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GALYAN’S EMBRACES THE OUTDOOR LIFESTYLE (CENTER)

BY LEE KESSLER

Galyan’s says its shoppers also like food and are drawn to lifestyle center restaurants.

C. David Zoba is proud of the 45-foot interior climbing wall in Galyan’s stores. Safety ropes fixed to the rafters encourage customer fantasies of rappelling down, backpacks stuffed with new gear from the camping department on the second floor.

“We try to make a bit of a statement with our building and go for that overall sense of, ‘Wow!’ ” said Zoba, executive vice president and general counsel of the Plainfield, Ind.-based sporting goods chain, noting the thick, natural-wood beams with stone bases; the two-story, arched-glass storefront; and the barrel-vaulted roof.

Inside its 34 stores in 17 states, Galyan’s combines both the outdoor and athletic segments. To accommodate this wider approach, its stores typically measure 80,000 to 100,000 square feet and carry no less than 90,000 items, including some private-label and proprietary brands. By comparison, the Fort Lauderdale, Fla.-based Sports Authority and Pittsburgh-based Dick’s Sporting Goods, which also combine the two segments, usually stock 45,000 to 50,000 items.

“I was in their Kennesaw, Ga., store, and I was amazed at how much inventory was in the place,” said sporting goods industry analyst Lee Direcks, a managing director at Clear Thinking Group, a Hillsborough, N.J.-based consumer products consulting firm. “I mean it was packed.” He was referring to the store in Town Center Commons.

Galyan’s displays its stock in a “store within a store” format that is also used by Dick’s and others. But while these other chains typically have five or six specialty shops within the overall store, Galyan’s offers 15. Each of these specialty shops strives to become central to its respective enthusiast community, explains Joan Hurley, senior vice president of communications at Galyan’s.

“If you come to our fishing department, especially on a weekend, you’ll always find guys hanging around the counter, talking about the one that got away” she said. “And we post pictures of the ones that didn’t get away.”

Hurley identifies the Galyan’s demographic as being between the ages of 21 and 54, with an equal balance between men and women. “We’ve catered to women for a long time,” she said. “We’re a little ahead of the curve.”

The female buyer has emerged as a key part of the sporting goods market, as the Washington, D.C.-based Sporting Goods Manufacturers Association International noted early this year in a press release. Further, the association predicts that the mature market (55 and older) will grow by nearly 40 percent between 2000 and 2010. Full-line retailers like Galyan’s are ideally positioned to enjoy this growth, because they have the items that today’s physically active older person wants.

When it comes to opening new stores — the chain plans to open a total of nine new stores this year — Galyan’s is particularly enthusiastic about lifestyle centers, says Zoba, because they attract the kind of customers he said he is after: affluent shoppers with a penchant for eating out.

“We are one of the best lifestyle center anchors — a legitimate anchor,” said Zoba. “With the size of our store and our architecture, we really have a presence.” In particular, Galyan’s customers enjoy eating in quality, fun restaurants of the type often found in lifestyle centers, he said.

“Our most successful store is in Town Center Plaza [Leawood, Kan.], and they have eight restaurants,” he said.

Galyan’s had eight stores in lifestyle centers by the end of 2002, and it plans to have four more this year: in The Glen, Glenview, Ill.; Legacy Village, Cleveland; The Shoppes at Grand Prairie, Peoria, Ill.; and Stoney Point, Richmond, Va. The chain will also open two strip center units (Galyan’s Crossing, Greenwood, Ind.; and Orland Park Place, Chicago) and two mall stores (Westroads Mall, Omaha, Neb.; and Woodbridge [N.J.] Center).

For all its appeal to women, though, an important role for Galyan’s is to bring men into Town Center Plaza, according to Terry W. McEwen, a principal at Memphis, Tenn.-based lifestyle center pioneer firm Poag & McEwen, which opened the center in 1996.

“Most of our [other] stores attract women,” he said. “Having Galyan’s in the mix gives the men someplace to shop while the wives or girlfriends are shopping elsewhere in the center.”

Galyan’s is also keen on the outdoor portions of hybrid malls. It has a store at Westfield America Trust’s Oxmoor Mall, Louisville, Ky., for instance, and at Westfield’s new West County Mall, St. Louis. But though the chain currently has units in 13 regular enclosed malls (it plans to add three more this year), one drawback to this format could be a lack of the kinds of restaurants that are popular with its customers, Zoba said.

Other than these lifestyle, hybrid and mall centers, Galyan’s is in seven strip centers and has six freestanding stores, for a total shop floor area across the chain of 2,967,805 square feet.

This year it also introduced a smaller footprint: Its store at The Shoppes at Grand Prairie, a lifestyle center in Peoria, Ill., will measure 65,000 square feet. The number of departments will remain the same, a company spokeswoman says, but the assortment will differ slightly and there will be less stock. The company says it will test this abbreviated format in smaller markets that don’t warrant the big box, or the big “wow,” of the standard Galyan’s store.

A 45-foot climbing wall lets shoppers try out the sport as well as the gear.

With sales last year of $597.8 million, the chain claims only a modest share of the sporting goods and apparel market. Americans purchased a projected $46 billion worth of athletic footwear, equipment and clothing in 2002, according to the National Sporting Goods Association.

Meanwhile, Galyan’s was No. 16 among the 26 chains in Sporting Goods Business magazine’s latest ranking of sporting goods retailers, with 2001 sales of $482.5 million. That year’s top retailer was Foot Locker, with $1.8 billion; followed by Sports Authority, which posted $1.4 billion; L.L. Bean, which reported $1.1 billion; and Dick’s Sporting Goods, with $1.05 billion.

Albert and Naomi Galyan would be impressed. They opened the first Galyan’s (a hardware store that also carried work clothes), in Indianapolis, in 1946 and passed the business on to their son Pat, who expanded to five stores. (The original store is no longer open.) In 1995 Galyan’s was bought by The Limited, Inc. (today Limited Brands), which expanded the brand to 18 stores in seven markets. In August 1999 Limited reduced its ownership to 30 percent, selling a majority stake to Galyan’s management and Freeman Spogli & Co., a private investment firm with offices in Los Angeles and New York City.

In July 2001 Galyan’s went public, offering 6.5 million shares of common stock on the Nasdaq, at an initial price of $19 per share. Early this year the stock was trading below $11. But given the state of the U.S. economy in general, industry analysts say they are not overly concerned.

There has been some concern, however, about Galyan’s ability to compete in a very aggressive retail market. Though the company has been able to drive sales per square foot of $200-plus, compared with $150 to $175 for Dick’s and Sports Authority, Galyan’s has also committed a lot of capital, observed Clear Thinking’s analyst Direcks.

“The question is, will that high sales-per-square-foot make them profitable?” Direcks said. “The company, up until recently, really hasn’t made much money, if any at all.”

At press time Galyan’s had not yet released 2002 earnings numbers, but online investment research firm Multex Investor has given Galyan’s a profit margin rating (defined as net earnings divided by revenues) of 2.63 percent, versus an industry average of 4.48 percent. The sector average (for similar industries) is 7.11 percent, while the Standard & Poor’s average stands at 10.97 percent.

Perhaps the chain will become more profitable as it increases its store base and offsets some of its G&A (general and administrative) and distribution costs, Direcks said. Either way, with the stores Galyan’s plans to open this year and its ambition to grow to a minimum of about 150 units, becoming more profitable is the real wall to climb.

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