“There are only so many sporting stores that can survive when every company is growing and expanding.”
– Barbara Kahn, Director, Jay H. Baker Retailing CenterBack to all
Sarah Hermia is, and always has been, into sports.
Growing up, if she wasn’t in a soccer or basketball uniform, she was showing up to school in casual athletic wear (not to be confused with now-ubiquitous athleisure) she would get from Sports Authority.
“Sports apparel was really cool,” the 23-year-old Columbia University graduate student recalls. “We wore sweats, track pants, you name it. We even had a phase where everyone was wearing these white spandex Under Armour shorts underneath our regular shorts. My dad was our soccer coach, and he had coach coupons to Sports Authority, so I loved shopping there. For training, both on and off the field, we subscribed to the idea of ‘look good, feel good, play good,’ and we were always buying things for the new season.”
These days, when she’s looking for workout gear and sporty clothes, Hermina finds herself at brand stores. “I’m a big Nike person now,” she says. “Sports Authority always had older styles, and its prices are more or less the same as a Nike outlet, so I’m more likely to shop where I have more options from the brand.”
Hermina isn’t the only once-devoted shopper eschewing her favorite childhood store in favor of other options, judging by Sports Authority’s current status. In early March, the 29-year-old sporting goods retailer revealed it has almost $1.1 billion in debt and filed for Chapter 11 bankruptcy protection. Citing “the changing dynamics in the retail industry,” CEO Michael Foss announced the company would close 140 locations — a third of the company’s 450 stores — as well as two distribution centers. He said the company would use its new status to “streamline and strengthen our business both operationally and financially.”
Three weeks ago, though, Sports Authority decided to liquidate instead of restructure; aspokesperson told Racked it was “pursuing a sale of some or all of the business.” On Monday, the sports giant began auctioning off its assets. The winning bid belonged to a trio of liquidators (Hilco Global, Gordon Brothers, and Tiger Capital Group; Tiger Capital is also liquidating 41 Aéropostale stores in Canada), which will operate the company’s going-out-of-business sales at all of its locations.
Sports Authority isn’t alone. Last month, Vestis Retail Group, the parent company of Eastern Mountain Sports, Bob’s Stores, and Sport Chalet, filed for bankruptcy. With $500 million in liabilities, the company plans to close 56 stores, including all 47 Sport Chalet locations. Six months ago, the East Coast-based City Sports filed for bankruptcy and closed eight of its 26 stores. Although City Sports is currently being revived by Brent and Blake Sonnek-Schmelz, brothers who own the Soccer Post retail chain, Brent recentlyadmitted to the Philadelphia Inquirer that the sporting goods industry “is in a state of upheaval.”
From the rise of the casual camper to the boutique fitness boom, it can feel like there have never been more people in the market for sports apparel. As of 2015, sporting goods stores in the US were bringing in as much as $48 billion in annual revenue, according to IBISWorld, up from $39.8 billion in 2012. Sports participation is up, too. According toEuromonitor, participation in high school sports has increased from 25 percent to 35 percent over the last 35 years, with nearly double the number of female students playing sports as compared to the 1980s.
But there’s a stark gap between an increasing customer base and many sports retailers — a gap that only continues to widen, no matter how many times companies see new ownership or rethink their businesses. As Hermina puts it, “My needs evolved, but in many ways, Sports Authority hasn’t.”
There are an incredible number of national and regional multi-brand sports retailers in America: Dick’s Sporting Goods, Cabela’s, Champs Sports, Bass Pro Shops, REI, Academy Sports, Modell’s, and Big 5 Sporting Goods Corporation, to name a few — and these are just the ones that still exist today.
The history of this country is littered with sportings goods stores because the sporting goods industry has loomed large in the United States for well over a century. While nearly every sports retailer today is part of a larger corporate entity, there was a time when the industry was composed entirely of family-run operations, mom-and-pop shops responding to American hobbies.
