The competitive landscape for sports retailers has changed rapidly since the heyday of brick-and-mortar specialty stores, and most companies just aren't adapting quickly enough.
In this segment from the Industry Focus: Consumer Goods podcast, Vincent Shen and Sean O'Reilly go over five of the biggest factors that have hit stores such as Sports Authority hardest, from warmer winter weather (no, really) to supplier competition, and more. Of course, while Sports Authority has filed for bankruptcy protection, these trends haven't affected some of its rivals quite as much
A full transcript follows the video.
This podcast was recorded on April 19, 2016.
Vincent Shen: Going bigger picture, those are just some of the examples of the brands or chains that have fallen victim to this very competitive environment. But let's look at each of these potential drivers. The short-term one that you just mentioned you're a little bit skeptical about is the warmer weather from this winter season. Obviously it's more of a one-time hit.
Sean O'Reilly: It might have been the straw that broke the camel's back ...
Shen: Exactly. And the thing is, it was not a small headwind by any stretch. The management for Dick's Sporting Goods (NYSE:DKS) mentioned that cold-weather-related categories were down double digits this past winter.
O'Reilly: That's not great, yeah.
Shen: So that's not going to help a company that's already struggling. So, moving on to a bigger picture, longer-term trend. A lot of people will want to just point to an Amazon.com (NASDAQ:AMZN) as a reason why these companies have been struggling. We know that e-commerce and online retailers have made it tougher and forced a lot of retailers to adapt. I think that's a pretty obvious connection.
But at the same time, if you think about the sporting goods in general that these companies are involved in, the Internet has really changed how people shop for specialty items. If you think about how just, in the past, 30 years ago, you might go to one of these stores and the sales associates would be specialists. And they'd be the ones recommending to you, "Oh, your son should get this baseball glove." Or, "Your daughter should get this pair of soccer cleats, it's really popular this season." And they were the experts. But now, everything is online. Think Amazon reviews, or just --
O'Reilly: This baseball glove got five stars. [laughs]
Shen: Just think about all the different reviews on YouTube, on different message boards, blogs around these different sports and hobbies. And those are the places you're getting a lot of expertise now. It's changed. Thirty years ago, you'd go to a sales associate for that kind of expertise. Now, if you go to a Sports Authority, the only thing they might do for you is check if there's stock in the back. So it's an interesting change in the dynamic.
Another thing is increased competition from other retailers and the suppliers themselves. So for a company like this, Sports Authority or City Sports, Nike (NYSE:NKE), for example, might be a huge supplier in terms of retail and other equipment. And they have really important relationships with these brick-and-mortar operations.
But Nike's expanded itself into direct-to-consumer sales. That's a big growth point for them. So Nike, as a single example, is generating 23% of their sales now from direct-to-consumer in fiscal 2015. That's about $6.6 billion. And that's up 25% over the previous year, and that's up from just $2.2 billion, or 13% of sales in 2009. So, in that five- to six-year time span, they have tripled that number. And that's money that's coming out of the pockets of these brick-and-mortar retailers. Under Armour, as another example, is doing well above 30% of their sales direct to consumer. So here's another example on even their own suppliers making the situation a little harder for them to compete in.
And then, one of the last things I want to talk about, you have specialization. If you have these different niches within sporting goods, you know, athleisure wear, you might have premium wear, like Lululemon. But if you want just something that's basic, cheaper, and you're on more of a budget, you might just go to a Wal-Mart or a Target for what you need. So the environment for the retailers in this space is really difficult.