Photo: Wikipedia/Merissa J. Curley
Will more promos fix Dick’s Sporting Goods pricing challenge?
Dick’s Sporting Goods has a price perception problem. That’s the conclusion of Dick’s CEO Ed Stack who said that, going forward, the retailer would not shrink from the competition but take it head on with more promotions “to drive market share” to the chain’s stores.
Speaking on an earnings call to discuss the chain’s second quarter results, Mr. Stack said, “We’ve conducted extensive consumer research, and the customers have told us they feel our prices are not competitive in today’s environment.”
The perception of high prices was likely a contributing factor to the disappointing 0.1 percent gain Dick’s posted in same-store sales during the quarter, well below the two to three percent gain it had projected. Dick’s share price fell more than 23 percent in trading yesterday on the news.
Dick’s is competing in a marketplace that has been roiled by the closings of major chains such as Sports Authority. Vendors, searching for a means to drive sales, have amped up their own consumer direct efforts while looking for new retail partners such as Amazon.com and Kohl’s to increase points of distribution.
While expressing confidence that Dick’s would benefit in the long term from the disruption in the market, Mr. Stack said the current reality is that “pricing in the marketplace has become unpredictable and at times irrational.”
Last month, Dick’s extended its “best price guarantee” to competing websites as well as stores to curb shopper attrition. Mr. Stack said Dick’s planned to become more promotionally and price aggressive in key regions “where the fight for market share is more fierce.”
Dick’s also intends to push what it sees as its omnichannel advantage.
Stores are the foundation of Dick’s strategy, providing cash flow, which enables the chain to invest in other areas without having to raise capital, according to Mr. Stack. Including stores, Dick’s has over 700 distribution centers to serve customers, he said.
Mr. Stack called the relaunch of dicks.com on a proprietary platform “a great success.” He said Dick’s would continue to invest to offer “faster delivery, better pricing, more targeted marketing” and a better experience overall to its customers.
- Dick’s Sporting Goods’ CEO Ed Stack on Q2 2017 Results (Earnings Call Transcript) – Seeking Alpha
- Dick’s Sporting Goods Reports Second Quarter Results – Dick’s Sporting Goods, Inc.
- Dick’s Sporting Goods Inc. – MarketWatch
- Will Dick’s price match keep it on top of the sporting goods category? – RetailWire
Discussion Questions
DISCUSSION QUESTIONS: Will increased promotional activity and price matching enable Dick’s Sporting Goods to overcome the consumer perception that the chain’s prices are not competitive? Do you agree with management’s response or do you think there are alternative approaches that may benefit Dick’s more?
Poll
BrainTrust
Adam Silverman
SVP Marketing, Theatro
Jeff Miller
Director of Marketing, OceanX
Promotional pricing and aggressive discounting are a slippery slope for any full-price specialty retailer. Dick’s Sporting Goods should proceed with caution as this strategy may only end up further eroding their margins and impacting the perception of the brand. Dick’s has made transformational strides to focus on customer experience and curated assortments with their strategic partnerships with Nike, Adidas and Under Armour. Reducing prices significantly or discounting may provide a short-term increase in business, but at what cost?
The move to aggressive discounting in my opinion simply is an overreaction, and Dick’s challenging business could also be impacted by the overall state of the economy and retail industry. All in all, Dick’s is the last big box specialty athletic business still in operation. The company should continue to curate assortments, provide excellent customer experiences and cultivate relationships with both their employees and customers to have a sustainable and thriving brand.
The foundation of brand preference is differentiation. It creates importance and increases margins. Dick’s problem is not simply a pricing issue. It is a brand preference problem.
You don’t increase a brand’s relevance simply through promotions. Has anyone at Dick’s asked why the customer will only choose to shop there (a destination experience at that) when they run promotions?
This is indicative of a fundamental issue in retail today. A total misunderstanding of branding.