Before there were big Hollywood film studios, before there was television, and way before there was the internet, sports were one of the only means of recreation and entertainment. Between the 1870s and the 1920s, sports became “perhaps the most pervasive popular cultural activity in American society,” Steven Pope writes in his 1997 book Patriotic Games: Sporting Traditions in the American Imagination. Baseball was “the country’s official national pastime,” football was “growing into a national, mass spectator sport,” and “tennis, golf, and bicycling swept through the middle class.” This period also saw the invention of basketball and the popularization of boxing.
As a result, cities across America were able to sustain multiple sporting goods shops filled with the latest gear. There’s a laundry list of these local stores: Brine Sporting Goods, which first opened in Cambridge, Massachusetts in 1867; Rawlings Sporting Goods Company (St. Louis, Missouri in 1887); Oshman’s Dry Goods (Richmond, Texas in 1919); Maurice’s Sporting Goods (Chicago, Illinois in 1923); Dunham’s Sports (Waterford, Michigan in 1937); and so on. Teen retailer Abercrombie & Fitch even started out as an elite sporting goods retailer at the end of the 19th century. In 1892, founder David Abercrombie started selling high-end camping gear in New York before expanding into women’s clothing in 1910.
Americans were watching sports, as well as playing them. Professional and college sports served as “two of the nation’s most powerful community-building institutions,” Mark Naison, a history professor at Fordham University writes in the journal History Now, because they “provided many Americans with more than a much-needed escape from the hardships of their daily lives.”
Outdoor activities such as hunting and skiing were — and still are — a rich part of American tradition as well. Many of the sporting goods stores that sold uniforms and equipment for baseball and football also catered to outdoor interests. The Great Depression played a role, writes David Whitten in Handbook of American Business History,because more than ever before, families were turning to inexpensive hobbies like hiking and fishing. By the late 1960s, Whitten writes, annual sales from sporting good stores in America were as high as $4 billion.
As with all crowded markets, the sporting goods industry eventually hit a saturation point, and competition forced many stores to either close or be bought by bigger companies. The ’70s and ’80s saw many mergers and acquisitions in the space, and they just kept coming. Eastern Mountain Sports, for example, was founded by rock climbers Alan McDonough and Roger Furst in 1967. It was first sold to The Franklin Mint in 1979, which was subsequently bought by Warner Communications, and then sold to private firm American Retail Group. With financial backing from investors J.H. Whitney & Co., EMS chief executive Will Manzer bought control of the company in 2004, and then sold it to Vestis Retail Group in 2012, after Vestis had already acquired Sports Chalet and Bob’s Stores. (Vestis was formed by Versa Capital Management, a firm best known for turning around sinking brands.)
In the case of Sports Authority, it was founded in Florida in 1987, and was briefly owned by KMart in the the early ’90s before it merged in 2003 with Gart Sports, a Denver, Colorado business that was founded in 1928. Gart had been through several mergers of its own, including with Hagan’s Sports and Stevens Brown in 1987, as well as with Chicago-based Sportmart in 1997 and Houston-based Oshman’s in 2001. In 2006, Sports Authority also bought Copeland’s Sports, a California business in bankruptcy — the same year it was eventually bought by private equity investment firm Leonard Green & Partners.
Growing by means of acquisition saddled these companies with debt, and lots of it. In addition to the $1 billion of debt Sports Authority has, Vestis revealed in its own bankruptcy filing last month that it had as much as $35 million of debt and would be taking $125 million worth of bankruptcy financing from Wells Fargo in order to keep store doors open during the dealings.
Due to all this movement and being firmly and often in the red, says Howard Davidowitz, chairman of retail consulting firm Davidowitz & Associates, these companies “were never updating their stores or investing in their business because there wasn’t enough money to do what had to be done.”
“The writing has been on the wall for these sports retailers for quite some time,” says Davidowitz. The landscape previously allowed struggling brands to stay afloat, but now, says Nomura Securities analyst Simeon Siegel, “companies that managed to hold onto a lifeline, even after outliving their relevance, are accepting reality.” The current state of teen retailers demonstrates this as well.
