At the William Blair & Co. Growth Stock Conference last week, Dick’s Sporting Goods’ officials received a slew of questions from investors in attendance about their potential competitors – from Amazon to other larger full-line stores. Not surprisingly, the two execs in attendance Joe Schmidt, president and COO, and CFO Tim Kullman indicated they’re not feeling too much pressure.
Asked about Amazon and the prospect of overall online price competition, Schmidt said Dick’s SG is indeed facing competition from Amazon and other online retailers but the chain is “not looking at a price war as a way to compete. Really, we think we competing pretty effectively with a number of different things that we are doing.”
First, he noted that the chain’s assortment, particularly evident in the strong trends toward lightweight running shoes and golf equipment, is highly technical and lends itself to be sold through experienced sales personnel versus online.
“We think that the consumer will want to come in and is coming in to work with our golf pros to make sure they have the right golf clubs, to work with our baseball experts to make sure they have the right bat and/or right glove for their game, to work with our run specialty associates to make sure that they have the right shoe for their foot,” said Schmidt.
About 15 percent of Dick’s SG’s product mix is also private label to provide a point of differentiation with a goal of reaching 20 percent in the next three to five years. Twenty percent of the assortment at Dick’s SG’s in-store shops with Nike and Under Armour are also exclusive to the chain.
In addition, Dick’s SG’s major vendors, citing Nike, Under Armour, Titleist and North Face, don’t sell direct to Amazon, officials indicated. Said Schmidt, “We are the number one partner with all those brands in how we build the brand equity for them in our stores. And we think we give them a pretty good platform to do that.”
Finally, Dick’s SG comparatively has an advantage over online sellers through its 486 physical stores with new capabilities such as ship-from-store and order online/in-store pick up.
Asked about potential growing competition from Academy Sports with its August 2011 acquisition of Kohlberg Kravis Roberts & Co. (KKR), Kullman said Academy has a dominant base in Texas and opened a 1 million square foot distribution center in Atlanta to help support the opening of new stores in the southeast. Still, he said Dick’s SG‘s team hasn’t “seen a large increase out of their normal growth process,” of five to seven new stores per year since the buyout.
Schmidt agreed that Dick’s SG hasn’t seen any “irrational behavior” since the buyout. He adds, “We have not seen a competitive change in the way they do business since KKR has purchased them…It has been steady growth.”
Asked about any heightened competition from Sports Authority, Schmidt noted that TSA about two years introduced its S.A. Elite concept, measuring roughly 10,000 square feet and focusing on footwear and apparel. While five have been opened, including two in Chicago in the last year; the expansion plan has “slowed considerably,” according to market sources.
“Our intelligence tells us out in the retail or real estate world that they are not looking to add any additional sites from S.A. Elite,” stated Schmidt.
He noted that the apparent slowing comes after David Campisi resigned as TSA’s CEO in August 2011, with former Jo-Ann Stores CEO Darrell Webb taking over. TSA was taken private through Leonard Green & Partners in 2006.
Regarding TSA’s full-line stores, Schmidt in the same vein said Dick’s SG’S management isn’t seeing significant expansion. Said Schmidt, “We are seeing a couple boxes a year. And as we watch their current boxes to see if they are doing anything with their current 450-ish stores, we are not seeing any different behaviors, no capital going in.”
Asked about competition from Hibbett, Schmidt said Dick’s SG is “overlapping more and more” with the small-market chain in the last three to four years as they’ve found some success with 35,000 to 40,000 square foot stores.
“I think we all know that there is very little new development going on,” said Schmidt. “It is a lot of pick and shovel work out there to go get the real estate today. And one of the things that we've looked at with what has happened with Circuit, what has happened with Linens in some of these smaller towns, we've looked at some smaller box opportunities in some of these smaller towns. We've done pretty well.”
Schmidt reiterated that Dick’s SG still sees room to expand from 486 stores to 900 nationwide, with approximately 38 to 40 new Dick's SG stores to open this year.
