Does Sports Authority’s bankruptcy illustrate a big box problem?

Through a special arrangement, presented here for discussion is a summary of a current article from the Retail TouchPoints website.

As a former editor and publisher of Sporting Goods Business magazine, I vividly remember doing interviews with Sports Authority’s founder and CEO Jack Smith on how the emergence of big box was changing the retail landscape.

In 2003, Sports Authority and Gart Sports, the two largest independent sporting goods retailers in the U.S. at the time, agreed to merge to improve their competitive position against Walmart and other discounters. It made sense back then for some smaller retail brands to get rolled into one larger brand, to build a national player that could leverage their marketing reach and supply chain efficiencies.

However, last week’s bankruptcy filing shows that Sports Authority somehow wasn’t able to benefit from the national brand it had built.

Competition and over-saturation in the sporting goods channel doesn’t appear to be the biggest issue here. While some Sports Authority locations may have played second fiddle to a nearby Dick’s Sporting Goods locations, Sports Authority had a dominant position in some markets.

The filing comes as Staples, Kohl’s, Kmart and others are all in the process of closing big box locations. Sports Authority is so far looking to close 140 of its 463 locations. With the majority of retail growth coming from the e-commerce sector, replacement brands don’t appear to be standing in line to take over many of these locations.

Moreover, given the continued omnichannel shift, will other big box brands struggle to survive? Wall Street analysts are beginning to take a harder look at how sales are growing across different channels, as well as the cost of acquiring and serving customers across these channels, so those metrics should be where every retailer is focused today. Looking at top-line sales and/or bottom line profits is no longer enough.

Darwinism is clearly part of the retail conversation these days, but it worries me that a retail brand of this magnitude could crash so quickly. I would argue that it should worry retailers and suppliers in all sectors.

BrainTrust

"Sports Authority’s struggles are symptomatic of the problems plaguing "niche" big box stores for several years. There has been a survivor and a failure in just about every niche you can think of — even the "winners" are struggling with too much square footage."

Dick Seesel

Principal, Retailing In Focus LLC


"Clearly it is that so many sporting goods items from baseball bats to soccer shoes need to be custom fitted. You don’t need a Sports Authority-sized box to accomplish this, of course, but having a big box with low personalized service is a clear losing strategy."

Ryan Mathews

Founder, CEO, Black Monk Consulting


"Not surprised with the news of Sports Authority’s bankruptcy. In terms of Darwinism, I don’t see this sporting goods retailer as an unfit specimen, I see the company as unevolved in the digital era."

Karen S. Herman

CEO and Disruptive Retail Specialist, Gustie Creative LLC


Discussion Questions

DISCUSSION QUESTIONS: To what degree do Sports Authority’s struggles reflect the current challenges facing big box stores? Which of Sports Authority’s challenges appear to be tied to the sporting goods channel versus broader retail dynamics?

Poll

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Dick Seesel
Dick Seesel
8 years ago

There are two issues at play here: Yes, there is an overall recognition by brick-and-mortar retailers that they have too much square footage as their own “omnichannel” business cannibalizes their physical stores. It’s an issue for all kinds of retailers, from Walmart to Kohl’s to Macy’s.

But Sports Authority’s struggles are symptomatic of the problems plaguing “niche” big box stores for several years. There has been a survivor (Best Buy, Bed Bath & Beyond, Barnes & Noble) and a failure (Circuit City, Linens & Things, Borders) in just about every niche you can think of — and even the “winners” are struggling with too much square footage.

Underlying the consolidation in the sports apparel and equipment industry? First, the impact of Amazon and other online competitors on just about every retail segment. Second, the push into activewear by every department store and apparel specialist you can name.

Dr. Stephen Needel
Dr. Stephen Needel
8 years ago

Certainly some of their problems are tied to the current big box issues — too many stores. I think their bigger problem is they are expensive, especially relative to online, with floor staff that is less than knowledgeable.

Ryan Mathews
Ryan Mathews
8 years ago

I suppose you could write some of it off to the declining popularity of big boxes, but to me the larger issue is what one does in that big box.

Since big box retailing probably can’t sustain price/margin advantage over digital competitors, what — if anything — is it’s advantage, especially in a category like sporting goods?

Well, clearly it is that so many sporting goods items from baseball bats to soccer shoes need to be custom fitted. You don’t need a Sports Authority-sized box to accomplish this, of course, but having a big box with low personalized service is a clear losing strategy.

Every year, for example, a new generation of Little League baseball players’ parents wander into a Sports Authority for a bat for Junior, only to discover that said bat now costs anywhere from $100 to $700. How do they select the right bat? Will that bat that “fits” today still be functional by the end of the season? Should Junior share his bat, knowing that it only has so many “hits” in it?

These are questions that could be answered online, but really benefit from personalized, credible expertise.

Yes, the boxes should get smaller, but the staff should also get smarter and more engaged.

Herb Sorensen, Ph.D.
Herb Sorensen, Ph.D.
8 years ago

Walmart sells a lot more sporting goods than Sports Authority, and THEY are under pressure from Amazon. It’s known as creative destruction (Schumpeter) and this wave is just getting started. The struggle to deal with excessive, inefficiently used real estate will get bigger. (This is at least decade, not just this year. See: The Problem: “Parked” Capital.)