Ramping up promotional activity and price-matching is a short-term fix for the top-line, but it will have a negative bottom-line impact. Dick’s has the financial strength to defend its market share and as a near-term strategy. I think it’s a reasonable move given the tumult in the sporting goods category. However, this approach is not sustainable in the long-run. Dick’s management needs to refocus effort on playing to their strength which is their physical stores.
As the biggest and arguably the best sporting goods retailer in the nation, Dick’s needs to take advantage of the significant traffic they receive in their 700+ stores and convert more of this traffic into sales using immediacy, in-store specials and offers not available elsewhere.
How’s that strategy working out for J.C. Penney? It’s not only promotions and price which, yeah, are part of the issue. It’s also cluttered stores, a disorganized and clunky website and an over-reliance on vendors rather than their own brand — to name just a few missing or broken pieces.
I think their recent commercials were/are the best sports-oriented spots I’ve ever seen. Totally capturing the emotion of playing sports, no matter who or where you are. But none of that has been translated to store or web or social very well. Again, promotions will provide a Band-Aid, but connecting on all levels across the entire CX, and especially in the emotional zone, is the answer long term.
Promotions will work to drive demand and gain new customers. For the next year, the business will see incremental benefit to net profit assuming they don’t spend it all on heavy acquisition channels. Then customers will expect the discount and no longer buy full price. Sales will tank unless the retailer keeps up the discounting.
If your research says you are not price competitive, become more agile and get your prices in line. Create more own-brand products to boost margins and keep costs down. Find ways to creatively lower costs. Improve the experience of shopping with you to drive LTV. Invest in acquisition that is lower cost. The easy lever is discounts and driving marketing dollars to promote those discounts, but that lever tends to get stuck wide open. Tread carefully!
Maybe I’m missing something but I was recently in Dick’s and bought a few golf clubs and shoes and I was extremely happy with their prices. I had to have a club re-gripped and again was very happy with the service and the price. Maybe the prices are better in the golf section? In my experience at least, the store was clean and organized and the associates on the floor were pleasant, helpful and knowledgeable. I hope they get over this hump.
In short, no. From our customer data, it is clear that Dick’s is facing a pincer movement. Occasional buyers of sports products and apparel are migrating to generalist retailers many of which, like Kohl’s, have expanded their efforts in activewear. Some more serious sporting shoppers are migrating to retailers that specialize in areas they are interested in, like Lululemon for fitness. In neither case is price a major reason for the migration. It has more to do with Dick’s jumbled assortment, hard to shop and uninspiring stores, perceived lack of convenience and lack of inspiration. More promotions may provide a short-term fillip, but they won’t fix these underlying issues.
Consumer perception, no matter what the subject, is a long-term issue plus or minus. In this case, unfortunately, it is a minus. So to solve a long-term issue, you need a long-term solution.
Promotion is a short-term solution. If pricing perception is a real problem, then everyday prices must be dropped. If pricing is a perceived problem, then added value must be shouted. Pricing is part of overall strategy, promotion is a tactic that doesn’t solve this strategic issue.
Dick’s and every other retailer selling commodity products has to be extremely price competitive and differentiate on personalized services. When customers can get the exact same products from many competitive retailers and online marketplaces, Dick’s has to take an aggressive approach to pricing such as its “best price guarantee.”
With comparable prices to its competitors, Dick’s is on the same playing field. However, to win, they need to excel at services like personalizing the in-store shopping experience and offering omnichannel services such as BOPIS. Using their stores as distribution centers is a smart idea.
Unfortunately, this type of discounting “tactic” has been discussed many times on RetailWire as brick-and-mortar retailers strive to remain relevant. The challenge — and outcome — is always the same. This short-lived tactic does not take the place of a long-term strategy.
Excessive use of promotions and discounting only results in setting a new low price expectation for shoppers such that they won’t shop at your store until they perceive the discount offer is in effect. Just ask any department store brands how this strategy is working for them. If the perception is one of high prices, then Dick’s should be evaluating competitive store pricing and determining exactly how competitive their prices are vs accepting the perception that they are and reacting to it.
