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Megastores help Oshman's make rebound

By KAREN KROLL

Oshman's Sporting Goods is back on a winning streak, after a close brush with the sporting goods store graveyard a few years back.

Executives attribute the company's survival to its growing Oshman's SuperSports USA megastore chain. Shoot some hoops, work on your golf swing, or practice a one-two punch -- you can do it all before leaving the store at Oshman's Sporting Goods.

Nowhere is the melding of retailing and entertainment more noticeable than in the sporting goods category. Oshman's Sporting Goods Inc. has been combining the two since it opened its first megastore in its hometown of Houston in 1990.

In addition to sports equipment and apparel, the 80,000-square-foot store features six action areas: a basketball court, baseball batting cage, simulated golf course and putting green, tennis court, ski slope and archery range.

"We had totally upgraded the shopping experience for the sporting goods customer. They could come in and have a great time," said Alvin Lubetkin, president and CEO, describing the launch of the new concept.

The superstore also was an important break with tradition for the company. In the late 1980s, big box retailers were entering the sporting goods market, and Oshman's, with 200 smaller stores, had begun to feel the impact. Net income slid from $10 million in fiscal 1984 to a loss of $580,000 in fiscal 1989.

"By the mere lesser size of our existing units, it would be very difficult to compete. So we decided to try to develop our own version of a large store," said Mr. Lubetkin.

Oshman's wasn't the only sports retailer facing difficult times. The category included a number of chains that since have closed, including Herman's World of Sporting Goods, Koenig and All About Sports. A similar fate awaited Oshman's, Mr. Lubetkin said, before the firm took emergency evasive action.

"We anticipated the problems, and started to move before they were engulfing us," he said. Since 1990, management has closed 167 of the smaller stores and opened 42 SuperSports stores. There are 22 smaller stores still open which -- at least under their current lease terms -- are profitable, Mr. Lubetkin said. They will remain open if these terms can be renewed, he added.

Even as management was reinventing the company, the impact on the bottom line was not immediately apparent. Maggie Gilliam, a New York-based retail consultant, said that while she applauds the superstore concept, Oshman's should have moved even faster to implement it.

"My one criticism of Oshman's is that they didn't go all the way fast enough," she said. "They closed off smaller stores too slowly, and these stores have always been their albatross."

A challenge from Marilyn Oshman, the firm's chairman, helped move the firm into the black. By April 1993, when Oshman's had been losing money for several years, Ms. Oshman arrived at a board meeting dressed in camouflage gear, declaring she was "hunting for profits," and would wear hunting attire until the company showed a profit. She invited the board to do likewise.

Despite the funny looks from some employees, Mr. Lubetkin said the strategy had an impact.

"We were at war. We were in a very competitive business, and we needed to be tougher," he explained. The company totaled net income of $290,000 for that year, and everyone was able to take off the camouflage outfits.

Work remains to be done, but Oshman's financial results for fiscal year 1997 are promising. Net income was $5.1 million, an increase from the $27.3 million loss for the previous year. Sales topped $342 million.

The company's focus now is on increasing profitability, said Mr. Lubetkin, adding that the superstores should earn a rate of return that tops 50% of their investment and average $800,000 to $1 million in annual profit each.

While most of the superstores operate in that range, about a half-dozen fall below. Due to the sense of urgency in opening the new stores, errors were made in location selection, he said, explaining the below-par performance of these stores. However, he added he expects nearly all these to become profitable with, among other things, some extra advertising.

The company does not use a strict income demographic formula in deciding store locations, Mr. Lubetkin said, pointing out that purchases of sporting goods are made by individuals at all income levels.

Most SuperSports stores are located in the Sunbelt, where they can be found in a variety of venues, including regional malls, strip centers and free-standing locations. Mr. Lubetkin noted that centers which combine value with entertainment, such as Mall of America in Bloomington, Minn., have proven especially attractive.

One attribute that is common to all of Oshman's location decisions, said Ms. Gilliam, is management's ability to negotiate a favorable deal.

"Why their formula works is the tremendously good real estate deals they work out," she said. "They're not paying power center rents; they're getting anchor store rents."

Management achieves this, Ms. Gilliam said, by working with malls that need the excitement that Oshman's brings.

Construction of an Oshman's SuperSports U.S.A. store takes nine months, and build-out costs range from $60 to $90 per square foot. Most stores vary in size from 50,000 square feet to 80,000 square feet.

The company advertises heavily, often using inserts in Sunday newspapers.

"We promote aggressively; it's why we can be successful in new cities quickly, and why we're effective in bringing traffic to a location," Mr. Lubetkin said.

Oshman's also has made a commitment to women athletes, an initiative started by Ms. Oshman. In 1991, the company began the Women & Sports program. It holds a week of events each year that includes new product demonstrations, clinics by elite women athletes, and seminars on everything from self-defense to fly fishing. Oshman's also has contributed more than $160,000 to local sports programs for girls through its Grants for Girls program.

Oshmans' continued emphasis on promotion and reaching out to customers is critical. The sporting goods category is crowded, said Steve Claytor, president of MAS Marketing, a Chicago-based retailing consulting firm, and competition comes from all corners, including discount and department stores.

Experts say consolidation in the industry is likely to occur at a rapid pace in the future, a prediction that Mr. Lubetkin shares.

"The competitive nature of the business demands that you be very large or very small in order to earn a rate of return that makes sense," he said.

He estimates that Oshman's is the fourth or fifth largest sporting goods retailer in the country, and added that the company does not currently have any plans to merge.

Oshman's is continuing to expand at a modest pace. One store has opened at Great Lakes Crossing in Auburn Hills, Mich., and several more deals are in the works. Mr. Lubetkin said he expects the pace to accelerate to five or six openings in 1999. Overseas, Oshman's plans to open its fourth store in Japan in October. The company also has two stores in South Korea.

While Mr. Lubetkin is aware of the challenges ahead, he also expressed pride in the company's ability to reinvent itself. He pointed out that Oshman's grew from a small, local chain in the early 1970s to 200 stores in 1990. Management then decided to tear those down, and create a chain of 42 superstores.

"Very few companies that I'm aware of have totally transformed themselves," Mr. Lubetkin said. "We did all that without going Chapter 11."