Speaking at the BofA Securities Consumer and Retail Technology Conference, officials at Dick’s Sporting Goods took a deep dive into the wide-scale benefits stemming from the retailer’s transformation efforts that started in 2016 and the re-baselining of its business due to the pandemic. Dick’s also expressed little concern about losing Nike allocations as the brand has aggressively shifted to direct-to-consumer (DTC).
Asked if investors should be “scared that something bad could happen” to Dick’s Nike business, Ed Stack, executive chairman, said, “I think on the surface, you could see why you could be scared about that, but I don’t think you should be, and we’re not.”
Stack noted that Nike has talked about moving away from “undifferentiated retail” and inferred Dick’s aligns with the type of strategic retailer Nike seeks to complement its DTC presence.
“We have a different model,” said Stack. “We bring something different to the consumer that other retailers don’t. Based on the size of our stores and the breadth of product that we carry, we have the ability to showcase a brand’s complete product offering.”
Stack noted that Dick’s can showcase Nike’s complete apparel and footwear collections across genders down to toddler sizes as well as across categories including running, basketball, lifestyle, and training. The retailer also provides an opportunity to sell Nike’s hardline products. Said Stack, “Everything that they carry, we’re able to showcase in the size of the stores that we have.”
He further said Dick’s has “made investments in the Nike brand. Nike’s made investments in our brand,” inferring moves to elevate Nike’s in-store shops within Dick’s stores. Last year, Dick’s also partnered with Nike on a connected membership program, where Nike’s loyalty program linked to Dick’s membership giving customers access to shop for exclusive Nike shoes and apparel on its website.
Stack said, “Their DTC business is going to grow, but they do know that they need partners outside their own DTC brand to showcase their brand on a day-in, day-out basis for people to come in, touch, feel, and try-on those brands. And, our Nike business has been great.”
Stack said Dick’s has a similar relationship with Adidas, which is also amplifying its DTC push. He said, “We’re comfortable where we are with these brands, and our relationships with them have never been better.”
The conversation about Nike allocation has heightened when Foot Locker, on February 25, indicated that a sharp reduction in allocations from Nike would likely result in a high-single-digit decline in comps in the current year. Over the past four years, Nike North America has consolidated its wholesale account base by roughly 50 percent as its digitally-led DTC push has expanded. The consolidation included exiting chains that had relied on Nike for years, including Big 5 Sporting Goods, DSW, Urban Outfitters, Shoe Show, Dunham’s Sports, and Olympia Sports.
“We’re joined at the hip, and we’ve got great respect for them,” added Stack about Nike. “I think they’ve got great respect for us, and we see how we can truly partner and help each other. And that’s the path we’re on. So we’re not concerned about Nike making a major change in the distribution of their product to us.”
The BofA presentation came a day after Dick’s delivered its seventh consecutive quarter that saw earnings and sales surpass Wall Street consensus estimates to power two straight record years in 2020 and 2021. Much of the discussion explored Dick’s outsized performance in recent years. Stack said the improvement represented a payback from a shift in 2016 to invest in building its digital business aggressively.
“We’ve added over $3 billion in sales since 2019 and meaningful profitability, 800-to-900 basis points in profitability. And a lot of people think that we were just a COVID beneficiary,” said Stack. “COVID certainly, in an odd kind of way, helped. We were in a good lane because people wanted to play golf. They wanted to work out. They were working from home. And it re-baselined all of our businesses much higher than 2019. But if you look back to 2019, our business had already started to change.”
Stack added, “There’s virtually nothing we do the same today that we did in 2016. The product that we carry is very different today than it was then, the service model that we have in store is very different, and the marketing aspect of our business is very different.”
Dick’s invested in its stores, including refitting its footwear platform to help it secure “access to the product that we hadn’t had before.”
Stack said the introduction of premium full-service footwear concepts is in about 350 Dick’s locations and has supported improved allocation. He said, “It’s made a big difference in the access to product, whether it’s Adidas UltraBoost, whether it’s Air Force One. We’ve got Hoka in 140 stores right now, and that’s going to be broadened out going forward.”
In marketing, Dick’s shifted to digital from relying on printed circulars that required pricing to be set six weeks in advance. Stack said, “It was very difficult to control margins because you’re making pricing decisions six to eight weeks ahead of when the sale or the promotion will actually start. We don’t do any newspaper inserts any longer. We can do regional pricing. We can be much closer to the market. ”
Asked about the pandemic’s benefit, Lauren Hobart, president and CEO, said that many “pandemic categories” including bikes, boating and golf that surged during the pandemic continue to see sales “higher than pre-pandemic level,” although sales show a slight decline, as expected, against year-ago gains. She added, “But what’s also happening, which is fantastic, is that core businesses like team sports, athletic apparel and footwear have come back with a vengeance. And team sports was one that just ground to a halt during the pandemic. Obviously, kids weren’t playing, and we found almost a natural hedge in our business. So when kids are playing team sports, maybe the parents are less on the golf course or less boating, but it’s all part of an outdoor lifestyle, and everything is going to be increasing as we go forward.”