I find it interesting that Dick’s, being the last survivor of big box sporting goods stores, isn’t trying to follow an approach more like REI than one of traditional main line dept stores. REI relies on the store experience, associate knowledge, product assortment, and corporate culture to drive their sales. What if Dick’s adopted a similar approach — re-organized their stores to be more appealing, focused on associate training, delivered more sports & outdoor related services, and upgraded their technology infrastructure to enhance their customer experience. They may find shoppers more wiling to accept their pricing (perceived or otherwise) if they recognize they’re getting value beyond the merchandise for their purchase.
Just as patriotism is the last refuge of scoundrels, (price) promo activity might be seen as the last refuge of the unimaginative.
If they already have a “best price guarantee,” it’s hard to see what more they can do … are there too many restrictions? Are people unaware of it? At any rate, this sounds like a good recipe for falling into the trap that snared JCP and Macy’s — the one they tried to get out of … and failed.
It’s an interesting coincidence that the CEO of Under Armour just came out with statements saying they needed to preserve brand pricing power to be successful in the long term. In this regard, that vendor would probably not want to discount their products. Dick’s itself has been noted about their various pricing optimization initiatives over the years so perhaps it really is a price perception rather than price competitiveness issue? Either way, the other commentators are spot on when they talk about the experience being the differentiator as that is what ultimately drives traffic along with a good assortment and newer digital engagement practices.
When was the last time a consumer got excited about an everyday or full price? Consumers like and expect promotions. The retail challenge is engaging consumers around their promotional offerings. Digital can’t do it with scale, look at print — both newspaper and mail to drive results.
Dick’s could be the poster child for testing whether a focus on customer experience can outweigh other factors in maintaining market share. It is probably inevitable that the chain will have to soften its pricing and accept a future life with slightly lower margin. That said, if it thinks that price and promotion alone will protect market share and the core business over the long term, think again.
Taking on the fight with, for instance, Amazon, seems to be a losing battle. Dick’s should make some adjustments in its pricing formulas, but otherwise consider the many opportunities to leverage its physical store chain to attract and maintain customers.
I’ve seen where Saks and other are opening gyms in their stores. I’m not sold on this as the brand does not fit with the activity. Dick’s however, has the opportunity to bring people into the store to do what they want to do with the clothes, shoes, and equipment they purchase. It seems a perfect fit.
Increasing promotional activity will only be beneficial if the promotions are optimized effectively. Price matching will enable Dick’s Sporting Goods to be competitive with other retail stores but the goal isn’t the race the bottom. If Dick’s wants to be competitively priced, they need to be able to stay one step ahead of competitors by identifying competitive pricing trends and discounting behavior. Dick’s needs to be able to price their products to maximize their margins while boosting customer satisfaction. Additionally, they should continue to leverage their physical stores and enhance their product assortment and customer experience to stay competitive.
It is crazy to me that CEOs get away with “dropping prices and being more promotional” as a strategy. So short sighted and illustrates the challenges that these companies have being based on Y/Y same store sales vs Amazon being judged on growth. Yes prices need to be competitive but of course in a focus group if you ask customers about price will respond that prices should be lower. Has a customer ever said the opposite?
Mr. Stack should talk with CEOs of places like Gap or Macy’s where their promotional based marketing and sales strategy has been a race to the bottom and they need sales and ongoing 40% messaging to make a sale.
Sporting goods already has low price retailer in Big 5 (yes they are still around even with next to zero in online sales) and then of course you can get almost everything in a Dick’s direct from the brands they carry or Amazon. They need to take a page out of REI or even places like Sephora and Best Buy and offer a better quality shopping experience with true experts in the sports who can help a mom shopping for their first soccer cleats or golf club make the best and most cost effective decision for what they need.
Of course Dick’s should increase promotional activity. It worked for Sports Authority, didn’t it? And so many others (insert your favorite bankrupt retailer here ____).
Increased promotion, especially when it’s “aggressive,” is a scientifically proven way to reduce margin and net income. Unless retailers like Dick’s start talking about customers, their retail experiences and what differentiates their ability to sell and create demand in dimensions other than price, they are doomed to continue the trend of failure.