Will a CEO’s crowdsourcing plea save Modell’s Sporting Goods?

Discussion
Source: Modell's Sporting Goods
Feb 26, 2020
Matthew Stern

Family-owned chain Modell’s Sporting Goods, a familiar retailer throughout the northeastern U.S., has hit the skids, and the CEO has taken an unusual step of reaching out publicly to crowdsource funds in order to keep the company afloat.

In an interview with Fox Business, Modell’s CEO Mitchell Modell announced that he was for the first time planning to sell equity in the company and that he was hoping people who were watching the show and are fans of the chain would invest in it. In the face of an ongoing downturn, Modell’s has been forced to close more than 15 percent of its stores.

Mr. Modell also created a video, posted online, in which he personally details the onset of the financial issues, discusses the company’s 130-year history in New York City (featuring members of his family) and makes a pitch to outside investors to help keep the company running.

Among the causes for the decline Mr. Modell cites are a broad shift in power from the retailer to the consumer in the past decade and, more directly, fallout from a Wall Street Journal article and a season of bad weather in 2019, which provoked a liquidity crisis.  At that time the chain had more than 150 stores.

Modell’s really began wrangling with its decline early last year, when it brought on a restructuring advisor to determine how to fix the company, according to the Journal. At that time, the chain was in a position to file bankruptcy as one possible way to restructure its debt.

While brick-and-mortar sporting goods as a whole has faced challenges, some companies seem to be finding ways to successfully compete in the new economy.

Dick’s Sporting Goods, for instance, has shown signs of improvement recently, which it has ascribed in part to its increased investments in employees. In 2019, the retailer launched a new associate training program and began to focus on employee recognition, offering tiers of rewards for employees demonstrating different types of exemplary service. 

DISCUSSION QUESTIONS: Will Modell’s crowdsourcing campaign help pull the chain out of its downward spiral? What other steps will Modell’s need to take to turn its business around?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"If consumers don’t see the company as relevant in their lives then there are very few actions the company can take that will save it in the face of that level of disaffection."
"I don’t recall ever seeing a CEO attempt to appeal to the market in such a candid and vulnerable way."
"As to crowdsourcing/requesting to support the brand — what’s the harm? Is it a business strategy? Of course not."

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26 Comments on "Will a CEO’s crowdsourcing plea save Modell’s Sporting Goods?"


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Bob Phibbs
BrainTrust

#pathetic. A business exists to make a profit. Call in people who can help change the culture to one of selling better than anyone else. I’m reminded of the scene in You’ve Got Mail about trying to get a writer to lead a movement to keep the business alive – pity parties don’t work. Your video makes this a tarnished brand. Brand perception is everything with this Hail Mary. Dick’s must be smiling.

Ken Morris
BrainTrust

The challenge faced by sporting goods retailers is a disintermediation threat from their vendor community. When 50 percent of what you sell is Nike and they limit what you can sell and compete directly it makes it hard to win the battle. If you are Dick’s you can muscle through it because of your size and geographic diversity (where sports like baseball and football happen during four seasons) but smaller regional players are being crushed. Modell’s needs to differentiate itself via private label or a niche sports focus to survive this tsunami.

Gene Detroyer
BrainTrust

I don’t know the mix of products that a sporting goods store sells, but I am hard pressed to think of any that contribute much to the bottom line that are private label. Private label sneakers? Private label tennis rackets? Baseball gloves? Trail bikes? Even tennis balls?

Ricardo Belmar
BrainTrust

Other than athleisure and other sports apparel, I can’t think of any either. But, that’s what Dick’s has done with their apparel products.

Nikki Baird
BrainTrust

This is the big question for retailers in the next decade: do you have the capital to make the investment it is going to take to modernize (read: digitally transform) your company? I don’t know in the case of Modell’s specifically, but you have to ask: how is this money going to be used? If it’s just to stabilize business as usual, that’s throwing good money after bad.

It’s okay to tap into passion for a brand – if consumers really love the brand then they should be willing to put some money towards trying to save it. If the crowdsourcing fails, though, that’s pretty telling as to the obstacles that Modell’s faces – far more than structural issues, if consumers don’t see the company as relevant in their lives then there are very few actions the company can take that will save it in the face of that level of disaffection.

