- In six months Fanatics has established offices in Spain, Germany and Japan
- $1bn investment from Softbank being spent on upgrades to international supply chain
- Firm has helped the NBA expand its e-commerce operation in Asia
When Steve Davis took up his role of head of international at sports merchandise retailer Fanatics in October last year, his remit was clear: take the fast-fashion licensing model that has been so successful for the company in the United States and replicate it overseas.
In an extended interview with SportBusiness International he explains how the company is developing additional international merchandising opportunities for its existing roster of clients and forging new relationships with European and Asian rights-holders.
How does the Fanatics fast-fashion model work and what investments have you had to make to take it global?
It’s our belief that the future of this industry and the way that merchandise or fan merchandise should work, is what we call a ‘v-commerce’ operation, which is an agile, on-demand supply chain – a supply chain that looks far more like Inditex with Zara or H&M or Uniqlo, like a fast-fashion supply chain and much less like a traditional supply chain. We’re expanding what we call our made-to-order infrastructure around the world, and we have approved investments for that MTO infrastructure both in Europe and in Asia to start to establish that operation, so we can expand fan choice and fan styling to fans around the world. Those are the two biggest things I’ve been focused on, in addition to really just meeting with clubs, meeting with performance brands and partners such as Adidas and Nike and learning the industry and opportunities.
Can you give an example of how you use data to inform your manufacturing and supply chain decisions?
I’ll give you an example from the NFL, where my very own Philadelphia Eagles won their first ever Super Bowl. They called a play called the ‘Philly Special’ and it’s one of the most famous plays that’s probably ever been called in Super Bowl history. Immediately after the game, we produced artwork and t-shirts and a whole line of products that celebrated the Eagles’ victory and the Phillies’ special call. That, as well as some ‘underdog’ t-shirts that were also very unique, were real-time designs created on the fly that we put on our e-commerce business.
Those designs were some of the best-selling designs and when we saw that, we immediately then manufactured those designs for our wholesale operation and we distributed that in physical retail through wholesale around the country. And it’s an example of taking real-time data that’s occurring – literally the Philly special was called in the game. We immediately, real-time, are producing designs for that item, we’re putting it live the second the game ends on the NFL’s website and the Fanatics website. We’re seeing that that’s a top selling item and then we’re immediately manufacturing and distributing that out into our wholesale operation.
Where do you think the untapped opportunities are in merchandising?
In all the time I’ve spent with clubs and rights-holders over the last six months, merchandise contribution to a club is not meaningful. It’s just not. Media drives huge revenue and contribution to a club. The performance brand partners are largely marketing partnerships more so than [about] the merchandise itself. That’s what drives those rights cheques. So, Nike or Adidas or others clearly write a meaningful cheque, but the actual profit or revenue that a club is able to gain from merchandising revenue is minimal, not very material and not growing. And I believe we can change all those facts for a club.
You’ve been in position for six months. Can you explain how you have grown your global footprint in that time?
If you step back, there’s an important milestone pre-dating my arrival: the $1bn (€810m) dollar investment from the SoftBank Vision Fund to help to accelerate our global expansion. In the context of that, we have a very clear vision about the opportunities that exist in our industry and essentially to make merchandise meaningful and a growth business for clubs and for the licensed sports industry overall. And there are a few key things that we’ve been focused on. The first is to build out our international and global footprint; we’re building local offices and local teams throughout the world so that we can engage with fans of global sports properties where they are and in a way that they are accustomed to. In this last six months we’ve established a Spanish office in Barcelona, a German office in Hamburg and an office in Tokyo.
Why those countries in particular?
Each market has its own rationale. If you look at Germany, it’s obviously a very big and well-developed economy and football market on the continent, and one in which we think we can add a lot of value.
In the case of Spain, we have wonderful and strong relationships with Real Madrid, Atlético Madrid and Valencia and so we have three Spanish teams and it makes sense to localise our operation and service the clubs and the market better to properly grow these businesses.
