I Thought we were Teammates!
With famous brands like Nike and Adidas selling apparel directly to consumers, sporting goods retailers fight to stay relevant.
“Undifferentiated, mediocre retail won’t survive,” at least according to Nike Brand President Trevor Edwards.1 Sporting good retail companies like Dick’s Sporting Goods (DSG) historically built their value proposition on connecting high quality brands to passionate, scattered consumers. However, the middleman’s value is deteriorating in the digital age. While only 28% of Nike brand sales were direct-to-consumer (DTC) in FY2017, these sales were 70% of Nike’s growth.2 Nike, and other apparel companies like Under Armor and Adidas, are increasingly pursuing DTC growth and decreasing their reliance on wholesalers because digital technology allows them to (1) provide consumers direct access to their products, and (2) it lets them supply and manage those products with higher efficiency and lower risk than ever before.
Access
Historically, exclusive Nike sneakers were sold through hip, boutique shops, while mass-market bestsellers were distributed through retailers like DSG, and the lower-end shoes were on the shelves of Designer Shoe Warehouse (DSW). Multiple third-party channels enabled the stratification of one brand, but apparel companies are now able to create their own digital spaces that cater to distinct audiences. For example, Nike’s innovative SNKRS app lets consumers know about exclusive sneaker ‘drops’ and provides backstories behind new designs.3 The Nike App lets customers easily browse the standard Nike collection and connects them with athletes and experts providing product advice, while the Nike website filters products by relevant categories such as “sale” items. Consumers can easily learn about, locate and order the products that are right for them through direct, online catered experiences.
Managing Supply
Nike is also expanding their network of retail stores, enabled by production efficiencies gained through a fully integrated, digitally enabled, end-to-end supply chain. In this model, known as Supply Chain 4.0, “planning becomes a continuous process that is able to react dynamically to changing requirements or constraints.”4 Apparel companies can now manage and even customize inventory, without risking high holding costs or backlogs, while making last-second adjustments to orders in real time. Serving customers directly enhances the consumer experience while decreasing costs and driving up margins.
DSG’s Response
While DTC becomes an appealing channel for brands, DSG is also committed to taking advantage of digital capabilities, and they’re playing defense against the emerging market share threats. On the digital side, they’ve invested heavily in their eCommerce platform and mobile app to create a better online shopping experience. They introduced the “Pick-up in Store” feature which allows customers to shop online until noon on Christmas Eve and pick up their order same-day, and the “Endless Aisle” experience which gives associates mobile devices to check inventory and order out-of-stock items for free, home delivery on the spot.5 These enhancements, also driven significantly by Supply Chain 4.0, importantly allow DSG to keep pace with the service provided by the DTC apparel brands, but they don’t do enough to differentiate the firm amidst this new competition.
In discussing further responses to the broadening of apparel distribution, DSG CEO Edward Stack told investors that, “we will be aggressive marketing and promoting this category to protect our market share.” In an era when consumers scan barcodes in DSG aisles and compare online prices across vendors, DSG has introduced their “Best Price Guarantee,” and they engage in aggressive pricing discounts that they feel they have the financial positioning to weather. However, Stack admits this new pricing landscape is likely here to stay, and I’m concerned that irrationally dampened pricing is not a long term solution.6
Given the expected persistence of this pricing dynamic, DSG must do more to create a differentiating experience for consumers. They should build off of their current differentiating features as a company, which include:
- a multi-brand product assortment; and
- a physical presence in 700 U.S. communities.
Leveraging these strengths, DSG is just starting to grow their “Team Sports Headquarters” concept, which should be further promoted.
8
The concept makes youth league coordination simple by managing player signups online and providing customized uniforms and fan gear. DSG should advertise this broadly and expand the applicability to adult, intramural sports leagues. They should offer known brands at premium pricing, but their recommended gear should be private label apparel at sustainable, competitive price points. Price matters for families with kids involved in multiple sports each year, much more than high-end athletic branding. DSG should also decrease their retail footprint as leases come up for renewal (25% in the next three years).9 DSG should continue investing in local communities by growing their quantity of stores, but enhanced supply chain functionality should allow them to decrease the size and labor costs of their retail outlets.
Regardless, though, if the well-known apparel brands succeed in getting closer to the end consumer and providing catered customer experiences, can DSG and wholesale sporting goods distribution ever again realistically be anything other than “undifferentiated, mediocre retail?”
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1 Germano, Sarah. “Nike Tells Investors It Will Shift Away From ‘Mediocre’ Retailers.” The Wall Street Journal Online, October 25, 2017, via Factiva, accessed November 2017.
