Dick's Sporting Goods Hits A Home Run
Dick's Sporting Goods has been a retailer on the move over the last few years. The company's recent acquisition of Galyan's and its continued expansion are reasons why Dick's has been scoring a lot of points with developers and owners.
Randall Shearin

Inside Dick's Sporting Goods.

Dick's has been on an expansion kick, taking spots of 45,000 to 75,000 square feet in all types of markets. In 2004, Dick's purchased Galyan's Trading Company, bringing the Dick's brand to a number of new markets and giving the company a foothold in many new areas. The company's sales are great too — in the fourth quarter of 2004 it became the largest full-line sporting goods retailer in America as measured by sales.

Shopping Center Business recently met with executives at Dick's Sporting Goods' headquarters in Pittsburgh to discuss the company's expansion plans, as well as find out what makes it such a successful operation. SCB met with Ed Stack, chairman and CEO; Bill Colombo, president and COO; Michael Hines, executive vice president and CFO; and Jeff Hennion, senior vice president of marketing.

Humble Beginnings

Dick's Sporting Goods was started 57 years ago by Dick Stack in Binghamton, New York. Dick Stack was working in an army surplus store in Binghamton and thought the store should enter the tackle business. The owner told him to figure a business plan for the army-navy store to enter the tackle business. Dick Stack went home and spent an entire night figuring out the business plan. When he presented it to the owner, the owner balked. Dick went over to his grandmother's house to mull his thoughts.

“My great-grandmother was part of a typical Irish-Catholic family,” says Ed Stack. “They worked hard, but it was just after the depression and they had to scrimp and save for every penny.”

Dick's main business is selling golf equipment, fishing and hunting equipment and athletic gear.

For years, the company operated out of one store in Binghamton. The store moved several times until 1961, when Dick Stack built a new 5,000-square-foot store that carried more main line sporting goods than just bait and tackle. In 1971, Dick's Sporting Goods bought a competitor in the next town and opened its second store.

“Those were the two stores my father had and he wanted nothing else,” says Ed Stack.

The camping department at Dick's Sporting Goods.

“I hated every minute of it,” Stack recalls today. “I wanted nothing to do with this business at the time. As I went off to college, I never anticipated coming back into this business.”

As Stack prepared to graduate from college, his father became ill. He had heart by-pass surgery in the late 1970s, when this was an uncommon procedure. Ed Stack reluctantly took over his father's business. Something unexpected happened, he says.

“I fell in love with the business,” says Stack. From then on, Stack says, he knew Dick's was bound to have more than just two stores.

“I wanted to do something a lot more than that,” he says.

Bicycles are a big seller at Dick's Sporting Goods' stores.

Stack then had the idea to expand his large format stores to other markets. He visited nearby markets and saw that there was no competition in the sporting goods category.

“I can't say that there was a grand vision,” he says. “There was just a great opportunity to continue growing the business in the Northeast. I knew that we either had to get bigger or that someone was going to come in and beat us out of the market.”

Beyond Binghamton

Dick's has a program to employ certified fitness trainers in all of its exercise departments to educate and coach customers through their purchase.

In 1992, Dick's Sporting Goods structured a deal with three venture capital firms, Bessemer Venture Partners, Oak Investment Partners and Sprout, to invest $6 million in Dick's. Subsequent traunches brought European hypermarket retailer Carrefour to the table as an investor. Vulcan Ventures, founded by former Microsoft executive Paul Allen, also invested in the company during the 1990s. After those investments, Dick's Sporting Goods took off.

One of the first changes that Dick's made was a change in location. Stack and Colombo moved the company's headquarters from Binghamton, New York, to Pittsburgh in 1994. At the time, the company had stores that were predominately in the Northeast, so it wanted to be in a major city there. It looked at a number of the cities, finally deciding on Pittsburgh because of its cost of living, the large airport and the number of professional sports teams that the city has. Since moving to Pittsburgh, Dick's has relocated its corporate headquarters twice to larger buildings. Most recently, in July 2004, the company moved into a new building in RIDC Park West, near the airport.

In 2002, Dick's Sporting Goods went public on the New York Stock Exchange. The company offered 8.4 million shares of stock at $12 each. At a high of about $60, the company split the stock two shares for one, and as of the beginning of April 2005 it has rallied to around $36 per share, equivalent to $72 per share before the split. Investors like the company because of its strong performance. The company's sales per square foot — currently about $200 — have increased year-over-year for more than 5 years.

