Sports Executive Weekly sat down with Craig Levra, chairman, president
and CEO, to discuss the west coast sporting goods chain's business
trends and prospects. On June 26, Sport Chalet reported its loss
widened in its fourth quarter ended March 29, to $11.1 million, or 79
cents a share, from $2.8 million, or 20 cents, in the year-ago period.
Sales
declined 12.7% to $84.5 million as same-store sales tumbled 17.7%. But
the company, subsequently reported that its making progress in its
turnaround efforts, which includes reducing expenses, restructuring
leases, and re-launching its website. Results also have exceeded plan
in the first two months of fiscal 2010.
SEW: In early May, Sports Chalet said sales trends were improving. Is that still holding true?
CL: As we stated in May, our sales trends are improving but
the consumer remains very cautious. Clearly the overall macro
environment continues to be challenging and is affecting all
industries. So there's still this great uncertainly in the consumer's
mind, particularly on the West Coast. For every two steps forward the
economy takes, theres one step backwards. The good news for us is that
so many competitors keep leaving the scene. That gives us great comfort
that our model works and makes sense. It works even in this environment
with some modifications. Some of our toughest specialty competitors may
not have the horsepower or the wherewithal financially to get through
this.
SEW: Are you talking about smaller stores?
CL: I'm talking about three or five store chains or the
single-owner shop. If you look at some of the specialty businesses
high-end fitness, higher-end surf, skate & snow, those categories
are just being hit very hard, I feel very badly for those owners
because I know they've put their whole life's work into that one shop
or that chain.. I empathize with them. But if we do what were supposed
to do, we'll benefit by the pie getting re-cut.
SEW: What adjustments need to be made in this climate?
CL: You have to be very careful on the expense side, you
need to make sure those expense reductions are invisible to your
customers. If we take people, systems, or processes away that our
customers notice, then it will affect their overall shopping experience
with Sport Chalet and our brand.
SEW: What categories outperformed in the fourth quarter?
CL: Performance footwear and apparel continue to do well.
Some of the action sports categories did very well such as fitness and
cycling.
SEW: Which were weaker?
CL: Last year we experienced another unusual winter season
on the West Coast. We've had five really unusual winter seasons in a
row, which have been shorter, started later, and ended sooner. As a
result, this has negatively impacted sales for our winter goods.
SEW: How's the markdown climate in your regions?
CL: The liquidations started last summer, so we're almost
cycling through a whole year during which a number of retailers went
out of business, creating pressure on our margins. But I think for the
most part it's pretty well flushed out. We're also very focused on
managing our aged inventory in every category. As an example, in our
winter categories we worked very hard last year to finish the year with
only current and fresh inventory. As of middle of January, we didnt
have a snowboard, a ski, a boot, or binding that wasnt this year's
model. This continues to be a main focus for us. We want our customer
to come in and be excited about the assortment they see on the floor.
You can't do that if you're sitting on old product.
SEW: Can you elaborate on your efforts to improve lease terms?
CL: As we said in our June 29th press release, we've
approached the landlords of all of our 55 stores as well as of the
corporate office, distribution center, and Team Sales division about
restructuring lease terms. To date, that's resulted in projected
savings of approximately $17 million, $14 million of which is over the
next three years. We take great pride in the fact that our landlords
want us in the centers and tell their lending institutions or
stockholders, 'This is an example of the type of tenant we want in our
shopping center.' But our landlords are getting hit on all sides as
well, and our goal isn't to push so hard that we push a landlord over
the edge. But we'll continue to seek to realign our lease terms with
the new economic reality.
SEW: Your 10K shows your workforce was reduced from 4,300
employees to 3,200 over the last fiscal year. Can you discuss that
process?
CL: As our release said, we saw a $7.2 million reduction in
payroll in the second half of fiscal 2009 and expect to further reduce
payroll expense by $10.7 million in fiscal 2010. As stated in our 10K
that includes freezing incentive and salary programs, and our workforce
was reduced. These have been very difficult but necessary decisions,
and I appreciate the hard work and dedication of all of our employees.
After all, the essence of the Sport Chalet experience is our great
product selection and the expertise of our employees.
SEW: Can you discuss the new e-commerce launch?
