By Andrew Gaffney, Editorial Director
Any time bad news from a retailer hits the wires I cringe a little bit. But I was hit especially hard by last week’s bankruptcy filing from Sports Authority.
I have a lot of personal history with the chain, dating back to my days as Editor and later Publisher of Sporting Goods Business magazine. I can remember vividly doing interviews with Sports Authority’s Founder and CEO Jack Smith on how the emergence of big box was changing the retail landscape back then.
Smith was one of early titans of retail and was never shy about poking Dick’s Sporting Goods, Sportmart, Gart Sports or the other rival chains, so it was always a lively conversation.
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It was also interesting to watch the consolidation the sporting goods industry went through over the past two decades, and still continues to go through today. In 2003, Sports Authority and Gart Sports, which were at the time the two largest independent sporting goods retailers in the U.S., agreed to merge to improve their competitive position against Walmart and other discounters.
At that time, the combined retail entity had 385 stores in 24 states and sales around $2.5 billion. Both were publicly held back then, and their stock prices had been hit hard, in part due to Walmart’s apparent world domination. Gart Sports had grown aggressively through acquisitions, backed by Leonard Green Partners, folding in regional chains Sportmart and Oshman’s Sporting Goods.
What is interesting about the consolidation back then versus the recent Sports Authority bankruptcy filing is how each scenario applies to the basic laws of supply and demand. It made clear business sense back then for some smaller retail brands to get rolled into one larger brand, to build a national player that could better compete with big box discounters in terms of marketing reach and supply chain efficiencies.
However, the current financial woes of Sports Authority bring up as many questions for the retail industry as they do answers. Here are a few of the big picture questions I’ve been thinking on since the news hit back in December that Sports Authority was facing debt issues:
- Why wasn’t Sports Authority able to benefit from the national brand it had built? From a marketing and reach standpoint, Sports Authority should have been able to outspend its competitors (it had branding rights to the Super Bowl champion Denver Broncos as just one chip), so where did that fall down in creating a defensible position? Sports Authority’s leadership has said it is going to focus more on its web presence as part of the bankruptcy reorganization, so it could suggest their multichannel marketing was off the mark and failed to connect with more digitally oriented consumers.
- Is the market over-saturated when it comes to sporting goods stores? In some markets Sports Authority’s locations may have been a second fiddle to a nearby Dick’s Sporting Goods store, but I would argue that competition and over-saturation is not the biggest issue here. For example, in New Jersey where we are based there are many markets where Sports Authority still had prime locations. In Wayne, N.J. there is a Dick’s Sporting Goods store within a mile of a Sports Authority, so in that case maybe the second choice won’t survive. However, other major New Jersey shopping centers like Secaucus have no Dick’s Sporting Goods stores, so Sports Authority essentially had a dominant position.
- Is revenue growth alone enough to keep retail brands relevant and healthy in this day and age? Sports Authority is still projecting revenue of $4.95 billion for 2016, which is 25% growth over 2015, a nice growth rate for most brands. So why wasn’t the chain able to grow at even modest levels and stay out of debt trouble?
- Who will be next in line to fill these vacated big box locations? In addition to Sports Authority, Staples, Kohl’s, Kmart and others are all in the process of closing big box locations. With the majority of retail growth coming from the e-Commerce sector, it could be a major issue to identify new brands ready to take over these locations.
- Who could be next in line among the classic retail brands to struggle or fall? Given the continued shift to omnichannel shopping, will other big box brands struggle to survive? Wall Street analysts are beginning to take a harder look at how sales are growing across different channels, as well as the cost of acquiring and serving customers across these channels, so those metrics should be where every retailer is focused today. Looking at top-line sales and/or bottom line profits is no longer enough.
Most of the predictions I’ve seen suggest Dick’s Sporting Goods will likely buy up some of the Sports Authority stores, which leaves the big question of whether or not the Sports Authority brand will remain on the retail landscape long-term. Yes, Darwinism is clearly part of the retail conversation these days, but it worries me that a retail brand of this magnitude could crash so quickly. And I would argue that it should worry retailers and suppliers in all sectors.