“We do what we say we are going to do,” says Stack. “We've laid out a plan of how we are going to approach the business, we have our operating matrix and our goals and we have met them. We have proven that we are the best in this industry from an operating standpoint and we are being rewarded with that through our price to earnings multiple.”

Organic Growth

Dick's partners with manufacturers, like Nike, to create in-store displays.

Dick's is an authentic sporting goods retailer. More than half of its business is driven from hard-line merchandise, such as sporting goods equipment. Dick's stays away from fashion and entry-level mass merchandise. The company carries a lot of performance apparel like Under Armour, along with a variety of athletic shoes. Its main business is selling golf equipment, fishing and hunting equipment and athletic gear like baseball bats, softballs and gloves. It's what athletes use and wear, say company executives.

Within the hard-line business, Dick's has concentrated on quality merchandise. It carries products that mass merchants don't carry because of price points and service levels. For instance, Dick's carries treadmills that cost $500 to $2,000. It carries golf clubs like the Titleist 983K and 903S that you can't find in a mass merchandise store.

Dick's has a program to have PGA-certified golf pros working at its stores. So far, it has over 150 PGA golf pros working for the company in its stores.

From an apparel standpoint, Dick's stays focused on core athletes and outdoor enthusiasts. It carries clothing items worn for particular sports, and doesn't have fashion-oriented apparel in its stores.

For many years, Dick's concentrated its business in the states of New York, Ohio and Pennsylvania. Today, those states still have the highest concentration of Dick's stores. The company has also expanded to markets like Virginia and the Carolinas and is as far south as Jacksonville, Florida.

In July 2004, Dick's Sporting Goods purchased Indianapolis-based Galyan's Trading Company, including the company's 48 stores located across the country. Upon the completion of the acquisition, Dick's operated 221 stores in 32 states. At this time, even prior to the acquisition, Dick's was the second largest sporting goods retailer as measured by sales.   Dick's remains the most profitable sporting goods retailer in the business.

Scoring Galyan's

The Lodge section incorporates tackle and other outdoor gear.

“Galyan's had entered a number of metropolitan areas that we wanted to penetrate,” says Stack. “We knew that acquiring Galyan's would give us a quick entry into those markets. They had done a really good job in picking real estate.”

Galyan's most recent management team had changed some of the merchandising in the center to reflect fashion-oriented apparel as well as athletic apparel. When Dick's took over the stores, it changed its merchandise immediately to reflect the rest of its locations.

A partnership display with Louisville Slugger baseball bats.

“That's one reason why this transition went as smoothly as it did,” says Stack. “The Galyan's associates quickly got comfortable with us.”

Within a few months of the July closing, some of the Galyan's stores were already operating under the Dick's Sporting Goods banner. Merchandising was recalibrated at the stores to convert them to Dick's. The company did all of the layouts and visual merchandising for the changeovers internally.

Dick's stores have a simple layout that allows the merchandise to show itself off, not the store. Converting the Galyan's stores, where the store was sometimes the attraction, to show the merchandise was a challenge. Dick's has converted the stores so that they are easy to shop. The golf department makes sense to a golfer; the hunt, fish and camp department makes sense to an outdoorsman.

“You have to put yourself in the mind of the consumer,” says Colombo. “The store has to be easy to shop. That has been a battle cry of our company. When our district managers walk the store, when our regional vice presidents walk the store, and when I walk the store, everyone at Dick's thinks like a customer and uses the store like a customer would.”

While merging the stores was one aspect of the acquisition, conveying to investors that it wouldn't impact Dick's growth plans was another. Dick's quickly shut down Galyan's headquarters operations in Indianapolis and consolidated all operations in Pittsburgh. It also continued to open new stores. There was no slow down to digest the acquisition.

Ranking Real Estate

Under Armour is another brand that Dick's partners with for product displays.

For its present strategy, Dick's is attacking primary and secondary markets within a given area. For instance, it is active in Georgia in Macon and Atlanta. It will eventually branch out from there to other secondary markets like Savannah and Columbus. It has no plans of yet to enter tertiary markets.