Georganne Bender
BrainTrust

This is a larger version of a retailer’s social media plea to customers to save their store. A retailer in our town recently did such a campaign to rally the community and was able to save his generations old business. I don’t like this practice but I get it.

Mitchell Modell has a lot at stake and this is a unique way to fund his business while still keeping it in his family. It takes a big person to ask for help at this level, I wish him success.

Jeff Sward
BrainTrust

News flash — the customer ALWAYS had all the power. The fact that some retailers thought THEY had the power IS the problem. So this is a paradigm shift only for those retailers who bought into the illusion that they once held the power. For a retailer to begin, finally, to wrangle with its decline in the year 2019 suggests a level of sleepiness that will take a lot more than a crowdsourcing effort to remedy. It’s been difficult enough for the retailers that have been wrestling with this evolving scenario for a decade.

Brandon Rael
BrainTrust

I could not agree more with this Jeff! The market will always let you know how they feel about your brand.

Zach Zalowitz
BrainTrust

Correct Jeff! I imagine this has a lot to do with them having a “NY retailer” mentality and to a large degree that informs the lack of change management and transition as the times have been “a-changin’.”

Richard Hernandez
BrainTrust

I don’t know if this move will help, but I also don’t see a solid plan to turn business around. They are a brick-and-mortar business mostly and there have been a lot of success stories where pro-activity in changing to meet customer shopping habits has helped lessen the blow in loss of sales and revenue. Maybe looking at similar businesses, like a Dick’s Sporting Goods, would be a good starting point for them…

Kai Clarke
BrainTrust

No, crowdsourcing is not the solution. Their business model is broken. Adapt or perish. Modell’s is just another retailer who is refusing to embrace online and omnichannel marketing as the key marketing tool to communicate with its target audience. There are also other logistical and product management issues which they are not embracing, including competitive pricing, that are part of their overall problem. If Modell’s wants more money, they can seek a line of credit or go public. However this is usually not the solution and businesses in trouble won’t pass the scrutiny of the investor community.

Neil Saunders
BrainTrust

This is innovative and I wish Modell’s luck. However if a retailer isn’t able to survive through normal trading activity then there isn’t much hope for it! Modell’s needs to understand why its business model isn’t working and attempt to fix it. I don’t feel it has even begun to attempt that right now, so this crowdsourcing campaign isn’t a path to long term survival.

Michael La Kier
BrainTrust

Simply put: No, this will not help. It smells of desperation. I guess it’s hard to tell your CEO no, but they should have.

Brandon Rael
BrainTrust

The sentimentalist in me wants to hold on to brands and companies that we shopped with over the years. Unfortunately, time stands still for no one and the pace of change is relentless, especially in the consumer and retail space, where digital transformation has irreversibly changed the way we shop and engage with brands.

Modell’s is proudly a private company that has lasted for generations. By being a predominantly brick-and-mortar operation with their operations focused in the Northeast, without a robust e-commerce and digital presence, their reach and scale have been very limited. While Mitchell Modell points out there is still a brand affinity they can capitalize on as they crowdsource funding, unless those investments are wisely used to modernize their stores, digitally transform their operations, and drive new strategies to connect with the digital-first customer, it will only be a temporary lifeline.

Mark Ryski
BrainTrust

I don’t recall ever seeing a CEO attempt to appeal to the market in such a candid and vulnerable way. And while I give Mitchell Modell credit for trying to leverage social media, his pleas for support make him and his company appear disturbingly desperate. I don’t think this will help Modell’s situation – in fact, it may make it worse.

Zach Zalowitz
BrainTrust

I’m not able to comment about specifics, but I can tell you that the solution for Modell’s isn’t to become “more like Dick’s.” They have two different models, some but not a ton of SKU overlap and Modell’s operates in large part in very dense urban areas vs. a Dick’s in the suburbs in stores with massive square footage. It’s not apples to apples.

As to crowdsourcing/requesting to support the brand — what’s the harm?

Is it a business strategy? Of course not.

In a retail environment where foot traffic and store comps are down, I think a major offering that they need to go full-steam towards is a pickup in-store capability.

