Sporting Goods Retailing: An Analytical Examination

MBAS 63204/24/08Joel StubblefieldAlex McGhee

Industry Overview

•Approximately 20,000 Companies

•Combined Revenues of $25 Billion in 2007

•50 Largest Companies hold less than 50% Market Share

•Most Large Retailers Evolved from Small, Family Run Stores

Current Major Players

•Modell’s Sporting Goods

•Hibbet Sports

•Sports Authority

•Dick’s Sporting Goods

Modell’s Sporting Goods

•Nation’s Oldest, Family Owned, Sporting Goods Retailer

•136 Retail Locations Covering 8 States Mainly in the Northeast

•Revenues of $635 Million in 2007

Strengths Weaknesses

• “Hometown” Sporting Goods Store

• Local, Specialized Offerings

• Community Relationships

• Provide a Competitive Advantage in it’s Primary Footprint of the Northeast

• Only have a Presence in the Northeast

• Can’t compete on a National Level

• Does not Possess the Mind Share of a Dick’s or Sports Authority

Hibbett Sports

•Founded in Birmingham, Alabama in 1945 by Mr. Rufus Hibbett

•Operate 650 Stores in 23 States mainly concentrated in the Southeast

•Reported Revenues of $521 Million in 2007

Strengths Weaknesses

• Large Amount of Retail Stores

• Retail Stores placed in Small to Medium sized Markets to take Advantage of Reduced Competition

• Priority Placed on Service to Ensure “Neighborhood Sporting Goods Store” Feeling

• No Online Store (Customers are redirected to Suppliers websites for purchase)

• Do not Offer Golf or Tennis Equipment

• Though Large, Still only Possess a Regional Footprint

Sports Authority

• Only one of the Major 4 that did Not Evolve from

Local, Family Owned Company

• Started in 1987, Purchased by Kmart in 1990,

bought many Smaller Local and Regional Chains

• Operates 400 Stores in 45 States

• Went Private in 2006, but released Revenues of

$2.4 Billion Dollars in 2005

Strengths Weaknesses• Nationwide Presence

• Size and Amount of Retail Locations Provides Bargaining Power with Suppliers

• Also Offers Products Under its Own Private Labels

• Large Number of Locations, as well as, Warehouse Sized Stores Increases Costs in Overhead

• Larger Selection also Increases Company’s Carrying Costs on Inventory

Dick’s Sporting Goods

•Founded by Dick Stack in 1948, in

Binghamton, New York

•Began Franchising in 1990

•Operate 345 Stores in 34 States

•Posted Revenues of $3.88 Billion in 2007

Strengths Weaknesses• National Presence

• Leader in the Industry in Mind Share

• Click and Mortar Business Model has Enabled Dick’s to become the Leader in the Industry

• Lacks “Hometown” or “Neighborhood” Feel because of Large Warehouse Like Stores

• Higher Overhead and Inventory Carrying Costs because of Size

• Consumers Have to Be Careful When Accessing the Website

Market Segments

Team Sales Individual Sales

• Amateur Organizations Purchase Equipment and Apparel for Teams and Leagues

• Can Receive Volume Discounts From Some Retailers

• Individuals Purchase Equipment and Apparel for Activities they Enjoy or Compete In.

• Individual Sales can be Broken Down into Each Activity i.e.BaseballGolfBowlingEtc.

Five Competitive Forces

Entry of Competitors

•Large Company’s have a Competitive Advantage through Economies of Scale

•Competition is Possible Through Local Feel and Service Quality

•New Entrants can compete in Niche Markets and Through E-Commerce

Five Competitive Forces

Threat of Substitutes

•Manufacturers Selling Directly to Consumers Through their own Websites

•Specialized On-line Stores

•However Customers cannot Tangibly Examine the Product

Five Competitive Forces

Bargaining Power of Buyers

•Negligible

•Buyers can Shop Different Retailers

•Negotiating Power not in the Hands of the Buyer

Five Competitive Forces

Bargaining Power of Suppliers

•Substantial

•E-commerce enables Suppliers to Market their Goods Directly to the Consumer

•Many Different Retailers to Merchandise their Goods Through

Five Competitive Forces

Rivalry Among Existing Players

•Industry is Extremely Competitive Referenced by over 20,000 firms with the Top 50 Holding less than 50% of the Market Share

•E-commerce has Allowed many New Retailers into the Market giving Consumers Numerous Different Outlets to Purchase Products

