Morningstar | Dick's Invests in E-Commerce, Private Label, and In-Store Experiences as It Prepares for Growth
Dick’s is the largest full-line sporting goods retailer with a national store base and a high-quality, growing e-commerce business. Dick’s controls approximately 12% of the $70 billion sporting goods industry, up approximately 100 basis points over the past few years aided by the 22 million square feet of storefronts that closed following competitor bankruptcies (including the 2016 closure of Sports Authority, which previously had around 3% of the market). We believe Dick’s has fared better than competitors due to its execution and company-specific initiatives, including Dick’s Team Sports HQ, a technology platform for youth sports leagues, private brands (14% of sales) including Calia and Reebok, and strong partnerships with vendors, which prefer to work with national retailers like Dick’s. Despite these efforts, we don’t believe the firm has amassed a sustainable edge and may be plagued by faltering structural dynamics down the road.Highlighting the intensely competitive landscape, Dick’s is slowing its unit growth in an effort to secure better leasing terms over the next two to three years as it suspects competitor closures may create a better supply/demand environment. We view this move as prudent but are cautious that its units may not reaccelerate to historical levels, if at all, given the structural shift (particularly vendor efforts to move more sales direct to consumer at the likes of Nike and Under Armour). We expect Dick’s will increase its units under 1% on average over the next 10 years, down from 6% over the previous five years.To take advantage of growing online penetration, the firm completed a proprietary build-out of its own e-commerce platform in 2017 (formerly managed by eBay) to enable better control over its customer experience and access to more customer data. We view this as a leg up over other smaller peers but don’t believe this negates the competitive pressures from vendors going direct to consumers or Amazon hungering for a larger stake in the category. As such, we lack confidence that Dick’s will outearn its cost of capital for at least the next 10 years.Dick's Sporting Goods is an omni-channel sporting goods retailer offering sports equipment, apparel, footwear and accessories. The company also owns and operates Golf Galaxy, Field & Stream and other specialty concept stores, and Dick's Team Sports HQ, an all-in-one youth sports digital platform offering scheduling, communications and live scorekeeping through its GameChanger mobile apps, free league management services, custom uniforms and fan wear, and access to donations and sponsorships. The company provides products to its customers through its retail stores and online. The company is also involved in local communities, sponsoring teams in various sports.
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