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Potential Modell’s, Sports Direct Bid For 200 Sports Authority Stores: Home Run Or Error?

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Modell’s Sporting Goods and UK-based Sports Direct are in talks for a potential joint deal to buy as many as 200 Sports Authority stores, according to the Wall Street Journal.

Sports Authority filed for Chapter 11 bankruptcy in March, liquidating all of its 450 stores. Since the bankruptcy filing, there has been speculation around what would happen to Sports Authority’s remaining locations before they officially close, with sporting goods players Dick’s, Academy Sports + Goods and Modell’s all being identified as potential buyers.

With the Sports Authority closings leading to many questions about the general health of the sporting goods sector, and traditional retailers and department stores experiencing such poor in-store results in Q1, one important question is raised: are Modell’s and Sports Direct exploring their options more for the store locations, or for the Sports Authority brand itself?

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Sports Authority’s downfall can be attributed to numerous factors, including increasing e-Commerce competition, Walmart’s sales of sporting goods products and the rise of chief competitor Dick’s Sporting Goods. Another possibility is that Sports Authority was simply burdened with more brick-and-mortar locations than its customer base could support. In fact, today’s harsh retailing reality reveals that most major brick-and-mortar retailers may need to close a percentage of their physical retail footage and better utilize store space as experiential centers, fulfillment centers and technology hubs.

Acquiring even a portion of Sports Authority’s physical stores would take these two retailers outside their comfort zones. Modell’s would be expanding well beyond its 150+ stores in the northeastern U.S., while Sports Direct would be investing in its first U.S. brick-and-mortar locations. In any environment such ambitious expansion efforts could be considered risky, but combine that with the sporting goods vertical’s woes and analysts’ continued advice to scale back physical stores, and the stakes get even higher.

Sport Chalet’s closure of all its stores — and its e-Commerce operations — in April further indicated that there may not be room for more than a few major players in the sporting goods space, with only a certain amount of floor space necessary due to oversaturation.

“The closing of TSA and Sport Chalet means that 10% of the sporting goods square footage will go dark at the end of the summer,” said Matt Powell, Global Sports Industry Analyst at NPD Group. “In my opinion this is a healthy event. We still have far too many sports stores in the U.S. for the demand, especially given sporting goods’ deep penetration with e-Commerce. I hope most of these doors stay dark.”

It is unclear how far the talks among Modell’s, Sports Direct and Sports Authority have progressed. Bids for the Sports Authority store leases are due on June 23.

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