Sports Authority Wrestles With Bankruptcy
Sports Authority stunned the sporting goods retail industry when it filed for Chapter 11 bankruptcy on March 2.
Sports Authority stunned the sporting goods retail industry when it filed for Chapter 11 bankruptcy on March 2. At that time, the company said it “planned to slim down and continue operating after exiting Chapter 11.“
Founded by Nathan Gart in 1928, the company’s first store was named Gart Sports. Its modest location in Denver, Colorado debuted with $50 in fishing rod samples. It changed its name to Sports Authority in 1987. The company grew over the years by merging with Sportmart in 1998 and Oshman’s Sporting Goods in 2001. It is currently owned by the Los Angeles-based private equity firm Leonard Green & Partners.
The company eventually had hundreds of stores all over the country and 14,500 full- and part-time employees. With those formidable numbers, it’s tragic that the company now finds itself painted into a corner, so to speak.
At the time that Sports Authority filed for bankruptcy, Nathan Bomey of USA Today had reported that “it currently operates 463 stores in 41 states and Puerto Rico.” Bomey added that “the company’s top 10 unsecured creditors include Nike, which is owed $47.9 million, and Under Armour, which is owed $23.2 million.”
An initial report by CNNMoney’s Chris Isidore asserted that “when the company was bought by a hedge fund 10 years ago, it was the largest sporting goods retailer in the country.” The report went on to say, “But it has struggled with the debt load associated with a leveraged buyout a decade ago. It has been overtaken by Dick’s Sporting Goods, which has grown by providing a more high end shopping experience.”
A Retail Dive feature by Lara Ewen probed the cause of Sports Authority’s bankruptcy. The company’s main problem was its debt. The feature quoted Reshmi Basu — an associate editor at Debtwire, an intelligence service that researches and reports on corporate debt situations — who said, “When we picked up coverage on Sports Authority in May 2015, earnings weren’t that great. The company’s revenues were flat from 2013 to 2014, but also, they were trying to invest heavily in e-commerce and store remodels. It’s a very over-leveraged company, and it had $1 billion in debt coming due over the next two years.”
In the face of its financial obligations, Sports Authority’s seeming lack of a more proactive marketing strategy contributed to its losses.
Peterson added that “big box stores such as Wal-Mart and Target, as well as Dick’s and brands such as Nike (which has its own stores) also “pushed Sports Authority towards irrelevancy.”
Sports Authority also failed to establish an online presence. As Peterson pointed out, “From a more tactical level, Sports Authority moved too slowly to compensate for the mass consumer movement to shopping online, and Amazon in particular. [If you] still have over 450 stores in dire need of a refresh in this day and age, you’d better have a great private label brand, wonderful sales people, and a great store environment. Sports Authority has none of that.”
Sports Authority has set an asset auction on May 16. That day, it also will auction 140 store leases.
According to Canaccord Genuity analyst Camilo Lyon, Sports Authority’s loss could be Dick’s Sporting Goods’ gain. “Dick’s, the nation’s largest sporting goods retailer, is the most likely bidder for the majority of Sports Authority store leases that could go to auction next week,” reported Alicia Wallace in The Denver Post.
Wallace noted: “The base-case scenario has publicly traded Dick’s scooping up 80 Sports Authority leases. The best-case scenario? 180 stores.”
“Academy Sports is the next-biggest sports retailer after Dick’s, and may also bid on some of the Sports Authority stores,” reported Laura Northrup in the Consumerist. Academy Sports could go for the stores that are in the Midwest and the South.
In their Bloomberg article, “Sports Authority bankruptcy disrupts sporting goods industry,” Lauren Coleman-Lochner and Matthew Townsend assert that Sports Authority’s bankruptcy has broad repercussions on its suppliers, as well.
Among those suppliers is Performance Sports Group Ltd. — the maker of baseball bats and hockey gear — which “wrote down anticipated sales that it would have gotten from Sports Authority.” The company slashed its outlook, which sent its stock down 66 percent on May 10.
The closure of Sports Authority stores would also hurt the sales of its competitor, Dick’s. “In the short term, the Sports Authority closings will actually hurt nearby Dick’s stores. That’s because liquidation sales will flood the market with discounted merchandise,” explained Coleman-Lochner and Townsend.
However, Dick’s is optimistic that it would start to benefit in the second half of 2016 and well into 2017.
Then again, as Northup indicated, “It’s possible that a liquidator could win some or all of the stores, too, which would mean they would simply shut down.”
Another Bloomberg report has cited an e-mailed statement from Sports Authority, which said, “We have received expressions of interest from a number of potential buyers. We are optimistic about the results of the M&A (merger and acquisition) process, which runs through the end of May.”