Unlikely Retailer Offers Grocers Digital Roadmap

Good ideas are visible in any corner of the retail industry, which is why food and consumable retailers wrestling with e-commerce should take a look at the strategy employed by Dick’s Sporting Goods.

By Mike Troy

The nation’s largest sporting goods retailer had surprisingly strong fourth quarter sales, record e-commerce growth and announced a bold initiative regarding supplier relationships. Same store sales increased 5 percent and e-commerce penetration increased to 17.9 percent of total sales of $2.5 billion during the quarter ended Jan. 28. The sales growth is impressive considering the product assortment at Dick’s – footwear, apparel and hard goods – is prone to online competition that has been intensifying for a decade.

The digital wave arrived earlier to Dick’s world, especially the hard goods business, where products are easily shipped, than the food retailing world. By 2025, research from the Food Marketing Institute and Nielsen forecast that 20 percent of food and consumables sales will migrate online. Dick’s ended the fourth quarter at a 17.9 percent penetration rate compared to 15.7 percent the prior year thanks to investments in store experience, customer service and fulfillment capabilities to serve an omnichannel shopper.

“We realized meaningful market share gains and saw growth across each of our three primary categories of hardlines, apparel and footwear," said Edward W. Stack, Chairman and CEO of Dick’s. "In 2016, we capitalized on opportunities in the marketplace, and further solidified our leadership position by enhancing the shopping experience in our stores, building brand equity and successfully relaunching our e-commerce business on our own web platform."

Going forward, the company is committed to evolving its business and one of the ways it plans to do so is with an approach that tends to not be discussed publicly.

“We will implement a new merchandising strategy aimed at rationalizing our vendor base and optimizing our assortment to deliver a more refined  offering for our customers,” Stack said. “We are in the process of reviewing our entire vendor base, which will be segmented into strategic partners and transactional vendors, with tertiary vendors being eliminated. This strategy, combined with our efforts to enhance our digital capabilities, will enable us to stay ahead of consumer trends and differentiate us from the competition."

Such moves are sure to make trading partners unhappy, but it is an example of the type of hard choices retailers have to make when their growth is at stake in a digitally driven marketplace. This is especially true in the sporting goods world where it is common for brands to operate their own stores or for others to sell direct to consumers, a phenomenon gaining ground in the consumer goods world.

Even though Dick’s e-commerce penetration rate is heading toward 20 percent by next holiday season, the company remains committed to expanding its physical presence. It ended last year with 675 Dick’s Sporting Goods stores and plans to open 43 more this year in addition to relocating seven other. Other formats in the Dick’s portfolio will also be expanded. The company plans to open nine new Golf Galaxy stores and eight Field & Stream stores in 2017, most of which will be adjacent to new or relocated Dick’s stores.

The strategy is profitable for Dick’s. Fourth quarter adjusted profits increased to $1.32 a share compared to guidance of $1.19 to $1.31. Non-adjusted profits didn’t look as good because the company took a $93 million, or 51 cent a share charge, to write down the value of inventory that doesn’t fit with it new merchandising strategy, asset impairments, store closing and remodeling costs associated with its acquisition Sport Authority.