Despite aggressive shifts by many vendors to pursue growth in direct-to-consumer (DTC) channels and the widely-covered challenges the chain is facing with Under Armour, Ed Stack, Dick’s Sporting Goods’ CEO, told attendees at Goldman Sachs’ Annual Global Retailing Conference that the chain’s vendor relationship have “never really been better.”
“The relationship with our vendors I will say hasn’t been better,” said Stack. “The relationships we have with our key partners–Nike, Adidas, Callaway, TaylorMade, The North Face, a few others, UA– has never really been better. Yes, they’re doing business from a DTC standpoint, but they’re really investing in making sure that our online business, our ominchannel business, is very healthy, and they’re doing everything they can to help drive that business. They’ll share information of what’s working well for them online. They’ll share with us what’s happening out there in the marketplace in their DTC stores. They provide all the information that we need, and that’s really helpful and the relationship have never been better.”
While it’s “probably counterintuitive to what people think,” Stack said Dick’s is securing greater access to better product and hot product in key footwear and apparel categories than they’ve ever had in the past. He said of vendors, “They’re really looking to work with a few retailers, and we’re one of those few retailers they really want to invest in.”
Beyond the quality of product, vendors are looking to support the chain’s omnichannel initiatives, in-store presentation and marketing efforts, such as a recent Nike BTS collaboration that drew over 20 million views online.
At the store level, Stack said that vendor-collaborations still have “long way to go” despite several initiatives over the years to open branded in-store shops. He pointed to the upgraded footwear platforms that Nike has been “very much involved with” and Adidas’ efforts in the footwear area. Yeti is another brand that partnered with Dick’s at the store level, and Stack believes the chain has a better Yeti presentation “than any other retailer in the country.”
Regarding Under Armour, Stack repeated that business with the brand “has been difficult” as Under Armour has broadened distribution to departments stores.
“We were Under Armour’s largest retailer. They were an extremely important part of our business, and we of there’s. And they made a decision to broaden their distribution with 1,200 doors approximately, and it had an impact on our business,” said Stack. “We scaled back that inventory; we’ve scaled back our expectations with Under Armour.”
He said that based on the product pipeline that Under Armour has coming out, and as they move to a more-pronounced segmentation policy, “we hope that we’ve hit the bottom with Under Armour, and we’re going to start to move back in the right direction in ’19.”
Stack also has high hopes for the Dwayne “The Rock” Johnson line from Under Armour that will be sold exclusively at Dick’s and Under Armour’s DTC channels. Said Stack, “We’re talking about ways to really broaden that out with a bigger footprint in store, bigger footprint online, and we’re pretty excited about what we’re going to do with The Rock going forward.”
Asked about margins and the company’s overall improving profitability in the last two quarters, Stack said margins last year were weighed down by consolidation with some bankruptcies in the space as well as the move to broaden distribution by Under Armour, which has in recent years been Dick’s second largest brand. This year, Dick’s margins have benefitted from having greater access to higher-end and signature footwear product and a “really good product cycle” around golf. Athletic apparel, a higher-margin area, has benefited from a move to a more segmented approach, and margins have also benefited as the chain’s private brands continue to expand at double-digit rates.
Stack also noted that the hunt and electronics categories are approximately 1,700 basis points lower than the company average, and reducing exposure to those categories is helping profitability.
Discussing other categories, Stack said the fitness business “has been good,” but team sports hard-lines continue to be impacted by weakness in football. Said Stack, “The football business has been difficult. We’ve talked about that and it’s going to continue to be difficult. There’s a structural decline in football, and the younger the athlete, the more structurally declining it’s becoming. Just a lot of parents say their kids aren’t playing tackle football.”
In the team hard-lines areas, Dick’s is particularly investing in the baseball category, which is seeing growth as a fall business. The category also carries a higher-ticket generally than football with metal bats around $200 and wood bats ranging from $50 to $75. Stack also cited opportunities for growth in soccer and lacrosse.
On the hunt category, Stack said the decision made in February to cease the sale of assault-style weapons and stop selling firearms to individuals under 21 years old impacted traffic to the chain, but not profitability, as the company was able to raise its profit guidance over the last two quarters.
He noted, however, that some vendors in the hunt space had also decided to stop selling to Dick’s because of the decision. The retailer will reassess positioning in the category through the holiday season to see if those vendors return to selling the chain and whether some hunt enthusiasts return as well as to shopping the chain.
Stack noted that the company is testing removing hunt products from 10 Dick’s stores that had a low-concentration of such items. The company has also stopped expanding the smaller Field & Steam chain not only due to Dick’s decision around selling firearms but to general struggles seen in the category. Stack said Dick’s may close the concept or explore “re-conceptualizing it into a more of an outdoor-type concept.”
Stack noted that from an outdoor perspective, the company is “most excited” about the “up the mountain category or what The North Face talks about with urban exploration,” which merges outdoor lifestyle with streetwear. Said Stack, “The hunt & bullet category is going to remain tough, but the up the mountain or urban exploration category has got a lot of legs. Millennials, they love to go out and explore. They love the outdoors. They love the idea of urban exploration, and we’re really excited about what we can do with those types of products.”
Photo courtesy Dick’s Sporting Goods
