Speaking at the BofA Securities Consumer and Retail Technology Conference, officials at Dick’s Sporting Goods elaborated on the potential for its two new concepts, Public Lands and Dick’s House of Sport, while also addressing its relationship with Nike, its private-label success and sales outlook for the current year.
At the event held last week, Ed Stack, executive chairman and chief merchandising officer, said Dick’s has been working on and researching the opportunity around Public Lands, an outdoor concept, for about three years. Two test stores will open in 2021 in Pittsburgh, PA and Columbus, OH.
“We think there’s a real opportunity for a different type of outdoor store focused on the environment and very focused on how we can help that,” said Stack. “Which is why we called it ‘Public Lands.’ We think our Public Lands are really important. We need to protect those Public Lands.”
In December, Todd Spaletto, previously president of The North Face and group president of Michigan Brands for Wolverine Worldwide, was named president of Public Lands to guide its development.
.“The support we’ve gotten from the vendor community and the outdoor community as they take a look at what we’re trying to do and how we’re going about this, they’re pretty excited,” said Stack.
The concept will be about a 50,000-square-foot concept, and the two initial stores will replace Field & Stream locations. He added, “These are two very different consumer groups. The outdoor camping, up-the-mountain consumer versus the hunt shooting consumer, are very different.”
He sees the opportunity as similar to the flagship expansion Dick’s saw in its early years when it took on the “bigger, more entrenched retailers” in the marketplace. Stack said, “We’re excited about this. We think there’s a void in the marketplace of what we can do with a younger, more active consumer versus an older consumer that some outdoor brands service today. We think it’s a pretty fragmented market.”
House Of Sport To Debut In Rochester
Dick’s House Of Sport has been explored for about two and a half years, with the first location debuting this week in Rochester, NY. A second will be tested this year in Knoxville, TN.
Stack said, “When I first started talking about it and got our team together, I said, ‘We need to build the concept store that would put Dick’s Sporting Goods out of business.’ This would have to be a store that if it opened up across the street from a Dick’s Sporting Goods, we can’t survive, and I think that’s what we’ve done.'”
The concept is much larger, at 100,000 square feet, and focuses on service, community and experiences. The store will feature a 17,000-square-foot outdoor field, including a running track, to host sporting events and product trials, a rock-climbing wall, and a health and wellness center for indoor programming. The concept will carry several different brands than found at Dick’s traditional, smaller retail locations.
“If you go in and see this place, you’ll be in there for a long time,” said Stack. “What we’ve been able to do with the Nike brand, our footwear department, our golf department, the baseball department, and the climbing wall… It’s awesome. It’s historic.”
He also said the concept would be “at least as profitable” as the average Dick’s flagship location. Stack added, “I wouldn’t worry about the profitability here. Sales volume, we suspect, is going to be quite high.”
Dick’s Record 2020 Results Benefit From Pandemic-Behavior Changes
The conversation started on Dick’s record sales and earnings for the fourth quarter and year reported earlier in the week.
For the full year, same-store sales increased a 9.9 percent on top of a 3.7 percent comp increase in 2019. On an adjusted basis, EPS reached $6.12, representing a 66 percent increase over last year.
In the fourth quarter ended January 30, same-store sales grew 19.3 percent. On a non-GAAP basis, excluding non-recurring items, earnings rose 98.6 percent to $225.0 million, or $2.43, well ahead of Wall Street’s consensus estimate of $2.21.
Stack noted that the gains over the last year capitalized on investments in recent years had accelerated growth to mid-single-digits in the back-half of 2019. The investment priorities included taking its e-commerce operations in-house to target the overall online opportunity better. Said Stack, “Sometimes people forget that our first e-commerce sale was in 1999 and our e-commerce business this year was roughly $2.6 billion, about 30 percent of our sales.”
In recent years, other efforts have paid off, including space optimization that led Dick’s to reduce its hunt business in favor of faster-growing and more-profitable categories, such as apparel.
The chain has also invested in bringing premium full-service footwear decks to its stores to improve the footwear shopping experience. Dick’s will convert an additional 100 stores for the current year, bringing full-service decks to over 60 percent of Dick’s chain. However, Stack said the chain was well-positioned to take advantage of categories experiencing stronger demand due to consumer behavioral changes associated with the coronavirus pandemic.
“We were in a great lane in being able to make some real changes to our business based on COVID,” said Stack.” People wanted to be outside. They wanted to play golf. They needed to work out. They wanted to run. They wanted to walk. And our team did a great job transitioning and chasing product and managing the business in 2020, with our comps up 9.9 percent for the year.”
Dick’s estimated that it acquired 8.5 million new customers in 2020, with many skewing more female, younger and urban than Dick’s traditional customer base. Said Lauren Hobart, CEO, “We attribute that to the fact that people left the cities and may be experienced our brand in a new and different way over the course of the last year.”
Asked to what degree the retailer’s sales momentum could continue in 2021, Hobart said Dick’s sees team sports, a lagging category in 2020 due to organized sports cancellations, recovering this year. She noted that the country is seeing a “little mini football season” pushing back the traditional baseball season.
