Dick's is currently testing five store concepts. Here are the reasons.
Dick's is currently testing five store concepts. Here are the reasons.
The company is also working on store renovations and expanding its private label reach to ensure it remains in a winning position.
Dick's launched four new store concepts in June last year. They also announced the launch date for a fifth. Dick's also created a men's private label and signed brand ambassadors for two of its own brands. All this while undergoing store renovations.
This is a huge undertaking for retailers, especially when there are two concepts involved. Dick's first House of Sport location opened in April, with experiential features like a turf field, a rock climbing wall and a batting cage. The company's planned Public Lands concept, which is expected to debut in the second half of the year, is an entirely new banner focused on the outdoors space.
Although it may seem like announcements are coming quickly, many have been planned for years. Warren Cheng, Evercore ISI's consumer softlines analyst, said that House of Sport and Public Lands were in development long before the pandemic. Multiple off-price Dick's concepts that Dick's launched in recent months -- two, Overtime and Dick's Sporting Goods Warehouse debuted last June and one, Going, Going, Gone debuted May -- are likely to be products of the pandemic.
Cheng stated that all three were strategies for the Pandemic Response Team to handle the additional clearance they would need. "And they have done remarkably well, so it would be reasonable for at least one to remain as a clearance vehicle."
Opening experiential flagship stores like House of Sport, revamping current locations to include upgraded soccer shops and adding more experiential features at Golf Galaxy stores are bigger investments, but they might be necessary ones. Barclays senior analyst for U.S. retail & e-commerce Adrienne Yih said that retailers must create emotional connections with customers in physical stores. This will give them a reason to visit instead of shopping online.
"The business's proven concept has never been stronger and it has never had a closer tie to Nike."
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Adrienne Yih
Barclays Senior Analyst for U.S. Retail & E-commerce
Yih says that Yih isn't concerned about the amount of money required to make these investments. That's thanks to Dick's strong performance of late, and its deep relationship with some of the top national brands, including Nike, which during its most recent earnings call named Dick's among three "large strategic partners" that it works closely with in wholesale.
Yih stated that Dick's has an incredibly strong balancesheet that allows you to take some cash risks. However, at the end the percentage of sales or EBIT that's going from these tests is small compared to the strength we're seeing at 99% core business. "The business's proven concept has never been stronger and has never had a closer tie to Nike."
However, there are still risks. Dick's can withstand the loss of any of these investments that do not pan out.
"Most of the things that we discussed today, I believe will fail. Cheng stated that it is not possible to achieve a 100% success rate. Cheng said, "But if your goal is to innovate, if it's to be forward-thinking, and if you want the customer needs to be met in the future, even if they don't look like yet,"
The store concept is broken down
Dick's currently has five store designs in development, but they all have different purposes. The retailer is trying out off-price options, experimenting in high-touch customer experiences, and entering new markets in particular high demand.
This is the off-price option
Overtime, Warehouse and Going, Going, Gone are all off-price related and, according to CEO Lauren Hobart, are "truly just a test."
Overtime offers discounts up to 75% on apparel, footwear, and equipment by Nike, Adidas and Under Armour. Warehouse locations offer up to 90% savings on "customer-favorite shoes and apparel brands." According to press releases, Going, Going, Gone provides "surprising discounts on unique finds of footwear and apparel from brands customers have enjoyed shopping at Dick's over years."
Off-price, inspired by the need to keep inventory moving due to the pandemic, could be a long-term profitable business regardless of how many concepts are retained.
Matt Powell, senior industry advisor for sports at the NPD Group, stated via email that "the sports industry doesn't have a strong off-price business." The new off-price models can help keep inventory in full-price shops clean and allow for the opportunity to sell and buy off price.
Yih says it allows Dick's reach a value-based client, but that also means that the value quotient must be right.
"TJX and Burlington have excelled because they give you value. Yih stated that while you are not paying less for a product, you are getting things you believe to be more valuable and thus worth more. Yih said, "If I spend $10 on a Tshirt I believe is worth $10, it's quite different from if I pay $10 to get a Tshirt I believe is worth $20."
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House of Sport and experiential retailing
Although off-price may be a lucrative venture, it is not the only goal of its House of Sport concept. Cheng says that the vast array of experiences available -- including a putting green and personal appointments with wellness specialists, yoga classes and rock climbing, batting boxes, and equipment fixes such as racquet restringing or baseball glove steaming - means that a lot of the store's massive footprint doesn’t generate any revenue.
I believe their purpose is to tell people that we will put all our experience in this store. It will help us identify which of these are the most important traffic drivers and are the ones people care about. Cheng stated that they would use them as a learning and testing center to determine which experiential elements can be scaled up across the chain. "So, I believe that this is more motivational than having them be commercially viable as a stand-alone product."
Analysts believe that House of Sport will not make up a large portion of Dick’s store fleet. This is especially true when you consider the area required to house one of these stores. GlobalData Managing Director Neil Saunders, who praised Dick for his innovation and investment strategy in an email comment on the retailer’s latest earnings report, highlighted House of Sport and off-price concepts.
Saunders stated that while we don't believe these segments will ever grow as big as our core business, they provide new opportunities for growth and will benefit the company in the coming year.