“We think that there is so much opportunity out there in the larger metropolitan markets and the second-tier markets,” says Stack. “This will be our primary focus for some time.”

Staying away from entry level goods, Dick's carries a lot of performance apparel, like Under Armour.

The company has a network of 12 brokers across its current geography to locate expansion opportunities. Some super-regional brokers manage other brokers who locate sites for Dick's stores. Those top brokers report back to the company's real estate group, which funnels up to Michael Hines, Dick's chief financial officer. This model keeps the company's real estate group to a minimum and keeps its costs down as well. Brokers that the company works with include Great Street Realty in Chicago and KLNB in Baltimore/Washington, D.C.

Every site has three people from the company looking at it before a decision is made. The first look is by someone from the real estate team. The second is from Hines, and the third may also include Hines and/or someone else from the company's real estate committee. Site selection is an involved process for Dick's, but the company is able to react quickly with letters of intent.

Dick's has always located in top-drawer locations. The company places a great deal of stock in a center's tenants. It wants to be alongside the best-in-class big box retailers. Those include tenants like Best Buy, Barnes & Noble, Bed Bath & Beyond, and large home improvement stores. The majority of its locations are in suburban areas, but some are in urban areas. On the demographics side, the company is driven by education and income. And Dick's likes markets that have a minimum of 125,000 to 150,000 residents in the trade area.

Dick's Chairman and CEO Ed Stack estimates that the company's SKU overlap with mass merchants is less than 10 percent.

While Dick's is focused east of the Mississippi River, Galyan's took the company to markets like Dallas and Denver. California is also on the company's radar screen but, says Stack, it will be a few years before the company enters the Golden State. For the next 24 to 36 months, Dick's will remain focused in the footprint that it is in today — from Florida to New York and west to Denver. The markets that Dick's acquired through Galyan's — including Chicago, Minneapolis, Atlanta and Denver — present Dick's with a lot of opportunity to expand. The Galyan's locations there have given Dick's a brand presence and a reason to continue locating stores in those markets. In Atlanta, where Dick's now has three former Galyan's locations, the company continues to look for expansion opportunity and has plans to open several more stores.

Having hard-to-get items and the newest merchandise sets Dick's apart from its peers.

In 2005, Dick's plans to open at least 25 new stores. This does not include the stores acquired from Galyan's that have been converted to Dick's Sporting Goods. In 2006, the company plans to open 35 to 40 stores.

“The majority of our growth is going to follow the strategy that we've been following for years, which is to fill in our existing markets and add new markets in geographically contiguous areas so we can make sure we're not spreading ourselves too thin, nor are we are holding our growth back by only looking at existing markets,” says Hennion.

Store Types

Dick's Sporting Goods likes to locate its stores at malls, power centers and lifestyle centers. With a typical size of 50,000 square feet, the company is a major anchor to a center. Dick's is one of a few big boxes that love mall space. The company's store at Forest City's The Mall at Robinson in Pittsburgh, at 75,000 square feet, is the largest store built as a Dick's Sporting Goods, while the Schaumburg, Illinois, store — a former Galyan's that is 170,000 square feet — is the largest store in the chain.

Dick's has three basic store types: the converted Galyan's locations; mall anchor units; and in-line locations at power and lifestyle centers.

Michael Hines, executive vice president and CFO.

With many vacant department stores around the country in secondary markets, Dick's has sought space at a number of regional malls. At The Mall at Robinson in Pittsburgh, for instance, Dick's anchors the mall along with Kaufmann's, JC Penney and Sears. Where it anchors malls, Dick's generally takes a two-level location that houses athletic apparel and footwear, team sports, bicycling and exercise equipment on the lower level and hunting, camping, fishing, boots, outdoor apparel and golf equipment on the second level, with some variations of that formula. The two-level prototype for Dick's is 75,000 square feet, so it can locate on a 40,000-square-foot pad.

“We have done well at the malls and our two-level format has opened up that world for us,” says Hines. “We don't cause the department stores a problem so they really like us as another anchor.”

Hines believes that the Federated-May merger, as well the future of several other chains, will create some room for Dick's Sporting Goods stores at the nation's malls.

