycle at Nike. We see the potential for a recovery in trading performance that is not reflected in medium term consensus expectations (1-2% like-for-like growth). In addition, valuation at sub 10 x P/E is exceptionally low for a business whose direct peers trade at >13 x and brand partners on >20 x P/E. Finally, the business is currently running a significant buyback.

Tom O’Hara, Jamie Ross and David Barker manage European Equities strategies at GAM Investments. You can find out more information on the team and the strategies they are responsible for here.