Historical Value Approaches

•Retailer was a “Hometown” Store, Supported Local Leagues through Merchandise and Sponsorship

•Allowed Consumers a One Stop Shop for a Variety of Different Merchandise

•Knowledgeable Personnel to Provide Friendly Service

Concepts Vulnerable to Internet

•Can Provide a Greater Selection

•Reduce High Costs of Inventory and Overhead

•Reduce Transaction Costs

•Expert Information

Industry Transformation

Customers

•Far more Educated

•Greater Expectations

•More Active

•Increasingly Affected by Endorsements

Technology’s Role in Change

Data Analysis and Data Mining

•Allows Retailers to Better Predict Customer Demand

•Determine Location and Amount of Inventory

•Track Sales and Predict Forecasts More Accurately

CPFR

Collaborative Planning, Forecasting and Replenishment

•Derived From Data Mining to Control Inventory Levels and Ordering Timetables More Tightly

•Reduces Wasted Shelf Space and Carrying Costs of Stagnant Inventory

RFID Tags

Radio Frequency Identification Chips

•Assist and Enhance CPFR systems

•Placed on Inventory and Relay Information in Real Time

•Radio Waves to Transmit Eliminating Line-of-Sight Reading Required by Barcodes

Changes to Competitive StructureE-Commerce

•Allowed Strictly Internet-Based E-tailers to Enter the Market

•Brick and Mortar Stores forced to Develop their Own Websites or Lose Market Share

•Allowed Niche Websites Solely Dedicated to One Sport the Ability to Compete

Changes to Competitive StructureE-Commerce

•Increased the Secondary Market through Sites such as Ebay thereby Decreasing the Demand for New Equipment

•Allowed Manufacturers to Market their Goods Directly to the Customer

•Expanded Retailer’s Possible Customer Bases

Changes to Competitive Structure

Product Customization

•Provides the Consumer with Optimal Benefit

•Higher Margins with Minimal Costs

•Provides Valuable Information about Consumers to the Retailer

•Higher Customer Loyalty

Adaptation of Incumbents

•Switch to Click and Mortar

•Information and Service Online

•Consumers Receive Best of Both Worlds

•Special Offerings for Online Purchases (Free Shipping and Free Return Shipping)

Strategy Development

Hibbett Sports

•Operates more Retail Locations than any Other Sporting Goods Retailer

•Lowest Revenues of the 4 Firms Examined

•Major Difference: Hibbett Does Not Operate an Online Store

Core Competencies•Customer First “Hometown” Attitude

•Large Footprint Stretchting Over 23 States

•Largest Number of Retail Outlets

•Smaller Stores Reducing Overhead and Size of Inventory

•Firm Emphasis Placed on Customer Service

Opportunities from Technology• E-Commerce Would Provide Hibbett with Access

to Millions of Customers Previously Unavailable

• Large Presence and Proper Advertising Could Provide Hibbett with Increased Mind Share in the Industry

• Inventory Management System would Allow Hibbett to Better Control Inventory, Very Important for a Smaller Company Competing with the Giants

Threats From Technology

•Resistance From Vendors

•Cost vs. Benefit Analysis

•Resistance From Employees

•Gaining Mind Share from Consumers

Alternatives to Trends

•Engage in E-Commerce

•Lack of Knowledgeable, Professional Employees

•“Hometown” Feel Due to Smaller Stores vs. Warehouse Sized Retailers

Specific Plan• Alter Website to Provide E-Commerce

• Make Sure All Supporting Systems are in Place Prior

• New Marketing Plan Focused on the Website

• Educate and Train the Proper Employees with Focus on the Website and Customer Service

• Invest in the Latest Inventory Management Systems

Barriers to Implementation

•Capital

•Finding the Correct Employees with the Proper Experience and Expertise

•Methods to Evaluate Costs vs. Benefits

Measuring the Impact

•Continuous Monitoring until New Instruments Become Available that Measure Cost vs. Benefit of E-Commerce More Accurately

•Develop Specific Goals

•Use Best Practices Implemented by Firms who Have Preceded Them

Key Insights Gained

•E-Commerce can be a Source of Competitive Advantage or Disadvantage

•Technology Advances Create Economies of Scale and Allow Smaller Companies to more Ably Compete with Larger Firms

•Some Historical Competitive Advantages Still Remain in Place Today