With Sports Authority in Shambles, Dick’s Is Ready to Dominate the Sporting Goods Industry

With Sports Authority in Shambles, Dick’s Is Ready to Dominate the Sporting Goods Industry


Vincent Shen: So, talking about some of the
companies that have struggled, why they’ve struggled, I also wanted to talk about Dick’s
Sporting Goods, because they’re the big dog now. They were previously second to Sports
Authority, but they’re actually the largest sports specialty retailer in the space now.
They have $7.3 billion in revenue for the most recent fiscal year, and that gives it
about 10-15% market share for this market. National Sporting Goods Association puts this
total market at about $64 billion annually. And recently, the company presented at the
Bank of America Merrill Lynch Consumer Retailer Conference in March. And during the presentation,
funnily enough, one of the very first slides is titled, “Power of Omni-channel.” Not surprising
at all. Sean O’Reilly: It’s like the stole the slide
from Macy’s or something. (laughs) Shen: Keep in mind, the company has had about
39% compound annual growth from 2010 to 2015 for their ecommerce sales. O’Reilly: So people are going to dickssportinggoods.com
and ordering a baseball bat on there. Shen: So, some of the things they’re doing
well — in 2010, they had $140 million in online sales, about 3% of their top line.
By 2015, it’s $748 million, over 10% of their top line. So, obviously, there’s that shift
in the pie. But also, it’s interesting, because, he talks about the physical footprint of Dick’s
Sporting Goods still being a really important piece of their omni-channel strategy. And
he says that if they enter a new market or under-served market, a new store opening will
usually double ecommerce sales in that region for them. I guess the main thing they offer
now — before, it may have been expertise, which, some companies still do. For an outdoor
goods retailer, REI is really well-known, and they’ve been able to carve out a niche,
for customer service, for a lot of the sales associates still having expertise. O’Reilly: And refusing to open on Black Friday,
yeah. (laughs) Shen: Little things like that. But, in a case
like Dick’s, where a lot of it’s commoditized, it’s like, “We want to make sure the consumer
can get whatever they want, however they want it, be it picking up in store, ordering online,
going to the store and ordering through the store if the stock’s not there, and having
everything they need lined up to fulfill what the customer wants.” O’Reilly: It definitely seems to me that the
industry at large that were talking about was just a case of, there were too many players,
and somebody had to go. And the winner, obviously, in this situation, for not the high-end stuff
but just the guy who needs a baseball glove for his kid, is Dick’s. They’re clearly the
winner. Out West you have the Big 5 Sporting Goods and all that stuff. Shen: Which appeals also to the discount market
as well. O’Reilly: For sure. Shen: So, like I said, they’ve kind of carved
out their niche. Dick’s is playing this broader strategy, but they’re doing in a really interesting
way. While these other stores are closing a lot of locations, Dick’s has been expanding
a lot. They opened, I think 200 locations in the past few years, and I think part of
that is expanding that footprint, and the fact that it’s helpful for them with shipping
to store and using these locations. O’Reilly: Did you happen to hear what they
did with Sears? Shen: No I didn’t. O’Reilly: I think it was at a Sears location.
This was like cobwebs old. Shen: I think it was in King of Prussia? O’Reilly: Yeah, King of Prussia Mall. Sears,
I guess, partitioned off the second level of a location there, and then they sold a
portion of it to Dick’s in a long-term lease or whatever. And that’s obviously part of
Sears’ plans to unlock the value of the real estate. But, yeah, it was just interesting
to see what they’ll do with that, if that’s a possibility, because then all the sudden
it’s like a distribution front retail thing for omni-channel. So, really quick, what did
you think of Dick’s Sporting Goods’ valuation right now? It’s at $47, trailing earnings
of 280. Does that interest you at all? Shen: The thing is, it’s surprising to me,
after reading enough about it, and doing enough research on the industry, you would think
the growth opportunity is not that great. But like I said, they’ve open to 200 new locations
over the past few years. Their current footprint is about 650 stores. Management sees the overall
long-term potential at about 1,100 locations. The thing is, if you compare them to other
big box retailers, so to speak, like a Best Buy, they are on the smaller end in terms
of number of locations. So, they do have that runway. And they are really focused on, I
think it was like ecommerce, driving productivity in those stores. They’re bringing their ecommerce
operation, for example, in house to have better control over it and to generate some savings
there. Overall, a really interesting business. O’Reilly: Yeah, it definitely seems like they’re
the current winner. Shen: The thing is, you either look at it
that way, or you look at, maybe not smaller operations — the stores definitely are smaller
— but, you have a specialized company like Lululemon, or you have a company like REI
or Cabela’s, where it’s going to be focused more on the outdoors, hunting, firearms. Being
able to carve out that niche and present that value to the shopper is really important.
Otherwise, this is just a very intensely competitive space right now.
O’Reilly: Cool.

Leave a Reply

Your email address will not be published. Required fields are marked *