By Thomas J. Ryan

Finish Line Inc. is seeking a buyer for its run specialty business, JackRabbit, according to a report from Bloomberg.

Sources said the division could draw interest from private equity firms and other sporting goods chains.

The report comes as the segment is improving its business, yet still underperforming since it was launched about four years ago. On its second-quarter conference call held on September 23, Finish Line’s officials also indicated that it planned to make a decision on whether to continue investing in JackRabbit or divest the chain by the end of its fiscal year.

On the call, Sam Sato, the company’s CEO since February, said the business, which ended the quarter with 70 stores, comped positively for its third straight quarter led by strong gains in online sales. However, he added, “There remains a lot of work ahead, a lot to improve profitability before we consider reaccelerating our expansion of this concept.”

Asked by an analyst if the company would explore “other more strategic options” for JackRabbit if the business continues to underperform, Sato said the JackRabbit team has “done a great job of getting their inventories in shape both from a quantity and quality perspective,” but profitability and sales “milestones” remain below expectations. “We remain committed to this business, but as I said, until we start achieving those milestones, the decision to reinvest in the business is still open. But we are committed to making a decision on JackRabbit before the end of this fiscal year.”

The chain doesn’t appear to have an obvious strategic buyer, according to sources in the run specialty channel.

Fleet Feet Sports, the largest chain in the run specialty channel with 165 stores, is a franchisor that relies on partnerships with local owners.

Dick’s Sporting Goods has been testing a True Runner specialty concept for the last few years with locations in Shadyside, PA, Brentwood, MO and Chestnut Hill, MA but remains focused on expanding its flagship Dick’s Sporting Goods chain, recently launched a Field & Stream concept and just acquired 30 Golfsmith locations. Assuming it takes the same route, Dick’s would also face the same challenges if it attempted to run the chain from a national level.

Foot Locker also tested a Run By Foot Locker Run concept with three stores at the start of the decade, but closed them all a few years later.

One owner of an independent retailer speculated that Nike could buy them since they’re opening their own running stores and many of the JackRabbit stores already carry a heavy mix of Nike product. Run specialty is also one of the few channels where Nike is under penetrated although acquiring a chain of stores would be highly unusual.

A private-equity firm may also arrive to attempt a turnaround with the ultimate goal of leading the consolidation of the run specialty channel. However, the timing is bad given the softening seen recently in the run specialty channel. Sales for the channel are generally seen as flat over the last two years following double-digit gains for several years.

The strong years led to over-saturation of stores in some markets, but also led to much of the key running product, previously largely confined to the run specialty channel, to be available in many other places, including online. Running shoes in general have also been hurt by a strong fashion shift toward basketball, and more recently to classic athletic footwear.

Some also believe the double-digit gains were inflated by the minimalist craze that was followed by the maximalist trend; both caused some runners to purchase a second pair of shoes. Finally, running remains a popular activity but the trend in events is toward mud runs, color runs and shorter runs for social purposes. Participation in marathons, as well as half-marathons, is seeing some declines and those types of runners are more likely to require the expertise of the local specialty running store.

The downtrend in run specialty certainly impacted Finish Line’s prospects of consolidating the run specialty channel. Sources also said many of the stores acquired were already underperforming before being joining Finish Line.

But any buyer of JackRabbit would also likely continue to face any challenges Finish Line already had in attempting to operate a chain of run specialty stores from a national level.

Many independent run specialty supporters believe local ownership is key to stores supporting local running communities, including holding weekly runs, working with community officials, and handling other outreach efforts. Finish Line also got rid of higher-paid store managers that are also seen as essential to supporting the local community and motivating store staff. Removing those higher-level positions also removed opportunities for advancement with many younger associates often on a path to one day opening their own store.

While centralized buying provides scale, it can lead to more of cookie-cutter approach to purchasing and can miss the unique needs of local consumers. Removing buying and other responsibilities from local doors also de-motivates staff.

If a buyer of the majority the stores isn’t found, a closure of all of the locations would be more likely than the sale of individual stores or clusters of stores on a piecemeal basis. Several former owners are expected to return to the business to fill any void should that occur.

Finish Line formed the Running Specialty Group (RSG), the predecessor name to JackRabbit, in 2011 after purchasing an 18-store chain for $8.5 million operating under The Running Company banner. With a goal to consolidate the run specialty channel, it subsequently acquired multiple run specialty stores across the country to create the second-largest run specialty group in the U.S.

In March 2015, Finish Line put the brakes on any further expansion of its run specialty business while it focused on improving profitability. In September 2015, Finish Line decided to gradually rebrand all of the segment’s multiple banners to JackRabbit Sports and that process continues. The change also included a new logo, e-commerce site, an enhanced social presence and a “Where Fit Happens” community approach. The segment’s banners include JackRabbit, The Running Company, Run On!, Blue Mile, Boulder Running Company, Roncker’s Running Spot, Running Fit, VA Runner, Capital RunWalk, Richmond RoadRunner, Garry Gribble’s Running Sports, Run Colorado, Raleigh Running Outfitters, Striders and Indiana Running Company.

Photo courtesy JackRabbit