Lee Peterson
BrainTrust

Well, that’s thinking outside of the Desperate Box, for sure. Thing is, if consumers have chosen other avenues to buy their sporting goods from, an immediate injection of cash and desperate pleas with vendors and landlords is only going to go so far anyway. You get the feeling Mo’s going to be talking to the WSJ again sooner than later.

Gene Detroyer
BrainTrust

Consumers going to “other avenues” is a understatement. Amazon is growing the sporting goods category at 4 times the rate of the $50.4 billion market. Amazon alone did $17.7 billion in 2018.

Evan Snively
BrainTrust

when the CEO says “I’ve got no choice…it’s a long shot” when referring to the investment he is seeking it really gets me excited to offer up a line of credit!

*facepalm/thumbs-down emoji*

Gene Detroyer
BrainTrust

My guess is this is why Mr. M has come up with this idea: He met with vendors to extend their payment terms. They said, OK, but show us how we will get paid if we do. Mr. M could not, so the vendors did not.

He then, I imagine, asked, if he were to bring in new equity, would they extend their terms? They said sure, but as soon as that equity hits, we get paid. Mr. M could not assure that.

He is down to his last alternative. It is interesting and curious. But if my speculation is correct, everything he raises is going to go to the vendors and there will be nothing left for the business for the future.

Rich Kizer
BrainTrust

I’m an investing kind of person. But I cannot shell out the dough to someone that hasn’t presented a strategic plan, a good plan with legs, to make me feel secure. I don’t live in the northeastern market, but I am sure Mitchell Modell knows what must be done to have his chain remain a prosperous operation and an integral part of his customers’ lives. Demonstrate those positive points and the cash has a better chance of flowing in.

James Tenser
BrainTrust

Modell’s long brand history in metro NYC will not save it from a crisis in relevancy. This is a sad thing. Creditors can see that infusing more capital will not rescue the business in its present form.

A few sentimental dollars may come in from this fundraiser, but Modell’s needs to re-invent its core business positioning in order to survive. It’s not just about liquidity.

I personally admire Mitch Modell’s courage in disclosing his company’s situation. The video may well win some viral exposure for the brand. But he is unlikely to succeed without a clearly-stated plan for moving the business ahead.

Peter Charness
BrainTrust

In the world of “new retail” power has gone to the brand owners, since distribution channels are now pretty much ubiquitous. If all you are is just another one of the distribution channels, you need some other enduring relationship with the customer — Modell’s and everyone else selling other peoples product will have a hard time growing/sustaining. REI seems to be able to connect with their customers as great brand (with a fair amount of private label). Maybe Modell’s can as well, but it’s a tough path.

Craig Sundstrom
Guest

Finance and emotion don’t mix, which is to say that people who invest in something solely because their “fans” are apt to end up both poorer and not fans any more. Whatever underlying problems Modell’s has aren’t going to be solved by dumping money on them … and certainly not in this manner.

Ricardo Belmar
BrainTrust
I can sum this up by sharing an anecdote from NRF 2012 and Modell’s on the expo floor. I was with a different company then, and we had made the decision to build our booth into the “store of the future.” We even hung a sign high above our booth alongside our company logo that said Store of the Future. Remember, it was 2012. NRF had also decided to host an area on the show floor they called the Store of the Future focusing on startup technologies. Our booth was designed to look like a real store focusing on apparel with athletic wear and sneakers. (The following year, almost every large booth was a “store”). Naturally, we highlighted numerous technologies including mobile devices, digital signage, touch screens, iPads, and just about any form of digital connectivity you could execute in 2012. We had a surprise visit by someone on Mr. M’s team who called him on this cell phone to come by. He did. And then he called his IT team on his cell phone… Read more »
Kenneth Leung
BrainTrust

I feel for him, but building a sustainable business needs a solid plan to grow the business from the customers. I am sure he is passionate about the business, but what he needs is a plan to draw shoppers into stores to buy. Crowd sourcing wouldn’t help in the long run.

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Braintrust
"If consumers don’t see the company as relevant in their lives then there are very few actions the company can take that will save it in the face of that level of disaffection."
"I don’t recall ever seeing a CEO attempt to appeal to the market in such a candid and vulnerable way."
"As to crowdsourcing/requesting to support the brand — what’s the harm? Is it a business strategy? Of course not."

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