CL: As a company we're trying to transition our thinking
away from a traditional land-based retailer to one that utilizes the
Internet to reach our customers and understand what they want. With
that in mind and while the year has been difficult, we continued to
focus on enhancing specific areas of our business, such as e-commerce.
We launched our site on March 23rd and we're now able to very quickly
change the messaging. We continue to add shops every day, either
concept shops with support of our vendors or theme shops such as back
to school. We've got an unbelievable community website built with blogs
and ratings and reviews. And we're also getting tremendous feedback,
including customer comments. That instantaneous dialogue is essential
to a 21st century retail business particularly in an economic downturn
and a niche that is largely discretionary.
SEW: Can you elaborate on the success of your Sport Chalet Action Pass program?
CL: Action Pass is another key initiative to use technology
to reach our customers. The company to date has over 720,000 members
and is signing 6,000 to 8,000 new members each week. It's an astounding
figure when you remember that we did a full scale launch in November
2007 and now 40 percent of our sales are coming from Action Pass
members. There are retailers with many more resources than us that
would love to have those figures. I think it's a testament to the
strength of the program that our marketing team put together; the
strength of our buying teams ability to explain the opportunity to our
vendors that are participating in this; and most importantly the
ability of our employees in our stores to explain the benefits to our
customers. Everybody understands its a key initiative.
SEW: How has vendor support been through your difficulties?
CL: Very supportive. We have been as transparent as we can
be. And we're very thankful that across the board our vendors
understand our business model, understand what we represent and believe
in our company. Everybody's being prudent, that's fine. Some have come
around faster than others but we're very thankful that we haven't had
anybody turn their back on us. And I believe our results vindicate that
trust.
SEW: What do you consider your primary growth categories?
CL: Cycling and fitness continue to be key growth
categories, and we've got a team sales division that is really working
well. Last check, we were selling eight of the top 25 high schools in
the country in the USA Today Top 25 poll, eight out of 10 in Los
Angeles and the top one or two in Las Vegas. While we believe we still
have some work to do in our other two states, as a result of the great
linkup between team and retail, we have a lot of merchandise that's
available in both venues and we're able to customize anything. So the
team business just continues to grow due to the fact that we're
executing better and in part because competitors are weaker.
SEW: Are you deemphasizing any slower categories, such as winter?
CL: We believe in the winter business. We want to be great
at it. That's how our company started. Are we smarter in how we run it?
Absolutely. When I first arrived at the company, we were really a
winter company and didn't quite have everything lined up to do a better
job outside of the winter season. Now we are clearly doing a much
better job in terms of driving more businesses across multiple
categories with longer shelf lives and repeat customers. So we're not
in any way downscaling or cutting back on winter. Every year we get
smarter in how we flow and sell product.
SEW: How do you think the consumer mentality will change coming out of the recession?
CL: I think every purchase is going to be more considered
and that's okay because we have worked hard for so many years to
differentiate ourselves and to be first to market with performance,
technology, and lifestyle merchandise. There are a lot of other people
across retail talking about how to create value by having lower priced
product. We try to look at value as saying, 'We're going to fit you
with a product that's going to last as long as you need it.' In order
to be true to that mission, we have employees on the floor who can
explain that product and why buying that product is really the most
cost-effective alternative given its quality and unique aspects that a
customer cant get anywhere else.
SEW: After last year, what gives you confidence that your business model is sound?
CL:
I think its the great response from our customers. This is all a web.
It's a weave. It's a tapestry. We believe in our model and we recognize
that our business has suffered because our customers have suffered.
We're a mirror image of what our customers are going through and the
fact that we get so many positive remarks about our assortment, our
people and the things we're doing to improve our business makes me
believe we're well positioned for the inevitable economic upturn. The
other reason our model has validity is that our employees believe we're
right. If they dont believe you're right, they'll leave you for
another job no matter the state of the economy. If you look across the
spectrum, weve really lost very few of our most valued employees and
to me that means we're doing it right. We're not perfect by any stretch
but we've got the right philosophy, we are aggressively realigning our
business with the changed economic reality without compromising our
customers shopping experience. We believe our actions will better
position our business for when the macro environment improves.