The market is also now congested with brands jumping into athleisure, the booming category that has caused the athletic wear market to grow 42 percent, to $270 billion, over the last seven years, according to Morgan Stanley. Seemingly every company, from high (Tory Burch, Net-a-Porter) to low (Target, Forever 21) is getting involved, eager to capitalize on a trend that shows no signs of slowing. While a typical Sports Authority shopper might be different from a Lululemon one, Mintel senior research analyst Diana Smith believes “there’s definitely more of an overlap today.”
“Brands like Lululemon and Athleta have completely changed your mind about what you can wear when you work out and play sports,” echoes Claudia Lebenthal, 52, a self-described lifelong athlete and the writer behind the blog Style of Sport.
Five years ago, companies like the Sports Authority and Eastern Mountain Sports were in a position to capitalize on this, Smith says, by either stocking up-and-coming fitness brands or creating lines of their own. Instead, Sports Authority thought it could win the sporting goods category simply through store expansion.
By 2012, Sports Authority was on the road to opening 35 new stores a year, but according to market research company Statista, even with all its new stores, Sports Authority couldn’t own the sporting goods game. As of 2015, Sports Authority didn’t even make the National Retail Federation’s Top 100 Retailers list.
Sports Authority eventually “became an expert at selling nothing,” Edward Hertzman, publisher of apparel trade publication Sourcing Journal, says of its generic offering. “There was no desire to shop there.” Expansion went from an opportunity for growth to a liability, explains Barbara Kahn, the director of the Baker Retailing Center at the University of Pennsylvania’s Wharton School.
“There are only so many sporting stores that can survive when every company is growing and expanding, and so right now there’s a shake out, with the weaker chains failing,” says Kahn. “There was more competition than there were actual purchases.”
Sports Authority did eventually start stocking merchandise that catered to a more casual athlete, but the damage was already done: consumers were primed to go elsewhere for design-focused activewear.
Dick’s, the country’s largest sports retailer, decided to take matters into its own hands earlier than Sports Authority did. In 2014, it teamed up with country singer Carrie Underwood to roll out an exclusive fitness collection, Calia, in its stores. It also debuted a separate athleisure offshoot, Chelsea Collective, with two freestanding locations last year. With this new concept, Dick’s was able to play both to more traditional sporting goods shoppers in its stores and a different type of shopper elsewhere.
“They’re trying to build a women’s lifestyle brand retailer,” retail analyst Wendy Liebmann told Racked in February. “I think they felt, at least at this point in time, it would be better built outside the auspices of the Dick’s brand, which tends to have a much more masculine and also much more mass, popular-priced, utilitarian image.”
“In reality,” she continued, “what they’re bringing to this experience is not the Dick’s brand, but the knowledge that they have about women and exercise and lifestyle. The advantage is what they know about that shopper from their [existing] stores, and how can they translate that into an elevated experience.”
But Chelsea Collective is still a multi-brand store, stocking items from the likes of Nike, Adidas, and Under Armour — brands that have shifted from being primarily wholesale companies to powerful retail giants. As Greg Thomsen, the managing director of Adidas’s outdoor division, puts it, “It’s hard for sporting goods stores when their number one brand also becomes their number one competitor.”
In recent years, these brands have expanded their brick-and-mortar presences and alsoupped their cool factor through design studios branded as “labs” and collaborations with celebrities like Kanye West, Pharrell Williams, and Rihanna and designers like Raf Simons and Stella McCartney. And they’ve done all this while cutting out middlemen like Dick’s and Sports Authority in the process.
“The lines between wholesale and retail faded from black and white to gray to nonexistent,” Greg Baldwin, vice president of merchandising at sporting goods chain Schuylkill Valley Sports, told the Philadelphia Inquirer. “I now compete with 90 percent of my suppliers via e-commerce, physical stores, or a combination of the two. The importance of the retailer as a pipeline to the consumer has been greatly diminished.”
Today’s consumers are looking for specificity, both in terms of function and also aesthetic. The everything-to-everybody nature of huge multi-brand retailers no longer appeals; department stores across America are struggling with this new reality as well.
“They are product generalists rather than product specialists,” Jon Schallert, a marketing consultant with Longmont told the Denver Post in February, a few weeks before Sports Authority’s bankruptcy filing. “So many consumers these days who are into sports and outdoor activities really want specialized products. Just like Macy’s and other generalized stores, they’ve found themselves in trouble. In reality, it’s not underperforming stores. It’s stores that no longer meet the needs of demanding consumers.”
