Will Dick’s Sporting Goods win by cutting SKUs?

Discussion
Photo: Dick's Sporting Goods
Mar 08, 2017
George Anderson

Ed Stack, CEO of Dick’s Sporting Goods, announced that the company has established “a new merchandising and vendor matrix” that will result in closer relationships with some suppliers while pulling back from dealings with others. In the end, implementation of the plan will mean up to 20 percent of the chain’s vendors will be cut before the end of the year.

Strategic vendors, grouped into “Segment A”, will be companies that “will invest significantly in our business both online and in-store and we will invest significantly in their business,” said Mr. Stack (via Seeking Alpha).

“Segment B” vendors will be those that Dick’s has “a transactional relationship with” while “Segment C” vendors will have their products discontinued.

Dick’s CEO was asked about the timing of the move in light of the changing competitive landscape. Ten sporting goods chains have filed for bankruptcy since 2015, according to USA Today. The Sports Authority, the second largest chain in the category, liquidated in 2016. Dick’s acquired 114 million shopper files and 25 million e-mail addresses from The Sports Authority last year along with its brand name and e-commerce domain.

“We felt that it was really the right time to review, really, an in-depth review of everything that we do in the business,” said Mr. Stack. “As we looked at this, we felt that it was the right time to consolidate our vendors and we will continue to have a good, better, best strategy that isn’t really going to change.”

Mr. Stack said Dick’s doesn’t “expect to give up any sales or margin rate” due to its vendor consolidation. He said the action will be spread across categories and enable the chain to “showcase our private brands more and drive that business, which we’ve indicated we expect to be approximately $1 billion this year.”

Comparable sales, including online and stores, for the Dick’s chain along with the Field & Stream, Golf Galaxy and Golfsmith businesses grew five percent for the company in the fourth quarter. Dick’s omnichannel comps increased 5.3 percent as traffic improved 2.9 percent and the average ticket rose 2.4 percent.

DISCUSSION QUESTIONS: Is Dick’s decision to eliminate vendors the right move based on the changing nature of the sporting goods market? Do you see any downside to this approach?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"I think this is a very good call. I recently saw where an analyst called Dick’s stores/merchandising “undisciplined,” which I think is accurate."
"This is everything that's wrong with the brick-and-mortar retail model today. This is not SKU rationalization as much as it is vendor rationalization."
"It appears Dick’s is throwing up a white flag in the sporting goods category and conceding specialization to online retailers."

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18 Comments on "Will Dick’s Sporting Goods win by cutting SKUs?"


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Tom Dougherty
BrainTrust

There are risks. But, I give Dick’s cudos for trying a different approach. Retail needs change. Will Rogers once said, when FDR was elected for the first time … “If the White House catches fire and burns to the ground we will say at least he got something started.”

If something even more dramatic is not at least tried, we will all become Macy’s.

Lee Peterson
BrainTrust

I think this is a very good call. I recently saw where an analyst called Dick’s stores/merchandising “undisciplined,” which I think is accurate. Doing SKU RAT would eliminate that “junky” feel in their stores and clarify their high points and best sellers. You know, make it easier to shop. You have to do it well of course, and be able to shut your ears to the noise made by staff or fringe customers about certain low-turning brands, but the results can be stunning.

I was part of a SKU RAT effort with a specialty retailer once and the effects were astounding in that there was a direct correlation between SKU reduction and sales increase — to a point. It seems that if the customer can see your assortment, they have a better shot at purchasing. Imagine that. Now, if we could only convince the drug store category of that! Where is that Bayer aspirin, anyway?

Phil Rubin
BrainTrust
2 years 11 months ago

One of the fundamentals of retail merchandising I learned at Macy’s (not today’s Macy’s, the original that ended after is disastrous LBO) was that “narrow and deep” wins. While mass merchants (Amazon, Walmart) struggle with that, department and specialty stores need to embrace such a strategy. Props to Dick’s for not trying to sell everything to everyone.

Relatedly, retailers should take a similar approach to customer management — segmenting and then investing appropriately.

Mark Ryski
BrainTrust

Rationalizing the product mix and vendor base is a thoughtful move. Cutting some product lines and even some underperforming categories will enable Dick’s to go deeper on product lines/brands that consumers are demanding. While there’s always a chance that cutting a product line/brand could cause a shopper who is loyal to that brand to go elsewhere, the fact is that there are so many overlapping products/brands that can easily be substituted, I see this as low-risk and am confident that Stack and his merchandising team will make smart decisions on what stays and what goes.

Phil Masiello
BrainTrust

This is everything that is wrong with the brick-and-mortar retail model today. This is not SKU rationalization as much as it is vendor rationalization.

The key phrase is “vendors who will invest in us.” Essentially RDAs will rule. Like many retailers today, they are not focused on selling the right products consumers want. They are focused on who will support the margin.

There is nothing at Dick’s that cannot be found online for less and more conveniently.

I see it as a bad sign.

Fool Me
Guest
2 years 11 months ago

Phil you nailed it. Remember in the Grocery industry about 6-7 years back. The “Gurus” were riding high by cutting 30% of the SKUs in stores and profits soared only to fall from the sky in a matter of months just after they rose!