At power and lifestyle centers, Dick's generally builds single-story locations where merchandise is easy to locate. In addition to traditional power centers, Dick's also likes the new power-strip centers that are springing up — those anchored by Kohl's and JC Penney with some power and lifestyle retail mixed in — as well as the new omnicenters. Its first store in Florida, for instance, is located at the recently opened 1.1 million-square-foot St. Johns Town Center, a hybrid power/lifestyle center developed by Simon Property Group and Ben Carter Properties in Jacksonville, Florida.

Major differences between the converted Galyan's stores and the Dick's stores are the sight lines, the amount of light in the stores and the interior finishes. Galyan's had a lot of merchandising barriers and lines in its stores that the Dick's locations do not have. The Galyan's stores were also typically larger than Dick's two-level prototype.

Dick's is working to retrofit some of the stores, but in most of the Galyan's locations, because of the way the stores were constructed, the company is working with what it inherited. And that isn't a bad thing. Galyan's spent a lot of money developing very different stores. The stores used extraordinary materials and build-outs; some had rock climbing walls and other interactive features that made them stand out in the market. While Dick's has removed some of these features for operating reasons, others remain as permanent fixtures in the stores, making Dick's a unique place to shop in the market.

“If you shopped Galyan's prior to it becoming Dick's and you go back today, you are going to see a significant difference,” says Hennion. “That will be driven by the merchandise assortment, but followed up with more changes.”

As an example, Dick's has increased the presence of golf in all of the former Galyan's stores. Because golf is a core competency for Dick's, it felt that the Galyan's stores did not have a large enough section and selection to accurately represent the Dick's brand. Dick's is also taking elements from its prototype store and incorporating them into the former Galyan's locations. For capital reasons, all of the 48 former Galyan's locations haven't been physically converted — other than signage and merchandise — all at once.

“We expect over time that the former Galyan's stores will look increasingly like a Dick's Sporting Goods prototype,” says Hennion. “Each of the stores has its own layout and size, so each one needs to be focused on individually.”

The true consistency between the Galyan's and Dick's stores, says Hennion, is Grade A location.

“This deal has given us some great real estate and a head start in some critical markets,” he says.

Dick's has closed a few stores as a result of the Galyan's acquisition. Dick's closed a former Galyan's store in Indianapolis. In Middleton, Wisconsin, it closed a Galyan's location that was too close to two new prototype Dick's Sporting Goods that had opened in the last year. Other stores that were closed include several Galyan's that were already in the process of being closed before the acquisition was announced and where the leases were expiring. It also closed a few Dick's Sporting Goods stores in cases where the overlap with a Galyan's store was too great to have both stores in the market. In all, a combined 10 Galyan's and Dick's stores will be closed as a result of the acquisition.

Testing The Waters

Before Dick's makes a commitment to open a number of stores in a market, it will open one store to test the waters. For instance, when the company decided to expand into the Carolinas, it opened a single store in the Raleigh-Durham area. Once it had tasted success with one location, it expanded. Within 36 months, Dick's was the largest sporting goods retailer in North Carolina.

Dick's has this philosophy for many reasons. The chief among them is that the regional sensitivities in the sporting goods business are very acute. While stores in Philadelphia may sell lacrosse equipment, shoppers in the Carolinas may have less demand for this type of equipment. Understanding those regional differences mitigates risk as the company expands into new markets. It's a lot easier to change merchandise in one store than it is in nine.

“The South had a very different temperament from our stomping grounds of Pennsylvania, Ohio, New York and New England where our other stores were,” says Colombo. “We went there with one store. With one store we can quickly learn our mistakes and then roll out the rest of the market.”

Once Dick's has that one store down pat, it then replicates its success in the market by opening more stores. This enables the company to be more effective with advertising and with branding, as well as its financial hurdles.

Ed Stack, chairman and CEO.

“We have developed a market research department that forecasts sales,” says Colombo. “We look at every market for the return it will provide to our bottom line. If everything else meets our financial requirements, we'll open multiple stores in the market.”

The company opened its first store in Florida in mid-March 2005. With more water sports than other markets where it has locations, Florida is another area that poses a challenge for Dick's.

“We're in the process now of reading the initial sales and seeing what's important and what's not to the market,” says Colombo. “We think it's going to be a great market for us.”

With every market it enters, Dick's has to understand what the consumer will buy. For instance, in Florida, since the golf season is year-round, golf will be a bigger seller there than in the company's stores in New York. Also, proximity to water also determines how many fishermen will shop the stores.

