The sporting goods retailers range from national large-format stores in which customers can buy just about any equipment and apparel they need for any sporting events and seasons, to local specialty stores that only resell used sporting equipment or specialize in selling equipment and apparel for one specific sport. Because the industry is so fragmented, we define our industry as the national big-format sporting goods retailer industry, which includes stores that only sell, not buy and resell a wide range of sporting equipment and apparel for most sports and for all season. This definition excludes discount stores, such as Wal-Mart and Target, or department stores, such as Macy’s and Nordstrom’s; that dedicates only a small portion of their stores to sporting goods. We also exclude used sporting goods retailers such as Play-It-Again Sports. We’ve defined our industry under such conditions because we do not want to lose our focus with the many aspects of general retailing while not limiting ourselves to specialty stores, which mostly are private companies and that would have prevented from collecting necessary information. This report presents factors influencing the profitability for sporting goods retailers and how each factor specifically affects the profitability of the industry’s incumbents. Such factors include: inventory management, suppliers and manufacturers of sporting goods, competition, increasing health awareness, and consumers’ disposable income. Concluding our report is the finding of the best and worst performers within the industry based on the criteria that are derived from the profitability factors. After studying the data gathered from a few selected companies competing in the industry and their performances are measured against our criteria we’ve determined that Dick’s Sporting Goods is the best performer while Sports Chalet is the worst performer of the industry.
Analysis: Profitability Factors
The profitability of individual firms in the retail industry depends on the firm’s merchandising and marketing abilities. Thus, one of the major influences of profitability in the Sporting Goods Retail industry is inventory level and its mix in individual stores. The retail landscape of the past allowed for higher profit margin than today, which allowed for greater flexibility in the inventory level of each individual store. However, this landscape had changed drastically over the years and the profit margin had become razor-thin, which means that the flexibility of inventory level disappeared along with the margin (Fou, page 2). Keeping a high level of inventory drives up inventory turnover rate, which causes an increase in inventory holding costs, including warehouse rents. Besides driving up costs, increased inventory holding cost and turnover rate decrease productivity per worker and per square-foot of a retailer. Due to the seasonality in the nature of demands in sporting goods such as surfboards and wetsuits for the summer; snowboards and snow boots for the winter, a large-format sporting goods retailer must have a sufficient inventory level to meet the seasonal demands to achieve the sales numbers. Inventory management for a sports retailer requires a level of expertise, because in many cases firms have had to eliminate profit by writing off bad inventory. Therefore, management has to keep in mind not to overstock in order to avoid below-margin blowout sales at the end of each season. Because of the short selling season nature of the sporting goods retail industry, it is extremely important for management to have a good control of inventory, thereby reducing costs and increasing profitability (Fou, page 3). It is just as important for large-format sporting goods retailers to have a wide range of product mix. As the baby-boom generation ages, those that are included in this generation are looking for ways to stay trim...