Camille P. Schuster, Ph.D.
Camille P. Schuster, Ph.D.
8 years ago

Big box stores were a competitive advantage when brining a wide selection of items to consumers was important. However, the competitive landscape has changed. The biggest variety of items is inline, either by that retailer or by someone else. To stay in business, the retailers need to do more than just offer a variety of products. They now have to provide a great customer experience. Offering what you always have offered in a changing marketplace is a recipe for disaster.

Gordon Arnold
Gordon Arnold
8 years ago

The underlying focus in this discussion is discretionary spending for non essentials. Brick-and-mortar stores wishing to continue with the market for these products will need to address overpopulation in all demographic areas as well as limiting inventory levels to the demand-side, as in high turn. Stores waiting for open-to-buy reports that are stuck in closeout sale results must look to the market for vendors that are in demand. There is simply no room for the “someone will buy it” mentality. Rooms full of stuff that does not sell is killing hundreds of stores of any size every month world wide. Door-busting deals for the latest and greatest must-haves are more often than not purchased wherever they are in supply through e-commerce. Brick-and-mortar stores that largely provide non-essentials must get a better handle on the geographical demographics and focus on high-turn inventory from any and all vendors to live through this economy.

Patricia Vekich Waldron
Patricia Vekich Waldron
8 years ago

Big box retailers’ value proposition was always the widest selection. With online retail available — and often much more convenient — large-format retailers lose their edge. Unless they raise the bar on associates, interactive experiences or other services.

Ed Rosenbaum
Ed Rosenbaum
8 years ago

Sports Authority seemed to have taken a back seat to Dick’s, at least in the areas I am familiar with. I have not been in a Sports Authority store in many years when I have encountered a knowledgeable clerk who was willing to help. That says training and possibly wages come into play. On the other side of the street, the Dick’s stores I have visited have both knowledgeable and somewhat interested sales clerks. Possibly Dick’s is more involved in the community. Supplying leagues with equipment definitely draws parents back when there are other purchases needed.

Jason Goldberg
Jason Goldberg
8 years ago

Sports Authority’s problems aren’t directly related to challenges with the big box format or the sporting goods category. Sports Authority’s problems are related to being out-executed by Dick’s Sporting Goods.

Sports Authority’s 2005 annual revenue was about $2.5 billion vs. Dick’s Sporting Goods’ $2.6 billion. Ten years later Sports Authority’s revenue is $2.7 billion (per Moody’s) vs. Dick’s at $6.8 billion.

Dick’s and Sports Authority face the same big box headwinds and the same sporting goods market. Dick’s more than doubled while Sports Authority stagnated because Dick’s out-executed Sports Authority.

In 2006 Sports Authority was taken private by Leonard Green & Partners in a leveraged buyout that caused Sports Authority to take on a large amount of debt. Sports Authority has spent the last 10 years servicing (not even retiring) that debt, while Dick’s has been able to invest in its stores. The result, Dick’s offers a better customer experience, a more enticing environment for UA/Nike partnerships, etc. No store concept will continue to stay appealing to consumers if you don’t/can’t invest in keeping up your stores.

That’s not to say the big box format doesn’t have serious challenges. The format was designed to win on assortment and obviously big box can no longer win on assortment. But that’s a headwind that Sports Authority and Dick’s face, and Dick’s seems to have weathered it far better.

Cathy Hotka
Cathy Hotka
8 years ago

I was in a Sports Authority store over the weekend and noticed the conundrum of big box retail — lots of room for SKUs on the one hand and fewer SKUs than available online on the other. The store was massive with very few people in it. Does anyone think that the dynamic will tip back to stores and away from online?

Tom Redd
Tom Redd
8 years ago

Sports Authority had a few simple problems magnified by a large number of stores.

  1. Terrible store management. Many of the people in their stores could not be found.
  2. Too broad an assortment and too limited assortment programs by each product classification. With the assortment issues we also saw pricing issues. And limited, usually out-of-stock conditions.
  3. Their high-level marketing worked but local promotional programs were terrible. Coupon efforts were not even worth going to the store.
  4. Store design was 1980s. No tuning of departments to surround people with their favorite sport.

A big store is fine. Merchandising, the true art and science of it, was DOA at Sports Authority.

Rick Myers
Rick Myers
8 years ago

I think there were multiple factors involved in their need to file bankruptcy. One factor is the location of the stores compared to Dick’s Sporting Goods and regional players like Academy Sports. Personally I didn’t like that anything I purchased online at their website was not returnable in stores. If you watched them for any length of time you could see inventory backing up. That would be a function of traffic in the stores. I think their pricing was fine compared to other retailers. Their assortment was very culled down, and generally I could only find between five and seven people working in my local store. Two of them were up front at the registers.

To be fair, big box stores do have a monumental challenge when competing against their online counterparts in terms of selection and price.

