Scrambling to Respond to a Market That's in 'Panic Mode'

Dick's Sporting Goods survives but faces challenges

Author: Andria Cheng

August 15, 2017

Dick’s Sporting Goods is the largest remaining sporting goods store, following bankruptcy filings involving rivals like The Sports Authority, Sport Chalet, Gander Mountain and Eastern Mountain Sports. But thinned out competition doesn't mean an easy race.

The company on Tuesday reported a disappointing Q2 profit and a 0.1% comparable sales gain. The sporting goods retailer expects Q3 same-store sales to drop “in the low single-digits’ following a 5.2% jump a year earlier. The retailer cut its 2017 sales and gross margin forecasts as it anticipated steeper promotions.

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While CEO Edward Stack said he likes the position the company has in the sporting goods marketplace and believes Dick’s will become stronger amidst the wave of industry consolidation, he acknowledges there are many changing market shifts that will keep the company fighting hard to keep its share.

“We will aggressively be promoting our business to drive market share to our stores and online,” he said on the call, adding the company’s consumer research shows its customers perceive the retailer’s prices are “not competitive in today's environment.” Retail is “in panic mode," he said. "Pricing in the marketplace has become unpredictable and at times irrational.”

Dick’s Sporting Goods has taken a page from other specialty retailers such as Best Buy and hopped on the price-matching bandwagon in the age of increased online competition led by Amazon and price transparency enabled by consumers’ mobile phones. The company, on its website, says it will match prices against those offered by retailers including not only its direct rivals such as Academy Sports, Cabela’s and Foot Locker, but also against those by Amazon, Walmart, Kohl’s and even by its vendors including Nike and Under Armour.

“Price transparency is here to stay,” Stack said. “Those who sit back and hope that it goes away or that it's going to change… are going to have a problem.”

One way the company is combating the effects of price transparency is to increase its private label offering such as Calia by Carrie Underwood. Stack said the line has become the company’s third-largest athletic women’s apparel brand. He expects the private label business to see double-digit growth, reaching about $1 billion in sales this year.

In response to growing online shopping, Dick’s Sporting Goods also reintroduced its ecommerce site on its own proprietary web platform and is investing in more targeted marketing and faster delivery, among initiatives that will be “a bit more expensive in the short-term,” Stack said. Online sales rose 19% in the latest quarter.

“Dick’s Sporting Goods is clearly the long-term winner in its category,” said John Zolidis, president of independent research and consulting firm Quo Vadis Capital. “What is less clear is how that category will look and to what extent sales will be conducted in stores in the future. … (Online) growth reflects consumer preference for more convenient shopping on the phone vs. shopping in terrestrial stores.”

While Q2 sales were hurt by factors including lower sales of licensed clothing from the anniversary of Cleveland Cavaliers’ NBA Championship win last year or lower sales of fitness tracking devices or hunting gear, one area of decline was in particular noteworthy – athletic apparel.

“All retail is under pressure right now, but athleisure continues to outperform traditional apparel and footwear,” said Matt Powell, NPD Group’s sports industry analyst, in an emailed interview. But the sector has become much more competitive, he said. "Every retailer sells active wear now.”

Indeed, Dick’s Sporting Goods’s Stack said “broadened distribution” in the athletic apparel category is “parsing out market share” and has hurt its business. The company’s suppliers being promotional on their own websites is also a concern, he said.

US sportswear sales have risen an annual average of 7% between 2011 and 2016, more than triple the 2.2% apparel industry sales growth rate, according to Euromonitor. (Its data shows that among specialty sporting goods retailers, Dick's Sporting Goods has the No. 1 market share, followed by Academy Sports and Foot Locker.) 

NPD Group data also echoed a similar trend. While total 2016 apparel sales rose 3% to $218.7 billion, athletic apparel surged 11% to $45.9 billion last year.

However, against the crowded scene, with retailers from Forever 21 to Victoria’s Secret to Chanel all having capitalized on the hot athleisure trend, the category may be peaking. 

This trend “has been the most important contributor to (Dick’s) same-store sales growth over the last several years, by our estimates,” Zolidis said. “This trend is now officially over, in our opinion.”