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Shopping Centers Today -> June 2004
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SPORTS TEAM
Following merger, Sports Authority, Gart seek to unify stores, operations
BY MAURA K. AMMENHEUSER
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The Sports Authority and Gart Sports Co. have spent the months since their merger last August opening and closing stores, broadening their merchandise mix and generally planning how to convert hundreds of sporting goods stores under a variety of names into a unified national retail empire.
“They’ve become the king of the sporting goods business,” says Howard Davidowitz, chairman of his own New York City-based retail consulting firm. The combined company, which kept The Sports Authority name and Gart’s Denver-area headquarters (Sports Authority was formerly based in Ft. Lauderdale, Fla.), operates 384 stores in 45 states, plus 43 in Japan through a joint venture. Sales approached $2.5 billion in 2002, according to company reports, making it the country’s largest sporting goods chain in those terms. Because Gart in particular had acquired a number of other retailers, the corporate umbrella now includes 202 Sports Authorities, 64 Garts stores, 40 Oshman’s units and 78 Sportmarts. Eventually, they’ll all be called The Sports Authority, says company spokesman Terry Maloy, though he said he couldn’t specify how long the conversions will take.
Many other things will happen first.
Sports Authority and Gart have complementary strengths that were a major reason for the merger and will serve them well, observers say. “Our objective is to be a unified brand,” Maloy said.
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The company plans to remodel about 135 stores, mostly Sports Authority units.
“Certainly, [Sports Authority’s] warehouse look will go away,” Maloy said, to be replaced by a “store-within-a-store concept.” More stores will include a 2,700-square-foot Golf Day department, for instance, a creation of the premerger Sports Authority. By year-end there will be 70 of these, some inside former Gart units, up from 20 at press time. “Each one is staffed with a local pro,” Maloy said. Half the stores will get full-service Nike footwear departments.
Since last August, Sports Authority has shut 14 stores, and Maloy says there will be a dozen more closures. But the company also opened six new stores by early April 2004; including those, it plans to open about 50 over the next two years. Sports Authority seeks power, lifestyle and strip center locations. Enclosed malls generally can’t provide enough traffic or the necessary 32,000 to 42,000 square feet needed, Maloy says. It plans to open a few larger-format stores too, such as the 50,000-square-foot unit opened recently at King of Prussia (Pa.) Mall.
By all accounts the merger has gone well.
“Just since the name change alone, they’ve seen major sales increases,” said Pete A. Marrero, manager of Taubman Centers’ Dolphin Mall, Miami. This 1.4 million-square-foot, value-entertainment center includes a Sports Authority that had been an Oshman’s and was renamed in November. The store’s merchandise has improved, says Marrero, in terms of both “the mix itself and better-known brands..”
The merger gave the combined company $1 billion more in sales in 2003 than the premerger Sports Authority posted through its 205 stores, and $1.4 billion more than Gart realized with its 180 units. The merged entity’s fourth-quarter 2003 sales were $712 million. Its comparable-store sales were flat, but that will grow, predicts John Shanley, a Wells Fargo Securities retail analyst.
Analysts point out that former Gart CEO Doug Morton and ex-Gart CFO Thomas Hendrickson, who retain those posts in the merged company, have plenty of experience integrating newly acquired companies. But Shanley points out that though the transaction is usually called a merger of equals, Gart technically acquired Sports Authority. The latter had more stores and revenue, to be sure, but Gart was in better shape financially, he says. Sports Authority’s sales slipped, for example, from $1.46 billion in fiscal 1998 to $1.41 billion in 2001, while its gross margin dropped from 28.6 percent to 27.3 percent. Its comp-store sales were down more often than they were up, and sales per square foot fell from $193 to $165.
Gart’s sales, on the other hand, grew steadily, from $658 million to $1 billion between 1998 and 2002; gross profits rose consistently too, and same-store sales were up in 1999 and 2000, though they flattened out in the two years following.
Davidowitz points out that both companies have grown through acquisition, but he says the combined entity must eventually open more of its own stores rather than expand by purchasing other chains.
“The synergies … that’s certainly what will make us more successful in the future,” Maloy said. “There are a lot of national marketing opportunities available to us” that neither company could previously afford, he said, including advertising and possibly a shopper-loyalty program. The combined entity also enjoys cost savings through the sophisticated distribution and inventory systems it inherited from Gart, Shanley says.
A national presence brings other benefits. Regional weather patterns have less impact on the bottom line, for instance, and nationwide retailers capture licensed-apparel sales wherever they spike.
In March company officials projected pretax cost savings of about $20 million for fiscal 2004 (which Maloy says is “on track”), $40 million for 2005 and a total of about $50 million after that.
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| This Gart Sports store will soon bear the Sports Authority moniker, as will all the merged companies’ units. |
But others doubt that Sports Authority is quite that vulnerable.
“Wal-Mart will only stock what it can turn rapidly in sporting goods, which typically means only entry-level product in about 1,000 [square] feet … with no service,” Holdsworth said.
Maloy concurs, noting that Sports Authority is a different kind of store altogether from Wal-Mart. “I don’t view us as a mass merchandiser,” he said, but a specialty store.
“What differentiates the companies are brands,” Shanley said. Columbia, Nike, Rossignol, Titleist and other major brands don’t deal with discounters.
But even discounting the discounters, Sports Authority has competition. The sporting goods market, valued at about $75 billion a year, according to the mass-merchandise newspaper DSN Retailing Today, isn’t expanding much, a few sectors — to wit, snowboards, paintball — notwithstanding. Among the players jockeying for market share are Bass Pro Shops, Big 5, Champs, Dick’s, Dunham’s, Galyan’s, Hibbets, Modell’s, Sports Chalet and some smaller regional and local retailers.
Maloy wouldn’t discuss whether Sports Authority will consider more acquisitions, or how soon.
Consumers don’t seem greatly aware of Sports Authority’s merger, at least not those shopping recently at the Ontario (Calif.) Mills store. “Their prices are much more decent than Big 5 or Chick’s,” said Kelly Heilig, an Alta Loma resident browsing through Sports Authority. She hadn’t heard of the merger, but says corporate marriages are generally “for the good. They’ll probably have better prices and selection.”
Come back soon, Ms. Heilig. That’s exactly what Sports Authority has vowed to deliver.
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