Speaking Tuesday at the 2023 Morgan Stanley Global Consumer & Retail Conference, Navdeep Gupta, EVP and CFO of Dick’s Sporting Goods, elaborated on how the retailer’s efforts to further differentiate itself both within product and the store experience has driven market share gains.
“The differentiation that we have been able to establish very clearly, not just from the product perspective, but the service and the experience that we are providing in our stores, continues to resonate well,” said Gupta.
In product, the differentiation stems from Dick’s pre-pandemic move to narrow its vendor base to highlight key brands as well as ongoing investments in employees and the in-store customer experience. Gupta noted how Dick’s investments in premium full-service footwear decks have enabled the retailer to “not only get very differentiated access [to product] but builds a much deeper level of engagement with the athlete [customer] where we can provide a certain type of an experience.”
Gupta believes no other retailer better showcases brands across athletic apparel, footwear and hard lines, especially at its new Golf Galaxy Performance Center and House of Sport experiential concepts.
“There’s no other retailer that can showcase brands like the way we can do,” observed Gupta. “With Golf Galaxy Performance Center and House of Sport, the way we not just showcase the brand but bring the experience and the engagement with the community to life is again a very differentiating aspect of the business. And Nike-connected membership is evidence of not only how well we know our consumers but the robust capabilities we have between e-commerce and on the technology side. So we look at it and say across these elements of the business, we are differentiating ourselves significantly, which is allowing us to build very deep relationships with the brands.”
Gupta said Dick’s “couldn’t be more excited” by the strength of its relationships with national brands, citing Nike, Adidas and Under Armour as well as key brands in the golf category. He added that Dick’s is also gaining better access to “emerging brands and some of the high growth brands like Hoka, On and Free People Movement that continue to be strong.”
Another point of differentiation is Dick’s private label brands, including Calia, Vrst and DSG. Gupta said that in 2022, private brands represented 14 percent of sales, the same rate as the prior year, as growth in its in-house soft lines brands was offset by the exit from the hunt category and the Field & Stream brand. Gupta said, “Vertical brands have become number one or the number two brands across all of our categories except for footwear.”
Gupta further said that from a product perspective, Dick’s is benefiting from its efforts to become more disciplined about inventory management. Heavy markdowns to clear elevated inventories in the outdoor categories impacted margins in the third quarter but enabled the chain to find room for fresh merchandise to drive same-store sales ahead 1.7 percent on top of a 6.5 percent increase in the third quarter of 2022.
The CFO told the investor group, “We want to keep our inventory clean and fresh, so not only are we bringing in fresh receipts, but we can actually showcase the innovation that is within the marketplace.”
Inventory management has been helped by Dick’s opening clearance stores over the pandemic. Gupta said the clearance concepts, including the Going Going Gone! permanent locations and Warehouse Sale temporary stores, have attracted a “very different type of value-conscious athlete,” but the locations are solely focused on working down inventories.
“It’s not like this is new product,” said Gupta. “You always had clearance. You always make mistakes when you are a retailer. The question is, how well do you handle that mistake? And what we have recognized over the last several years is that actually curating this clearance inventory and showcasing that to an athlete gives you a better recovery on that product than you were able to get before.”
Gupta said consolidating older inventory in the fewer clearance stores enables Dick’s to offer full-size runs rather than the “double XL or the smalls” that would often wind up on clearance racks at Dick’s locations. Dick’s stores also foremost highlight innovation and “bringing the best of the best product out,” while the clearance product in the past often hid in the back of the store. Gupta said, “It never got sold. It continued to languish there.”
Gupta said Dick’s aims to maintain “around 50 to 60” of the clearance stores to support inventory management going forward. At the end of the third quarter, Dick’s had 17 Going Going Gone! stores and 41 Warehouse Sale locations.
“We want this to be about clearing Dick’s stores, it’s not necessarily another growth vehicle for the company,” said Gupta. “The core focus for us is to make sure we can curate the product and keep Dick’s stores clean, continuing to showcase the product and the innovation in those stores. And then continue to showcase this value offering to our value-conscious customers.”
Asked about the pandemic’s boost to certain categories and the risk of a revision to pre-pandemic demand, Gupta said the four core key categories Dick’s focuses on – athletic apparel, athletic footwear, team sports and golf – continue to benefit from “the propensity towards more of an active form of lifestyle” as they’ve become habits over the pandemic. He added, “You look at the casualization of the workplace that has happened. The propensity for more casual apparel and footwear. Team sports has started to come back again. So the core categories of the business continue to do really well. And even some of the COVID-surge categories like fitness and outdoor continue to remain elevated versus 2019.”
He added, “As we look internally, we see this as a great opportunity. When you look at the overall industry, it’s $140 billion. It’s highly fragmented. So when we think about our core capabilities, what we can control, we see a great opportunity to continue to differentiate ourselves and continue to gain share.”
Other topics explored Gupta:
- Expanded marketing reach: Gupta said Dick’s customer database now totals 150 million, boosted by the addition of nearly 20 million customers in the last two years, including 1.6 million in the third quarter. He added that the retailer’s database is not only growing, “it’s becoming actually more diverse” with the chain acquiring more female, urban and younger customers. Gupta added, “That’s another differentiating aspect in how well and how wide our product and assortment is resonating.”
- Shrink: Shrink remained elevated and Dick’s is seeking to mitigate it through technology, including RFID capabilities now on some apparel and footwear items. Gupta said, “We have launched that capability to be able to rapidly recognize the product that is actually available to sell within the store.” Higher-resolution cameras to spot theft have been installed in select locations experiencing higher shrink. Dick’s is also providing “higher levels of engagement” by staff to customers, particularly with some of the brands and categories seeing higher levels of shrink. Dick’s is also working with other retailers and local law enforcement to find solutions. Gupta said, “If you follow us on LinkedIn, you will see us talk a lot about a ‘Shop with a Cop’ type of an opportunity where we bring in the cops that are local within that community to experience the store, experience the product and then actually build deeper relationships within the community.”
- House of Sport: Gupta said, “At the end of the day, we have to make sure that this is not just a place for you to come and buy. You have to be able to engage deeper with the community. Having an ice rink, having a field attached to the store, having a climbing wall in the store offers a much more social experience than just coming and buying your product and that is really resonating well with the community. And yes, the financial returns are good otherwise we would not be saying that we will open 75 to 100 by 2027. So we’ll share more as we learn and our goal is to share as these things mature out. But be assured, we are very happy with the financial returns as well.”
Photo courtesy Dick’s Sporting Goods