Then when you look at Japan, you’ve got a well-developed economy and we acquired a business [Majestic] that has relationships with five Japanese baseball teams, so today we have relationships that we can lean on and build upon to expand out. The one place that you didn’t hear me make an announcement about yet, but that we have our biggest plans for, is China. You should expect to see increasing investments in China over this year, and more announcements to come. We launched a Chinese warehouse fulfilment centre just last week. So that’s kind of hot off the press and not officially announced but you’re going to hear about a very significant build out and local operation in the Chinese market.
Given the levels of counterfeiting in China and the fact incumbents are already well-established in e-commerce, would you say it is one of the toughest markets to crack?
China is filled with counterfeit. Chinese customers covet authenticity: they want to buy authentic and they want to own authentic. The issue is there’s very little access that we as an industry give Chinese customers to authentic product. I think when you marry their desire and love for authenticity with our plans to create a truly local real-time and available assortment to the Chinese customer that’s in their sizing, that’s in their styling, that is authentic – it’s direct from club – I see tremendous reason to be optimistic.
I can’t emphasize enough that you often have a breadth of assortment in a home country that is just not available to fans outside of that country or at least the home continent. Chinese customers today might have only access to five per cent of the assortment of merchandise that a UK customer has for European football clubs. So the first thing we’re doing is we’re bringing that whole world of assortment to China.
How successful have you been in establishing relationships with new rights-holder clients since opening these new offices and the international division?
I shared a five-year plan with the board 60 days into my tenure and I think we’re going to dramatically over-deliver on our ambitions, and our growth ambitions were strong. You’ve got two elements to acquiring rights and helping clubs expand those businesses. The first is we’ve got existing relationships today in America and in Europe and they are anxious for us to expand and activate rights in new markets. If you take the National Basketball Association, we took ten countries in Asia live over just the past couple of months as an expansion of our relationship.
With Real Madrid we’ve launched sites on T-Mall [the Chinese language online retail site operated by the Alibaba Group] and in the China market and in the Japan market and Korea market. Basically, you’re seeing very quick traction from our existing rights-holders to expand and then a relationship with local teams in the market, and that takes a bit longer. This business is about relationships and trust and you spend time to do that. Our relationships with local clubs in these markets is something you should expect to read about in the next six or 12 months, more so than the last six.
It was said around the time that the international office was first created that the international business made up 10 per cent of your revenues. Has that figure shifted with your recent successes?
This is a business that should be 50 per cent of the total company’s business. If you look at the licensed sports industry, a little more than half of the industry is transacted in the US today. And we believe we can grow the rest of the world industry much more so than even the US industry, so we as a company should have 40 to 50 per cent of our revenues internationally or outside our US home operation.
Are there any other examples of partnerships, like the one you have with Alibaba, where you have worked with a local firm to give you scale quickly?
Clubs don’t understand each market around the world and it’s our job to understand these markets and understand how to best connect with fans. And what you’re going to see us doing is finding the best ways to do that for clubs to grow this industry. If you look around the world of e-commerce, you often have very big leading players in each market and so there are opportunities to partner in many markets around the world.
You once talked about the possibility of bringing manufacturing into sports stadiums to make the supply chain even shorter. Was that a playful suggestion?
I don’t believe that. I may have been misquoted. What we believe is that there are things that happen in real-time on the pitch and that your ability to react to that in real-time and supply the market and the fans in [with merchandise] in real time is a really important component of how you grow this industry.
We have some tests in stadiums now where customers can order and have product delivered to their seat. We have some experiments now where they can buy online and pick it up at the stadium so that they don’t have to wait in line because there [are] a lot of lines for the 30 or 60 minutes prior to a game starting. There’s a whole host of experiments right now.
What’s your most effective source of data? Do you respond to what is trending on social media?
Fanatics is by fans, for fans. Our whole company is watching that game just like our whole company watches European football non-stop every weekend. We adore sports like anybody else does. And so, yes, we’re following social media and social tags but we’re also just the fans loving the game in real time on the pitch and reacting to it ourselves.
But if you take social media and hashtags as an example, Manchester City, and Benjamin Mendy [the team’s left back] started [the trend] of calling Manchester City the ‘#sharkteam’. Well we’ve produced a whole line of product, first for promoting Manchester City as the ‘shark team’ and we had that in the stadium and online at the Manchester City store. That’s an example of just having fun with what’s going on in real time and social media and leveraging it in merchandise as well.