Dick’s has taken this to heart by developing stronger partnerships with big brands and rolling out shop-in-shops like a trend-focused “Nike Field House” and a dedicated “Under Armour All-American” section in its stores. As a result, the selection at Dick’s has became more enticing, and also more expensive.
“It came to a point where Sports Authority stores were looking like a mess, while Dick’s was investing in having their merchandise laid out in an attractive presentation,” says Davidowitz.
Plus, as Schallert mentioned, there’s the e-commerce factor to weigh. Not only have brand sites from the companies like Nike and Adidas edged these brick-and-mortar retailers out of the market, so have sites like Amazon.
“A chain like Sport Chalet can only carry so many of our items,” Adidas’s Thomsen explains. “We know the walls in their stores can’t carry every piece of Adidas, but a company like Zappos can hold every one of our items, and so a new generation of shoppers who wants that kind of selection is just going to go straight there.”
“When you go into these sports stores,” he continues, “every single store carries the exact same thing, so there really isn’t anything interesting. There might be best-sellers, but stores can’t build a future by selling that same, classic black North Face fleece. I know sporting good stores tend to stick to fits and products that are old and safe, but there is a new generation is coming.”
Daniel Jennings, a finance writer and contributor to Seeking Alpha, tells investors to stay away from Dick’s because even though it’s the current leader in the space, “its position is just too risky. Despite the revenue growth and expansion, this chain could soon be facing the death spiral because of online competition.”
The real key to survival lies in offering shoppers something e-commerce can’t.
“Retailers in general have a huge advantage over Amazon in that they have physical stores and they are able to actually raise an emotional response,” says Sam Cinquegrani, the founder and CEO of digital marketing firm ObjectWave. “These stores need to understand the opportunity and leverage that because they have way more to offer. Once they think in those terms, competing with Amazon becomes a different type of exercise.”
Lebenthal agrees, and posits these stores need to become destinations again. “There used to be so much excitement in going to a sporting goods store because there were no other options available, and it was the only place to see the latest merchandise being marketed,” she says. “These stores have lost their unique appeal, but there are plenty of options to stimulate foot traffic and growth,” Smith of Mintel adds.
Smith points to companies like Lululemon, Athleta, and Nike that have started to offerfree in-store classes and trainings. These experiences help create community, something most big-box retailers are sorely lacking.
A case study for this is Modell’s, whose revenue has grown from $698 million in 2012 to $765 million in 2015, according to numbers compiled for Racked by PrivCo. Modell’s “markets itself as the ‘hometown sporting good store,'” according to PrivCo, and has established a reputation for building community relationships, making local shoppers more inclined to shop there. Among its most successful programs is Team Weeks, in which local stores donate money to neighborhood teams. As Smith explains, other sports retailers can get ahead by following their lead and “going the grassroots way.”
“Modell’s engaging their local communities gives them an advantage by targeting a large portion of their customer base,” says Evan Danckwerth, an analyst with PrivCo. “Other retailers could certainly use this tactic to engage with their customer base because invoking the team aspect — or any community aspect, like schools or a religious groups — is a big advantage and is the best way for large and impersonal corporations to connect with their customers.”
Later this month, more auctions for Sports Authority’s name, intellectual property, and leases will be held. According to the Wall Street Journal, Dick’s and Modell’s are interested in taking over former Sports Authority stores, but it’s unclear if that will actually happen and also what a takeover could look like. Will Sports Authority exist at all in a few months?
Hermina finds the whole situation sad. “It’s hard to see a staple of my youth disappear,” she says, but she’s optimistic other sports retailers will prevail. So are industry experts.
“With the increased interest in health, wellness, and fitness, retailers that can offer the right product mix, combined with the right in-store experience, will be able to be successful despite a difficult environment,” says Sourcing Journal‘s Hertzman. “There will be consolidation and store closures, but athleisure is less a fad and more a trend that will continue to be a bright spot among brands and retailers.” Yoga pants as industry savior? They just might be.
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