2 Withers, Brian. “Under the Covers of Nike’s High-Growth Direct-to-Consumer Business.” Fool.com, September 19, 2017. https://www.fool.com/investing/2017/09/19/under-the-covers-of-nikes-fast-growing-direct-to-c.aspx, accessed November 2017.
3 Edwards, Trevor, CEO of Nike, Inc., remarks made at Nike, Inc. Investor Day, Portland, OR, October 25, 2017. From transcript provided by CQ FD Disclosure, via Factiva, accessed November 2017.
4 Alicke, K., D. Rexhausen, and A. Seyfert, “Supply Chain 4.0 in consumer goods,” McKinsey & Company, via Canvas, accessed November 2017.
5 Stack, Edward, CEO of DICK’S Sporting Goods, remarks made on 2Q17 Earnings Call, August 15, 2017. From transcript provided by Factset: callstreet, http://investors.dicks.com/~/media/Files/D/Dicks-Sports-IR/result-center/dks-q2-2017-transcript-vf.pdf, accessed November 2017.
6 Ibid.
7 DICK’S Sporting Goods, “Today’s Deal: $50 and Under Select Apparel & Shoes,” email message to Austin Sutherland, November 13, 2017.
8 DICK’S Sporting Goods. “DICK’S Team Sports HQ,” YouTube, uploaded January 21, 2016. https://www.youtube.com/watch?v=iE1WbJ8N4kU&feature=youtu.be, accessed November 2017.
9 Stack, Edward, CEO of DICK’S Sporting Goods, remarks made on 2Q17 Earnings Call, August 15, 2017. From transcript provided by Factset: callstreet, http://investors.dicks.com/~/media/Files/D/Dicks-Sports-IR/result-center/dks-q2-2017-transcript-vf.pdf, accessed November 2017.
Thank you for this great article! I find really interesting the shift that DSG have made by opening their “Team Sports Headquarters” and I believe that they have the opportunity to leverage it, by refocusing their business on being the perfect “one stop shop for High-School teams”. They have this great opportunity as they are a well established brand known by families and they sell multiple different products, accros a whole range of brands and sports. They are thus able to target high School students, their families and their coaches and create value for them by taking care of everything that used to require a lot of time and effort from families and coaches.
As you very well explained, since prices matter for families with kids involved in multiple sports each year, I don’t believe that top sporting gear producers such as Nike or Addidas would try to enter that market, as they would not be competitive. Those are aspirational brands, while DSG should position itself as the perfect high school team partner.
I really appreciated your optimistic view on how DSG can preserve a position in the market by targeting families through private label offerings, but sadly I think DSG’s time may be over! The sports retail industry has been facing financial pressures in the last couple of years where we’ve seen the fail of giants like Sports Authority and Golfsmith. Taking a step back and looking at the bigger picture, it is unclear to me how DSG can avoid the same faint since their value proportion directly aligns to the giants that we’ve seen fail recently.
If DSG is to survive, I think it begins with a revitalization of its brand which it can do by improving its digital presence and embracing digitization as a means for customer growth. With Nike and other top brands taking the best products to isolate within its stores and marketplace, DSG has three areas it can target: sporting products that require in-person testing (e.g. golf clubs), smaller brands that cannot have their own store fronts, and private label offerings as you mentioned. The challenge for DSG isn’t getting these products in their store, but it is getting us (millennials) to step in their stores again or to use their website for product searches. This is where the needed for digitization comes into play. DSG needs to create a platform that draw users in and capture our desires to be able to refine their products offerings in stores and online.
I think this essay highlights the fact that DSG is at a key time in its lifecycle as a company and needs to decide what it wants to do: option A) continue with current product offerings and business model by promoting itself as a one-stop sports shop, or option B) pivot away from the fight with DTC apparel brands. The unfortunate reality of the situation seems to be that no matter which option DSG decides to choose, online retail has really hurt DSG’s value proposition, increasing transparency and allowing manufacturers unfettered access to consumers that they would otherwise have to pay handsomely for. The 700 communities that DSG is present in was the very value proposition they offered the likes of Nike and Adidas – the manufacturers gained access. As the essay mentioned, digitization has allowed manufacturers to establish their own access points with consumers, and I see this as an irreversible trend.
If DSG decides to go with option A, I think they would have to market the fact that they are a one-stop sporting goods shop, and make this their differentiating factor from the DTC apparel brands. Whether consumers see value in this is questionable, but department stores still exist so that does give me some hope. I think option B is the better choice though, and I think the essay alludes to some strategies DSG may beginning to test in an attempt to diversify away from being a provider of Nike and Adidas goods. One of DSG’s big advantages is its massive footprint – it can leverage this to provide a more niche product offering, or even leverage it in a more innovative way, to provider retail customers some form of experience when shopping there (e.g. Nike has basketball courts where people can try on shoes before buying them in some stores).