Oct 3, 2017

US sports retail in panic mode

Paul Sherratt of Solutions for Sport takes a closer look at the changes affecting the US Sporting Goods Industry

Early August 2017 and the shares of Dicks Sporting Goods – the leading US sporting goods retailer, and one of the biggest sports retailers in the world, drop over 20 per cent.

Dicks CEO Edward Stack announces that “There’s a lot of people right now in retail and in this industry in panic mode with how they’re pricing, and we think it’s going to continue to be promotional, and at times irrational, going forward.”

Many of Dick’s partners and its rivals were being dragged down with it. Hibbett Sports shares sank more than 10 per cent. Shares of Under Armour, Foot Locker and Big 5 Sporting Goods were all falling around four per cent. Cabela’s was down three per cent, Callaway Golf Company down two per cent, and Nike down 1.8 per cent.

Pittsburgh-based Dick’s had hoped to benefit from rivals’ bankruptcies, including those of City Sports and Sports Authority, but competition from specialty retailers like Under Armour and Foot Locker remains a threat.

The company recently launched a private-label clothing line, called Second Skin, that aims to compete directly with Under Armour’s niche. But it’s too soon to tell if the line will help boost sales

So what’s going on across the pond and are the same issues being reflected here?


Last month I covered the new trading relationship between Nike and Amazon and, while it is far too early to tell what impact this will have, market sentiment both in the US and here suggests that this further increases pressure on any sports retailer who doesn’t have a credible ecommerce proposition. Dick’s is just another example of Amazon becoming the new middleman.

Certainly an increasing number of brands who, perhaps in the past, refused to deal directly with amazon are now jumping on board. This is most likely to affect those market place sellers, many of whom are independent retailers who see this as their last hope to maintain their business. If the brands begin to “control” this channel in conjunction with amazon then its logical that, over time, they will want to implement selective distribution strategies and begin to prevent marketplace sellers and try to control retail price erosion.

A warning then, perhaps, for any retailer who currently has too many eggs in the amazon marketplace basket. Is this a sustainable longterm strategy?

If prices continue to tumble and amazon continues to grow, as one retail analyst puts it, “Here we go down the gross margin rabbit hole”.

And, indeed, it is gross margin worries that are driving brands and retailers to address their pricing strategies.


While on the one hand, amongst other things, massive currency fluctuations over the past 12 months have driven up the cost of goods and driven up retail prices, on the other hand increased private label activity and consumer pressure for lower prices has resulted in margins falling across the industry.

In their latest results, for example, Sports Direct show deteriorating margins across the board and a 59 per cent plunge in underlying pre-tax profit, even with an extra week in this financial year.

Difficult then to implement the strategy “to become the ‘Selfridges’of sport by migrating to a new generation of stores to showcase the very best products from our third party brand partners” when margins from those partners are substantially lower than own label products margins.

A shift to increased third party partners will inevitably lead to further margin pressure.

Brands becoming retailers

Increased brand focus on driving direct to consumer sales strategies is likely to add further pressure on the traditional sports retailers.

Multi-channel offerings from the major brands and easier direct access to the end consumer enables the brands to drive innovative retail strategies which they would simply be unable to offer through their retail partners.

Increased use of technology, increased direct feedback from consumers and getting products to the market quicker will all enable sports brands to gain a greater retail market share over time.

Will the next generation of mega sports brand be one that doesn’t even have a wholesale strategy?


So what do the analysts make of the challenges facing the industry;

UBS analyst Michael Lasser on Dicks: “DKS is operating in a tough sporting goods retail landscape. While it’s managing the environment better than its brick and mortar peers, it isn’t fully immune from the external environment.”

Laith Khalaf, senior analyst, Hargreaves Lansdown on SDI: “Sports Direct still faces challenging times….the weak pound is increasing costs, and the British consumer is facing rising inflation and weak wage growth, not a pretty combination for the price-sensitive shoppers who turn to Sports Direct for a bargain.”

Striking similar sentiments with neither indicating that the shortterm future will be any rosier.

I have commented many times within these articles how quickly things are changing and how multifaceted the factors impacting our industry have become.

So what future?

Retailers continue to evolve into brands and brands into retailers. Ecommerce continues to have a huge influence on shopping habits. Amazon, at 40 per cent plus of UK ecommerce traffic, continues to throw up challenges. Our independent retailer base is declining. Our major retailers are struggling under increased margin pressure albeit many are growing their revenues. Our brands are increasing their direct interaction with end consumers.

There are so many influencing factors that will shape the future of the trade.

But one thing is for sure. Those within the trade who consider the changes and adapt accordingly will survive.

Failure to adapt will, undoubtedly, lead to extinction.

Good luck!


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