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Vincent Shen: So, talking about some of the companies that have struggled, why they've
struggled, I also wanted to talk about ***'s Sporting Goods, because they're the big dog
now. They were previously second to Sports Authority, but they're actually the largest
sports specialty retailer in the space now. They have $7.3 billion in revenue for the
most recent fiscal year, and that gives it about 10-15% market share for this market.
National Sporting Goods Association puts this total market at about $64 billion annually.
And recently, the company presented at the Bank of America Merrill Lynch Consumer Retailer
Conference in March. And during the presentation, funnily enough, one of the very first slides
is titled, "Power of Omni-channel." Not surprising at all.
Sean O'Reilly: It's like the stole the slide from Macy's or something. (laughs)
Shen: Keep in mind, the company has had about 39% compound annual growth from 2010 to 2015
for their ecommerce sales.
O'Reilly: So people are going to dickssportinggoods.com and ordering a baseball bat on there.
Shen: So, some of the things they're doing well -- in 2010, they had $140 million in
online sales, about 3% of their top line. By 2015, it's $748 million, over 10% of their
top line. So, obviously, there's that shift in the pie. But also, it's interesting, because,
he talks about the physical footprint of ***'s Sporting Goods still being a really important
piece of their omni-channel strategy. And he says that if they enter a new market or
under-served market, a new store opening will usually double ecommerce sales in that region
for them. I guess the main thing they offer now -- before, it may have been expertise,
which, some companies still do. For an outdoor goods retailer, REI is really well-known,
and they've been able to carve out a niche, for customer service, for a lot of the sales
associates still having expertise.
O'Reilly: And refusing to open on Black Friday, yeah. (laughs)
Shen: Little things like that. But, in a case like ***'s, where a lot of it's commoditized,
it's like, "We want to make sure the consumer can get whatever they want, however they want
it, be it picking up in store, ordering online, going to the store and ordering through the
store if the stock's not there, and having everything they need lined up to fulfill what
the customer wants."
O'Reilly: It definitely seems to me that the industry at large that were talking about
was just a case of, there were too many players, and somebody had to go. And the winner, obviously,
in this situation, for not the high-end stuff but just the guy who needs a baseball glove
for his kid, is ***'s. They're clearly the winner. Out West you have the Big 5 Sporting
Goods and all that stuff.
Shen: Which appeals also to the discount market as well.
O'Reilly: For sure.
Shen: So, like I said, they've kind of carved out their niche. ***'s is playing this broader
strategy, but they're doing in a really interesting way. While these other stores are closing
a lot of locations, ***'s has been expanding a lot. They opened, I think 200 locations
in the past few years, and I think part of that is expanding that footprint, and the
fact that it's helpful for them with shipping to store and using these locations.
O'Reilly: Did you happen to hear what they did with Sears?
Shen: No I didn't.
O'Reilly: I think it was at a Sears location. This was like cobwebs old.
Shen: I think it was in King of Prussia?
O'Reilly: Yeah, King of Prussia Mall. Sears, I guess, partitioned off the second level
of a location there, and then they sold a portion of it to ***'s in a long-term lease
or whatever. And that's obviously part of Sears' plans to unlock the value of the real
estate. But, yeah, it was just interesting to see what they'll do with that, if that's
a possibility, because then all the sudden it's like a distribution front retail thing
for omni-channel. So, really quick, what did you think of ***'s Sporting Goods' valuation
right now? It's at $47, trailing earnings of 280. Does that interest you at all?
Shen: The thing is, it's surprising to me, after reading enough about it, and doing enough
research on the industry, you would think the growth opportunity is not that great.
But like I said, they've open to 200 new locations over the past few years. Their current footprint
is about 650 stores. Management sees the overall long-term potential at about 1,100 locations.
The thing is, if you compare them to other big box retailers, so to speak, like a Best
Buy, they are on the smaller end in terms of number of locations. So, they do have that
runway. And they are really focused on, I think it was like ecommerce, driving productivity
in those stores. They're bringing their ecommerce operation, for example, in house to have better
control over it and to generate some savings there. Overall, a really interesting business.
O'Reilly: Yeah, it definitely seems like they're the current winner.
Shen: The thing is, you either look at it that way, or you look at, maybe not smaller
operations -- the stores definitely are smaller -- but, you have a specialized company like
Lululemon, or you have a company like REI or Cabela's, where it's going to be focused
more on the outdoors, hunting, firearms. Being able to carve out that niche and present that
value to the shopper is really important. Otherwise, this is just a very intensely competitive
space right now. O'Reilly: Cool.