Analysis: Dick’s needs more relevant, focused proposition to compete
As the economy and spending booms, Dick's Sporting Goods has fallen into decline with a very poor set of top line results which saw both overall and comparable sales reduce sharply. Fortunately, the bottom line held up better with a 5.7% increase in operating income and a 2.5% rise in net earnings.
The diminution of trade is partly down to strategic decisions by Dick's to reduce exposure to certain categories like hunting and electronics. Thinning out the assortment in other areas has also hurt revenue, but has been largely helpful to margins. In our view, paring back on the range is sensible and is needed to both streamline the business and make shopping at Dick's easier.
The above noted, we do not believe that all of the declines are down to conscious decisions: we think Dick's is being blown off course by a number of unfavorable dynamics.
Foremost among these is a shift in where people buy sporting goods. Here the company is facing a pincer movement. At the higher and more professional end of the market, consumers are migrating to dedicated specialists like Lululemon and Nike. These players offer a more streamlined and focused assortment of relevant product in a more compelling setting. The same thing applies to exercise equipment where despite the ongoing failure of a large player like Sears, Dick's is not managing to succeed in the same way as more specialist firms like Peloton.
Within the everyday sporting segment, non-specialists like Target and Kohl's are attracting more shoppers as they improve their athletic offerings. Aligned with this, the wider distribution of brands like Under Armour have meant that Dick's offer is no longer as unique as it once was. All of this has reduced visits from occasional sports consumers and Dick's has lost share in this more casual part of the market.
While Dick's has little control over the wider dynamics of the market, it does have control over its own stores. Here we remain discouraged by what we see on the ground. The vast majority of the estate is characterized by cavernous warehouses crammed with products. Despite attempts to thin down the offer, the amount of choice is still overwhelming, especially in apparel. Little attempt has been made to create an aspirational and engaging shopping experience - something that is vital if customers are to be enticed into stores.
Dick's may make the argument that it has been focusing its efforts in the digital arena, where performance has been relatively strong. However, we think that an opportunity has been missed to create a compelling experience across both store and online channels. In any case, while we believe online is a vital part of the business, price competition online is intense and we view successful stores as a vital way of counterbalancing the margin erosion from online.
There has also been a small issue in firearms where, due to various public statements, Dick's has lost the custom of a lot of hunters and gun enthusiasts who have migrated to retailers like Bass Pro and smaller specialists. We make no judgment on Dick's stance on firearms, however, we are disappointed that the company has not made more effort to make up ground in other areas of its business.
Overall, Dick's still has time to turn things around. But much more effort and discipline are needed to create a focused and relevant proposition that is able to compete successfully in a tougher sporting arena.
The diminution of trade is partly down to strategic decisions by Dick's to reduce exposure to certain categories like hunting and electronics. Thinning out the assortment in other areas has also hurt revenue, but has been largely helpful to margins. In our view, paring back on the range is sensible and is needed to both streamline the business and make shopping at Dick's easier.
The above noted, we do not believe that all of the declines are down to conscious decisions: we think Dick's is being blown off course by a number of unfavorable dynamics.
Foremost among these is a shift in where people buy sporting goods. Here the company is facing a pincer movement. At the higher and more professional end of the market, consumers are migrating to dedicated specialists like Lululemon and Nike. These players offer a more streamlined and focused assortment of relevant product in a more compelling setting. The same thing applies to exercise equipment where despite the ongoing failure of a large player like Sears, Dick's is not managing to succeed in the same way as more specialist firms like Peloton.
Within the everyday sporting segment, non-specialists like Target and Kohl's are attracting more shoppers as they improve their athletic offerings. Aligned with this, the wider distribution of brands like Under Armour have meant that Dick's offer is no longer as unique as it once was. All of this has reduced visits from occasional sports consumers and Dick's has lost share in this more casual part of the market.
While Dick's has little control over the wider dynamics of the market, it does have control over its own stores. Here we remain discouraged by what we see on the ground. The vast majority of the estate is characterized by cavernous warehouses crammed with products. Despite attempts to thin down the offer, the amount of choice is still overwhelming, especially in apparel. Little attempt has been made to create an aspirational and engaging shopping experience - something that is vital if customers are to be enticed into stores.
Dick's may make the argument that it has been focusing its efforts in the digital arena, where performance has been relatively strong. However, we think that an opportunity has been missed to create a compelling experience across both store and online channels. In any case, while we believe online is a vital part of the business, price competition online is intense and we view successful stores as a vital way of counterbalancing the margin erosion from online.
There has also been a small issue in firearms where, due to various public statements, Dick's has lost the custom of a lot of hunters and gun enthusiasts who have migrated to retailers like Bass Pro and smaller specialists. We make no judgment on Dick's stance on firearms, however, we are disappointed that the company has not made more effort to make up ground in other areas of its business.
Overall, Dick's still has time to turn things around. But much more effort and discipline are needed to create a focused and relevant proposition that is able to compete successfully in a tougher sporting arena.