She also suspects many Americans that played golf over the last year would continue playing even as other activities become accessible. She added that the fitness category is likely to continue to have a “significant amount of unmet demand,” with the category facing inventory constraints for much of last year. The bike category faced inventory shortages. Hobart said, “We have a lot of reasons to be optimistic about the year.”
Dick’s Strong Partnership With Nike
Asked about the chain’s relationship with Nike, Stack said the relationship has “probably never been better.”
He added, “We’ve put together a business plan between our two brands that certainly helps us, and we’d like to think it helps and positions Nike in a great spot.”
He believes the investments Dick’s has made upgrading its apparel sections and adding full-service footwear decks has played a key role. Stack said, “We have given them the best piece of real estate in our stores. They’ve responded with an [enhanced] allocation from a sportswear standpoint, both in apparel and footwear. That’s been great for both of us and has helped drive our business. We’re just scratching the surface. There’s more that we can do with Nike. And we think Nike wants to do more business with us and sees what we can provide. And the relationship between us has never been better.”
Stack said expanding its full-service footwear decks is also supporting growth and improved allocation from other footwear brands. He cited successful programs with Brooks, New Balance and Hoka One One. The footwear decks would be in more stores, but many of the remaining locations carry short-term leases. The investment to set-up a footwear deck wouldn’t be worth it for a store that could face relocation.
“These footwear decks have been profitable,” added Stack. “They’ve been great for our business. They’ve helped our online business.”
Stack added that the company continues to find success with private-label offerings or vertical brands, including DSG becoming its biggest brand and Calia second only to Nike in women’s.
A new VRST men’s private-label premium apparel collection launched this week on Dick’s.com and a standalone VRST.com will roll out to more than 400 Dick’s stores in the coming weeks. Dick’s officials have compared the brand to Lululemon and said it would not compete with core brands such as Nike and Adidas.
Said Stack, “It’s meant to compete with the vertical brands that are out there that you would traditionally find in the mall.” He added, “Let’s face it, there are some vertical retailers that have done a great job in the women’s business and are moving into the men’s business.”
The vertical brands tend to generate margins of 600-to-800 basis points higher than the retailer’s average margin rates.
Other highlights from the presentation:
- Dick’s 2020 efforts included hero pay and 15-percent premium pay programs for employees. Much of the enhanced pay became permanent in 2021 that Stack expects will help in recruiting talent. The retailer also donated $30 million, largely in the fourth quarter, to its Sports Matter program in recognition of the challenges facing organized sports. The focus was on lower-income urban communities that have been particularly impacted during the pandemic. Dick’s, starting on March 5th, in partnership with Allegheny Health Network (AHN) also has been hosting COVID-19 vaccination clinics at its corporate offices in Coraopolis.
- Dick’s move to exit the hunt category from 440 doors in 2020 was paused due to COVID-19 as other programs took priority but it was recently completed. Hobart said Dick’s has said in the past that it’s lost about $250 million in sales from the hunt category in recent years due to the company’s “stance on common-sense gun reform.” Hunt remains in a select group of stores “where there is a really active community, where it’s a big part of how families interact.”
- Growth in women’s has been helped by segmenting to two targets: the female team athlete and the athletic female, or what Hobart describes as the female team athlete’s mom. Calia was developed to address the more mature female athlete. The retailer ensures it has “the right product and availability for girls” and invests in advocacy efforts, including supporting girls’ play through Sports Matter. Dick’s just released a new advertising campaign featuring eight of its female leaders to celebrate Women’s History Month. Said Hobart, “We have an extensive number of women in our leadership team and we showcased how we’re all working on behalf of women and girls and just the passion that we have to make that better. So some of it is a brand-building effort going forward.”
- Dick’s inventory is in “pretty good shape” despite port congestion and container shortages that are leading to challenges across categories at retail, according to Stack. He said inventories “are lower than we’d like them to be, but they’ve got progressively better as we worked our way through the pandemic. Yes, there are delays at the port. We’re not really a just-in-time inventory player, though, so we tend to carry a little bit more safety stock than some other players.”
- In reporting its outlook for 2021, Dick’s said it expected gross margins to increase versus 2019 driven by leverage on fixed expenses and higher merchandise margins. However, gross margins are expected to decline year over year due primarily to gradually normalizing promotions and modest deleverage on fixed expenses beginning in the second quarter. Dick’s team was asked why margins aren’t improving given the expected benefits of occupancy leverage, vertical brands increasing as a percent of sales, team sports and apparel sales normalizing, hunt becoming less of the mix and improved e-commerce profitability the savings from curbside pickup. Lee Belitsky, EVP and CFO, said 2020 was “virtually promotion free” in part due to supply constraints and many of the big-ticket categories that drove 2020’s sales typically carry heavy promotions. Dick’s is facing merchandising margin gains over 300 percent for the last three quarters of 2020. Belitsky said, “It’s difficult to say exactly what will happen in the last three quarters of this year. However, we’re anticipating that some level of promotions are going to return to the marketplace. We don’t have evidence of that yet. The inventories continue to be in good shape across the industry right now.”
Photos courtesy Dick’s Sporting Goods
