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SPORTS AUTHORITY WORKS ON IMPROVING ITS GAME

By Mark Seavy

Sports Authority is trying to get back on its feet after some tough times.

After years of breakneck expansion, Sports Authority has hit the brakes and shifted gears, suspending new store openings, revamping its format and changing its promotional strategy.

The moves are designed to pay down the company’s debt and hone its competitive edge.

“They’re finally biting the bullet and moving out of some unprofitable locations,” said Andrew Gaffney, editor-in-chief of the trade publication Sporting Goods Business. “When they were expanding, there was the emphasis on being the biggest and fastest at all costs, but I think the new management team is taking a harder look at analyzing which stores are really going to be profitable and spending a lot less time worrying about presence.”

The 198-store chain has closed 22 stores, including five in Canada, and reduced its stake in the 19-store Mega Sports joint venture in Japan to 8.4% from 51%. It has dropped some categories from its 40,000-square-foot stores, including hunting gear, and moved to test a new prototype that created a store-within-a-store format grouping the merchandise by sport. To liven up a hitherto straight-laced sales approach, it has added in-store kiosks with links to its 19%-owned Thesportsauthority.com Internet business that it operates with Grand Sports. It also has launched a satellite-based in-store programming network designed to provide sports news and event highlights along with product demonstrations and athlete and team profiles.

The chain spent $9.5 million on refurbishing its stores in 1999, but has no plans to open new ones this year as it tries to refine its strategy, Martin Hanaka, CEO, told an investors’ conference in New York City earlier this year. Overall, a majority of stores have received basic renovations including category endcap signs and a widening of the aisles to accommodate new bins containing impulse buy items and to give customers more space to move through the stores, said company officials. In all, the company spent $20 million to $30 million on the revamping program last year, according to a quarterly report filed with the Securities and Exchange Commission (SEC).

This year, Sports Authority will fully remodel just 12 stores as it tries to pay down debt to shore up its business. The chain plans to pay off about $20 million in debt a year for the next three to five years, Hanaka said. It is about $235 million to $250 million in debt, CFO George Milhalko told investors at the conference.

“We are being realistic and conservative,” Milhalko said. “We are going to concentrate on remodeling stores. That’s where we utilize our assets best.”

Adopting a more moderate growth rate, Sports Authority will add four or five stores next year, Hanaka said, followed by 10 to 12 new locations in 2003. The company will remodel 20 to 25 stores next year and 30 to 35 in 2003, he said. The new fiscal discipline was projected to yield a 15-cent per share profit for the year ended Feb. 3, making fiscal year 2000 the first year in three that the company had a full-year profit.

While Sports Authority slows its growth, the chain is attempting to sublease a majority of the stores it closed in 1999 and 2000. In the third quarter ended Oct. 28, the chain entered short-term subleases on three stores that generated $64,000 in income, according to documents filed with the SEC. Sports Authority made $12.6 million in lease payments on other closed locations, leaving it with a reserve balance of $19.8 million at the end of the quarter to cover the shutdown.

In revising its strategy, Sports Authority, which had $1.5 billion in sales in 1999, has added new product categories and placed an emphasis on customer service, an element that was missing from the chain’s strategy in the past, industry officials said. In redesigning its stores, Sports Authority has brought in a broad assortment of clothing ranging from the fashion-oriented Izod and Cross Creek to dominant athletic brands like Champion. The clothing category, which was added in 1999, has been given a big swath of space at the center of the store and accounted for 21% of the chain’s overall revenues in 1999, according to SEC documents.

Exercise equipment also has been given center aisle space and staffed with sales associates to explain the intricacies of the gear, which is frequently priced at $1,000 and up.

“Historically the emphasis was not on service, but on a wide assortment of products,” said Thomas Boyle, vice president of research and information at the National Sporting Goods Association, Mount Prospect, Ill. “The casual apparel also attracts new business so it’s not just the sports customer anymore.”

To improve customer service, Sports Authority recently signed an agreement for Harte-Hanks to supply software that allows the chain to contact customers via direct mail within days of their making a purchase at its stores. The chain uses Harte-Hanks’ Allink Agent software to analyze point-of-sale transactions and produce daily mail files.

“Typically, time has been a disadvantage for brick-and-mortar retailers because it is very difficult to respond to customer interactions quickly enough to be effective,” said Jeffrey Handler, senior vice president of marketing and advertising at Sports Authority, said.

“We can now contact both existing and new customers within days of their shopping in our stores.”

The changes also have extended into Sports Authority’s promotional strategy. Once known as a heavy advertiser in newspapers with everyday low prices, the chain found that the low retail tags brought it into competition with deep discount chains like Wal-Mart, Kmart and Target, industry officials said.

To counter the pricing pressure from the mass merchants, Sports Authority abandoned everyday low pricing and switched to an “Always Priced Right” strategy, which relied more on percentage discounts on a broad range of products.

As part of that strategy, the chain added a half-dozen or more bins in two aisles running the length of the store that border the clothing and exercise equipment sections.

The bins contain a range of discounted merchandise including Brine soccer balls marked down to $9.99 from $14.99 and Wilson basketballs priced at $16, down from $24.

To further underscore changes that are afoot, Sports Authority also launched a “vendor day” program that allows sports equipment and clothing manufacturers and marketers to present their wares at the chain’s Fort Lauderdale, Fla., headquarters one day each month through October.

“We want to bring new ideas and innovative products to our customers,” Elliot Kerbis, executive vice president of merchandising and sales promotion at Sports Authority, said in explaining the new program in a prepared statement. “Through this initiative we offer a forum for industry growth.”

Whether that forum also will result in Sports Authority growth will depend on the results of the chain’s shift to a new go-slow expansion strategy.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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