Bill Hanifin
Bill Hanifin
8 years ago

In my opinion, the majority of responsibility for the failure at Sports Authority is specific to the brand. At one point in time, Under Armour-branded products became the dominant brand in Sports Authority stores. I’ve heard from Millennials that I’ve polled informally that Sports Authority is great if you are in love with Under Armour, but that otherwise, Dick’s offers a wider range of choices.

The other area where Sports Authority seems to have fallen behind is store layout and merchandising. The stores never evolved from bland warehouse imagery. When compared to the warmer and more appealing layouts at Dick’s stores, Sports Authority leaves much to be desired.

Big box retail business models are challenged for all the reasons mentioned in the preamble here. No big box chain can allow further weakening via lack of product choice or poor merchandising. To that degree, the failure of Sports Authority should provide good learning for other big boxes fighting for survival.

Ian Percy
Ian Percy
8 years ago

I can’t come close to Mr. Gaffney’s expertise, but I did have some cursory dealings with Sports Authority a while back. From that I’ve come to the conclusion that the company’s problem had little to do with the “big box” factor. It was more a matter of there being little or no “Authority” in “Sports Authority.”

If you’re going to be the authority in name or intent, then for goodness sakes do it right. Be THE expert in your category, having professional sales advisors, being the first to innovate, to have amazing products and services no one else has and so on. Shopping in a sports store is like shopping in Mexico. Every store has precisely the same products. Doing that in a big box way, of course, just shines a brighter light on the mediocrity.

Joleen Wroten
Joleen Wroten
8 years ago

Big box stores were designed with the goal of category expertise, however, many failed to fulfill that promise through staff knowledge, innovation via technology, and simply deliver shopper value beyond a broad (and costly) B&M assortment. Thus online retailers, namely Amazon, quickly swooped in and eroded share virtually over night.

Categories like books/media, consumer electronics and sporting goods have all seen significant online purchase adoption rate growth and share loss to online sellers. With Amazon now focused on private label fashion offerings and launching a beauty assortment, niche retailers like Ulta, who recently announced strong financial performance, should be doing some aggressive tactical monitoring and planning to avoid becoming next on the chopping block.

Brian Kelly
Brian Kelly
8 years ago

Big or small box what matters is inside the box. AND how many boxes/selling square feet there are.

Category killers were great when the economy supported irrational exuberance and boundless shopping. Today, not so much as we’ve discussed in mall, department store and specialty apparel posts. Certainly mild winters haven’t enabled winter sports.

Sporting goods is following consumer electronics. Competitive/digital forces are conspiring with the economy to right size the brick offering. Less relevant options go away. Other categories will follow.

Next? Kitchen or home? Will Millennial home ownership ramp up to fill in as Boomers exit? Restoration Hardware seems vulnerable.

Or as Darwin might say, “retail ain’t for sissies!”

Karen S. Herman
Karen S. Herman
8 years ago

Not surprised with the news of Sports Authority’s bankruptcy. In terms of Darwinism, I don’t see this sporting goods retailer as an unfit specimen, I see the company as unevolved in the digital era. And today, that lack of evolution is what leads to extinction.

I agree that Sports Authority’s multichannel marketing is lacking and thus failed to connect with more digitally savvy consumers. Today’s consumer, whether digitally naive or digitally savvy, is looking for a deeper level of digital engagement from retailers they are loyal to and choose to do business with. In fact, statistics show that 22% more dollars are spent by consumers who use digital in their shopping journey.

Dick’s offers a variety of digital engagements with spring training facts and #GritBeforeGold, their US Olympics countdown. They throw in some social good with Sports Matter. REI is a deeper dive than Dick’s with its membership program and stories of outdoor adventure. And Patagonia is the mother lode of digital engagement and environmental and social responsibility.

Making your brand authentic, digitally engaging, and, socially responsible, are some of the challenges sporting goods retailers must embrace.

James Tenser
James Tenser
8 years ago

Category killers — in sporting goods, office products, even video rentals — made abundant sense a few decades ago when they represented the “long tail” of assortment. In today’s world of virtual inventory and online commerce, the long tail now resides in the cloud.

For a middle-of-the-market operator like Sports Authority, the need to carry a wide assortment of items in a wide assortment of sport categories causes a crisis of merchandising identity. It’s not a compelling destination for golfers, or trekkers, or skiers, or cyclers or yoga practitioners, although the stores offer some products for all of those.

I suspect low turns in a large space are part of the problem. It’s tough trying to be all things for all sports. Competitor Dick’s is eating its lunch in that department. Meanwhile real enthusiasts are patronizing REI, their local ski or cycle shop, or the World Wide Web.

Garald Shires
Garald Shires
8 years ago

The bankruptcy of Sports Authority has far less to do with the challenges facing big box stores than with their terrible execution as a retailer.

I have experienced their gross mishandling of inventory and poor product selection; their failure to maintain attractive facilities and presentation of their merchandise; and their failure to serve their customers.

This collapse has been standing in the wings for several years and, having finally accepted inevitability, will provide some location alternatives for more worthy retailers.

Mike B
Mike B
8 years ago

People like the bigger boxes. Scheels, Bass Pro, Cabelas, etc. They pass the smaller Sports Authority for those.