Vincent Shen: Going bigger picture, those
are just some of the examples of the brands or chains that have fallen victim to this
very competitive environment. But, let’s look at each of these potential drivers. The short-term
on that you just mentioned your little bit skeptical about is the warmer weather from
this winter season. Obviously it’s more of a one-time hit. Sean O’Reilly: It might have been the straw
that broke the camel’s back … Shen: Exactly. And the thing is, it was not
a small headwind by any stretch. The management for Dick’s Sporting Goods mentioned that cold-weather
related categories were down double-digits this past winter.
O’Reilly: That’s not great, yeah. Shen: So, that’s not going to help a company
that’s already struggling. So, moving on to a bigger picture, longer-term trend. A lot
of people will want to just point to an Amazon.com as a reason why these companies have been
struggling. We know that ecommerce and online retailers have made it tougher, and forced
a lot of retailers to adapt. I think that’s a pretty obvious connection. But at the same
time, if you think about the sporting goods in general that these companies are involved
in, the internet has really changed how people shop for specialty items. If you think about
how just, in the past, 30 years ago, you might go to one of these stores and the sales associates
would be specialists. And they’d be the ones recommending to you, “Oh, your son should
get this baseball glove.” Or, “Your daughter should get this pair of soccer cleats, it’s
really popular this season.” And they were the experts. But now, everything is online.
Think Amazon reviews, or just– O’Reilly: This baseball glove got 5 stars.
(laughs) Shen: Just think about all the different reviews
on YouTube, on different message boards, blogs around these different sports and hobbies.
And those are the places you’re getting a lot of expertise now. It’s changed. 30 years
ago, you’d go to a sales associate for that kind of expertise. Now, if you go to a Sports
Authority, the only thing they might do for you is check if there’s stock in the back.
So, it’s an interesting change in the dynamic. Another thing is increased competition from
other retailers and the suppliers themselves. So, for a company like this, Sports Authority
or City Sports, Nike, for example, might be a huge supplier in terms of retail and other
equipment. And they have really important relationships with these brick-and-mortar
operations. But, Nike’s expanded itself into direct-to-consumer sales. That’s a big growth
point for them. So, Nike, as a single example, is generating 23% of their sales now from
direct-to-consumer in fiscal 2015. That’s about $6.6 billion. And that’s up 25% over
the previous year, and that’s up from just $2.2 billion, or 13% of sales in 2009. So,
in that 5-6 year timespan, they have tripled that number. And that’s money that’s coming
out of the pockets of these brick-and-mortar retailers. Under Armour, as another example,
is doing well above 30% of their sales direct to consumer. So, here’s another example on
even their own suppliers making the situation a little harder for them to compete in. And then, one of the last things I want to
talk about, you have specialization. If you have these different niches within sporting
goods, you know, athleisure wear, you might have premium wear, like Lululemon. But if
you want just something that’s basic, cheaper, and you’re on more of a budget, you might
just go to a Walmart or a Target for what you need. So, the environment for the retailers
in this space is really difficult.