What’s Happening In Sporting Goods?

All of a sudden the industry is taking a bunch of hits.

196. That’s the number of sporting goods stores that are set to close after two retail companies filed for bankruptcy in recent weeks. While the failures of Vestis Retail Group — the operator of retailers Eastern Mountain Sports, Sport Chalet, and Bob’s — and Sports Authority were accelerated by mountains of debt both incurred in recent years, there’s more at work when it comes to the apparent demise of sporting goods retailers.

While retailers like Dick’s Sporting Goods and REI seem to be riding the top of the sporting good hierarchy with billions of dollars in sales each year, other retailers like Sports Authority and Sport Chalet are being pushed out of what has become a more saturated market.

Analysts say that several factors have played into the success of some retailers and the faltering sales — and eventual closures — of others.

For starters, financial health plays a large role in the viability of retailers. Both Sports Authority, which is closing 140 stores, and Sport Chalet, which is closing all 48 stores, were burdened with unsurmountable debt after being purchased by other firms, the Los Angeles Times reports.

Rather than go further into debt — in the hope of seeing a long-term turnaround — by investing in improvements to their outdated business models, these stores seem to have focused primarily on cutting costs to reduce red ink.

“If a retailer’s got a lot of debt, it means they’re not spending money on stores, they’re not spending money on systems, they’re not spending money on the kinds of things they need to do to drive the business forward,” Matt Powell, an industry analyst at market research firm NPD Group, tells the L.A. Times.

In fact, analysts say that Sport Chalet, which started as a small family owned business before being purchased by Vestis Group, was never able to cultivate its online presence.

That, coupled with a smaller presence — fewer than 50 stores limited to the west coast — and a very specialized outdoor focus, prevented the company from keeping up with competitors.

“I think it’s really hard to do that and be 40 stores. I think maybe if you’re three stores you can do it, or if you’re a hundred stores, you can do it,” Jeff Harbaugh, a consultant for small-to-mid market active outdoor companies tells New Orleans Public Radio WWNO.

Being too small and too focused wasn’t the issue for Sports Authority, which operated 463 stores nationwide, and sold a wide range of sporting goods. It just couldn’t keep pace with more attractive competition.

The big box store is just one of several competing to be the go-to place for shoppers.

National retailers like Dick’s Sporting Goods, — which may purchase Sports Authority’s assets — Academy Sports, Cabela’s, and Bass Pro, along with regional retailers like Scheel’s, cut into Sports Authority’s sales by offering customers an experience when shopping.

“They are product generalists rather than product specialists,” Jon Schallert, Longmont retail and marketing consultant, tells the Denver Post. “So many consumers these days who are into sports and outdoor activities really want specialized products. Just like Macy’s and other generalized big-box stores, they’ve found themselves in trouble.”

Analysts tell WWNO that the pending Sports Authority closures also highlight the natural evolution of retail and the limited space for such generalist sporting good retailers.

“There just aren’t many examples where three big box concepts really survive in a single industry,” John Horan, publisher of Sporting Goods Intelligence, tells WWNO. “Retailing’s the most Darwinian business there is. Eventually, somebody gets out there and becomes the most important retailer and becomes the gatekeeper to the consumer for the brand.”

And that wasn’t Sports Authority, analysts say.

The same could be said for the more niche-centered Sport Chalet, which focused primarily on winter sports, diving, marathon running, and hiking.

Why Are So Many Sporting Goods Stores Going Bankrupt?

There are two issues here. The first is debt. The stores were all purchased with large sums of borrowed money.  That had to be repaid from more or less the same revenue that the retail outlet had before the purchase.  I keep seeing this happen and I have to ask myself why they do it? Some company decides to buy another one and borrows the money and never seems to realize that the revenue stream cannot support the interest payment that they have just incurred.  And the banks, for whatever reason. go along with it.  There’s always the promise of better efficiencies and greater sales and revenue that somehow never happen. I suppose it’s easier than starting a new store.

The second fact is that sporting goods are a luxury in a time when most people are retrenching. Along with an aging population means the demand for sporting and camping stuff isn’t going to get larger in the near future.  A look at the economy makes the downfall of a lot of retailers inevitable.  The only surprise is that it isn’t happening faster.

http://www.pasadenastarnews.com/business/20160427/why-sports-authority-is-throwing-in-the-towel-and-closing-all-of-its-stores

http://www.wsj.com/articles/sports-authority-accelerates-store-closings-amid-bankruptcy-1468944693?reflink=djemBankruptcyPro&tpl=db&mod=e2li

 

http://www.bloomberg.com/news/articles/2016-04-18/eastern-mountain-owner-pushed-into-bankruptcy-as-tastes-change

http://finance.yahoo.com/news/3-big-reasons-eastern-mountain-sports-ems-sports-authority-chains-are-vanishing-201301935.html

It’s likely that the retrenching is far from over.  I suspect that the survivors are going to be the places that serve niche markets and have a strong online presence.  They are going to be feeding the new and innovative sports and activities that people are endlessly coming up with. Specialty Pokémon Go stores?

 

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One comment

  1. Walt Boyes · July 20, 2016

    Interesting that I am slated to speak at the Sports and Fitness Industry Association (SFIA) executive summit this September. This will be an interesting thing to bring up there.

    Like

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