Hobart said Dick’s gained 8 million new customers in 2021 on top of 8.5 million new customers in 2020. She said retention rates have not declined despite the uptick, and she credited Dick’s established ScoreCard loyalty program. She said, “We have a whole program to make sure that we are bringing people back, engaging them in a way that’s personalized to them, making sure that they have future experiences with Dick’s, and that’s going well.”
She said Dick’s had gained more female shoppers over the last two years than men and believes its partly due to the successful launch of the Calia store brand and better segmenting efforts to target the older “athletic female” versus the younger “female athlete,” or the team sport player. Hobart added, “And we’ve done a ton to advocate on behalf of girls and women.”
Dick’s customer base has also become younger, more diverse and more urban over the last two years.
Asked about golf, Stack agreed that the return of team sports and other activities had slowed participation, but he believes the category has re-baselined significantly higher versus pre-pandemic levels. Stack said, “Overall, we’re excited about the long-term growth of golf because there were people who came back into the game who played it before. There are a lot of women who came into the game for the first time or reentered the game. A number of kids came into the game because they didn’t have Little League to play or soccer games to play. And a lot of that is going to be sticky for these people going forward. So long term, we’re excited about the golf business.”
On margins, Stack is confident the “majority” of Dick’s improvement over the last two years is “here to stay” because its product assortment is “very different” versus several years ago. Stack said, “It’s higher-heat product, and it’s a more narrowly distributed product than you would find in the market as a whole. And, therefore, it’s not as susceptible to promotion as some of the products that we had back in 2016, 2017, 2018.”
He said the market should return to being more promotional; the increasingly differentiated product should reduce the pressures to match prices. Dicks said it expects some promotional pressures to return in the second half of the year as supply chain challenges ease to better balance inventory levels across the marketplace.
Hobart added that Dick’s margins also benefit from enhanced pricing and promotional tools. She said, “The tools we have to surgically adjust pricing are so much more sophisticated than they were several years ago. We used to have blunt instruments in the newspaper, where pricing had to go down for eight pages of items and whatever it was, and you had to release that six weeks before. You had no idea what the market was going to bear or what inventory levels would be. We are now literally making day-to-day decisions.”
Asked if Dick’s was raising prices to offset inflationary pressures, Hobart said Dick’s did selectively pass on some pricing increases, especially in several hardline categories, in the fourth quarter. However, most of the improved merchandising rate in the latest quarter was due to lower promotions. She said, “As we look to the coming year, we’re going to be incredibly fluid and flexible about pricing based on what’s happening to input costs and then also what the consumer will bear and what the marketplace is. We’re going to remain competitive.”
Online has been profitable “for many, many years” and is now essentially on par with profitability levels at its brick & mortar stores from an earnings before taxes (EBT) perspective, said Hobart. She said online profitability has benefited from Dick’s move to bring the platform’s technology in-house, enabling it to scale the business, coupled with overall growth that has led online sales to account for 21 percent of the mix in 2021.
Online profitability has also been helped by differentiated assortments and fine-tuned promotions versus the “site-wide promotions” often employed in the past. Finally, the expansion of buy-online, pickup-in-store (BOPIS) and curbside pickup has further elevated online’s margins because it eliminates shipping costs. Said Hobart, “The channel is incredibly profitable now.”
Stack also said Dick’s would put more marketing behind driving customers to its website. He noted that research shows that Dick’s tends to be “first of mind” on a Saturday morning when a new pair of baseball cleats or golf balls are required to play an activity over the weekend, and a quick trip to a Dick’s store accomplishes the task.
Stack added, “On Monday, if they need that stuff for the coming weekend and they want to do it online, they’re not necessarily thinking of us top-of-mind, which shouldn’t surprise anybody. We felt we needed to change that.”
A new commercial featuring NBA Hall-Of-Famer and broadcaster Charles Barkley spotlights the advantages of shopping from Dick’s website. Said Stack, “Barkley does a great job. The commercials are very funny. We use some humor there. But, I think, it’s going to make a really big difference in our e-commerce business going forward.”
Photo courtesy Dicks Sporting Goods
