“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.
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.
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.
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.
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?”
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.
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.