Will Dick's Sporting Goods (DKS 2.01%) be the next company to feel the squeeze in retail? After appearing to navigate the storm waters that sunk competing sporting goods chains, Dick's reported disappointing first-quarter results that missed internal expectations, resulting in layoffs, an executive suite shuffle, and a slowdown in store openings.
While these changes could help return Dick's Sporting Goods to more solid ground this time next year, there's also a big chance the rough waters are only going to get rougher.
A sporting chance
There's no doubt the retail space is undergoing a wave of rapid decline. Brought on largely by the advent of e-commerce and the changing habits of consumers, retailers are suddenly finding that their expansive store footprints have little demand and are becoming a costly overhead expense. Consulting firm Alix Partners says 2017 should see the highest number of retail bankruptcies since 2009.
And these industry conditions are here to stay. Despite improving economic indicators like lower unemployment and gas prices, retailers continue to encounter greater financial troubles. While apparel companies and department stores have certainly borne the brunt of the fallout, specialty retailers, especially those in the sporting goods market, have endured their fair share of pain.
Besides Gander Mountain's bankruptcy announced earlier this year, the industry has also seen Eastern Mountain Sports, Sports Chalet, City Sports, and Sports Authority go under, along with niche players like MC Sports, Golfsmith, and Total Hockey. Cabela's is hoping to strengthen its prospects by combining forces with Bass Pro Shops.
A malaise that spares no one
An argument could be made that with all of the competition disappearing, Dick's Sporting Goods will emerge as the last man standing and be better off for it, but there is no guarantee.
Best Buy may only just now be finding itself in a somewhat better position years after the demise of Circuit City. Despite having the field virtually to itself, the big box store has struggled, and along the way, lesser retailers like Radio Shack and hhgregg closed up shop as well.
Similarly, Bed Bath & Beyond was supposed to be stronger with the collapse of Linens 'n' Things in home goods, but as earnings continue to decline, the company has pursued a strategy of cobbling together disparate retail concepts under one roof as a means of growing the business.
Certainly in the short run, Dick's Sporting Goods will have to grapple with the wave of bankruptcies squeezing profit margins as it cuts prices to match competing liquidation sales.
Just the start
In its first-quarter earnings call last week, CEO Ed Stack acknowledged the hit the sporting goods retailer could take in certain segments:
We expect [Gander Mountain's] going out of business sale could have negative impact on our sales through the third quarter as customers stock up on discounted firearms, ammunition, and other hunting and fishing products.
The company is laying off some 160 people as it reevaluates its business model by slowing down its pace of store openings, consolidating vendors, and reducing dependency on "traditional marketing vehicles". Prior to that, it announced changes to management, first with the promotion of Lauren Hobart to president, then the retirement of its executive VP and COO, and two other C-level hirings.
The changing industry landscape should help Dick's gain market share when all is said and done, but it's going to necessitate changes in how the company operates, too. For example, it wants to grow e-commerce into a $1 billion business, but that means it will be going up against the likes of Amazon, which is the cause of much of this turmoil in the first place.
All in all, Dick's Sporting Goods still reported sales growth during the latest period, only falling short of expectations. As it moves more sales online, investors will have to wait to find out whether being the undisputed industry leader pays off for the company.