Although House of Sport is clearly a different model with a different purpose -- more akin to Lululemon's experiential megastores -- there is still a need for the concept to prove itself. It is important that the concept be widely implemented, especially before Dick's does.
Yih stated that the days of making flagships or these type of brand identity stores that make very little profit are gone. Yih stated, "If I'm going to invest capital I want to see an equal or potentially profitable profit return on that."
Outdoors and Public Lands
Cheng says Dick's excels at filling gaps in the market. Public Lands could be an example. The concept's first stores will replace Field & Stream, which the retailer is closing to make way for a more general hunting business.
Powell stated that Public Lands already "hits all the right notes" for consumers who are not into hunting, but want to be outside.
It's an example Dick's taking a stand for its values. The same way the company took a stance on guns in the wake of the Parkland shooting in Florida, its new outdoors concept will champion environmental efforts. According to Yih, it will allow Dick's to go beyond team sports and open up new areas for recreational activities. Notably, the outdoors space has only been bolstered by the pandemic.
Dick's will now be competing with REI and Patagonia who are both well-known as outdoor retailers supporting environmental causes. However, Dick's is still welcome in the space.
Cheng stated that the reason they made this decision is because they believe the category will grow. They are betting on the growing size of the pie to outweigh the fact that they will take a long time to get rid of REI.
The store will not have Dick's name on it -- it will launch under Public Lands -- so the banner must address being a new brand in the space as well as building brand awareness and loyalty. If the concept is successful, it may not be a problem.
Yih stated that "I wouldn’t underestimate the accessibility to capital and the potential to put marketing dollars behind an initiative to grab attention and market share."
The rest of your game plan
Dick's invests in its business in many ways, not just with new store designs. The retailer's dominance is also due to renovations in current locations and a greater focus on private label products.
Dick's is arguably the last of its kind in the sporting goods space, as fellow national big-box stores like Sports Authority and others died out in recent years. Although there are regional players, Dick's has outlasted most of its main competition. Its recent efforts are part a bid for that top spot.
In some ways, the company's largest competitors might now be the brands it sells, especially Nike and Adidas, which are increasingly looking for ways to sell directly to the consumer.
Dick's is also looking for ways to make more profit by creating its own private labels such as Calia, DSG, and VRST. The first brand is focused on women's lifestyle, while the second is for families and value-priced athletes. The last brand is for men. Powell stated that the private label business is "a point for differentiation and a profit builder", while Yih pointed out that Dick's has one Barclays' fastest-growing private labels.
Saunders stated in May that Dick’s apparel offerings are "looking stronger than ever" due to its mix of national and private labels. Dick's VRST private label just launched in March, and it mirrors the way a DTC brand sells, with its own dedicated e-commerce site in addition selling through Dick's website and stores.
Saunders stated that "the introduction of new own brands such as VRST helped to elevate the proposition" and allowed Dick's differentiate from its competitors. This effort was important in a market that has become increasingly crowded with other retailers entering the athleisure or sporting apparel space.
Dick's will also be putting more marketing power behind private labels by naming brand ambassadors to DSG and VRST. That included signing DeVonta Smith, the 10th pick in the 2021 NFL Draft, to rep its new VRST line. Cheng said that while this might suggest Dick's is in direct competition with the likes of Nike or Adidas, private labels are not intended to compete directly with the national brands Dick's sells. DSG fills a part of the gap left by department stores and VRST is more directly competitive to Lululemon than Nike.
"You can't buy your child's baseball gear at any Nike store if you want to outfit them for the season."
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Warren Cheng
Evercore ISI Consumer Softlines Analyst
Cheng stated that Dick's is committed to keeping the top brands it sells happy. However, if Dick's merchandise offerings are lacking, the company will seek private label solutions. The current private label offering of Dick's is 15%. Cheng does not believe the retailer will reach a higher level.
Yih stated that Dick's private label strategy was "I believe they're going after another target market which's going to widen out their total accessible market." It's difficult to predict that their private labels will be able to compete with traffic drivers. You hope they will pick up some private labels while they are there.
Dick's is also a little different in the market which prevents it from being directly competitive with Nike. Cheng says that the question of whether Nike's DTC ambitions could harm Dick's is "a very controversial topic" among analysts. Cheng believes Dick's, along with Foot Locker, which also has a strong relationship to Nike, will "be there forever."
You can't buy your child's baseball gear at any Nike store. They might like the Easton bat, the Adidas gloves and the Nike cleats. Cheng stated. Cheng stated, "There are certain things in athletic retail I believe have to be multibrand forever -- and that's one."
In June, Susquehanna Financial Group expressed confidence in Dick's market situation. It stated in emailed comments, "Will be the sole national sporting goods retailer post-crisis" and "continues to gain significant market shares from smaller, less capitalized players, many who have struggled during this pandemic."
Dick's in-store experience is one of the reasons it is still a top wholesale partner for national brands. As Dick's plans to upgrade its existing locations, this will only get better. Some Dick's stores will have more high-end soccer shops. These include a larger cleat shop and specially trained soccer associates.
The Golf Galaxy stores will also be offering upgraded services such as hitting bays and lessons in golf, TrackMan and BioMech technology.
Cheng stated that if you offer these experiential elements even if they aren't revenue-generating, you will win against your competition. It's almost as if you are trading off square footage in the store you could make money on for a more relevant store, and taking away your competitor's market share.
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