While several retailers in the United States are facing challenges with weaker consumer spending trends and warm weather so far this fall, Sports Chek way up north continues to thrive.
Canada’s leading sporting goods chain posted an 8.5 percent jump in same-stores sales in the third quarter ended Oct. 3. The gains come on top of hikes of 8.6 percent in the second quarter and 8.7 percent in the first quarter and builds on gains in prior years since Canadian Tire Corp. Ltd. acquired FGL Sports in 2011. Same-store sales jumped 10.6 percent for Sports Chek in 2014 and 10.3 percent in 2013.
Overall, FGL Sports’ retail sales – including corporate and franchise stores, grew 6.5 percent on a reported basis and 7 percent on a same-store basis. The segment also includes Hockey Experts, Sports Experts, National Sports, Intersport, Pro Hockey Life and Atmosphere.
Key category sales drivers for FGL Sports included electronics, camping, licensed apparel, team sports with a positive customer response seen for back-to-school promotions. Reported revenue at the FGL Sports segment reached Canadian $589.5 million ($442.1 million), representing a gain of 15.9 percent.
“At FGL, we are four years into a five-year strategic plan, and FGL has executed on every single aspect of that plan,” said Michael Medline, Canadian Tire Ltd.’s president and CEO, on a conference call with analysts. “The results are strong, and we still see unlimited runway for this business.
Companywide, Canadian Tire Ltd.’s revenues improved 1.9 percent to CDA$3.13 billion ($2.35 billion) from $3.07 billion. Excluding the impact of lower gas sales, consolidated revenue increased 5.3 percent. At its other banners, the Canadian Tire flagship chain showed a 3.4 percent gain in comps while Mark's Work Wearhouse was off 0.2 percent.
Net income climbed 23.4 percent CDA$219.9 million ($164.9 million), or CDA$2.62 ($1.96) a share.
The reinvention of Sports Chek began soon after the 2011 acquisition with a focus on better targeting a group of active lifestyle “achievers” that drove a large portion of sales. Investments were also made in improving outreach via social media channels, strategic sponsorships and digital marketing. On the merchandising side, Quiksilver, Roxy, Arc'teryx and Ping Golf were added to complement its core lineup that includes Nike, Adidas, Under Armour, The North Face, Columbia and Bauer.
But FGL Sports continues to get most credit for the way its wowing customers by bringing retail technologies to many of its stores, particularly its palatial Sports Chek flagship locations.
On its Q3 conference call, Medline noted that Sports Experts last week opened its first flagship store at Carrefour Laval in Quebec. Sports Chek, which has added several over the last few years, will be adding two more flagships this week in the Yorkdale and Square One shopping centers in the GTA (Greater Toronto Area).
“These stores have an important role to play in making a statement for our brand and creating that deep emotional connection with our customers,” said Medline. “And we know that as these loyal customers who visit our stores more often and generate higher basket sizes which ultimately drives our sales.”
The CEO further noted that FGL’s sports chains continue to further link the physical and online worlds with extended aisle capabilities.
“We have installed in-store e-commerce stations at our Maple Leaf Square concept store where customers can complete their transaction, even if we do not have the specific color or size in store that they are looking for,” said Medline. “And they will do it online while standing in the store, allowing them to leave feeling satisfied with their experience and with the assurance that the exact product they wanted will soon be arriving at their home. We see this as the next step in our digital evolution and another way that we can enhance our connection with customers in store.”
He added, ”We also see it as a key differentiator that will help us drive comp sales growth today and into the future.”
In a speech in mid-October before the Empire Club of Canada, Medline elaborated on how “digital disruption” is transforming retail. He noted that the company over the past three years has spent more than $300 million on technology initiatives, primarily technology infrastructure. Those investments supported the creation of 225 new digital technology positions in innovation centers in Toronto, Waterloo, Winnipeg and Calgary to support the “digitization” of Canadian Tire across all banners.
“When a customer visits our flagship stores, we align with our online brand and create the most exciting and interactive experience on the planet including lots and lots of screens; hundreds of channels of relevant content; RFID capabilities; smartphone interactivity; and so much more,” raved Medline. “A place to be entertained, informed, and engaged in a way no other brand is doing.”
The winners in the retail world marked by “digital disruption,” according to Medline, do three things well. First, they “leapfrog the competition” by being first to embrace new technologies. Said Medline, “Being a follower will cost you everything, making you into a dinosaur in your customers’ eyes. Getting there before anyone else will make you a winner, even an innovator. Innovate or die. It’s that simple.”
Second, winners “play their own game,” or come up with unique and distinctive approaches to stand out. Said Medline, “Nimble companies are those that test and learn, find new waters to compete in, and innovate fast.”
Finally, winners, “dream big and they act bold,” and are willing to accept some failed experiments in reaching for their goals. Said Medline, “The speed of innovation is happening at such a pace that we can no longer think, learn, and work as we have in the past.”
He said Canadian Tire continues to push ahead in innovation by with projects such as its partnership with tech incubator Communitech in Waterloo. A Shares Lab with a number of start-ups has been created and a Digital Garage innovation lab recently opened to further support tech talent. Said Medline, “Our teams are now developing revolutionary in-store digital experiences, and new mobile apps that will change the way our customers shop, and interact with our brand.”
In all, he said Canadian Tire now has 10 solution labs that are supporting Operation Leapfrog, its program to digitize the business. Such investments are particularly essential because while Canadian Tire has withstood threats from the arrival or Wal-Mart and Home Depot in the nineties as well as Target more recently, Amazon and other non-traditional retailers present different threats.
He asserted Canadian Tire now has a new vision to “become the most innovative retailer on the planet, and we will not rest until we have reached our goal.”
He added, “To our customers, you’re not going to believe what we have in store for you. And to our competitors, all I have to say is that you’d better be ready to bring your A-game, because we’re in it to win.”
With speculation in the marketplace that Canadian Tire may explore expansion in the U.S., Medline noted on the company’s Q3 conference call that Canadian Tire Ltd. has only made two major acquisitions in the past 13 years, including Mark’s in 2002 and Forzani Group Ltd., which became FGL Sports, in 2011. It acquired the smaller Pro Hockey Life in 2013.
He said that while Canadian Tire has “even more capabilities today to bring to an acquired business” and the financial wherewithal to absorb one, “we will not be forced to make an acquisition.” He pointed to the challenges in any merger integration, the high valuations on many potential targets and the issues at many potential targets.
“I'm concerned that a lot of historically attractive targets are not moving as fast as we are in the new world of retail, and I don't want to buy their headaches,” said Medline. “And I think that there are possibilities for acquisitions out there, but you know how picky we are. The core businesses are all firing along, and the fundamentals are good.”
–Tom Ryan