Adrian Weidmann
BrainTrust

The success of this approach will be measured by what Dick’s does with the remaining vendors. Retailers certainly need to make seismic changes in the status quo of their marketing and merchandising strategies. Expecting to remain competitive by simply staying the course in the digital world where Amazon is the top predator is truly the digital definition of insanity. Those vendors that remain should take control of their in-store presence by managing their own at-shelf inventory as well as providing relevant brand storytelling and educational content to the shopper through in-store proximity/geolocation (mobile) marketing content. Working collaboratively, the retailer and vendors can measure and create a frictionless in-store shopper journey bringing relevance and value to their brick-and-mortar store.

Lyle Bunn (Ph.D. Hon)
Guest

Ah, how the pendulum swings. As retailers appreciate that they are in the last-few-yards supply business, the move in choosing better dance partners is really a re-focusing on business-building partnerships. Vulnerabilities will become apparent which defines the ebb and flow of supplier and product mix. The big question is, does it position the retailer to provide better value to the customer base they have or wish to develop?

Doug Garnett
BrainTrust
Doug Garnett
President, Protonik
2 years 11 months ago

Good points. Seems to me Dick’s has a solid theory that will sell well to market analysts. Question is whether it will improve their stores.

As a shopper, I find their stores far too vendor dominated — that makes them dull. It’s also unlikely that I’ll discover something surprising and interesting (the reward for shopping).

It will all depend on implementation. But Dick’s needs to take care. The right bit of chaos can make a store experience far more interesting.

Dan Raftery
Guest

I’m with Phil Masiello on this. Vendor rationalization based on “investing” has never worked. This is all invisible to the shopper. Dick’s risks becoming completely invisible and not in the popular “transparent” way. Even SKU rationalization is risky because there is a tendency to slip into vendor RAT. Margin dollars should rule retail, not margin percent.

Ed Dunn
Guest
2 years 11 months ago

In an omnichannel world, “Segment C” vendors should have at least been converted to BOPIS with a flexible strategy to quickly move into the stores on demand. This is what Amazon, Walmart and Target would do to stay agile to accommodate dynamic market demand.

Cutting out “Segment C” vendors is high-risk considering sporting goods retailing has transformed into a “fast fashion” industry. The next big thing in sporting goods can easily come from a Segment C vendor and Dick’s may lose out as a result of this strategy. I see nothing good coming out of this move.

Fool Me
Guest
2 years 11 months ago

Nailed it. Ask yourself this question: Is Amazon cutting back SKUs?

Brian Kelly
Guest
2 years 11 months ago

Dick’s needs to have a point of view and its assortment must be curated to deliver that POV. Currently, the big box assortment is broad and thin in a sector that is SKU-intense.Therefore Dick’s goes out-of-stock quickly. Furthermore, the merchandising of the assortment is confusing. Basic apparel v. unique activity v. team apparel. Ever try to find soccer socks or shower sandals? Even further, the balance of online v. in-store inventories is poorly communicated. This past holiday, ads featured online-only goods within store goods. My Black Friday experience was proof. No wonder the financial performance wasn’t there.

So culling the herd to present an intelligent assortment that reinforces the brand promise of Dick’s makes sense. Now, what is that promise?

As we like to say, “retail ain’t for sissies!”

Fool Me
Guest
2 years 11 months ago

Dick’s is giving up competing with Amazon … I give them 18 months and they will be history.

Fool Me
Guest
2 years 11 months ago

This is “old hat,” and you’d think that a smart merchandiser would have learned from the grocery industry back in the 2010-2011 years when there was a rash of grocery stores cutting SKUs and watching their profits go up and then down at the same rate.

Consumers do not come to a vendor (store) just to buy only the fastest moving and most popular items only. They come for the ambiance, the atmosphere and the convenience of getting it all under one roof/trip. What was learned 6-7 years ago was that you can’t run a business by the numbers and the spreadsheets, you have to satisfy the customer and the customer comes to the retailer for the “whole” experience, not just the items that will make the seller’s biggest profits.

Carlos Arambula
BrainTrust

Any action is better than maintaining a status quo that’s just not working. However, the downside is significant.

It appears Dick’s is throwing up a white flag in the sporting goods category and conceding specialization to online retailers. Sports apparel is not a competitive differentiation — apparel is available everywhere. So how is Dick’s going to be different from the sporting goods section at Target or Walmart?

Also, how long before some of the strategic partners realize online sales and promotions are a more profitable venue for them?

Kenneth Leung
BrainTrust

It will help differentiate them if the quality of the offerings are on par. Private label products reflect on the retailer brand, so if it is positive it drives the basket size for its fan base. For Dick’s to compete online, the house brand will help, since it does a good job with in-store experiences already.

Ricardo Belmar
BrainTrust

At the end of the day, every retailer needs to evaluate what merchandise they carry in-store and what doesn’t sell should go. Dick’s is conceding that they had too many SKUs to begin with in a category that has tremendous variety and is difficult to stock in store without holding on to too much inventory for lengthy periods of time.

wpDiscuz
Braintrust
"I think this is a very good call. I recently saw where an analyst called Dick’s stores/merchandising “undisciplined,” which I think is accurate."
"This is everything that's wrong with the brick-and-mortar retail model today. This is not SKU rationalization as much as it is vendor rationalization."
"It appears Dick’s is throwing up a white flag in the sporting goods category and conceding specialization to online retailers."

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