The “outdoor active” sector is benefiting from a structural change in consumer behaviour, writes Munro Partners’ Nick Griffin – and it is creating plenty of opportunities for investors.
One of the biggest trends in consumer behaviour at the moment – the desire to be more active and healthy – is creating an outstanding opportunity for investors prepared to think outside the box.
At Munro, we believe that the consumer shift to a more active and healthy lifestyle is a structural change, not a cyclical one or a fad. It’s a trend that we have been seeing around the world for at least the past five years, and one that is set to continue growing.
As a result of this trend, we have been looking closely at investment opportunities in the “outdoor active” sector – that is, companies that benefit from this shift to a more active lifestyle.
And we like what we see. We are finding some excellent investment opportunities in strong, growing companies around the world that are still relatively cheap.
In the past, we have invested in companies such as Nike, Adidas and Lululemon, which have performed very well, but they are starting to look expensive. Further, the apparel industry has started to increasingly fragment as online takes hold.
Instead, we are now looking more closely at outdoor equipment, and in particular caravans. Yes, caravans.
Caravans have traditionally been seen as an old-fashioned holiday option for the budget-conscious. They reached peak popularity in the 1950s and 1960s, but have experienced a renaissance in recent years thanks to “grey nomads”. However, their popularity is now growing even further on the back of a younger demographic.
Over the past five years, the average age of a caravan purchaser has fallen from 55 to 48. At the same time, caravan shipments in the US have grown on average 15 per cent a year since 2009. Two factors are at play here.
Firstly, we are seeing the rise of younger consumers and younger families who have more leisure time on their hands, and more inclination to spend it outdoors. They don’t need to devote their weekends to shopping as they have everything delivered to their home; and they are likely to have more flexible working arrangements.
Secondly, the caravan industry has moved to cater for these younger consumers by producing smaller and cheaper towable units that are also packed with higher end content, which takes camping to more of a ‘glamping’ experience.
The outcome of this is the strong structural growth in the caravan market, which has been happening for the past five years and which shows no sign of waning.
As a sector, the caravan market is currently 140 per cent up on its previous peak – to put this in perspective, no other consumer durable in the market today has beaten its previous peak.
At the same time, stocks in these companies are comparatively very cheap – companies such as Thor Industries and Winnebago, which along with Berkshire Hathaway-owned Forrest River, basically control the market in the US, continue to trade below their market multiples.
Another company that is benefiting from the outdoor theme is Thule, which is a Swedish company best known for its manufacture of roofracks. In fact, it controls 60 per cent of the global roof rack market, and also produces baby carriers, bike trailers, jogging prams and so on. Yet it is trading at below 20 times earnings.
Companies such as these have the potential to deliver strong and growing returns to investors over the medium to long-term. They also have the advantage of a strong market position, where new entrants will struggle to take market share from established players.
We could say, the road ahead beckons for investors in this space.
Nick Griffin is the chief investment officer of Munro Partners.
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