Dick's has to know what the market can bear. It also has to know when seasons start and when they change. Little league baseball, soccer leagues, football leagues and the like are big business for Dick's. Every player needs cleats and practice clothes, their own ball and other related equipment. When these seasons start for kids in a market is also important: kids start playing baseball earlier in the spring in Atlanta than they do in Syracuse.

Bill Colombo, president and COO.

“The presentation, the advertising and the assortment of product has to be done consistently with each individual region as opposed to doing it chain-wide,” adds Hennion. “As we broaden our geographic footprint, the challenge becomes greater for us to get this aspect of the business right.”

Once Dick's enters a market, it commits to the market. In each of its major markets, the company has community marketing coordinators, who live in the market and make contact with youth sports leagues. It offers its stores as gathering places for league sign-ups. It also donates a lot of products to the leagues and to youth efforts. The company touched nearly 100,000 kids last year with its community youth sports program.

Marketing And Merchandising

Setting yourself apart from the pack isn't easy to do. Dick's Sporting Goods defines itself as not just another big box by making its stores attractive and easy to shop. It also has created relationships with manufacturers like Nike and Under Armour to showcase their goods in dedicated areas of the stores.

Dick's works with its vendors to develop concepts that work well in the stores and in its advertising. This can be anything from creating vendor shops in the stores to sponsoring direct mail pieces to members of Dick's customer loyalty program participants. For example, Dick's has partnered with Nike to create special shops for its merchandise in Dick's stores. It has created shops for Nike for its women's apparel lines, its men's athletic apparel lines and even baseball shops with gloves, balls and cleats.

“By doing this we're able to create an image for the customer that is consistent with the Dick's and Nike brands,” says Hennion.

In many stores, the relationship goes as far as having a sales associate that is funded by Nike to work the brand shop. It is, in effect, a store within a store.

“We strive to create a shopping environment that isn't seen anywhere else in sporting goods retail,” says Hennion. “Part of that is everything from the sight lines to the cleanliness of the store to the graphics that we use and the overall visual presentation of the merchandise.”

A hallmark of Dick's stores is that you can walk in and, from any point, see all four corners of the store. Sight lines are very clean and you can, for the most part, see across all merchandise to all points and departments of the store. The shopper knows where he or she needs to go and how to get there immediately.

“We try to drive a merchandise assortment and a store presentation that is second to none,” says Hennion.

Service with the sale is important, too. Dick's has a program to have PGA-certified golf pros working at its stores. So far, it has over 150 PGA golf pros working for the company in its stores. It also has a program to employ certified fitness trainers in all of its exercise departments to educate and coach customers through their purchase. In its hunt, fish and camp department, it looks for enthusiasts such as retired charter boat captains and ex-police officers to work in that area.

“We want people who are passionate about their sport,” says Colombo. “We have some highly specialized salespeople.”

The company has a specific training program for each department that is developed by Dick's with input from its vendors.

Advertising, especially through a Sunday circular in the major newspapers in markets where Dick's has stores, is how the company communicates to its customers. It is the primary marketing tool for the company, and where a lot of its advertising dollars go. Dick's tracks the sales of every single item that is advertised in the circular to measure its effectiveness. Measuring the effectiveness of the circulars also helps Dick's to set a benchmark to see sales in stores that have circulars versus markets that don't run one.

“The analysis and the value of constant improvement that those measurements bring to us is huge,” says Hennion.

Planning Ahead

With its goal of being the most profitable sporting goods retailer achieved, Dick's has another goal in mind: being the biggest sporting goods retailer.

“It's important to remember where you came from,” says Stack. “We will always remember that not too long ago we were just a one-store operation. The culture that we have in this company is a family-based one. People here know that family comes first and work second.”

Dick's continues to look for the best merchandise in the sporting goods industry to sell in its stores. Service is also an area where Dick's thinks it excels. Pricing is competitive because of volumes. Service starts at the top at Dick's, which is why Stack and Colombo spend 2 days a week, 3 weeks per month in the stores.

“You learn more from talking to customers and employees in the stores in a few hours than you do from looking at your computer screen for a month,” says Stack. “We also don't go to criticize our employees. We go to get information and give positive feedback.”